Unassociated Document


    

      PURCHASE
        AND SALE AGREEMENT

      Big
        Sand Spring Valley Prospect

      November
        7, 2005

      


      


      THIS
        AGREEMENT, entered
        into this 7th day of November 2005, by and between Merganser Limited
        (“Merganser”), whose address is 55 Gower Street, 3rd
        Floor,
        London, England, WC1E 6HO, and Eternal Energy Corp. (“Eternal”), a Nevada
        corporation, whose address is 2120 West Littleton Blvd., Suite 300, Littleton,
        Colorado 80120. Merganser and Eternal may sometimes hereafter be referred
        to
        individually as the “Party” and collectively as the “Parties.”

      


      Merganser
        has entered into a Participation Agreement, dated November 1, 2005, with
        Eden
        Energy Corp. (“Eden”) for the purpose of acquiring oil and gas leases and
        drilling wells to explore for oil and natural gas reserves on the Big Sand
        Spring Valley Prospect (the “Project”) as described therein. A copy of that
        agreement (“Eden Agreement”) is attached hereto and made a part hereof as
Exhibit
        “A.”

      


      Merganser
        desires to sell and Eternal desires to purchase all of the interest owned
        by
        Merganser in the Eden Agreement.

      


      For
        and
        in consideration of the mutual obligations and undertakings set forth herein,
        and other good and valuable considerations, the receipt and sufficiency of
        which
        is hereby acknowledged by each of the undersigned, the Parties agree as
        follows:

      


      1. Purchase
        and Consideration

      Merganser
        hereby agrees to sell and assign one hundred percent (100%) of all its right,
        title and interest in the Eden Agreement to Eternal for the consideration
        as set
        forth herein below. 

      A. Annual
        Reserve Report 

      Eternal
        hereby agrees to have a qualified, independent third party engineering company
        prepare a detailed reserve report (“the Reserve Report”) each calendar year,
        beginning in 2006, for the interest it owns in the Project. This obligation
        shall continue for so long as the Eden Agreement is in full force and effect.
        All of Eternals obligations to Merganser hereunder will terminate when the
        Eden
        Agreement expires. The Reserve Report will be prepared in accordance with
        standard industry practices and in accordance with the Securities and Exchange
        Commission (“SEC”) guidelines governing these matters. The Reserve Report will
        be completed no later than March 31st
        of the
        next ensuing calendar year (i.e., by March 31, 2007 for calendar year
        2006).

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      B. Issuance
        of Common Shares

      Based
        upon the results of the annual Reserve Report, Eternal will issue shares
        of its
        common stock (or that of a successor entity subject to the reporting
        requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
        as
        amended) to Merganser using the following formula:

      


      
        	1.  	
                One
                  million (1,000,000) shares of common stock shall be issued to Merganser
                  for each Ten million (10,000,000) equivalent barrels of net proved
                  oil
                  reserves attributable to Eternal’s interest in the Project. As used
                  herein, “proved reserves” shall be defined in accordance with SEC
                  guidelines.

              


      

      


      
        	2.  	
                The
                  issuance of any common shares due Merganser will be done no later
                  than
                  June 30th
                  of
                  the next ensuing calendar year for which they were due. For example,
                  any
                  shares due Merganser for the calendar year 2006 will be issued
                  no later
                  than June 30, 2007.

              


      

      


      
        	3.  	
                Any
                  shares issued to Merganser hereunder will not be registered by
                  Eternal and
                  will be subject to any and all restrictions on re-sale, which are
                  imposed
                  by the SEC. Furthermore, Eternal makes no representations or warranties
                  as
                  to the value of the shares to issued, if any, under the terms of
                  this
                  Agreement.

              


      

      


      
        	4.  	
                In
                  the event the proved reserves attributable to Eternals net interest
                  in the
                  Project for any calendar year are less than ten million (10,000,000)
                  equivalent barrels of oil Merganser will not be entitled to any
                  common
                  stock for that calendar year. Shares will not be issued on a pro
                  rata
                  basis. 

              


      

      


      
        	5.  	
                In
                  each succeeding calendar year Merganser will be entitled to receive
                  additional shares for any new
                  reserve
                  additions to the Reserve Report done for that calendar year. For
                  purposes
                  of this calculation proved reserves will only be counted one time.
                  Additional shares will be based upon the same formula as described
                  above
                  (1,000,000 shares for each 10,000,000 equivalent barrels of proved
                  oil
                  reserves) for any new proved reserve additions attributable to
                  Eternals
                  interest in the Project. 

              


      

      


      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      
        	6.  	
                The
                  maximum number of shares available to Merganser under the terms
                  of this
                  Agreement is limited to ten million (10,000,000) shares for net
                  proved
                  reserves attributable to Eternal’s interest of one hundred million
                  (100,000,000) barrels of oil
                  equivalent.

              


      

      


      
        	7.  	
                All
                  shares issued to Merganser pursuant to this Section 1.B shall be
                  referred
                  to herein as “Common Shares.”

              


      

      


      
        	
                2.

              	
                Representations
                  and Warranties of Merganser.

              


      

      Merganser
        hereby makes the following representations and warranties to Eternal, and
        Merganser agrees to indemnify, hold harmless, and pay all causes of action,
        lawsuits, debts, controversies, damages, claims, demands and judgments
        (including litigation expenses and reasonable attorneys' fees) incurred by
        Eternal, and its past and present officers, directors, employees, agents,
        successors and assigns, whether or not under federal or state securities
        laws,
        arising out of or in connection with Merganser’s misrepresentation or breach of
        any of the representations and warranties set forth herein, including, without
        limitation, 

      


      (a) Merganser
        is the sole and true party in interest and is not purchasing the Common Shares
        for the benefit of any other person or entity and has not granted any other
        person or entity any right or option or any participation or beneficial interest
        in any of the Common Shares;

      


      (b) Merganser
        confirms receipt and careful review of all written material provided by,
        or on
        behalf of, Eternal in respect of its business and prospects, and all information
        provided by Eternal to its stockholders and Merganser in respect of its business
        and prospects, including all attachments and exhibits thereto. Merganser
        understands that all books, records, and documents of Eternal relating to
        this
        investment have been and remain available for inspection by Merganser upon
        reasonable notice. Merganser confirms that all documents requested by Merganser
        have been made available, and that Merganser has been supplied with all of
        the
        additional information concerning this investment that has been requested.
        Merganser confirms that it has obtained sufficient information, in its judgment
        or that of its independent purchaser representative, if any, to evaluate
        the
        merits and risks of this investment. Merganser confirms that it has had the
        opportunity to obtain such independent legal and tax advice and financial
        planning services as Merganser has deemed appropriate prior to making a decision
        to purchase the Common Shares;

      


      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      (c) MERGANSER
        IS AWARE THAT AN INVESTMENT IN ETERNAL IS HIGHLY SPECULATIVE AND SUBJECT
        TO
        SUBSTANTIAL RISKS. Merganser has the financial ability to bear the economic
        risks of its investment, has adequate means of providing for its current
        needs,
        and has no need for liquidity in this investment;

      


      (d) The
        offer
        to sell the Common Shares was directly communicated to Merganser by such
        a
        manner that Merganser, or its purchaser representative, if any, was able
        to ask
        questions of and receive answers from Eternal or a person acting on its behalf
        concerning the terms and conditions of this transaction. At no time, except
        in
        connection and concurrently with such communicated offer, was Merganser
        presented with or solicited by or through any leaflet, public promotional
        meeting, television advertisement, or any other form of general
        advertising;

      


      (e) The
        Common Shares are being acquired solely for Merganser’s own account, for
        investment, and are not being purchased with a view to resale, distribution,
        subdivision, or fractionalization thereof;

      


      (f) Merganser
        understands that the Common Shares have not been registered under the Common
        Shares Act of 1933, as amended (the “Common Shares Act”), or any state
        securities laws, in reliance upon exemptions from regulation for non-public
        offerings and/or Regulation S under the Securities Act. Merganser understands
        that the Common Shares or any interest therein may not be, and agrees that
        the
        Common Shares or any interest therein will not be, resold or otherwise disposed
        of by Merganser unless the Common Shares are subsequently registered under
        the
        Common Shares Act and under appropriate state securities laws or unless Eternal
        receives an opinion of counsel satisfactory to it that an exemption from
        registration is available;

      


      (g) Merganser
        has been informed of and understands the following:

      


      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      (1) There
        are
        substantial restrictions on the transferability of the Common
        Shares;

      


      (2) No
        federal or state agency has made any finding or determination as to the fairness
        for public investment, nor any recommendation nor endorsement, of the Common
        Shares;

      


      (h) None
        of
        the following information has ever been represented, guaranteed, or warranted
        to
        Merganser, expressly or by implication by any broker, Eternal, or agent or
        employee of the foregoing, or by any other person:

      


      (1) The
        approximate or exact length of time that Merganser will be required to remain
        a
        holder of the Common Shares;

      


      (2) The
        amount of consideration, profit, or loss to be realized, if any, as a result
        of
        an investment in Eternal;

      


      (3) That
        the
        past performance or experience of Eternal, its officers, directors, associates,
        agents, affiliates, or employees or any other person will in any way indicate
        or
        predict economic results in connection with the plan of operations of Eternal
        or
        the return on the investment;

      


      (i) Merganser
        hereby agrees to indemnify Eternal and to hold it harmless from and against
        any
        and all liability, damage, cost, or expense, including its attorneys’ fees and
        costs, incurred on account of or arising out of:

      


      (1) Any
        material inaccuracy in the declarations, representations, and warranties
        hereinabove set forth;

      


      (2) The
        disposition of the Common Shares or any part thereof by Merganser, contrary
        to
        the foregoing declarations, representations, and warranties;

      


      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      (3) Any
        action, suit, or proceeding based upon:

      


      (i) the
        claim
        that said declarations, representations, or warranties were inaccurate or
        misleading or otherwise cause for obtaining damages or redress from Eternal;
        or

      


      (ii) the
        disposition of the Common Shares or any part thereof.

      


      The
        foregoing representations, warranties, agreements, undertakings and
        acknowledgements are made by Merganser with the intent that they be relied
        upon
        in determining Merganser’s suitability as a purchaser of the Common Shares. In
        addition, Merganser agrees to notify Eternal immediately of any change in
        any
        representation, warranty or other information.

      


      
        	
                3.

              	
                Term
                  of the Agreement.

              


      

      The
        term
        of this Agreement shall be for so long as the Eden Agreement is in full force
        and effect. This Agreement will terminate immediately upon the expiration
        of the
        Eden Agreement. Eternal will have no obligations or liability to Merganser
        once
        this Agreement terminates.

      


      
        	
                4.

              	
                Disputes
                  and Governing Law.

              


      

      This
        Agreement shall be interpreted and enforced in accordance with the laws of
        the
        state of Nevada. If any Party shall institute proceedings to enforce its
        rights
        under this Agreement, the prevailing Party in such proceedings (as determined
        by
        the tribunal) shall be entitled to recover its costs and expenses (including
        attorneys’ fees and costs) incurred by it in addition to any other award or
        relief to which such Party may be determined to be entitled.

      


      
        	
                5.

              	
                Force
                  Majeure.

              


      

      If
        any
        Party is rendered unable, wholly or in part, by reason of the occurrence
        and
        continuance of an event of force majeure, to carry out its obligations under
        this Agreement, other than any obligation to make any payments, such Party
        shall
        give to the other Party prompt written notice of the force majeure event,
        with
        reasonably full particulars, and thereupon the obligations of the Party giving
        the notice, so far as they are affected by the event of force majeure, shall
        be
        suspended during, but not longer than the continuance of the force majeure
        event, plus such reasonable further period of time, if any, required to resume
        the suspended operation. The affected Party shall use all reasonable diligence
        to remove the force majeure situation as quickly as practical; provided that,
        it
        shall not be required to settle strikes, lockouts or other labor difficulty
        contrary to its wishes. “Force majeure” means an act of God, strike, lock-out or
        other industrial disturbance, act of the public enemy, war, blockade, public
        riot, lightning, fire, storm, flood or other adverse weather condition,
        explosion, governmental action, governmental inaction, restraint or delay,
        unavailability of equipment or any other cause which is not reasonably within
        the control of the Party claiming the occurrence of an event of force
        majeure.

      


      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      
        	
                6.

              	
                Severability.

              


      

      In
        the
        event any portion of this Agreement is declared by a court of competent
        jurisdiction to be invalid, illegal or unenforceable in a non-appealable
        order,
        such portion shall be deemed severed from this Agreement and the remaining
        parts
        hereof shall remain in full force and effect, as fully as though such portion
        had never been a part of this Agreement.

      


      
        	
                7.

              	
                Relationships
                  and Liability of the Parties.

              


      

      The
        liability of the Parties shall be several, and not joint or collective. Each
        Party shall be responsible only for its obligations. It is not the intent
        of the
        Parties to create, nor shall this Agreement be construed as creating a
        partnership or joint association for profit or otherwise render the Parties
        liable as partners.

      


      
        	
                8.

              	
                Successors
                  and Assigns.

              


      

      All
        assignments shall be made expressly subject to the terms and provisions of
        this
        Agreement. Subject to the foregoing, this Agreement shall be binding upon,
        enforceable by and shall inure to the benefit of the successors and assigns
        of
        the Parties.

      


      
        	
                9.

              	
                Headings.

              


      

      The
        headings contained in this Agreement are for the purpose of reference and
        convenience only and shall not limit or otherwise affect the meaning of any
        provision of this Agreement.

      


      
        	
                10.

              	
                Entire
                  Agreement.

              


      

      This
        Agreement contains the entirety of the agreement between the Parties, and
        any
        prior agreements, discussions or understandings, whether written or oral,
        are
        superseded in their entirety by this Agreement and shall be of no force or
        effect. No amendment or modification of any term or provision of this Agreement
        shall be effective unless set forth in writing and signed by the Parties.
        In the
        event of any conflict between the provisions of this Agreement and any
        attachment or Exhibit hereto, the terms set forth in the body (in contrast
        to
        any Exhibit, schedule or attachment) of this Agreement shall
        control.

      


      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      
        	
                11.

              	
                Effective
                  Date.

              


      

      Notwithstanding
        the actual date of execution, this Agreement shall be effective for all purposes
        as of November 7, 2005 (“Effective Date”).

      


      This
        Agreement
        may be
        executed in counterpart with the same effect as if all the Parties had executed
        the original copy hereof and it shall be binding upon any Party signatory
        hereto
        and also binding upon that signatory Party’s successors and
        assigns.

      


      IN
        WITNESS WHEREOF,
        the
        Parties have executed and delivered this Agreement as of the Effective date,
        duly authorized.

       

      
        
          	 MERGANSER
                  LIMITED	 	 	 ETERNAL
                  ENERGY CORP.
	 	 	 	 
	/s/ Marcel
                  Ulrich	 	 	/s/ Brad
                  Colby
	
                  

                	 	 	
                  

                
	Marcel
                  Ulrich
Title: 	 	 	Brad
                  Colby
Title: President


        

  

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      


        Exhibit
          “A” attached to and made a part of that certain Purchase Agreement dated
          November 7, 2005 by and between Merganser Limited and Eternal Energy
          Corp.

        


        PARTICIPATION
          AGREEMENT

        Big
          Sand Spring Valley Prospect

        November
          1, 2005

        


        


        THIS
          AGREEMENT, entered
          into this 1st day of November, 2005, by and among Eden Energy Corp. (“Eden”), a
          Nevada corporation, whose address is 200 Burrard Street, Suite 1925, Vancouver,
          B.C. Canada V6C 3L6 and Merganser Limited (“Merganser”), whose address is 55
          Gower Street, 3rd
          Floor,
          London, England, WC1E 6HO. Eden and Merganser may sometimes hereafter be
          referred to individually as the “Party” and collectively as the
“Parties.”

        


        Eden
          has
          entered into a Participation Agreement, dated effective June 14, 2005,
          with
          Chamberlain Exploration Development and Research Stratigraphic Corporation
          dba
          Cedar Strat Corporation (“Cedarstrat”), whose address is 948 Temple View Drive,
          Las Vegas, Nevada 89110 for the purpose of acquiring oil and gas leases
          and
          drilling wells to explore for oil and natural gas reserves on the Big Sand
          Spring Valley Prospect (the “Project”) as described therein. A copy of that
          agreement (“Cedarstrat Agreement”) is attached hereto and made a part hereof as
Exhibit
          “A.”
          The
          geographic area covered by Cedarstrat Agreement is outlined on the map
          attached
          hereto and made a part hereof as Exhibit
          “B.” 

        


        The
          Parties recognize that Eden has spent considerable money (approximately
          $1,000,000 US) and time in development of the Project and the acquisition
          of oil
          and gas leases covering approximately 82,184 gross and net federal acres
          in the
          Project. Eden hereby represents to Merganser that it has made all the payments
          that are due and payable as required under the Cedarstrat Agreement and
          that it
          has paid for and has good and merchantable title to the federal oil and
          gas
          leases (hereinafter the “Leases”) described on Exhibit
          “C”
          attached
          hereto and made a part hereof. Eden also hereby acknowledges receipt of
          a
          non-refundable deposit, in the amount of $100,000 US, that has been paid
          on
          behalf of Merganser as earnest money for the option to enter into the joint
          venture contemplated hereby.

        


        Merganser
          desires to establish a joint venture with Eden to acquire a fifty percent
          (50%)
          interest from Eden in all the Leases and contract rights it has under the
          Cedarstrat Agreement and any future interests it may acquire thereunder.
          

        


        For
          and
          in consideration of the mutual obligations and undertakings set forth herein,
          and other good and valuable considerations, the receipt and sufficiency
          of which
          is hereby acknowledged by each of the undersigned, the Parties agree as
          follows:

        


        1. Purchase
          and Consideration

        Eden
          hereby agrees to sell and assign an undivided fifty percent (50%) interest
          to
          Merganser in the Leases and Cedarstrat Agreement for the sum of $2,667,000
          US
          (the “Consideration”). The Consideration shall be paid to Eden as set forth
          below in Articles A. - D. When the sum of all the payments made by Merganser,
          as
          set forth in Articles A. - D, equals $2,667,000 US Eden hereby agrees to
          immediately assign an undivided fifty percent (50%) interest of all right,
          title, and interest in and to the Cedarstrat Agreement, the Leases and
          any other
          interests acquired thereunder. The assignments shall be specifically subject
          to
          the terms of the Cedarstrat Agreement. It is hereby agreed and understood
          that
          immediately following full payment of the Consideration, subject to the
          other
          terms and conditions set forth herein, all subsequent costs will be borne
          fifty
          percent (50%) by Eden and fifty percent (50%) by Merganser and ownership
          of the
          Leases and Additional Acreage will be owned fifty percent (50%) by Eden
          and
          fifty percent (50%) by Merganser.

        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        A. Initial
          Project Acquisition Cost

        It
          is
          hereby agreed and understood that the initial project acquisition cost
          (“Initial
          Project Acquisition Cost”) shall be defined, for purposes herein, as $667,000
          US. Within five (5) business days of the execution of this Agreement, but
          in no
          event later than November 7, 2005, Merganser will pay, by certified funds,
          $567,000 US to Eden. Such payment taken with the previously deposited $100,000
          US will equal the full amount due to Eden for the Initial Project Acquisition
          Cost. The Parties hereby agree to execute this Agreement no later than
          November
          7, 2005. 

        


        B. Additional
          Acreage Acquisition Costs

        Eden
          has
          identified additional acreage (the “Additional Acreage”) within the Project that
          has been nominated for the December 2005 Nevada Federal Oil and Gas Lease
          sale.
          The nominated acreage comprises approximately 24,000 gross and net acres.
          Eden
          will attempt to purchase the Additional Acreage at the December 2005 sale.
          Merganser hereby agrees to pay 66.67% of all the costs necessary to acquire
          the
          Additional Acreage including, but not limited to, lease bonus, first year
          lease
          rentals and any brokerage costs paid in conjunction with said lease sale.
          Upon
          full payment of the Consideration Merganser will be entitled to an assignment
          of
          fifty percent (50%) of the Additional Acreage.

        


        Any
          and
          all subsequent leasehold or acreage acquisitions in the Project will be
          done in
          accordance with and subject to the area of mutual interest (“Area of Mutual
          Interest”) as created and set forth in Article 7 of this Agreement.

        


        C. Prospect
          Development Costs

        Prospect
          development costs (“Prospect Development Costs”) shall be defined as the costs
          of acquisition and evaluation of geological, geophysical, engineering,
          and land
          data necessary to reasonably pick the drilling locations for the Commitment
          Wells, defined below. These costs shall include the costs of shooting and/or
          reprocessing 2-D and 3-D seismic data, acquisition of geological and engineering
          data, title work, legal expenses, brokerage expenses, engineering related
          costs,
          delay rentals and other reasonable and customary expenses associated with
          the
          development and maturing of prospects to the point they are ready to drill.
          Prospect Development Costs shall not include administrative overhead, salaries
          and benefits paid to officers, directors or employees of the Parties, or
          interest on any outstanding balance due any of the Parties. Prior to drilling
          the Commitment Wells, as defined below, the Prospect Development Costs
          shall be
          borne proportionately as follows:

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          
            	 Eden 	 33.33%
	 Merganser	 66.67%


          

        

         

         

        From
          and
          after the full payment by Merganser of the Consideration all Prospect
          Development Costs shall be borne proportionately as follows:

         

        
          
            	 Eden 	 50.00%
	 Merganser	 50.00%


          

        

         

        The
          Parties hereby agree that the Prospect Development Costs will not exceed
          $500,000 unless mutually agreed to by the Parties. 

        


        D. Drilling
          the Commitment Wells

        The
          Parties hereby commit to participate in the drilling of at least two (2)
          wells
          (“Commitment Wells”) in the Project. The Commitment Wells shall be drilled to a
          depth of at least 10,000 feet, or drilled to a depth sufficient to penetrate
          at
          least 1,000 feet into the Mississippian shale, whichever is shallower and
          they
          shall be drilled at locations that are mutually agreed to by the Parties.
          The
          Commitment Wells must be drilled within the time frame as set forth in
          the
          Cedarstrat Agreement. Merganser hereby agrees to pay 66.67% of all the
          costs to
          drill and complete the Commitment Wells until the point in time that the
          Consideration is fully paid. Immediately thereafter Merganser shall only
          be
          obligated to pay fifty percent (50%) of the costs to drill and complete
          the
          Commitment Wells. Failure of either Party to participate in the drilling
          of the
          Commitment Wells shall result in the forfeiture of all rights under this
          Agreement and under the Cedarstrat Agreement. Such Party shall be required
          to
          immediately re-assign all right, title, and interest in any leases or acreage
          owned hereunder, without consideration, to the other Party. Notwithstanding
          anything to the contrary herein, all revenues and production from the Commitment
          Wells shall be owned fifty percent (50%) by Eden and fifty percent (50%)
          by
          Merganser.

        


        2. Operations
          and the Operating Agreement.

        The
          Project will be governed by and subject to subject to the AAPL Form 610-1989
          Model Form Operating Agreement (the “Operating Agreement”) substantially in the
          same form attached hereto as Exhibit
          “D,”
          including the additions and modifications set forth in Article XVI. “Other
          Provisions.” The Operating Agreement will be binding upon the Parties whether or
          not executed. Eden shall be named the Operator under the terms of the Operating
          Agreement. 

        


        3. Drilling
          subsequent to the Commitment Wells

        After
          the
          Commitment Wells have been drilled any Party may propose the drilling of
          a well
          on a prospect. For purposes of this Agreement, a prospect (“Prospect”) shall be
          defined as subsurface geological feature, or outline, which appears from
          review
          of the available geological, geophysical and engineering data to have a
          likely
          probability of encountering the accumulation of commercial hydrocarbons.
          A
          Prospect shall consist of nine (9) governmental sections configured in
          a square.
          The initial exploratory test well (“Initial Exploratory Test Well”) for any
          Prospect may be a new well bore, a re-completion, re-work, or a re-entry
          of an
          existing well (but not producing well-bore) that has been acquired by the
          Parties hereunder. The Parties receiving notice of the Initial Exploratory
          Test
          Well proposal on a Prospect shall have sixty (60) days after receiving
          all the
          Prospect Information (as defined in Article 6) for such Prospect to
          either:

        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        A. Elect
          in
          writing to participate for its proportionate share of the cost of drilling
          the
          Initial Exploratory Test Well by signing and returning one copy of the
          Authorization for Expenditure (“AFE”) and prepaying the dry hole costs to the
          operator of the well five (5) days prior to the actual spudding of the
          Initial
          Test Well. Despite anything to the contrary, failure to pay the dry hole
          cost
          five (5) days prior to spudding will be deemed an election not to participate
          and go non-consent, or

        


        B. Elect
          in
          writing to non-consent the Initial Exploratory Test well in which case
          the
          non-consenting Party will be required to assign, for no consideration,
          to the
          participating Party all of its right, title and interest in the entire
          Prospect.
          Such assignment shall be made without warranty of title, except by, through
          and
          under the assignor, and the assignment shall cover all the right, title
          and
          interest of the non-participating Party within the Prospect. Said leases
          shall
          be assigned free and clear of all burdens other than 

        


        (i) lessor’s
          royalty or other burdens which were burdening the lease(s) at the time
          of
          acquisition.

        


        Notwithstanding
          anything to the contrary contained herein, the sixty (60) day period may
          be
          reduced due to applicable contractual obligations or limitations (e.g.,
          farmout,
          farmout option terms or lease expiration dates), in which case the Parties
          may
          be required to respond in a shorter time period as may be reasonably appropriate
          under the circumstances. But in no event will the time be reduced, unless
          agreed
          to by all the Parties, if the Prospect Information has not been furnished
          to all
          the Parties.

        


        Within
          sixty (60) days of receipt of the non-proposing Party’s election to participate,
          Operator (unless the Operator is a non-participating Party) shall commence
          or
          cause to be commenced operations for the drilling of the Initial Exploratory
          Test Well on a Prospect in search of oil and/or gas pursuant to the Operating
          Agreement and AFE and such drilling shall be conducted with reasonable
          diligence
          and in a good and workmanlike manner in order to test and evaluate the
          objective
          formation in accordance with the AFE. After drilling and evaluating the
          well,
          the Operator shall either complete said well as a producer or shall plug
          and
          abandon it, if the well is a dry hole, in accordance with the provisions
          of the
          Operating Agreement.

        


        If
          the
          Initial Exploratory Test Well is not commenced within sixty (60) days of
          receipt
          of the non-proposing Party’s election to participate or not to participate as
          the case may be, the proposing Party must re-propose the well under the
          above
          provisions. In the event the non-proposing Party elects to participate
          in the
          re-proposed well and had previously elected not to participate in the well,
          then
          the participating Party shall reassign any and all acreage or interests
          of any
          kind previously assigned to the participating Party by the non-participating
          Party in connection with the original election.

        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        


        
          	
                  4.

                	
                  Multiple
                    Operations Within Each Prospect and withn the
                    Project.

                


        

        No
          Party
          to this Agreement shall propose the drilling of more than one (1) well
          at a time
          within a Prospect nor shall any Party to this Agreement propose the drilling
          of
          a well within a Prospect during the time that another well is being drilled
          within the same Prospect except:

        (i)  by
          the
          mutual consent of the Parties hereto.

        


        Unless
          mutually agreed to by the Parties, no more than five (5) Initial Exploratory
          Test Wells per year may be drilled on Prospects within the first four (4)
          years
          of this Agreement. Furthermore it is agreed that at no time during the
          term of
          this Agreement that no more than two (2) Initial Exploratory Test Wells
          may be
          proposed at one time or within any thirty (30) day period.

        


        5. Subsequent
          Wells in a Prospect.

        Provided
          the Initial Exploratory Test Well on a Prospect results in a well capable
          of
          producing commercial quantities of oil and/or gas all subsequent wells
          drilled
          within that Prospect, after the Initial Exploratory Test Well, will be
          drilled
          and operated in accordance with the terms and conditions of the Operating
          Agreement. If the Initial Exploratory Test Well on a Prospect results in
          a
          non-commercial well or a dry hole then the next well proposed on that Prospect
          will be deemed the Initial Exploratory Test Well for such Prospect.

        


        6. Information
          and Data (“Prospect Information”).

        A. Prospect
          Information.
          For the
          drilling of the Initial Exploratory Test Well on a Prospect, the proposing
          Party
          will furnish, without cost to the non-proposing Parties, copies of all
          drilling
          reports, logs, drillstem test data and interpreted geological and geophysical
          maps relevant to the proposal. In addition, the proposing Party must furnish
          the
          following:

        


         

        
          	·  	
                  Authorization
                    of Expenditure (“AFE”), as prepared by competent engineers with experience
                    drilling wells to the depths contemplated
                    herein

                


        

         

        
          	
                	·	
                  Drilling
                    and geological prognosis for the proposed
                    well,

                


        

         

        
          	
                	·	
                  Title
                    Opinion for the drillsite, or like title information,
                    and

                


        

         

        
          	
                	·	
                  All
                    farmouts, farmins and other contracts taken in support of the
                    Initial Test
                    Well.

                


        

         

        The
          above
          information is referred to as the “Prospect Information.” If the non-proposing
          Party has not received all of the Prospect Information, the sixty (60)
          day time
          period for electing to participate in the proposed well will not start
          to run
          until all the Prospect Information is received by the non-Proposing
          Party.

        


        
          	
                  7.

                	
                  Area
                    of Mutual Interest (“AMI”).

                


        

        The
          Parties hereto create among themselves an Area of Mutual Interest ("AMI")
          covering the Big Sand Spring Valley Prospect as described (or outlined)
          on
Exhibit
          A of
          the
          Operating Agreement which
          is
          attached hereto as Exhibit
          D.
          The AMI
          shall be in effect for a period of ten (10) years from the Effective Date
          of
          this Agreement. The proportionate shares and percentage of interests, which
          the
          Parties are entitled to purchase and acquire within the AMI, are as follows:
          

         

        
          
            	 Eden 	 50.00%
	 Merganser	 50.00%


          

        

         

        If,
          during the duration of such AMI, any Party should acquire ("Acquiring Party")
          any oil and gas lease, leasehold interest or mineral interest by any means
          including, but not limited to, purchase, top lease, farmins, farmouts,
          farmout
          options, or acreage contributions, then the Acquiring Party shall immediately
          notify the Non-Acquiring Party, in writing, of such acquisition setting
          forth
          the nature of the interest acquired, all terms, provisions and contracts
          related
          to the acquisition (along with copies of all documents relating to the
          acquisition or rights to earn a leasehold or mineral interest) and the
          price
          paid therefor. The Non-Acquiring Party shall have a period of thirty (30)
          days
          following the receipt of notice to elect in writing to purchase at the
          Acquiring
          Party's cost its proportionate share of such acquisition by remitting the
          required payment to the Acquiring Party during such thirty (30) day period.
          The
          Acquiring Party shall assign to the Party electing to participate in the
          acquisition its proportionate share of such acquired interest, subject
          to a like
          proportionate share of the costs and obligations relating thereto. If the
          interest is to be earned by drilling and/or shooting seismic, the Non-Acquiring
          Party must ratify all appropriate agreements within the thirty (30) day
          period.
          Notwithstanding the preceding sentence, such thirty (30) day notice period
          may
          be reduced due to applicable contractual obligations or limitations (e.g.,
          farmout terms or lease expiration dates), in which case the Non-Acquiring
          Party
          may be required to respond in a shorter time period as may be reasonably
          appropriate under the circumstances. If the Non-Acquiring Party turns down
          any
          interest, the Acquiring Party shall hold such interest free and clear of
          any
          further AMI obligations of this Agreement.

        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        The
          Parties specifically agree that if a lease or interest covers land both
          inside
          and outside the AMI, the Acquiring Party must offer the entire lease or
          interest
          to the other Parties and if the Party elects to acquire an interest in
          the lease
          or interest, it must agree to proportionately acquire an interest in the
          entire
          lease or interest notwithstanding the fact that a portion of the lease
          or
          interest lies outside the AMI.

        


        
          	
                  8.

                	
                  Term
                    of the Agreement.

                


        

        The
          term
          of this Agreement is ten (10) years from the Effective Day (November 1,
          2005).
          After October 31, 2014 this Agreement will terminate and each Prospect
          will be
          operated in accordance with and subject to the terms and conditions of
          the
          Operating Agreement covering any oil and gas leases acquired hereunder,
          and the
          terms of Articles
          2, 3, 4, 5, and 6,
          herein
          will extend for the life of the Operating Agreement as to lands then subject
          to
          the Operating Agreement.

        


        
          	
                  9.

                	
                  Disputes
                    and Governing Law.

                


        

        This
          Agreement shall be interpreted and enforced in accordance with the laws
          of the
          state of Nevada. If any Party shall institute proceedings to enforce its
          rights
          under this Agreement, the prevailing Party in such proceedings (as determined
          by
          the tribunal) shall be entitled to recover its costs and expenses (including
          attorneys’ fees and costs) incurred by it in addition to any other award or
          relief to which such Party may be determined to be entitled.

        


        
          	
                  10.

                	
                  Force
                    Majeure.

                


        

        If
          any
          Party is rendered unable, wholly or in part, by reason of the occurrence
          and
          continuance of an event of force majeure, to carry out its obligations
          under
          this Agreement, other than any obligation to make any payments, such Party
          shall
          give to the other Party prompt written notice of the force majeure event,
          with
          reasonably full particulars, and thereupon the obligations of the Party
          giving
          the notice, so far as they are affected by the event of force majeure,
          shall be
          suspended during, but not longer than the continuance of the force majeure
          event, plus such reasonable further period of time, if any, required to
          resume
          the suspended operation. The affected Party shall use all reasonable diligence
          to remove the force majeure situation as quickly as practical; provided
          that, it
          shall not be required to settle strikes, lockouts or other labor difficulty
          contrary to its wishes. “Force majeure” means an act of God, strike, lock-out or
          other industrial disturbance, act of the public enemy, war, blockade, public
          riot, lightning, fire, storm, flood or other adverse weather condition,
          explosion, governmental action, governmental inaction, restraint or delay,
          unavailability of equipment or any other cause which is not reasonably
          within
          the control of the Party claiming the occurrence of an event of force
          majeure.

        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        
          	
                  11.

                	
                  Conflicts.

                


        

        In
          the
          event of any conflict between the terms of this Agreement and those of
          the
          Operating Agreement attached as Exhibit
          D,
          or any
          other Exhibits attached hereto, the terms of this Agreement shall prevail
          and
          control. If there is any conflict between the terms of this Agreement and
          the
          Operating Agreement attached as Exhibit
          D
          and any
          third party Operating Agreement, then the Operating Agreement attached,
          as
Exhibit
          D
          and this
          Agreement will prevail among the Parties hereto.

        


        
          	
                  12.

                	
                  Severability.

                


        

        In
          the
          event any portion of this Agreement is declared by a court of competent
          jurisdiction to be invalid, illegal or unenforceable in a non-appealable
          order,
          such portion shall be deemed severed from this Agreement and the remaining
          parts
          hereof shall remain in full force and effect, as fully as though such portion
          had never been a part of this Agreement.

        


        
          	
                  13.

                	
                  Notices.

                


        

        The
          notices provisions of the Operating Agreement will apply with respect to
          all
          notices. However, any telecopier or telex must be followed by delivery
          of a hard
          copy, either through an overnight service or mail, receipt
          requested.

         

        
          
            	 To Eden 	 To
                    Merganser
	 	 
	
                     Eden
                      Energy Corp.

                  	
                     Merganser
                      Limited

                  
	
                     200
                      Burrard Street 

                  	
                     55
                      Gower Street

                  
	
                     Suite
                      1925 

                  	
                     3rd
                      Floor

                  
	
                     Vancouver,
                      B.C. V6C 3L6 

                  	
                     London,
                      England WC1E 6HO

                  
	
                     Attention:
                      Don Sharpe 

                  	
                     Attention:
                      Marcel Ulrich

                  
	
                     Phone
                      604-693-0179 

                  	
                     Phone
                      0207 323 6807

                  
	
                     FAX
                      604-357-1062 

                  	
                     email
                      marcel@goweraccountancy.co.uk

                  
	 	 


          

        

         

        


        
          	
                  14.

                	
                  Preferential
                    Right to Purchase Leasehold Interests.

                


        

        For
          a
          period of two (2) years from the date hereof, all non-producing oil and
          gas
          leases, on a Prospect-by-Prospect basis (regardless of how the non-producing
          oil
          and gas leases are sold) will be subject to a Preferential Right of Purchase
          as
          outlined in Article VIII.F., of the Operating Agreement. Notwithstanding
          anything herein to the contrary, however, this provision shall not apply
          to such
          a sale if it is part of the sale of the stock of or substantially all of
          the
          assets of a Party, if a Party merges with another entity or if the sale
          is part
          of a transaction in which such interests are not of material value in relation
          to the entire such transaction. There shall be no preferential right to
          purchase
          any interests hereunder from and after two (2) years from the effective
          date of
          this Agreement.

        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        
          	
                  15.

                	
                  Relationships
                    and Liability of the Parties.

                


        

        The
          liability of the Parties shall be several, and not joint or collective.
          Each
          Party shall be responsible only for its obligations. It is not the intent
          of the
          Parties to create, nor shall this Agreement be construed as creating a
          partnership or joint association for profit or otherwise render the Parties
          liable as partners.

        


        
          	
                  16.

                	
                  Successors
                    and Assigns.

                


        

        All
          assignments shall be made expressly subject to the terms and provisions
          of the
          Cedarsrtat Agreement and this Agreement. Subject to the foregoing, this
          Agreement shall be binding upon, enforceable by and shall inure to the
          benefit
          of the successors and assigns of the Parties.

        


        
          	
                  17.

                	
                  Headings.

                


        

        The
          headings contained in this Agreement are for the purpose of reference and
          convenience only and shall not limit or otherwise affect the meaning of
          any
          provision of this Agreement.

        


        
          	
                  18.

                	
                  Entire
                    Agreement.

                


        

        This
          Agreement contains the entirety of the agreement between the Parties, and
          any
          prior agreements, discussions or understandings, whether written or oral,
          are
          superseded in their entirety by this Agreement and shall be of no force
          or
          effect. No amendment or modification of any term or provision of this Agreement
          shall be effective unless set forth in writing and signed by the Parties.
          In the
          event of any conflict between the provisions of this Agreement and any
          attachment or Exhibit hereto, the terms set forth in the body (in contrast
          to
          any Exhibit, schedule or attachment) of this Agreement shall
          control.

        


        
          	
                  19.

                	
                  Effective
                    Date.

                


        

        Notwithstanding
          the actual date of execution, this Agreement shall be effective for all
          purposes
          as of November 1, 2005 (“Effective Date”).

        


        This
          Agreement
          may be
          executed in counterpart with the same effect as if all the Parties had
          executed
          the original copy hereof and it shall be binding upon any Party signatory
          hereto
          and also binding upon that signatory Party’s successors and
          assigns.

        


        IN
          WITNESS WHEREOF,
          the
          Parties have executed and delivered this Agreement as of the Effective
          date,
          duly authorized.

         

        
           

          
            
              	EDEN
                      ENERGY CORP	 	 	MERGANSER
                      LIMITED
	 	 	 	 
	 	 	 	 
	
                      
Big
                      Sand Spring Valley Project 	 	 	
                      

                    
	
                      Donald
                        Sharpe

                      Title:
                        President 

                    	 	 	Marcel
                      Ulrich
Title:


            




        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        


         

        


      

    

    

    

    

    

    

    

    

    

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      


      EXHIBIT
        “B”

      


      Attached
        to and made a part of that certain Participation Agreement, dated November
        1,
        2005, by and between Eden Energy Corp. and Merganser Limited

       

      
         

         

        
 

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

      

        
          	
                  EXHIBIT
                    "C"

                
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	
                  To
                    that
                    certain Participation Agreement dated effective November 1, 2005
                    

                
	
                  by
                    and
                    between Eden Energy Corp. and Merganser Limited

                
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	
                  Lease
Number

                	
                  Bonus
Paid

                	
                  Bonus
                    Per
Acre Cost

                	
                  Number
                    of Acres

                	
                  Rental
Amount

                	
                  Filing
Fees
                    

                	
                  Effective
Date

                	
                  Total
Cost

                
	 	 	 	 	 	 	 	 
	
                  NVN080228

                	
                  $4,160.00

                	
                  $2.00

                	
                  2,080

                	
                  $3,120.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $7,355.00

                
	
                  NVN080229

                	
                  $3,834.00

                	
                  $2.00

                	
                  1,917

                	
                  $2,875.50

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $6,784.50

                
	
                  NVN080230

                	
                  $2,560.00

                	
                  $2.00

                	
                  1,280

                	
                  $1,920.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $4,555.00

                
	
                  NVN080231

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080232

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080233

                	
                  $3,216.00

                	
                  $2.00

                	
                  1,608

                	
                  $2,412.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $5,703.00

                
	
                  NVN080234

                	
                  $3,840.00

                	
                  $2.00

                	
                  1,920

                	
                  $2,880.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $6,795.00

                
	
                  NVN080235

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080237

                	
                  $1,442.00

                	
                  $2.00

                	
                  721

                	
                  $1,081.50

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $2,598.50

                
	
                  NVN080238

                	
                  $2,884.00

                	
                  $2.00

                	
                  1,442

                	
                  $2,163.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $5,122.00

                
	
                  NVN080239

                	
                  $3,240.00

                	
                  $2.00

                	
                  1,620

                	
                  $2,430.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $5,745.00

                
	
                  NVN080240

                	
                  $3,840.00

                	
                  $2.00

                	
                  1,920

                	
                  $2,880.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $6,795.00

                
	
                  NVN080241

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080242

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080243

                	
                  $4,804.00

                	
                  $2.00

                	
                  2,402

                	
                  $3,603.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $8,482.00

                
	
                  NVN080244

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080245

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080246

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080247

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080248

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080278

                	
                  $17,759.00

                	
                  $7.00

                	
                  2,537

                	
                  $3,805.50

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $21,639.50

                
	
                  NVN080280

                	
                  $5,120.00

                	
                  $2.00

                	
                  2,560

                	
                  $3,840.00

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $9,035.00

                
	
                  NVN080281

                	
                  $5,078.00

                	
                  $2.00

                	
                  2,539

                	
                  $3,808.50

                	
                  $75.00

                	
                  1-Jul-05

                	
                  $8,961.50

                
	
                  NVN080408

                	
                  $6,586.00

                	
                  $2.00

                	
                  3,293

                	
                  $4,939.50

                	
                  $75.00

                	
                  1-Aug-05

                	
                  $11,600.50

                
	
                  NVN080409

                	
                  $16,592.00

                	
                  $2.00

                	
                  8,296

                	
                  $12,444.00

                	
                  $75.00

                	
                  1-Aug-05

                	
                  $29,111.00

                
	
                  NVN080410

                	
                  $20,452.00

                	
                  $2.00

                	
                  10,226

                	
                  $15,339.00

                	
                  $75.00

                	
                  1-Aug-05

                	
                  $35,866.00

                
	
                  NVN080411

                	
                  $20,446.00

                	
                  $2.00

                	
                  10,223

                	
                  $15,334.50

                	
                  $75.00

                	
                  1-Aug-05

                	
                  $35,855.50

                
	 	 	 	 	 	 	 	 
	
                  Total:

                	
                  $177,053.00

                	 	
                  82,184

                	
                  $123,276.00

                	
                  $2,025.00

                	 	
                  $302,354.00

                


        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

        EXHIBIT
          “ C “

        


        Attached
          to and made a part of that certain Operating Agreement, dated November
          1, 2005
          by and between Eden Energy Corp. as Operator, and Merganser Limited, as
          Non-Operator,

        


        


        


        


        


        ACCOUNTING
          PROCEDURE

        JOINT
          OPERATIONS

        


        I.
          GENERAL PROVISIONS

        


        


        
          	
                  1.

                	
                  Definitions

                


        

        


        “Joint
          Property” shall mean the real and personal property subject to the agreement to
          which this Accounting Procedure is attached.

        “Joint
          Operations” shall mean all operations necessary or proper for the development,
          operation, protection and maintenance of the Joint Property.

        “Joint
          Account” shall mean the account showing the charges paid and credits received in
          the conduct of the Joint Operations and which are to be shared by the
          Parties.

        “Operator”
          shall mean the party designated to conduct the Joint Operations.

        “Non-Operators”
          shall mean the Parties to this agreement other than the Operator.

        “Parties”
          shall mean Operator and Non-Operators.

        “First
          Level Supervisors” shall mean those employees whose primary function in Joint
          Operations is the direct supervision of other employees and/or contract
          labor
          directly employed on the Joint Property in a field operating
          capacity.

        “Technical
          Employees” shall mean those employees having special and specific engineering,
          geological or other professional skills, and whose primary function in
          Joint
          Operations is the handling of specific operating conditions and problems
          for the
          benefit of the Joint Property.

        “Personal
          Expenses” shall mean travel and other reasonable reimbursable expenses of
          Operator’s employees.

        “Material”
          shall mean personal property, equipment or supplies acquired or held for
          use on
          the Joint Property.

        “Controllable
          Material” shall mean Material which at the time is so classified in the Material
          Classification Manual as most recently recommended by the Council of Petroleum
          Accountants Societies.

        


        


        


        
          	
                  2.

                	
                  Statement
                    and Billings

                


        

        


        Operator
          shall bill Non-Operators on or before the last day of each month for their
          proportionate share of the Joint Account for the preceding month. Such
          bills
          will be accompanied by statements which identify the authority for expenditure,
          lease or facility, and all charges and credits summarized by appropriate
          classifications of investment and expense except that items of Controllable
          Material and unusual charges and credits shall be separately identified
          and
          fully described in detail.

        


        


        


        
          	
                  3.

                	
                  Advances
                    and Payments by
                    Non-Operators

                


        

        


        
          	 	
                  A.

                	
                  Unless
                    otherwise provided for in the agreement, the Operator may require
                    the
                    Non-Operators to advance their share of estimated cash outlay
                    for the
                    succeeding month’s operation within thirty (30) days after receipt of the
                    bill-ing or by the first day of the month for which the advance
                    is
                    required, whichever is later. Operator shall adjust each monthly
                    billing
                    to reflect advances received from the
                    Non-Operators.

                


        

        


        


        
          	 	
                  B.

                	
                  Each
                    Non-Operator shall pay its proportion of all bills within thirty
                    (30) days
                    after receipt. If payment is not made within such time, the unpaid
                    balance
                    shall bear interest monthly at the prime rate in effect at Chase
                    Bank of Texas, Houston, Texas on
                    the first day of the month in which delinquency occurs plus 1%
                    or the
                    maximum contract rate permitted by the applicable usury laws
                    in the state
                    in which the Joint Property is located, whichever is the lesser,
                    plus
                    attorney’s fees, court costs, and other costs in connection with the
                    collection of unpaid amounts.

                


        

        


        


        


        
          	
                  4.

                	
                  Adjustments

                


        

        


        Payment
          of any such bills shall not prejudice the right of any Non-Operator to
          protest
          or question the correctness thereof; provided, however, all bills and statements
          rendered to Non-Operators by Operator during any calendar year shall
          con-clusively be presumed to be true and correct after twenty-four (24)
          months
          following the end of any such calendar year, unless within the said twenty-four
          (24) month period a Non-Operator takes written exception thereto and makes
          claim
          on Operator for adjustment. No adjustment favorable to Operator shall be
          made
          unless it is made within the same prescribed period. The provisions of
          this
          paragraph shall not prevent adjustments resulting from a physical inventory
          of
          Controllable Material as provided for in Section V.

        



        
          
            

              COPYRIGHT©
                1985 by the Council of Petroleum Accountants Societies.
  
              

          

          
            -1-

            
              

            

          

          
            
            

          

        


        
           

        


        
          	
                  5.

                	
                  Audits

                


        

        


        
          	 	
                  A.

                	
                  A
                    Non-Operator, upon notice in writing to Operator and all other
                    Non-Operators, shall have the right to audit Operator’s accounts and
                    records relating to the Joint Account for any calendar year within
                    the
                    twenty-four (24) month period following the end of such calendar
                    year;
                    provided, however, the making of an audit shall not extend the
                    time for
                    the taking of written exception to and the adjustments of accounts
                    as
                    provided for in Paragraph 4 of this Section I. Where there are
                    two or more
                    Non-Operators, the Non-Operators shall make every reasonable
                    effort to
                    conduct a joint audit in a manner which will result in a minimum
                    of
                    inconvenience to the Operator. Operator shall bear no por-tion
                    of the
                    Non-Operators’ audit cost incurred under this paragraph unless agreed to
                    by the Operator. The audits shall not be conducted more than
                    once each
                    year without prior approval of Operator, except upon the resignation
                    or
                    removal of the Operator, and shall be made at the expense of
                    those
                    Non-Operators approving such audit.

                


        

        


        
          	 	
                  B.

                	
                  The
                    Operator shall reply in writing to an audit report within 60
                    days after
                    receipt of such report.

                


        

        


        
          	
                  6.

                	
                  Approval
                    By Non-Operators

                


        

        


        Where
          an
          approval or other agreement of the Parties or Non-Operators is expressly
          required under other sections of this Accounting Procedure and if the agreement
          to which this Accounting Procedure is attached contains no contrary provisions
          in regard thereto, Operator shall notify all Non-Operators of the Operator’s
          proposal, and the agreement or approval of a majority in interest of the
          Non-Operators shall be controlling on all Non-Operators.

        


        


        II.
          DIRECT CHARGES

        


        Operator
          shall charge the Joint Account with the following items:

        


        1. Ecological
          and Environmental

        


        Costs
          incurred for the benefit of the Joint Property as a result of governmental
          or
          regulatory requirements to satisfy environ-mental considerations applicable
          to
          the Joint Operations. Such costs may include surveys of an ecological or
          archaeological nature and pollution control procedures as required by applicable
          laws and regulations.

        


        2. Rentals
          and Royalties

        


        Lease
          rentals and royalties paid by Operator for the Joint Operations.

        


        
          	
                  3.

                	
                  Labor

                


        

        


        
          
            	
                  	A.(1)	
                    Salaries
                      and wages of Operator’s field employees directly employed on the Joint
                      Property in the conduct of Joint
                      Operations.

                  


          

        

        


        
          	 	
                  (2)

                	
                  Salaries
                    of First Level Supervisors in the
                    field.

                


        

        


        
          	
                	(3)	
                  Salaries
                    and wages of Technical Employees directly employed on the Joint
                    Property
                    if such charges are excluded from the overhead
                    rates.

                


        

        


        
          	 	
                  (4)

                	
                  Salaries
                    and wages of Technical Employees either temporarily or permanently
                    assigned to and directly employed in the operation of the Joint
                    Property
                    if such charges are excluded from the overhead
                    rates.

                


        

        


        
          	 	
                  B.

                	
                  Operator’s
                    cost of holiday, vacation, sickness and disability benefits and
                    other
                    customary allowances paid to employees whose salaries and wages
                    are
                    chargeable to the Joint Account under Paragraph 3A of this Section
                    II.
                    Such costs under this Paragraph 3B may be charged on a “when and as paid
                    basis” or by “percentage assessment” on the amount of salaries and wages
                    chargeable to the Joint Account under Paragraph 3A of this Section
                    II. If
                    percentage assessment is used, the rate shall be based on the
                    Operator’s
                    cost experience.

                


        

        


        
          	 	
                  C.

                	
                  Expenditures
                    or contributions made pursuant to assessments imposed by governmental
                    authority which are applicable to Operator’s costs chargeable to the Joint
                    Account under Paragraphs 3A and 3B of this Section
                    II.

                


        

        


        
          	 	
                  D.

                	
                  Personal
                    Expenses of those employees whose salaries and wages are chargeable
                    to the
                    Joint Account under Paragraph 3A of this Section
                    II.

                


        

        


        
          	
                  4.

                	
                  Employee
                    Benefits

                


        

        


        Operator’s
          current costs of established plans for employees’ group life insurance,
          hospitalization, pension, retirement, stock purchase, thrift, bonus, and
          other
          benefit plans of a like nature, applicable to Operator’s labor cost chargeable
          to the Joint Account under Paragraphs 3A and 3B of this Section II shall
          be
          Operator’s actual cost.

        


        
          	
                  5.

                	
                  Material

                


        

        


        Material
          purchased or furnished by Operator for use on the Joint Property as provided
          under Section IV.
          Only
          such
          Material shall be purchased for or transferred to the Joint Property as
          may be
          required for immediate use and is reasonably practical and consistent with
          efficient and economical operations. The accumulation of surplus stocks
          shall be
          avoided.

        


        
          	
                  6.

                	
                  Transportation

                


        

        


        Transportation
          of employees and Material necessary for the Joint Operations but subject
          to the
          following limitations:

        


        
          	 	
                  A.

                	
                  If
                    Material is moved to the Joint Property from the Operator’s warehouse or
                    other properties, no charge shall be made to the Joint Account
                    for a
                    distance greater than the distance from the nearest reliable
                    supply store
                    where like material is normally available or railway receiving
                    point
                    nearest the Joint Property unless agreed to by the
                    Parties.

                


        


        
          
            
            

          

          
            -2-

            
              

            

          

          
            
            

          

        


        
          	
                	B.	
                  If
                    surplus Material is moved to Operator’s warehouse or other storage point,
                    no charge shall be made to the Joint Account for a distance greater
                    than
                    the distance to the nearest reliable supply store where like
                    material is
                    normally available, or railway receiving point nearest the Joint
                    Property
                    unless agreed to by the Parties. No charge shall be made to the
                    Joint
                    Account for moving Material to other properties belonging to
                    Operator,
                    unless agreed to by the Parties.

                


        

        


        
          	
                	C.	
                  In
                    the application of subparagraphs A and B above, the option to
                    equalize or
                    charge actual trucking cost is available when the actual charge
                    is $400 or
                    less excluding accessorial charges. The $400 will be adjusted
                    to the
                    amount most recently recommended by the Council of Petroleum
                    Accountants
                    Societies.

                


        

        
        

        
          	7.	
                  Services

                


        

        


        The
          cost
          of contract services, equipment and utilities provided by outside sources,
          except services excluded by Paragraph 10 of Section II and Paragraph i,
          ii, and
          iii, of Section III. The cost of professional consultant services and contract
          services of technical personnel directly engaged on the Joint Property
          if such
          charges are excluded from the overhead rates. The cost of professional
          consultant services or contract services of technical personnel not directly
          engaged on the Joint Property shall not be charged to the Joint Account
          unless
          previously agreed to by the Parties.

        
        

        
          	
                  8.

                	
                  Equipment
                    and Facilities Furnished By
                    Operator

                


        

         

        
          
            
              	
                    	A.	
                      Operator
                        shall charge the Joint Account for use of Operator owned
                        equipment and
                        facilities at rates commensurate with costs of ownership
                        and operation.
                        Such rates shall include costs of maintenance, repairs, other
                        operating
                        expense, insurance, taxes, depreciation, and interest on
                        gross investment
                        less accumulated depreciation not to exceed ten
                        percent
                        ( 10
                        %)
                        per annum. Such rates shall not exceed average commercial
                        rates currently
                        prevailing in the immediate area of the Joint
                        Property.

                    


            
 

            
              	
                    	B.	
                      In
                        lieu of charges in paragraph 8A above, Operator may elect
                        to use average
                        commercial rates prevailing in the immediate area of the
                        Joint Property
                        less 20%. For automotive equipment, Operator may elect to
                        use rates
                        published by the Petroleum Motor Transport
                        Association.

                    


            

          

        

         
           

        
          	9.	
                  Damages
                    and Losses to Joint
                    Property

                


        

        


        All
          costs
          or expenses necessary for the repair or replacement of Joint Property made
          necessary because of damages or losses incurred by fire, flood, storm,
          theft,
          accident, or other cause, except those
          resulting
          from Operator’s gross negligence or willful misconduct. Operator shall furnish
          Non-Operator written notice of damages or losses incurred as soon as practicable
          after a report thereof has been received by Operator.

        
        

        
          	
                  10.

                	
                  Legal
                    Expense

                


        

        


        Expense
          of handling, investigating and settling litigation or claims, discharging
          of
          liens, payment of judgements and amounts paid for settlement of claims
          incurred
          in or resulting from operations under the agreement or necessary to protect
          or
          recover the Joint Property, except that no charge for services of Operator’s
          legal staff or fees or expense of outside attorneys shall be made unless
          previously agreed to by the Parties. All other legal expense is considered
          to be
          covered by the overhead provisions of Section III unless otherwise agreed
          to by
          the Parties, except as provided in Section I, Paragraph 3.

          


        
          	
                  11.

                	
                  Taxes

                


        

        


        All
          taxes
          of every kind and nature assessed or levied upon or in connection with
          the Joint
          Property, the operation thereof, or the production therefrom, and which
          taxes
          have been paid by the Operator for the benefit of the Parties. If the ad
          valorem
          taxes are based in whole or in part upon separate valuations of each party’s
          working interest, then notwithstanding anything to the contrary herein,
          charges
          to the Joint Account shall be made and paid by the Parties hereto in accordance
          with the tax value generated by each party’s working interest.

           


        
          	
                  12.

                	
                  Insurance

                


        

        


        Net
          premiums paid for insurance required to be carried for the Joint Operations
          for
          the protection of the Parties. In the event Joint Operations are conducted
          in a
          state in which Operator may act as self-insurer for Worker’s Compensation and/or
          Employers Liability under the respective state’s laws, Operator may, at its
          election, include the risk under its self-insurance program and in that
          event,
          Operator shall include a charge at Operator’s cost not to exceed manual
          rates.

        Notwithstanding
          the foregoing, if non-operator provides coverages and provides Operator
          with a
          certificate evidencing same to the extent shown in Exhibit “D”, then no billing
          will be made to him under the joint account for insurance. The Operator
          will
          furnish and bill the non-operator for insurance required to bring the
          non-operator into compliance with Exhibit “D”.

        


        
          	
                  13.

                	
                  Abandonment
                    and Reclamation

                


        

        


        Costs
          incurred for abandonment of the Joint Property, including costs required
          by
          governmental or other regulatory authority.

        
        

        
          	
                  14.

                	
                  Communications

                


        

        


        Cost
          of
          acquiring, leasing, installing, operating, repairing and maintaining
          communication systems, including radio and microwave facilities directly
          serving
          the Joint Property. In the event communication facilities/systems serving
          the
          Joint Property are Operator owned, charges to the Joint Account shall be
          made as
          provided in Paragraph 8 of this Section II.

          


        
          	
                  15.

                	
                  Other
                    Expenditures

                


        

        


        Any
          other
          expenditure not covered or dealt with in the foregoing provisions of this
          Section II, or in Section III and which is of direct benefit to the Joint
          Property and is incurred by the Operator in the necessary and proper conduct
          of
          the Joint Operations.


        
          
            
            

          

          
            -3-

            
              

            

          

          
            
            

          

        


        III.
          OVERHEAD

        


        1. Overhead
          -
          Drilling
          and Producing Operations

        


        i. 
          As
          compensation for administrative, supervision, office services and warehousing
          costs, Operator shall charge drilling and producing operations on
          either:

        


        (
          X )
Fixed
          Rate Basis, Paragraph 1A, or

        (  
          ) Percentage
          Basis, Paragraph lB

        


        Unless
          otherwise agreed to by the Parties, such charge shall be in lieu of costs
          and
          expenses of all offices and salaries or wages plus applicable burdens and
          expenses of all personnel, except those directly chargeable under Paragraph
          3A,
          Section II. The cost and expense of services from outside sources in connection
          with matters of taxation, traffic, accounting or matters before or involving
          governmental agencies shall be considered as included in the overhead rates
          provided for in the above selected Paragraph of this Section III unless
          such
          cost and expense are agreed to by the Parties as a direct charge to the
          Joint
          Account.

        


        ii. The
          salaries, wages and Personal Expenses of Technical Employees and/or the
          cost of
          professional consultant services and contract services of technical personnel
          directly employed on the Joint Property:

        


        (
          )
shall
          be
          covered by the overhead rates,

        (
          X )
or
          shall
          not be covered by the overhead rates.

        


        iii. The
          salaries, wages and Personal Expenses of Technical Employees and/or costs
          of
          professional consultant services and contract services of technical personnel
          either temporarily or permanently assigned to and directly employed in
          the
          operation of the Joint Property:

        


        (
          X )
shall
          be
          covered by the overhead rates, or

        (
          )
shall
          not
          be covered by the overhead rates.

        


        A. Overhead
          -
          Fixed
          Rate Basis

        


        (1) Operator
          shall charge the Joint Account at the following rates per well per
          month:

        


        Drilling
          Well Rate $7,000.00
          

        (Prorated
          for less than a full month)

        


        Producing
          Well Rate $700.00

        


        (2) Application
          of Overhead -
          Fixed
          Rate Basis shall be as follows:

        


        (a) Drilling
          Well Rate

        


        (1) Charges
          for drilling wells shall begin on the date the well is spudded and terminate
          on
          the date the drill-ing rig, completion rig, or other units used in completion
          of
          the well is released, whichever is later, except that no charge shall be
          made
          during suspension of drilling or completion operations for fifteen (15)
          or more
          consecutive calendar days.

        


        (2) Charges
          for wells undergoing any type of workover or recompletion for a period
          of five
          (5) consecutive work days or more shall be made at the drilling well rate.
          Such
          charges shall be applied for the period from date workover operations,
          with rig
          or other units used in workover, commence through date of rig or other
          unit
          release, except that no charge shall be made during suspension of operations
          for
          fifteen (15) or more consecutive calendar days.

        


        (b) Producing
          Well Rates

        


        (1) An
          active
          well either produced or injected into for any portion of the month shall
          be
          considered as a one-well charge for the entire month.

        


        (2) Each
          active completion in a multi-completed well in which production is not
          commingled down hole shall be considered as a one-well charge providing
          each
          completion is considered a separate well by the govern-ing regulatory
          authority.

        


        (3) An
          inactive gas well shut in because of overproduction or failure of purchaser
          to
          take the production shall be considered as a one-well charge providing
          the gas
          well is directly connected to a permanent sales outlet.

        


        (4) A
          one-well charge shall be made for the month in which plugging and abandonment
          operations are completed on any well. This one-well charge shall be made
          whether
          or not the well has produced except when drilling well rate
          applies.

        


        (5) All
          other
          inactive wells (including but not limited to inactive wells covered by
          unit
          allowable, lease allowable, transferred allowable, etc.) shall not qualify
          for
          an overhead charge.

        


        (3) The
          well
          rates shall be adjusted as of the first day of April each year following
          the
          effective date of the agreement to which this Accounting Procedure is attached.
          The adjustment shall be computed by multiplying the rate currently in use
          by the
          percentage increase or decrease in the average weekly earnings of Crude
          Petroleum and Gas Production Workers for the last calendar year compared
          to the
          calendar year preceding as shown by the index of average weekly earnings
          of
          Crude Petroleum and Gas Production Workers as published by the United States
          Department of Labor, Bureau of Labor Statistics, or the equivalent Canadian.
          index as published by Statistics Canada, as applicable. The adjusted rates
          shall
          be the rates currently in use, plus or minus the computed
          adjustment.

        


        B. Overhead
          - Percentage Basis

        


        (1) Operator
          shall charge the Joint Account at the following rates:


        
          
            
            

          

          
            -4-

            
              

            

          

          
            
            

          

        


        


        (a) Development

        


        ______________
          Percent
          ( _____
          %)
          of the cost of development of the Joint Property exclusive of costs provided
          under Paragraph 10 of Section II and all salvage credits.

        


        
          	 	
                  (b)

                	
                  Operating

                


        

        


        ______________
          Percent
          ( _____
          %)
          of the cost of operating the Joint Property exclusive of costs provided
          under
          Paragraphs 2 and 10 of Section II, all salvage credits, the value of injected
          substances purchased for secondary recovery and all taxes and assessments
          which
          are levied, assessed and paid upon the mineral interest in and to the Joint
          Property.

        


        
          	 	
                  (2)

                	
                  Application
                    of Overhead -  Percentage
                    Basis shall be as follows:

                


        

        


        For
          the purpose of determining charges on a percentage basis under Paragraph
          lB of
          this Section III, development shall include all costs in connection with
          drilling, redrilling, deepening, or any remedial operations on any or all
          wells
          involving the use of drilling rig and crew capable of drilling to the producing
          interval on the Joint Prop-erty; also, preliminary expenditures necessary
          in
          preparation for drilling and expenditures incurred in abandoning when the
          well
          is not completed as a producer, and original cost of construction or
          installation of fixed assets, the expansion of fixed assets and any other
          project clearly discernible as a fixed asset, except Major Construction
          as
          defined in Paragraph 2 of this Section III. All other costs shall be considered
          as operating.

        


        
          	
                  2.

                	
                  Overhead
                    -
                    Major
                    Construction

                


        

        


        To
          compensate Operator for overhead costs incurred in the construction and
          installation of fixed assets, the expansion of fixed assets, and any other
          project clearly discernible as a fixed asset required for the development
          and
          operation of the Joint Property, Operator shall either negotiate a rate
          prior to
          the beginning of construction, or shall charge the Joint Account for overhead
          based on the following rates for any Major Construction project in excess
          of
$    :

        


        
          	 	
                  A.

                	
                  ______5_____
                    %
                    of first $100,000 or total cost if less,
                    plus

                


        

        


        
          	 	
                  B.

                	
                  ______3____
                    %
                    of costs in excess of $100,000 but less than $1,000,000,
                    plus

                


        

        


        
          	 	
                  C.

                	
                  ______2____
                    %
                    of costs in excess of $1,000,000.

                


        

        


        Total
          cost shall mean the gross cost of any one project. For the purpose of this
          paragraph, the component parts of a single project shall not be treated
          separately and the cost of drilling and workover wells and artificial lift
          equipment shall be excluded.

        


        
          	
                  3.

                	
                  Catastrophe
                    Overhead

                


        

        


        To
          compensate Operator for overhead costs incurred in the event of expenditures
          resulting from a single occurrence due to oil spill, blowout, explosion,
          fire,
          storm, hurricane, or other catastrophes as agreed to by the Parties, which
          are
          necessary to restore the Joint Property to the equivalent condition that
          existed
          prior to the event causing the expenditures, Operator shall either negotiate
          a
          rate prior to charging the Joint Account or shall charge the Joint Account
          for
          overhead based on the following rates:

        


        
          	 	
                  A.

                	
                  _____5_____
                    %
                    of total costs through $100,000;
                    plus

                


        

        


        
          	 	
                  B.

                	
                  _____3_____
                    %
                    of total costs in excess of $100,000 but less than $1,000,000;
                    plus

                


        

        


        
          	 	
                  C.

                	
                  _____2_____
                    %
                    of total costs in excess of
                    $1,000,000.

                


        

        


        Expenditures
          subject to the overheads above will not be reduced by insurance recoveries,
          and
          no other overhead provisions of this Section III shall apply.

        


        
          	
                  4.

                	
                  Amendment
                    of Rates

                


        

        


        The
          overhead rates provided for in this Section III may be amended from time
          to time
          only by mutual agreement between the Parties hereto if, in practice, the
          rates
          are found to be insufficient or excessive.

        


        


        IV.
          PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
          DISPOSITIONS

        


        Operator
          is responsible for Joint Account Material and shall make proper and timely
          charges and credits for all Material movements affecting the Joint Property.
          Operator shall provide all Material for use on the Joint Property; however,
          at
          Operator’s option, such Material may be supplied by the Non-Operator. Operator
          shall make timely disposition of idle and/or surplus Material, such disposal
          being made either through sale to Operator or Non-Operator, division in
          kind, or
          sale to outsiders. Operator may purchase, but shall be under no obligation
          to
          purchase, interest of Non-Operators in surplus condition A or B Material.
          The
          disposal of surplus Controllable Material not purchased by the Operator
          shall be
          agreed to by the Parties.

        


        1. Purchases

        


        Material
          purchased shall be charged at the price paid by Operator after deduction
          of all
          discounts received. In case of Material found to be defective or returned
          to
          vendor for any other reasons, credit shall be passed to the Joint Account
          when
          adjustment has been received by the Operator.

        


        
          	
                  2.

                	
                  Transfers
                    and Dispositions

                


        

        


        Material
          furnished to the Joint Property and Material transferred from the Joint
          Property
          or disposed of by the Operator, unless otherwise agreed to by the Parties,
          shall
          be priced on the following basis exclusive of cash discounts:


        
          
            
            

          

          
            -5-

            
              

            

          

          
            
            

          

        


        A. New
          Material (Condition A)

        


        
          	 	
                  (1)

                	
                  Tubular
                    Goods Other than Line Pipe

                


        

        


        


        
          	 	
                  (a)

                	
                  Tubular
                    goods, sized 2% inches OD and larger, except line pipe, shall
                    be priced at
                    Eastern mill published carload base prices effective as of date
                    of
                    movement plus transportation cost using the 80,000 pound carload
                    weight
                    basis to the railway receiving point nearest the Joint Property
                    for which
                    published rail rates for tubular goods exist. If the 80,000 pound
                    rail
                    rate is not offered, the 70,000 pound or 90,000 pound rail rate
                    may be
                    used. Freight charges for tubing will be calculated from Lorain,
                    Ohio and
                    casing from Youngstown, Ohio.

                


        

        


        
          	 	
                  (b)

                	
                  For
                    grades which are special to one mill only, prices shall be computed
                    at the
                    mill base of that mill plus transportation cost from that mill
                    to the
                    railway receiving point nearest the Joint Property as provided
                    above in
                    Paragraph 2.A.(1)(a). For transportation cost from points other
                    than
                    Eastern mills, the 30,000 pound Oil Field Haulers Association
                    interstate
                    truck rate shall be used.

                


        

        


        
          	 	
                  (c)

                	
                  Special
                    end finish tubular goods shall be priced at the lowest published
                    out-of-stock price, f.o.b. Houston, Texas, plus transportation
                    cost, using
                    Oil Field Haulers Association interstate 30,000 pound truck rate,
                    to the
                    railway receiving point nearest the Joint
                    Property.

                


        

        


        
          	 	
                  (d)

                	
                  Macaroni
                    tubing (size less than 2% inch OD) shall be priced at the lowest
                    published
                    out-of-stock prices f.o.b. the supplier plus transportation costs,
                    using
                    the Oil Field Haulers Association interstate truck rate per weight
                    of
                    tubing transferred, to the railway receiving point nearest the
                    Joint
                    Property.

                


        

        


        
          	 	
                  (2)

                	
                  Line
                    Pipe

                


        

        


        
          	 	
                  (a)

                	
                  Line
                    pipe movements (except size 24 inch OD and larger with walls
3/4
                    inch
                    and over) 30,000 pounds or more shall be priced under provisions
                    of
                    tubular goods pricing in Paragraph A.(1)(a) as provided above.
                    Freight
                    charges shall be calculated from Lorain,
                    Ohio.

                


        

        


        
          	 	
                  (b)

                	
                  Line
                    pipe movements (except size 24 inch OD and larger with walls
3/4 inch
                    and over) less than 30,000 pounds shall be priced at Eastern
                    mill
                    published carload base prices effective as of date of shipment,
                    plus 20
                    percent, plus transportation costs based on freight rates as
                    set forth
                    under provisions of tubular goods pricing in Para-graph A.(1)(a)
                    as
                    provided above. Freight charges shall be calculated from Lorain,
                    Ohio.

                


        

        


        
          	 	
                  (c)

                	
                  Line
                    pipe 24 inch OD and over and 3/4
                    inch
                    wall and larger shall be priced f.o.b. the point of manufacture
                    at current
                    new published prices plus transportation cost to the railway
                    receiving
                    point nearest the Joint Property.

                


        

        


        
          	 	
                  (d)

                	
                  Line
                    pipe, including fabricated line pipe, drive pipe and conduit
                    not listed on
                    published price lists shall be priced at quoted prices plus freight
                    to the
                    railway receiving point nearest the Joint Property or at prices
                    agreed to
                    by the Parties.

                


        

        


        
          	 	
                  (3)

                	
                  Other
                    Material shall be priced at the current new price, in effect
                    at date of
                    movement, as listed by a reliable supply store nearest the Joint
                    Property,
                    or point of manufacture, plus transportation costs, if applicable,
                    to the
                    railway receiving point nearest the Joint
                    Property.

                


        

        


        
          	 	
                  (4)

                	
                  Unused
                    new Material, except tubular goods, moved from the Joint Property
                    shall be
                    priced at the current new price, in effect on date of movement,
                    as listed
                    by a reliable supply store nearest the Joint Property, or point
                    of
                    manufacture, plus transportation costs, if applicable, to the
                    railway
                    receiving point nearest the Joint Property. Unused new tubulars
                    will be
                    priced as provided above in Paragraph 2 A (1) and
                    (2).

                


        

        


        B. Good
          Used
          Material (Condition B)

        


        Material
          in sound and serviceable condition and suitable for reuse without
          reconditioning:

        


        
          	 	
                  (1)

                	
                  Material
                    moved to the Joint Property

                


        

        


        At
          seventy-five percent (75%) of current new price, as determined by Paragraph
          A.

        


        
          	 	
                  (2)

                	
                  Material
                    used on and moved from the Joint
                    Property

                


        

        


        
          	 	
                  (a)

                	
                  At
                    seventy-five percent (75%) of current new price, as determined
                    by
                    Paragraph A, if Material was originally charged to the Joint
                    Account as
                    new Material or

                


        

        


        
          	 	
                  (b)

                	
                  At
                    sixty-five percent (65%) of current new
                    price,
                    as determined by Paragraph A, if Material was originally charged
                    to the
                    Joint Account as used Material.

                


        

        


        
          	 	
                  (3)

                	
                  Material
                    not used on and moved from the Joint
                    Property

                


        

        


        At
          seventy-five percent (75%) of current new price as determined by Paragraph
          A.

        


        The
          cost
          of reconditioning, if any, shall be absorbed by the transferring
          property.

        


        C. Other
          Used Material

        


        
          	 	
                  (1)

                	
                  Condition
                    C

                


        

        


        Material
          which is not in sound and serviceable condition and not suitable for its
          original function until after reconditioning shall be priced at fifty percent
          (50%) of current new price as determined by Paragraph A. The cost of
          reconditioning shall be charged to the receiving property, provided Condition
          C
          value plus cost of reconditioning does not exceed Condition B
          value.

        



        
          
            
            

          

          
            -6-

            
              

            

          

          
            
            

          

        


        
          
            
              	
                    	(2)	
                      Condition
                        D

                    


            

          

        

        


        Material,
          excluding junk, no longer suitable for its original purpose, but usable
          for some
          other purpose shall be priced on a basis commensurate with its use. Operator
          may
          dispose of Condition D Material under procedures normally used by Operator
          without prior approval of Non-Operators.

        


        
          	 	
                  (a)

                	
                  Casing,
                    tubing, or drill pipe used as line pipe shall be priced as Grade
                    A and B
                    seamless line pipe of comparable size and weight. Used casing,
                    tubing or
                    drill pipe utilized as line pipe shall be priced at used line
                    pipe
                    prices.

                


        

        


        
          	
                	(b)	
                  Casing,
                    tubing or drill pipe used as higher pressure service lines than
                    standard
                    line pipe, e.g. power oil lines, shall be priced under normal
                    pricing
                    procedures for casing, tubing, or drill pipe. Upset tubular goods
                    shall be
                    priced on a non upset basis.

                


        

        


        
          	
                	(3)	
                  Condition
                    E

                


        

        


        Junk
          shall be priced at prevailing prices. Operator may dispose of Condition
          E
          Material under procedures normally utilized by Operator without prior approval
          of Non-Operators.

        


        
          	 	
                  D.

                	
                  Obsolete
                    Material

                


        

        


        Material
          which is serviceable and usable for its original function but condition
          and/or
          value of such Material is not equivalent to that which would justify a
          price as
          provided above may be specially priced as agreed to by the Parties. Such
          price
          should result in the Joint Account being charged with the value of the
          service
          rendered by such Material.

        


        
          	 	
                  E.

                	
                  Pricing
                    Conditions

                


        

        


        
          	 	
                  (1)

                	
                  Loading
                    or unloading costs may be charged to the Joint Account at the
                    rate of
                    twenty-five cents ($0.25) per hundred weight on all tubular goods
                    movements, in lieu of actual loading or unloading costs sustained
                    at the
                    stocking point. The above rate shall be adjusted as of the first
                    day of
                    April each year following January 1,1985 by the same percentage
                    increase
                    or decrease used to adjust overhead rates in Section III, Paragraph
                    1.A(3). Each year, the rate calculated shall be rounded to the
                    nearest
                    cent and shall be the rate in effect until the first day of April
                    next
                    year. Such rate shall be published each year by the Council of
                    Petroleum
                    Accountants Societies.

                


        

        


        
          	 	
                  (2)

                	
                  Material
                    involving erection costs shall be charged at applicable percentage
                    of the
                    current knocked-down price of new
                    Material.

                


        

        


        
          	
                  3.

                	
                  Premium
                    Prices

                


        

        


        Whenever
          Material is not readily obtainable at published or listed prices because
          of
          national emergencies, strikes or other unusual causes over which the Operator
          has no control, the Operator may charge the Joint Account for the required
          Material at the Operator’s actual cost incurred in providing such Material, in
          making it suitable for use, and in moving it to the Joint Property; provided
          notice in writing is furnished to Non-Operators of the proposed charge
          prior to
          billing Non-Operators for such Material. Each Non-Operator shall have the
          right,
          by so electing and notifying Operator within ten days after receiving notice
          from Operator, to furnish in kind all or part of his share of such Material
          suitable for use and acceptable to Operator.

        


        
          	
                  4.

                	
                  Warranty
                    of Material Furnished By
                    Operator

                


        

        


        Operator
          does not warrant the Material furnished. In case of defective Material,
          credit
          shall not be passed to the Joint Account until adjustment has been received
          by
          Operator from the manufacturers or their agents.

        


        V.
          INVENTORIES

        


        The
          Operator shall maintain detailed records of Controllable Material.

        


        
          	
                  1.

                	
                  Periodic
                    Inventories, Notice and
                    Representation

                


        

        


        At
          reasonable intervals, inventories shall be taken by Operator of the Joint
          Account Controllable Material. Written notice of intention to take inventory
          shall be given by Operator at least thirty (30) days before any inventory
          is to
          begin so that Non-Operators may be represented when any inventory is taken.
          Failure of Non-Operators to be represented at an inventory shall bind
          Non-Operators to accept the inventory taken by Operator.

        


        
          	
                  2.

                	
                  Reconciliation
                    and Adjustment of
                    Inventories

                


        

        


        Adjustments
          to the Joint Account resulting from the reconciliation of a physical inventory
          shall be made within six months following the taking of the inventory.
          Inventory
          adjustments shall be made by Operator to the Joint Account for overages
          and
          shortages, but, Operator shall be held accountable only for shortages due
          to
          lack of reasonable diligence.

        


        
          	
                  3.

                	
                  Special
                    Inventories

                


        

        


        Special
          inventories may be taken whenever there is any sale, change of interest,
          or
          change of Operator in the Joint Property. It shall be the duty of the party
          selling to notify all other Parties as quickly as possible after the transfer
          of
          interest takes place. In such cases, both the seller and the purchaser
          shall be
          governed by such inventory. In cases involving a change of Operator, all
          Parties
          shall be governed by such inventory.

        


        
          	
                  4.

                	
                  Expense
                    of Conducting Inventories

                


        

        


        
          	 	
                  A.

                	
                  The
                    expense
                    of conducting periodic inventories shall not be charged to the
                    Joint
                    Account unless agreed to by the
                    Parties.

                


        

        


        
          	 	
                  B.

                	
                  The
                    expense of conducting special inventories shall be charged to
                    the Parties
                    requesting such inventories, except inventories required due
                    to change of
                    Operator shall be charged to the Joint
                    Account.

                


        


        
          
            
            

          

          
            -7-

            
              

            

          

          
            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING
              AGREEMENT - 1989 (REVISED)

          

        


        


      

      
         

        


        EXHIBIT
          “D”

        


        Attached
          to and made a part of that certain Participation Agreement dated November
          1,
          2005 by and between Eden Energy Corp. and Merganser
          Limited

        


        
 

        MODEL
          FORM OPERATING AGREEMENT

        


        OPERATING
          AGREEMENT

         

        
 

        DATED

         

        November
          1, 2005

        


        


        


        


        OPERATOR:
          EDEN ENERGY CORP.

        


        


        


        CONTRACT
          AREA: BIG SAND SPRING VALLEY PROSPECT

        


        


        


        


        COUNTY
          OF: NYE STATE
          OF: NEVADA

        


        


        



        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -1-

            
              

            

          

          
            
            

            
            

            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        OPERATING
          AGREEMENT

        THIS
          AGREEMENT, entered into by and between Eden
          Energy Corp.,
          hereinafter designated and referred to as “Operator”, and the signatory party or
          parties other than Operator, sometimes hereinafter referred to individually
          as
“Non-Operator”, and collectively as “Non-Operators”.

        


        WITNESSETH:

        WHEREAS,
          the parties to this agreement are owners of Oil and Gas Leases and/or Oil
          and
          Gas Interests in the land identified in Exhibit “A”, and the parties hereto have
          reached an agreement to explore and develop these Leases and/or Oil and
          Gas
          Interests for the production and/or storage of Oil and/or Gas to the extent
          and
          as hereinafter provided.

        NOW,
          THEREFORE, it is agreed as follows:

        


        ARTICLE
          I.

        DEFINITIONS

        As
          used
          in this agreement, the following words and terms shall have the meanings
          here
          ascribed to them:

        A. The
          term
          "AFE" shall mean an Authority for Expenditure prepared by a party to this
          agreement for the purpose of estimating the costs to be incurred in conducting
          an operation hereunder.

        B. The
          term
          "Completion" or "Complete" shall mean a single operation intended to complete
          a
          well as a producer of Oil and Gas in one or more Zones, including, but
          not
          limited to, the setting of production casing, perforating, well stimulation
          and
          production testing conducted in such operation.

        C. The
          term
          "Contract Area" shall mean all of the lands, Oil and Gas Leases and/or
          Oil and
          Gas Interests intended to be developed and operated for Oil and Gas purposes
          under this agreement. Such lands, Oil and Gas Leases and Oil and Gas Interests
          are described in Exhibit “A”.

        D. The
          term
          "Deepen" shall mean a single operation whereby a well is drilled to an
          objective
          Zone below the deepest Zone in which the well was previously drilled, or
          below
          the Deepest Zone proposed in the associated AFE, whichever is the
          lesser.

        E. The
          terms
          "Drilling Party" and "Consenting Party" shall mean a party who agrees to
          join in
          and pay its share of the cost of any operation conducted under the provisions
          of
          this agreement.

        F. The
          term
          "Drilling Unit" shall mean the area fixed for the drilling of one well
          by order
          or rule of any state or federal body having authority. If a Drilling Unit
          is not
          fixed by any such rule or order, a Drilling Unit shall be the drilling
          unit as
          established by the pattern of drilling in the Contract Area unless fixed
          by
          express agreement of the Drilling Parties.

        G. The
          term
          "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas Interest on
          which a
          proposed well is to be located.

        H. The
          term
          "Initial Well" shall mean the well required to be drilled by the parties
          hereto
          as provided in Article VI.A.

        I. The
          term
          "Non-Consent Well" shall mean a well in which less than all parties have
          conducted an operation as provided in Article Vl.B.2.

        J. The
          terms
          "Non-Drilling Party" and "Non-Consenting Party" shall mean a party who
          elects
          not to participate in a proposed operation.

        K. The
          term
          "Oil and Gas" shall mean oil, gas, casinghead gas, gas condensate, and/or
          all
          other liquid or gaseous hydrocarbons and other marketable substances produced
          therewith, unless an intent to limit the inclusiveness of this term is
          specifically stated.

        L. The
          term
          "Oil and Gas Interests" or "Interests" shall mean unleased fee and mineral
          interests in Oil and Gas in tracts of land lying within the Contract Area
          which
          are owned by parties to this agreement.

        M. The
          terms
          "Oil and Gas Lease," "Lease" and "Leasehold" shall mean the oil and gas
          leases
          or interests therein covering tracts of land lying within the Contract
          Area
          which are owned by the parties to this agreement.

        N. The
          term
          "Plug Back" shall mean a single operation whereby a deeper Zone is abandoned
          in
          order to attempt a Completion in a shallower Zone.

        O. The
          term
          "Recompletion" or "Recomplete" shall mean an operation whereby a Completion
          in
          one Zone is abandoned in order to attempt a Completion in a different Zone
          within the existing wellbore.

        P. The
          term
          "Rework" shall mean an operation conducted in the wellbore of a well after
          it is
          Completed to secure, restore, or improve production in a Zone which is
          currently
          open to production in the wellbore. Such operations include, but are not
          limited
          to, well stimulation operations but exclude any routine repair or maintenance
          work or drilling, Sidetracking, Deepening, Completing, Recompleting, or
          Plugging
          Back of a well.

        Q. The
          term
          "Sidetrack" shall mean the directional control and intentional deviation
          of a
          well from vertical so as to change the bottom hole location unless done
          to
          straighten the hole or to drill around junk in the hole to overcome other
          mechanical difficulties.

        R. The
          term
          "Zone" shall mean a stratum of earth containing or thought to contain a
          common
          accumulation of Oil and Gas separately producible from any other common
          accumulation of Oil and Gas.

        S. The
          term
“Hydrocarbon” shall mean “Oil and/or Gas” as defined in I.K.

        T. The
          term
“Producer” shall mean either capable of producing and/or injecting
          hydrocarbon.

        U. The
          term
“Production” shall mean either capable of production and/or injection of
          hydrocarbon.

        Unless
          the context otherwise clearly indicates, words used in the singular include
          the
          plural, the word "person" includes natural and artificial persons, the
          plural
          includes the singular, and any gender includes the masculine, feminine,
          and
          neuter.


        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -2-

            
              

            

          

          
            
            

            
            

            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        ARTICLE
          II.

        EXHIBITS

        The
          following exhibits, as indicated below and attached hereto, are incorporated
          in
          and made a part hereof: ___X____ A. Exhibit “A” shall include the following
          information:

        (1) Description
          of lands subject to this agreement,

        (2) Restrictions,
          if any, as to depths, formations, or substances,

        (3) Parties
          to agreement with addresses and telephone numbers for notice
          purposes,

        (4) Percentages
          or fractional interests of parties to this agreement,

        (5) Oil
          and
          Gas Leases and/or Oil and Gas Interests subject to this agreement,

        (6) Burdens
          on production. 

        _______
          B. Exhibit “B”, Form of Lease.

        ____X_
          C.
          Exhibit “C”, Accounting Procedure.

        __
          _X _D.
          Exhibit “D”, Insurance.

        _______E.
          Exhibit “E”, Gas Balancing Agreement.

        _______F.
          Exhibit “F”, Non-Discrimination and Certification of Non-Segregated
          Facilities.

        _______G.
          Exhibit “G”, Tax Partnership.

        H.
          Other:          

        


        If
          any
          provision of any exhibit, except Exhibits “E”, “F”, and “G”, is inconsistent
          with any provision contained in the body of this agreement, the provisions
          in
          the body of this agreement shall prevail.

        


        ARTICLE
          III.

        INTERESTS
          OF PARTIES

        A. Oil
          and Gas Interests:

        If
          any party owns an Oil and Gas Interest in the Contract Area, that Interest
          shall
          be treated for all purposes of this agreement and during the term hereof
          as if
          it were covered by the form of Oil and Gas Lease attached hereto as Exhibit
“B”,
          and the owner thereof shall be deemed to own both royalty interest in such
          lease
          and the interest of the lessee thereunder.

        B. Interests
          of Parties in Costs and Production:

        Unless
          changed by other provisions, all costs and liabilities incurred in operations
          under this agreement shall be borne and paid, and all equipment and materials
          acquired in operations on the Contract Area shall be owned, by the parties
          as
          their interests are set forth in Exhibit “A”. In the same manner, the parties
          shall also own all production of Oil and Gas from the Contract Area subject,
          however, to the payment of royalties and other burdens on production as
          described hereafter.

        Regardless
          of which has contributed any Oil and Gas Lease or Oil and Gas Interest
          on which
          royalty or other burdens may be payable and except as otherwise expressly
          provided in this agreement, each shall pay or deliver, or cause to be paid
          or
          delivered, all burdens on its share of the production from the Contract
          Area up
          to, but not in excess of, seventeen
          and one half percent (17.5%) and
          shall
          indemnify, defend and hold the other parties free from any liability therefor.
          Except as otherwise expressly provided in this agreement, if any party
          has
          contributed hereto any Lease or Interest which is burdened with any royalty,
          overriding royalty, production payment or other burden on production in
          excess
          of the amounts stipulated above, such party so burdened shall assume and
          alone
          bear all such excess obligations and shall indemnify, defend and hold the
          other
          parties hereto harmless from any and all claims attributable to such excess
          burden. However, so long as the Drilling Unit for the productive Zone(s)
          is
          identical with the Contract Area, each party shall pay or deliver, or cause
          to
          be paid or delivered, all burdens on production from the Contract Area
          due under
          the terms of the Oil and Gas Lease(s) which such party has contributed
          to this
          agreement, and shall indemnify, defend and hold the other parties free
          from any
          liability therefor.

        No
          party
          shall ever be responsible, on a price basis higher than the price received
          by
          such party, to any other party's lessor or royalty owner, and if such other
          party's lessor or royalty owner should demand and receive settlement on
          a higher
          price basis, the party contributing the affected Lease shall bear the additional
          royalty burden attributable to such higher price.

        Nothing
          contained in this Article III.B. shall be deemed an assignment or
          cross-assignment of interests covered hereby, and in the event two or more
          parties contribute to this agreement jointly owned Leases, the parties'
          undivided interests in said Leaseholds shall be deemed separate leasehold
          interests for the purposes of this agreement.

        C. Subsequently
          Created Interests:

        If
          any
          party has contributed hereto a Lease or Interest that is burdened with
          an
          assignment of production given as security for the payment of money, or
          if,
          after the date of this agreement, any party creates an overriding royalty,
          production payment, net profits interest, assignment of production or other
          burden payable out of production attributable to its working interest hereunder,
          such burden shall be deemed a "Subsequently Created Interest." Further,
          if any
          party has contributed hereto a Lease or Interest burdened with an overriding
          royalty, production payment, net profits interest, or other burden payable
          out
          of production created prior to the date of this agreement, and such burden
          is
          not shown on Exhibit “A”, such burden also shall be deemed a Subsequently
          Created Interest to the extent such burden causes the burdens on such party's
          Lease or Interest to exceed the amount stipulated in Article III.B.
          above.

        The
          party
          whose interest is burdened with the Subsequently Created Interest (the
          "Burdened
          Party") shall assume and alone bear, pay and discharge the Subsequently
          Created
          Interest and shall indemnify, defend and hold harmless the other Parties
          from
          and against any liability therefor. Further, if the Burdened Party fails
          to pay,
          when due, its share of expenses chargeable hereunder, all provisions of
          Article
          VII.B. shall be enforceable against the Subsequently Created Interest in
          the
          same manner as they are enforceable against the working interest of the
          Burdened
          Party. If the Burdened Party is required under this agreement to assign
          or
          relinquish to any other party, or parties, all or a portion of its working
          interest and/or the production attributable thereto, said other party,
          or
          parties, shall receive said assignment and/or production free and clear
          of said
          Subsequently Created Interest, and the Burdened Party shall indemnify,
          defend
          and hold harmless said other party, or parties, from any and all claims
          and
          demands for payment asserted by owners of the Subsequently Created
          Interest.


        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -3-

            
              

            

          

          
            
            

            
            

            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        


        ARTICLE
          IV.

        TITLES

        A. Title
          Examination:

        Title
          examination shall be made on the Drillsite
          of any proposed well prior to commencement of drilling operations and,
          if a
          majority in interest of the Drilling Parties so request or Operator so
          elects,
          title examination shall be made on the entire Drilling Unit, or maximum
          anticipated Drilling Unit, of the well. The opinion will include the ownership
          of the working interest, minerals, royalty, overriding royalty and production
          payments under the applicable Leases. Each party contributing Leases and/or
          Oil
          and Gas Interests to be included in the Drillsite or Drilling Unit, if
          appropriate, shall furnish to Operator all abstracts (including federal
          lease
          status reports), title opinions, title papers and curative material in
          its
          possession free of charge.
          All such information not in the possession of or made available to Operator
          by
          the parties, but necessary for the examination of the title, shall be obtained
          by Operator. Operator shall cause title to be examined by attorneys on
          its staff
          or by outside attorneys. Copies of all title opinions shall be furnished
          to each
          Drilling Party. Costs incurred by Operator in procuring abstracts, fees
          paid
          outside attorneys for title examination (including preliminary, supplemental,
          shut-in royalty opinions and division order title opinions) and other direct
          charges as provided in Exhibit “C” shall be borne by the Drilling Parties in the
          proportion that the interest of each Drilling Party bears to the total
          interest
          of all Drilling Parties as such interests appear in Exhibit “A”. Operator shall
          make no charge for services rendered by its staff attorneys or other personnel
          in the performance of the above functions.

        Each
          party shall be responsible for securing curative matter and pooling amendments
          or agreements required in connection with Leases or Oil and Gas Interests
          contributed by such party. Operator shall be responsible for the preparation
          and
          recording of pooling designations or declarations and communitization agreements
          as well as the conduct of hearings before governmental agencies for the
          securing
          of spacing or pooling orders or any other orders necessary or appropriate
          to the
          conduct of operations hereunder. This shall not prevent any party from
          appearing
          on its own behalf at such hearings. Costs incurred by Operator, including
          fees
          paid to outside attorneys, which are associated with hearings before
          governmental agencies, and which costs are necessary and proper for the
          activities contemplated under this agreement, shall be direct charges to
          the
          joint account and shall nor be covered by the administrative overhead charges
          as
          provided in Exhibit "C.”

        No
          well
          shall be drilled on the Contract Area until after (1) the title to the
          Drillsite
          or Drilling Unit, if appropriate, has been examined as above provided,
          and (2)
          the title has been approved by the examining attorney or title has been
          accepted
          by all of the Drilling Parties in such well.

        B. Loss
          or Failure of Title:

        1. Failure
          of Title:
          Should any Oil and Gas Interest or Oil and Gas Lease be lost through failure
          of
          title, which results in a reduction of interest from that shown on Exhibit
          "A,"
          the party credited with contributing the affected Lease or Interest (including,
          if applicable, a successor in interest to such party) shall have ninety
          (90)
          days from final determination of title failure to acquire a new lease or
          other
          instrument curing the entirety of the title failure, which acquisition
          will not
          be subject to Article VIII.B., and failing to do so, this agreement,
          nevertheless, shall continue in force as to all remaining Oil and Gas Leases
          and
          Interests; and, The party credited with contributing the Oil and Gas Lease
          or
          Interest affected by the title failure (including, if applicable, a successor
          in
          interest to such party) shall bear alone the entire loss and it shall not
          be
          entitled to recover from Operator or the other parties any development
          or
          operating costs which it may have previously paid or incurred, but there
          shall
          be no additional liability on its part to the other parties hereto by reason
          of
          such title failure;

        There
          shall be no retroactive adjustment of expenses incurred or revenues received
          from the operation of the Lease or Interest which has failed, but the interests
          of the parties contained on Exhibit "A" shall be revised on an acreage
          basis, as
          of the time it is determined finally that title failure has occurred, so
          that
          the interest of the party whose Lease or Interest is affected by the title
          failure will thereafter be reduced in the Contract Area by the amount of
          the
          Lease or Interest failed;

        If
          the proportionate interest of the other parties hereto in any producing
          well
          previously drilled on the Contract Area is increased by reason of the title
          failure, the party who bore the costs incurred in connection with such
          well
          attributable to the Lease or Interest which has failed shall receive the
          proceeds attributable to the increase in such interest (less costs and
          burdens
          attributable thereto) until it has been reimbursed for unrecovered costs
          paid by
          it in connection with such well attributable to such failed Lease or
          Interest;

        Should
          any person not a party to this agreement, who is determined to be the owner
          of
          any Lease or Interest which has failed, pay in any manner any part of the
          cost
          of operation, development, or equipment, such amount shall be paid to the
          party
          or parties who bore the costs which are so refunded;

        Any
          liability to account to a person not a party to this agreement for prior
          production of Oil and Gas which arises by reason of title failure shall
          be borne
          severally by each party (including a predecessor to a current party) who
          received production for which such accounting is required based on the
          amount of
          such production received, and each such party shall severally indemnify,
          defend
          and hold harmless all other parties hereto for any such liability to
          account;

        No
          charge shall be made to the joint account for legal expenses, fees or salaries
          in connection with the defense of the Lease or Interest claimed to have
          failed,
          but if the party contributing such Lease or Interest hereto elects to defend
          its
          title it shall bear all expenses in connection therewith;
          and

        If
          any party is given credit on Exhibit "A" to a Lease or Interest which is
          limited
          solely to ownership of an interest in the wellbore of any well or wells
          and the
          production therefrom, such party's absence of interest in the remainder
          of the
          Contract Area shall be considered a Failure of Title as to such remaining
          Contract Area unless that absence of interest is reflected on Exhibit
“A”.

        2. Loss
          by Non-Payment or Erroneous Payment of Amount Due:
          If, through mistake or oversight, any rental, shut-in well payment, minimum
          royalty or royalty payment, or other payment necessary to maintain all
          or a
          portion of an Oil and Gas Lease or Interest is not paid or is erroneously
          paid,
          and as a result a Lease or Interest terminates, there shall be no monetary
          liability against the party who failed to make such payment. Unless the
          party
          who failed to make the required payment secures a new Lease or Interest
          covering
          the same interest within ninety (90) days from the discovery of the failure
          to
          make proper payment, which acquisition will not be subject to Article VIII.B.,
          the interests of the parties reflected on Exhibit "A" shall be revised
          on an
          acreage basis, effective as of the date of termination of the Lease or
          Interest
          involved, and the party who failed to make proper payment will no longer
          be
          credited with an interest in the Contract Area on account of ownership
          of the
          Lease or Interest which has terminated. If the party who failed to make
          the
          required payment shall not have been fully reimbursed, at the time of the
          loss,
          from the proceeds of the sale of Oil and Gas attributable to the lost Lease
          or
          Interest, calculated on an acreage basis, for the development and operating
          costs previously paid on account of such Lease or Interest, it shall be
          reimbursed for unrecovered actual costs previously paid by it (but not
          for its
          share of the cost of any dry hole previously drilled or wells previously
          abandoned) from so much of the following as is necessary to effect
          reimbursement:


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        Proceeds
          of Oil and Gas produced prior to termination of the Lease or Interest,
          less
          operating expenses and lease burdens chargeable hereunder to the person
          who
          failed to make payment, previously accrued to the credit of the lost Lease
          or
          Interest, on an acreage basis, up to the amount of unrecovered
          costs;

        Proceeds
          of Oil and Gas, less operating expenses and lease burdens chargeable hereunder
          to the person who failed to make payment, up to the amount of unrecovered
          costs
          attributable to that portion of Oil and Gas thereafter produced and marketed
          (excluding production from any wells thereafter drilled) which, in the
          absence
          of such Lease or Interest termination, would be attributable to the lost
          Lease
          or Interest on an acreage basis and which as a result of such Lease or
          Interest
          termination is credited to other parties, the proceeds of said portion
          of the
          Oil and Gas to be contributed by the other parties in proportion to their
          respective interests reflected on Exhibit "A"; and,

        Any
          monies, up to the amount of unrecovered costs, that may be paid by any
          party who
          is, or becomes, the owner of the Lease or Interest lost, for the privilege
          of
          participating in the Contract Area or becoming a party to this
          agreement.

        3. Other
          Losses:
          All
          losses of Leases or Interests committed to this agreement other
          than those set forth in Articles IV.B.1. and IV.B.2. above
          shall be
          joint losses and shall be borne by all parties in proportion to their interests
          shown on Exhibit “A”. This shall include but not be limited to the loss of any
          Lease or Interest through failure to develop or because express or implied
          covenants have not been performed (other than performance which requires
          only
          the payment of money), and the loss of any Lease by expiration at the end
          of its
          primary term if it is not renewed or extended. There shall be no readjustment
          of
          interests in the remaining portion of the Contract Area on account of any
          joint
          loss.

        4. Curing
          Title:
          In the event of a Failure of Title under Article IV.B1. or a loss of title
          under
          Article IV,B.2. above, any Lease or Interest acquired by any party hereto
          (other
          than the party whose interest has failed or was lost) during the ninety
          (90) day
          period provided by Article IV.B. I. and Article IV.B.2. above covering
          all or a
          portion of the interest that has failed or was lost shall be offered at
          cost to
          the party whose interest has failed or was lost, and the provisions of
          Article
          VIII.B. shall not apply to such acquisition.

        


        ARTICLE
          V.

        OPERATOR

        A. Designation
          and Responsibilities of Operator:

        EDEN
          ENERGY CORP.     shall
          be
          the Operator of the Contract Area, and shall conduct and direct and have
          full
          control of all operations on the Contract Area as permitted and required
          by, and
          within the limits of this agreement. In its performance of services hereunder
          for the Non-Operators, Operator shall be an independent contractor not
          subject
          to the control or direction of the Non-Operators except as to the type
          of
          operation to be undertaken in accordance with the election procedures contained
          in this agreement. Operator shall not be deemed, or hold itself out as,
          the
          agent of the Non-Operators with authority to bind them to any obligation
          or
          liability assumed or incurred by Operator as to any third party. Operator
          shall
          conduct its activities under this agreement as a reasonable prudent operator,
          in
          a good and workmanlike manner, with due diligence and dispatch, in accordance
          with good oilfield practice, and in compliance with applicable law and
          regulation, but in no event shall it have any liability as Operator to
          the other
          parties for losses sustained or liabilities incurred except such as may
          result
          from gross negligence or willful misconduct.

        B. Resignation
          or Removal of Operator and Selection of Successor:

        1. Resignation
          or Removal of Operator:
          Operator may resign at any time by giving written notice thereof to
          Non-Operators. If Operator terminates its legal existence, no
          longer owns an interest hereunder in the Contract Area,
          or is
          no longer capable of serving as Operator, Operator shall be deemed to have
          resigned without any action by Non-Operators, except the selection of a
          successor. Operator may be removed only for good cause by the affirmative
          vote
          of Non-Operators owning a majority interest based on ownership as shown
          on
          Exhibit "A" remaining after excluding the voting interest of Operator;
          such vote
          shall not be deemed effective until a written notice has been delivered
          to the
          Operator by a Non-Operator detailing the alleged default and Operator has
          failed
          to cure the default within thirty (30) days from its receipt of the notice
          or,
          if the default concerns an operation then being conducted, within forty-eight
          (48) hours of its receipt of the notice. For purposes hereof, "good cause"
          shall
          mean not only gross negligence or willful misconduct but also the material
          breach of or inability to meet the standards of operation contained in
          Article
          V.A. or material failure or inability to perform its obligations under
          this
          agreement.       Sixty
          (60)

        Subject
          to Article VII.D.l., such resignation or removal shall not become effective
          until 7:00 o'clock A.M. on the first day of the calendar month following
          the
          expiration of ninety
          (90)
          days
          after the giving of notice of resignation by Operator or action by the
          Non-Operators to remove Operator, unless a successor Operator has been
          selected
          and assumes the duties of Operator at an earlier date. Operator, after
          effective
          date of resignation or removal, shall be bound by the terms hereof as a
          Non-Operator. A change of a corporate name or structure of Operator or
          transfer
          of Operator's interest to any single subsidiary, parent or successor corporation
          shall not be the basis for removal of Operator.

        2. Selection
          of Successor Operator:
          Upon
          the resignation or removal of Operator under any provision of this agreement,
          a
          successor Operator shall be selected by the parties. The successor Operator
          shall be selected from the parties owning an interest in the Contract Area
          at
          the time such successor Operator is selected. The successor Operator shall
          be
          selected by the affirmative vote of two
          (2) or more
          parties
          owning a majority interest based on ownership as shown on Exhibit "A" provided,
          however, if an Operator which has been removed or is deemed to have resigned
          fails to vote or votes only to succeed itself, the successor Operator shall
          be
          selected by the affirmative vote of the party or parties owning a majority
          interest based on ownership as shown on Exhibit "A" remaining after excluding
          the voting interest of the Operator that was removed or resigned. The former
          Operator shall promptly deliver to the successor Operator all records and
          data
          relating to the operations conducted by the former Operator to the extent
          such
          records and data are not already in the possession of the successor operator.
          Any cost of obtaining or copying the former Operator's records and data
          shall be
          charged to the joint account.


        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        3. Effect
          of Bankruptcy:
          If
          Operator becomes insolvent, bankrupt or is placed in receivership, it shall
          be
          deemed to have resigned without any action by Non-Operators, except the
          selection of a successor. If a petition for relief under the federal bankruptcy
          laws is filed by or against Operator, and the removal of Operator is prevented
          by the federal bankruptcy court, all Non-Operators and Operator shall comprise
          an interim operating committee to serve until Operator has elected to reject
          or
          assume this agreement pursuant to the Bankruptcy Code, and an election
          to reject
          this agreement by Operator as a debtor in possession, or by a trustee in
          bankruptcy, shall be deemed a resignation as Operator without any action
          by
          Non-Operators, except the selection of a successor. During the period of
          time
          the operating committee controls operations, all actions shall require
          the
          approval of two
          (2) or more
          parties
          owning a majority interest based on ownership as shown on Exhibit “A”. In the
          event there are only two (2) parties to this agreement, during the period
          of
          time the operating committee controls operations, a third party acceptable
          to
          Operator, Non-Operator and the federal bankruptcy court shall be selected
          as a
          member of the operating committee, and all actions shall require the approval
          of
          two (2) members of the operating committee without regard for their interest
          in
          the Contract Area based on Exhibit “A”.

        C. Employees
          and Contractors:

        The
          number of employees or contractors used by Operator in conducting operations
          hereunder, their selection, and the hours of labor and the compensation
          for
          services performed shall be determined by Operator, and all such employees
          or
          contractors shall be the employees or contractors of Operator.

        D. Rights
          and Duties of Operator:

        1. Competitive
          Rates and Use of Affiliates:
          All
          wells drilled on the Contract Area shall be drilled on a competitive contract
          basis at the usual rates prevailing in the area. If it so desires, Operator
          may
          employ its own tools and equipment in the drilling of wells, but its charges
          therefor shall not exceed the prevailing rates in the area and the rate
          of such
          charges shall be agreed upon by the parties in writing before drilling
          operations are commenced, and such work shall be performed by Operator
          under the
          same terms and conditions as are customary and usual in the area in contracts
          of
          independent contractors who are doing work of a similar nature. All work
          performed or materials supplied by affiliates or related parties of Operator
          shall be performed or supplied at competitive rates, pursuant to written
          agreement, and in accordance with customs and standards prevailing in the
          industry.

        2. Discharge
          of Joint Account Obligations:
          Except
          as herein otherwise specifically provided, Operator shall promptly pay
          and
          discharge expenses incurred in the development and operation of the Contract
          Area pursuant to this agreement and shall charge each of the parties hereto
          with
          their respective proportionate shares upon the expense basis provided in
          Exhibit
“C”. Operator shall keep an accurate record of the joint account hereunder,
          showing expenses incurred and charges and credits made and
          received.

        3. Protection
          from Liens:
          Operator shall pay, or cause to be paid, as and when they become due and
          payable, all accounts of contractors and suppliers and wages and salaries
          for
          services rendered or performed, and for materials supplied on, to or in
          respect
          of the Contract Area or any operations for the joint account thereof, and
          shall
          keep the Contract
          Area free from liens and encumbrances resulting therefrom except for those
          resulting from a bona fide dispute as to services rendered or materials
          supplied.

        4. Custody
          of Funds:
          Operator shall hold for the account of the Non-Operators any funds of the
          Non-Operators advanced or paid to the Operator, either for the conduct
          of
          operations hereunder or as a result of the sale of production from the
          Contract
          Area, and such funds shall remain the funds of the Non-Operators on whose
          account they are advanced or paid until used for their intended purpose
          or
          otherwise delivered to the Non-Operators or applied toward the payment
          of debts
          as provided in Article VII.B. Nothing in this paragraph shall be construed
          to
          establish a fiduciary relationship between Operator and Non-Operators for
          any
          purpose other than to account for Non-Operator funds as herein specifically
          provided. Nothing in this paragraph shall require the maintenance by Operator
          of
          separate accounts for the funds of Non-Operators unless the parties otherwise
          specifically agree.

        5. Access
          to Contract Area and Records:
          Operator shall, except as otherwise provided herein, permit each Non-Operator
          or
          its duly authorized representative, at the Non-Operator's sole risk and
          cost,
          full and free access at all reasonable times to all operations of every
          kind and
          character being conducted for the joint account on the Contract Area and
          to the
          records of operations conducted thereon or production therefrom, including
          Operator's books and records relating thereto. Such access rights shall
          not be
          exercised in a manner interfering with Operator's conduct of an operation
          hereunder and shall not obligate Operator to furnish any geologic or geophysical
          data of an interpretive nature unless the cost of preparation of such
          interpretive data was charged to the joint account. Operator will furnish
          to
          each Non-Operator upon request copies of any and all reports and information
          obtained by Operator in connection with production and related items, including,
          without limitation, meter and chart reports, production purchaser statements,
          run tickets and monthly gauge reports, but excluding purchase contracts
          and
          pricing information to the extent not applicable to the production of the
          Non-Operator seeking the information. Any audit of Operator's records relating
          to amounts expended and the appropriateness of such expenditures shall
          be
          conducted in accordance with the audit protocol specified in Exhibit
“C”.

        6. Filing
          and Furnishing Governmental Reports:
          Operator will file, and upon written request promptly furnish copies to
          each
          requesting Non-Operator not in default of its payment obligations, all
          operational notices, reports or applications required to be filed by local,
          State, Federal or Indian agencies or authorities having jurisdiction over
          operations hereunder. Each Non-Operator shall provide to Operator on a
          timely
          basis all information necessary to Operator to make such filings.

        7. Drilling
          and Testing Operations:
          The
          following provisions shall apply to each well drilled hereunder, including
          but
          not limited to the Initial Well:

        (a) Operator
          will promptly advise Non-Operators of the date on which the well is spudded,
          or
          the date on which drilling operations are commenced.

        (b) Operator
          will send to Non-Operators such reports, test results and notices regarding
          the
          progress of operations on the well as the Non-Operators shall reasonably
          request, including, but not limited to, daily drilling reports, completion
          reports, and well logs.

        (c) Operator
          shall adequately test all Zones encountered which may reasonably be expected
          to
          be capable of producing Oil and Gas in paying quantities as a result of
          examination of the electric log or any other logs or cores or tests conducted
          hereunder.

        8. Cost
          Estimates.
          Upon
          request of any Consenting Party, Operator shall furnish estimates of current
          and
          cumulative costs incurred for the joint account at reasonable intervals
          during
          the conduct of any operation pursuant to this agreement. Operator shall
          not be
          held liable for errors in such estimates so long as the estimates are made
          in
          good faith.


        
          
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              SAND SPRING VALLEY JOA initial ____

            
            

          

          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        9. Insurance:
          At all
          times while operations are conducted hereunder, Operator shall comply with
          the
          workers compensation law of the state where the operations are being conducted;
          provided, however, that Operator may be a self-insurer for liability under
          said
          compensation laws in which event the only charge that shall be made to
          the joint
          account shall be as provided in Exhibit “C”. Operator shall also carry or
          provide insurance for the benefit of the joint account of the parties as
          outlined in Exhibit “D” attached hereto and made a part hereof. Operator shall
          require all contractors engaged in work on or for the Contract Area to
          comply
          with the workers compensation law of the state where the operations are
          being
          conducted and to maintain such other insurance as Operator may
          require.

        In
          the
          event automobile liability insurance is specified in said Exhibit “D”, or
          subsequently receives the approval of the parties, no direct charge shall
          be
          made by Operator for premiums paid for such insurance for Operator's automotive
          equipment.

        


        ARTICLE
          VI.

        DRILLING
          AND DEVELOPMENT

        A. Initial
          Well:

        On
          or before the  day
          of   ,
          20 ,
          Operator shall commence the drilling of the Initial Well at the following
          location:

        


        See
          Participation Agreement dated November 1, 2005 by and between Eden Energy
          Corp.
          and Merganser Limited

        


        


        


        


        and
          shall thereafter continue the drilling of the well with due diligence
          to

        


        


        


        


        


        


        The
          drilling of the Initial Well and the participation therein by all Parties
          is
          obligatory, subject to Article VI.C.1. as to participation in Completion
          operations and Article VI.F. as to termination of operations and Article
          XI as
          to occurrence of force majeure.

        B. Subsequent
          Operations:

        1. Proposed
          Operations:
          If any
          party hereto should desire to drill any well on the Contract Area other
          than the
          Initial Well, or if any party should desire to Rework, Sidetrack, Deepen,
          Recomplete or Plug Back a dry hole or a well no longer capable of producing
          in
          paying quantities in which such party has not otherwise relinquished its
          interest in the proposed objective zone under this agreement, the party
          desiring
          to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well
          shall
          give written notice of the proposed operation to the parties who have not
          otherwise relinquished their interest in such objective zone under this
          agreement and to all other parties in the case of a proposal for Sidetracking
          or
          Deepening, specifying the work to be performed, the location, proposed
          depth,
          objective zone and the estimated cost of the operation. The parties to
          whom such
          a notice is delivered shall have thirty (30) days after receipt of the
          notice
          within which to notify the party proposing to do the work whether they
          elect to
          participate in the cost of the proposed operation. If a drilling rig is
          on
          location, notice of a proposal to Rework, Sidetrack, Recomplete, Plug Back
          or
          Deepen may be given by telephone and the response period shall be limited
          to
          forty-eight (48) hours, exclusive of Saturday, Sunday and legal holidays.
          Failure of a party to whom such notice is delivered to reply within the
          period
          above fixed shall constitute an election by that party not to participate
          in the
          cost of the proposed operation. Any proposal by a party to conduct an operation
          conflicting with the operation initially proposed shall be delivered to
          all
          parties within the time and in the manner provided in Article
          VI.B.6.

        If
          all
          parties to whom such notice is delivered elect to participate in such a
          proposed
          operation, the parties shall be contractually committed to participate
          therein
          provided such operations are commenced within the time period hereafter
          set
          forth, and Operator shall, no later than ninety (90) days after expiration
          of
          the notice period of thirty (30) days (or as promptly as practicable after
          the
          expiration of the forty-eight (48) hour period when a drilling rig is on
          location, as the case may be), actually commence the proposed operation
          and
          thereafter complete it with due diligence at the risk and expense of the
          parties
          participating therein; provided, however, said commencement date may be
          extended
          upon written notice of same by Operator to the other parties, for a period
          of up
          to thirty (30) additional days if, in the sole opinion of Operator, such
          additional time is reasonably necessary to obtain permits from governmental
          authorities, surface rights (including rights-of-way) or appropriate drilling
          equipment, or to complete title examination or curative matter required
          for
          title approval or acceptance. If the actual operation has not been commenced
          within the time provided (including any extension thereof as specifically
          permitted herein or in the force majeure provisions of Article XI) and
          if any
          party hereto still desires to conduct said operation, written notice proposing
          same must be resubmitted to the other parties in accordance herewith as
          if no
          prior proposal had been made. Those parties that did not participate in
          the
          drilling of a well for which a proposal to Deepen or Sidetrack is made
          hereunder
          shall, if such parties desire to participate in the proposed Deepening
          or
          Sidetracking operation, reimburse the Drilling Parties in accordance with
          Article VI.B.4. in the event of a Deepening operation and in accordance
          with
          Article VI.B.5. in the event of a Sidetracking operation.

        2. Operations
          by Less Than All Parties:

        (a)
          Determination
          of Participation.
          If any
          party to whom such notice is delivered as provided in Article VI.B. 1.
          or
          VI.C.l. (Option No. 2) elects not to participate in the proposed operation,
          then, in order to be entitled to the benefits of this Article, the party
          or
          parties giving the notice and such other parties as shall elect to participate
          in the operation shall, no later than ninety (90) days after the expiration
          of
          the notice period of thirty (30) days (or as promptly as practicable after
          the
          expiration of the forty-eight (48) hour period when a drilling rig is on
          location, as the case may be) actually commence the proposed operation
          and
          complete it with due diligence. Operator shall perform all work for the
          account
          of the Consenting Parties; provided, however, if no drilling rig or other
          equipment is on location, and if Operator is a Non-Consenting Party, the
          Consenting Parties shall either: (i) request Operator to perform the work
          required by such proposed operation for the account of the Consenting Parties,
          or (ii) designate one of the Consenting Parties as Operator to perform
          such
          work. The rights and duties granted to and imposed upon the Operator under
          this
          agreement are granted to and imposed upon the party designated as Operator
          for
          an operation in which the original Operator is a Non-Consenting Party.
          Consenting Parties, when conducting operations on the Contract Area pursuant
          to
          this Article VI.B.2., shall comply with all terms and conditions of this
          agreement.


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        If
          less
          than all parties approve any proposed operation, the proposing party,
          immediately after the expiration of the applicable notice period, shall
          advise
          all Parties of the total interest of the parties approving such operation
          and
          its recommendation as to whether the Consenting Parties should proceed
          with the
          operation as proposed. Each Consenting Party, within forty-eight (48) hours
          (exclusive of Saturday, Sunday and legal holidays) after delivery of such
          notice, shall advise the proposing party of its desire to (i) limit
          participation to such party's interest as shown on Exhibit “A” or (ii) carry
          only its proportionate part (determined by dividing such party's interest
          in the
          Contract Area by the interests of all Consenting Parties in the Contract
          Area)
          of Non-Consenting Parties' interests, or (iii) carry its proportionate
          part
          (determined as provided in (ii)) of Non-Consenting Parties' interests together
          with all or a portion of its proportionate part of any Non-Consenting Parties'
          interests that any Consenting Party did not elect to take. Any interest
          of
          Non-Consenting Parties that is not carried by a Consenting Party shall
          be deemed
          to be carried by the party proposing the operation if such party does not
          withdraw its proposal. Failure to advise the proposing party within the
          time
          required shall be deemed an election under (i). In the event a drilling
          rig is
          on location, notice may be given by telephone, and the time permitted for
          such a
          response shall not exceed a total of forty-eight (48) hours (exclusive
          of
          Saturday, Sunday and legal holidays). The proposing party, at its election,
          may
          withdraw such proposal if there is less than 100% participation and shall
          notify
          all parties of such decision within ten (10) days, or within twenty-four
          (24)
          hours if a drilling rig is on location, following expiration of the applicable
          response period. If 100% subscription to the proposed operation is obtained,
          the
          proposing party shall promptly notify the Consenting Parties of their
          proportionate interests in the operation and the party serving as Operator
          shall
          commence such operation within the period provided in Article VI.B.1.,
          subject
          to the same extension right as provided therein.

        (b)
          Relinquishment of Interest for Non-Participation.
          The
          entire cost and risk of conducting such operations shall be borne by the
          Consenting Parties in the proportions they have elected to bear same under
          the
          terms of the preceding paragraph. Consenting Parties shall keep the leasehold
          estates involved in such operations free and clear of all liens and encumbrances
          of every kind created by or arising from the operations of the Consenting
          Parties. If such an operation results in a dry hole, then subject to Articles
          VI.B.6. and VI.E.3., the Consenting Parties shall plug and abandon the
          well and
          restore the surface location at their sole cost, risk and expense; provided,
          however, that those Non-Consenting Parties that participated in the drilling,
          Deepening or Sidetracking of the well shall remain liable for, and shall
          pay,
          their proportionate shares of the cost of plugging and abandoning the well
          and
          restoring the surface location insofar only as those costs were not increased
          by
          the subsequent operations of the Consenting Parties. If any well drilled,
          Reworked, Sidetracked, Deepened, Recompleted or Plugged Back under the
          provisions of this Article results in a well capable of producing Oil and/or
          Gas
          in paying quantities, the Consenting Parties shall Complete and equip the
          well
          to produce at their sole cost and risk, and the well shall then be turned
          over
          to Operator (if the Operator did not conduct the operation) and shall be
          operated by it at the expense and for the account of the Consenting Parties.
          Upon commencement of operations for the drilling, Reworking, Sidetracking,
          Recompleting, Deepening or Plugging Back of any such well by Consenting
          Parties
          in accordance with the provisions of this Article, each Non-Consenting
          Party
          shall be deemed to have relinquished to Consenting Parties, and the Consenting
          Parties shall own and be entitled to receive, in proportion to their respective
          interests, all of such Non-Consenting Party's interest in the well and
          share of
          production therefrom or, in the case of a Reworking, Sidetracking, Deepening,
          Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.1.
          Option No. 2, all of such Non-Consenting Party's interest in the production
          obtained from the operation in which the Non-Consenting Party did not elect
          to
          participate. Such relinquishment shall be effective until the proceeds
          of the
          sale of such share, calculated at the well, or market value thereof if
          such
          share is not sold (after deducting applicable ad valorem, production, severance,
          and excise taxes, royalty, overriding royalty and other interests not excepted
          by Article III.C. payable out of or measured by the production from such
          well
          accruing with respect to such interest until it reverts), shall equal the
          total
          of the following:

        500%
          of each
          such Non-Consenting Party's share of the cost of any newly acquired surface
          equipment beyond the wellhead connections (including but not limited to
          stock
          tanks, separators, treaters, pumping equipment and piping), plus 100% of
          each
          such Non-Consenting Party's share of the cost of operation of the well
          commencing with first production and continuing until each such Non-Consenting
          Party's relinquished interest shall revert to it under other provisions
          of this
          Article, it being agreed that each Non-Consenting Party's share of such
          costs
          and equipment will be that interest which would have been chargeable to
          such
          Non-Consenting Party had it participated in the well from the beginning
          of the
          operations; and

        500%
          of (a)
          that portion of the costs and expenses of drilling, Reworking, Sidetracking,
          Deepening, Plugging Back, testing, Completing, and Recompleting, after
          deducting
          any cash contributions received under Article VIlI.C., and of (b) that
          portion
          of the cost of newly acquired equipment in the well (to and including the
          wellhead connections), which would have been chargeable to such Non-Consenting
          Party if it had participated therein.

        Notwithstanding
          anything to the contrary in this Article VI.B., if the well does not reach
          the
          deepest objective Zone described in the notice proposing the well for reasons
          other than the encountering of granite or practically impenetrable substance
          or
          other condition in the hole rendering further operations impracticable,
          Operator
          shall give notice thereof to each Non-Consenting Party who submitted or
          voted
          for an alternative proposal under Article VI.B.6. to drill the well to
          a
          shallower Zone than the deepest objective Zone proposed in the notice under
          which the well was drilled, and each such Non-Consenting Party shall have
          the
          option to participate in the initial proposed Completion of the well by
          paying
          its share of the cost of drilling the well to its actual depth, calculated
          in
          the manner provided in Article VI.B.4. (a). If any such Non-Consenting
          Party
          does not elect to participate in the first Completion proposed for such
          well,
          the relinquishment provisions of this Article VI.B.2. (b) shall apply to
          such
          party's interest.


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        (c
          )
Reworking,
          Recompletion or Plugging Back.
          An
          election not to participate in the drilling, Sidetracking or Deepening
          of a well
          shall be deemed an election not to participate in any Reworking or Plugging
          Back
          operation proposed in such a well, or portion thereof, to which the initial
          non-consent election applied that is conducted at any time prior to full
          recovery by the Consenting Parties of the Non-Consenting Party's recoupment
          amount. Similarly, an election not to participate in the Completing or
          Recompleting of a well shall be deemed an election not to participate in
          any
          Reworking operation proposed in such a well, or portion thereof, to which
          the
          initial non-consent election applied that is conducted at any time prior
          to full
          recovery by the Consenting Parties of the Non-Consenting Party's recoupment
          amount. Any such Reworking, Recompleting or Plugging Back operation conducted
          during the recoupment period shall be deemed part of the cost of operation
          of
          said well and there shall be added to the sums to be recouped by the Consenting
          Parties 500%
          of that
          portion of the costs of the Reworking, Recompleting or Plugging Back operation
          which would have been chargeable to such Non-Consenting Party had it
          participated therein. If such a Reworking, Recompleting or Plugging Back
          operation is proposed during such recoupment period, the provisions of
          this
          Article VI.B. shall be applicable as between said Consenting Parties in
          said
          well.

        (d)
          Recoupment Matters.
          During
          the period of time Consenting Parties are entitled to receive Non-Consenting
          Party's share of production, or the proceeds therefrom, Consenting Parties
          shall
          be responsible for the payment of all ad valorem, production, severance,
          excise,
          gathering and other taxes, and all royalty, overriding royalty and other
          burdens
          applicable to Non-Consenting Party's share of production not excepted by
          Article
          III.C.

        In
          the
          case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening
          operation, the Consenting Parties shall be permitted to use, free of cost,
          all
          casing, tubing and other equipment in the well, but the ownership of all
          such
          equipment shall remain unchanged; and upon abandonment of a well after
          such
          Reworking, Sidetracking, Plugging Back, Recompleting or Deepening, the
          Consenting Parties shall account for all such equipment to the owners thereof,
          with each party receiving its proportionate part in kind or in value, less
          cost
          of salvage.

        Within
          ninety (90) days after the completion of any operation under this Article,
          the
          party conducting the operations for the Consenting Parties shall furnish
          each
          Non-Consenting Party with an inventory of the equipment in and connected
          to the
          well, and an itemized statement of the cost of drilling, Sidetracking,
          Deepening, Plugging Back, testing, Completing, Recompleting, and equipping
          the
          well for production; or, at its option, the operating party, in lieu of
          an
          itemized statement of such costs of operation, may submit a detailed statement
          of monthly billings. Each month thereafter, during the time the Consenting
          Parties are being reimbursed as provided above, the party conducting the
          operations for the Consenting Parties shall furnish the Non-Consenting
          Parties
          with an itemized statement of all costs and liabilities incurred in the
          operation of the well, together with a statement of the quantity of Oil
          and Gas
          produced from it and the amount of proceeds realized from the sale of the
          well's
          working interest production during the preceding month. In determining
          the
          quantity of Oil and Gas produced during any month, Consenting Parties shall
          use
          industry accepted methods such as but not limited to metering or periodic
          well
          tests. Any amount realized from the sale or other disposition of equipment
          newly
          acquired in connection with any such operation which would have been owned
          by a
          Non-Consenting Party had it participated therein shall be credited against
          the
          total unreturned costs of the work done and of the equipment purchased
          in
          determining when the interest of such Non-Consenting Party shall revert
          to it as
          above provided; and if there is a credit balance, it shall be paid to such
          Non-Consenting Party.

        If
          and
          when the Consenting Parties recover from a Non-Consenting Party's relinquished
          interest the amounts provided for above, the relinquished interests of
          such
          Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on
          the day
          following the day on which such recoupment occurs, and, from and after
          such
          reversion, such Non-Consenting Party shall own the same interest in such
          well,
          the material and equipment in or pertaining thereto, and the production
          therefrom as such Non-Consenting Party would have been entitled to had
          it
          participated in the drilling, Sidetracking, Reworking, Deepening, Recompleting
          or Plugging Back of said well. Thereafter, such Non-Consenting Party shall
          be
          charged with and shall pay its proportionate part of the further costs
          of the
          operation of said well in accordance with the terms of this agreement and
          Exhibit “C” attached hereto.

        3. Stand-By
          Costs:
          When a
          well which has been drilled or Deepened has reached its authorized depth
          and all
          tests have been completed and the results thereof furnished to the parties,
          or
          when operations on the well have been otherwise terminated pursuant to
          Article
          VI.F., stand-by costs incurred pending response to a party's notice proposing
          a
          Reworking, Sidetracking, Deepening, Recompleting, Plugging Back or Completing
          operation in such a well (including the period required under Article VI.B.6.
          to
          resolve competing proposals) shall be charged and borne as part of the
          drilling
          or Deepening operation just completed. Stand-by costs subsequent to all
          parties
          responding, or expiration of the response time permitted, whichever first
          occurs, and prior to agreement as to the participating interests of all
          Consenting Parties pursuant to the terms of the second grammatical paragraph
          of
          Article VI.B.2. (a), shall be charged to and borne as part of the proposed
          operation, but if the proposal is subsequently withdrawn because of insufficient
          participation, such stand-by costs shall be allocated between the Consenting
          Parties in the proportion each Consenting Party's interest as shown on
          Exhibit
“A” bears to the total interest as shown on Exhibit “A” of all Consenting
          Parties.

        In
          the
          event that notice for a Sidetracking operation is given while the drilling
          rig
          to be utilized is on location, any party may request and receive up to
          five (5)
          additional days after expiration of the forty-eight hour response period
          specified in Article Vl.B.1. within which to respond by paying for all
          stand-by
          costs and other costs incurred during such extended response period; Operator
          may require such party to pay the estimated stand-by time in advance as
          a
          condition to extending the response period. If more than one party elects
          to
          take such additional time to respond to the notice, standby costs shall
          be
          allocated between the parties taking additional time to respond on a day-to-day
          basis in the proportion each electing party's interest as shown on Exhibit
          "A"
          bears to the total interest as shown on Exhibit “A” of all the electing
          parties.

        4. Deepening:
          If less
          than all the parties elect to participate in a drilling, Sidetracking,
          or
          Deepening operation proposed pursuant to Article VI.B.1., the interest
          relinquished by the Non-Consenting Parties to the Consenting Parties under
          Article VI.B.2. shall relate only and be limited to the lesser of (i) the
          total
          depth actually drilled or (ii) the objective depth or Zone of which the
          parties
          were given notice under Article VI.B. 1. ("Initial Objective"). Such well
          shall
          not be Deepened beyond the Initial Objective without first complying with
          this
          Article to afford the Non-Consenting Parties the opportunity to participate
          in
          the Deepening operation.

        In
          the
          event any Consenting Party desires to drill or Deepen a Non-Consent Well
          to a
          depth below the Initial Objective, such party shall give notice thereof,
          complying with the requirements of Article VI.B. 1., to all parties (including
          Non-Consenting Parties). Thereupon, Articles VI.B.1. and 2. shall apply
          and all
          parties receiving such notice shall have the tight to participate or not
          participate in the Deepening of such well pursuant to said Articles VI.B.1.
          and
          2. If a Deepening operation is approved pursuant to such provisions, and
          if any
          Non-Consenting Party elects to participate in the Deepening operation,
          such
          Non-Consenting party shall pay or make reimbursement (as the case may be)
          of the
          following costs and expenses:


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        If
          the
          proposal to Deepen is made prior to the Completion of such well as a well
          capable of producing in paying quantities, such Non-Consenting Party shall
          pay
          (or reimburse Consenting Parties for, as the case may be) that share of
          costs
          and expenses incurred in connection with the drilling of said well from
          the
          surface to the Initial Objective which Non-Consenting Party would have
          paid had
          such Non-Consenting Party agreed to participate therein, plus the Non-Consenting
          Party's share of the cost of Deepening and of participating in any further
          operations on the well in accordance with the other provisions of this
          Agreement; provided, however, all costs for testing and Completion or attempted
          Completion of the well incurred by Consenting Parties prior to the point
          of
          actual operations to Deepen beyond the Initial Objective shall be for the
          sole
          account of Consenting Parties.

        If
          the
          proposal is made for a Non-Consent Well that has been previously Completed
          as a
          well capable of producing in paying quantities, but is no longer capable
          of
          producing in paying quantities, such Non-Consenting Party shall pay (or
          reimburse Consenting Parties for, as the case may be) its proportionate
          share of
          all costs of drilling, Completing, and equipping said well from the surface
          to
          the Initial Objective, calculated in the manner provided in paragraph (a)
          above,
          less those costs recouped by the Consenting Parties from the sale of production
          from the well. The Non-Consenting Party shall also pay its proportionate
          share
          of all costs of re-entering said well. The Non-Consenting Parties' proportionate
          part (based on the percentage of such well Non-Consenting Party would have
          owned
          had it previously participated in such Non-Consent Well) of the costs of
          salvable materials and equipment remaining in the hole and salvable surface
          equipment used in connection with such well shall be determined in accordance
          with Exhibit "C." If the Consenting Parties have recouped the cost of drilling,
          Completing, and equipping the well at the time such Deepening operation
          is
          conducted, then a Non-Consenting Party may participate in the Deepening
          of the
          well with no payment for costs incurred prior to re-entering the well for
          Deepening.

        The
          foregoing shall not imply a right of any Consenting Party to propose any
          Deepening for a Non-Consent Well prior to the drilling of such well to
          its
          Initial Objective without the consent of the other Consenting Parties as
          provided in Article Vl.F.

        5. Sidetracking:
          Any
          party having the right to participate in a proposed Sidetracking operation
          that
          does not own an interest in the affected wellbore at the time of the notice
          shall, upon electing to participate, tender to the wellbore owners its
          proportionate share (equal to its interest in the Sidetracking operation)
          of the
          value of that portion of the existing wellbore to be utilized as
          follows:

        If
          the
          proposal is for Sidetracking an existing dry hole, reimbursement shall
          be on the
          basis of the actual costs incurred in the initial drilling of the well
          down to
          the depth at which the Sidetracking operation is initiated.

        If
          the
          proposal is for Sidetracking a well which has previously produced, reimbursement
          shall be on the basis of such party's proportionate share of drilling and
          equipping costs incurred in the initial drilling of the well down to the
          depth
          at which the Sidetracking operation is conducted, calculated in the manner
          described in Article VI.B.4(b) above. Such party's proportionate share
          of the
          cost of the well's salvable materials and equipment down to the depth at
          which
          the Sidetracking operation is initiated shall be determined in accordance
          with
          the provisions of Exhibit "C."

        6. Order
          of Preference of Operations.
          Except
          as otherwise specifically provided in this agreement, if any party desires
          to
          propose the conduct of an operation that conflicts with a proposal that
          has been
          made by a party under this Article VI, such party shall have fifteen (15)
          days
          from delivery of the initial proposal, in the case of a proposal to drill
          a well
          or to perform an operation on a well where no drilling rig is on location,
          or
          twenty-four (24) hours, exclusive of Saturday, Sunday and legal holidays,
          from
          delivery of the initial proposal, if a drilling rig is on location for
          the well
          on which such operation is to be conducted, to deliver to all parties entitled
          to participate in the proposed operation such party's alternative proposal,
          such
          alternate proposal to contain the same information required to be included
          in
          the initial proposal. Each party receiving such proposals shall elect by
          delivery of notice to Operator within five (5) days after expiration of
          the
          proposal period, or within twenty-four (24) hours (exclusive of Saturday,
          Sunday
          and legal holidays) if a drilling rig is on location for the well that
          is the
          subject of the proposals, to participate in one of the competing proposals.
          Any
          Party not electing within the time required shall be deemed not to have
          voted.
          The proposal receiving the vote of parties owning the largest aggregate
          percentage interest of the parties voting shall have priority over all
          other
          competing proposals; in the case of a tie vote, the initial proposal shall
          prevail. Operator shall deliver notice of such result to all parties entitled
          to
          participate in the operation within five (5) days after expiration of the
          election period (or within twenty-four (24) hours, exclusive of Saturday,
          Sunday
          and legal holidays, if a drilling rig is on location). Each party shall
          then
          have two (2) days (or twenty-four (24) hours if a rig is on location) from
          receipt of such notice to elect by delivery of notice to Operator to participate
          in such operation or to relinquish interest in the affected well pursuant
          to the
          provisions of Article Vl.B.2.; failure by a party to deliver notice within
          such
          period shall be deemed an election not
          to
          participate in the prevailing proposal.

        7. Conformity
          to Spacing Pattern.
          Notwithstanding the provisions of this Article VI.B.2., it is agreed that
          no
          wells shall be proposed to be drilled to or Completed in or produced from
          a Zone
          from which a well located elsewhere on the Contract Area is producing,
          unless
          such well conforms to the then-existing well spacing pattern for such
          Zone.

        8. Paying
          Wells.
          No
          party shall conduct any Reworking, Deepening, Plugging Back, Completion,
          Recompletion, or Sidetracking operation under this agreement with respect
          to any
          well then capable of producing in paying quantities except with the consent
          of
          all parties that have not relinquished interests in the well at the time
          of such
          operation.

        C. Completion
          of Wells; Reworking and Plugging Back:

        1. Completion:
          Without
          the consent of all parties, no well shall be drilled, Deepened or Sidetracked,
          except any well drilled, Deepened or Sidetracked pursuant to the provisions
          of
          Article VI.B.2. of this agreement. Consent to the drilling, Deepening or
          Sidetracking shall include:

        
          
            	
                  	[ 
                    ]	
                    Option
                      No. 1:
                      All necessary expenditures for the drilling, Deepening or Sidetracking,
                      testing, Completing and equipping of the well, including necessary
                      tankage
                      and/or surface
                      facilities.

                  


          

        


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        
          	
                	[X]	
                  Option
                    No. 2:
                    All necessary expenditures for the drilling, Deepening or Sidetracking
                    and
                    testing of the well. When such well has reached its authorized
                    depth, and
                    all logs, cores and other tests have been completed, and the
                    results
                    thereof furnished to the parties, Operator shall give immediate
                    notice to
                    the Non-Operators having the right to participate in a Completion
                    attempt
                    whether or not Operator recommends attempting to Complete the
                    well,
                    together with Operator's AFE for Completion costs if not previously
                    provided. The parties receiving such notice shall have forty-eight
                    (48)
                    hours (exclusive of Saturday, Sunday and legal holidays) in which
                    to elect
                    by delivery of notice to Operator to participate in a recommended
                    Completion attempt or to make a Completion proposal with an accompanying
                    AFE. Operator shall deliver any such Completion proposal, or
                    any
                    Completion proposal conflicting with Operator's proposal, to
                    the other
                    parties entitled to participate in such Completion in accordance
                    with the
                    procedures specified in Article VI.B.6. Election to participate
                    in a
                    Completion attempt shall include consent to all necessary expenditures
                    for
                    the Completing and equipping of such well, including necessary
                    tankage
                    and/or surface facilities but excluding any stimulation operation
                    not
                    contained on the Completion AFE. Failure of any party receiving
                    such
                    notice to reply within the period above fixed shall constitute
                    an election
                    by that party not
                    to
                    participate in the cost of the Completion attempt; provided,
                    that Article
                    VI.B.6. shall control in the case of conflicting Completion proposals.
                    If
                    one or more, but less than all of the parties, elect to attempt
                    a
                    Completion, the provisions of Article VI.B.2. hereof (the phrase
                    "Reworking, Sidetracking, Deepening, Recompleting or Plugging
                    Back" as
                    contained in Article VI.B.2. shall be deemed to include "Completing")
                    shall apply to the operations thereafter conducted by less than
                    all
                    parties; provided, however, that Article VI.B.2 shall apply separately
                    to
                    each separate Completion or Recompletion attempt undertaken hereunder,
                    and
                    an election to become a Non-Consenting Party as to one Completion
                    or
                    Recompletion attempt shall not prevent a party from becoming
                    a Consenting
                    Party in subsequent Completion or Recompletion attempts regardless
                    whether
                    the Consenting Parties as to earlier Completions or Recompletions
                    have
                    recouped their costs pursuant to Article VI.B.2.; provided further,
                    that
                    any recoupment of costs by a Consenting Party shall be made solely
                    from
                    the production attributable to the Zone in which the Completion
                    attempt is
                    made. Election by a previous Non-Consenting Party to participate
                    in a
                    subsequent Completion or Recompletion attempt shall require such
                    party to
                    pay its proportionate share of the cost of salvable materials
                    and
                    equipment installed in the well pursuant to the previous Completion
                    or
                    Recompletion attempt, insofar and only insofar as such materials
                    and
                    equipment benefit the Zone in which such party participates in
                    a
                    Completion attempt.

                


        

        2. Rework,
          Recomplete or Plug Back:
          No well
          shall be Reworked, Recompleted or Plugged Back except a well Reworked,
          Recompleted, or Plugged Back pursuant to the provisions of Article VI.B.2.
          of
          this agreement. Consent to the Reworking, Recompleting or Plugging Back
          of a
          well shall include all necessary expenditures in conducting such operations
          and
          Completing and equipping of said well, including necessary tankage and/or
          surface facilities.

        D. Other
          Operations:

        Operator
          shall not undertake any single project reasonably estimated to require
          an
          expenditure in excess of

        Twenty-five
          thousand Dollars ($ 25,000.00)
          except
          in connection with the drilling, Sidetracking, Reworking, Deepening, Completing,
          Recompleting or Plugging Back of a well that has been previously authorized
          by
          or pursuant to this agreement; provided, however, that, in case of explosion,
          fire, flood or other sudden emergency, whether of the same or different
          nature,
          Operator may take such steps and incur such expenses as in its opinion
          are
          required to deal with the emergency to safeguard life and property but
          Operator,
          as promptly as possible, shall report the emergency to the other parties.
          If
          Operator prepares an AFE for its own use, Operator shall furnish any
          Non-Operator so requesting an information copy thereof for any single project
          costing in excess of _
          Twenty-five thousand Dollars ($ 25,000.00)
          . Any
          party who has not relinquished its interest in a well shall have the right
          to
          propose that Operator perform repair work or undertake the installation
          of
          artificial lift equipment or ancillary production facilities such as salt
          water
          disposal wells or to conduct additional work with respect to a well drilled
          hereunder or other similar project (but not including the installation
          of
          gathering lines or other transportation or marketing facilities, the
          installation of which shall be governed by separate agreement between the
          Parties) reasonably estimated to require an expenditure in excess of the
          amount
          first set forth above in this Article VI.D. (except in connection with
          an
          operation required to be proposed under Articles VI.B.1. or VI.C.1. Option
          No.
          2, which shall be governed exclusively by those Articles). Operator shall
          deliver such proposal to all parties entitled to participate therein. If
          within
          thirty (30) days thereof Operator secures the written consent of any party
          or
          parties owning at least 51%
          of the
          interests of the parties entitled to participate in such operation, each
          party
          having the right to participate in such project shall be bound by the terms
          of
          such proposal and shall be obligated to pay its proportionate share of
          the costs
          of the proposed project as if it had consented to such project pursuant
          to the
          terms of the proposal.

        E. Abandonment
          of Wells:

        1. Abandonment
          of Dry Holes:
          Except
          for any well drilled or Deepened pursuant to Article VI.B.2., any well
          which has
          been drilled or Deepened under the terms of this agreement and is proposed
          to be
          completed as a dry hole shall not be plugged and abandoned without the
          consent
          of all parties. Should Operator, after diligent effort, be unable to contact
          any
          party, or should any party fail to reply within forty-eight (48) hours
          (exclusive of Saturday, Sunday and legal holidays) after delivery of notice
          of
          the proposal to plug and abandon such well, such party shall be deemed
          to have
          consented to the proposed abandonment. All such wells shall be plugged
          and
          abandoned in accordance with applicable regulations and at the cost, risk
          and
          expense of the parties who participated in the cost of drilling or Deepening
          such well. Any Party who objects to plugging and abandoning such well by
          notice
          delivered to Operator within forty-eight (48) hours (exclusive of Saturday,
          Sunday and legal holidays) after delivery of notice of the proposed plugging
          shall take over the well as of the end of such forty-eight (48) hour notice
          period and conduct further operations in search of Oil and/or Gas subject
          to the
          provisions of Article Vl.B.; failure of such party to provide proof reasonably
          satisfactory to Operator of its financial capability to conduct such operations
          or to take over the well within such period or thereafter to conduct operations
          on such well or plug and abandon such well shall entitle Operator to retain
          or
          take possession of the well and plug and abandon the well. The party taking
          over
          the well shall indemnify Operator (if Operator is an abandoning party)
          and the
          other abandoning parties against liability for any further operations conducted
          on such well except for the costs of plugging and abandoning the well and
          restoring the surface, for which the abandoning parties shall remain
          proportionately liable.


        
          
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              SAND SPRING VALLEY JOA initial ____

            
            

          

          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        2. Abandonment
          of Wells That Have Produced:
          Except
          for any well in which a Non-Consent operation has been conducted hereunder
          for
          which the Consenting Parties have not been fully reimbursed as herein provided,
          any well which has been completed as a producer shall not be plugged and
          abandoned without the consent of all parties. If all parties consent to
          such
          abandonment, the well shall be plugged and abandoned in accordance with
          applicable regulations and at the cost, risk and expense of all the parties
          hereto. Failure of a party to reply within sixty (60) days of delivery
          of notice
          of proposed abandonment shall be deemed an election to consent to the proposal.
          If, within sixty (60) days after delivery of notice of the proposed abandonment
          of any well, all parties do not agree to the abandonment of such well,
          those
          wishing to continue its operation from the Zone then open to production
          shall be
          obligated to take over the well as of the expiration of the applicable
          notice
          period and shall indemnify Operator (if Operator is an abandoning Party)
          and the
          other abandoning parties against liability for any further operations on
          the
          well conducted by such parties. Failure of such party or parties to provide
          proof reasonably satisfactory to Operator of their financial capability
          to
          conduct such operations or to take over the well within the required period
          or
          thereafter to conduct operations on such well shall entitle Operator to
          retain
          or take possession of such well and plug and abandon the well.

        Parties
          taking over a well as provided herein shall tender to each of the other
          parties
          its proportionate share of the value of the well's salvable material and
          equipment, determined in accordance with the provisions of Exhibit “C”, less the
          estimated cost of salvaging and the estimated cost of plugging and abandoning
          and restoring the surface; provided, however, that in the event the estimated
          plugging and abandoning and surface restoration costs and the estimated
          cost of
          salvaging are higher than the value of the well's salvable material and
          equipment, each of the abandoning parties shall tender to the parties continuing
          operations their proportionate shares of the estimated excess cost. Each
          abandoning party shall assign to the non-abandoning Parties, without warranty,
          express or implied, as to title or as to quantity, or fitness for use of
          the
          equipment and material, all of its interest in the wellbore of the well
          and
          related equipment, together with its interest in the Leasehold insofar
          and only
          insofar as such Leasehold covers the tight to obtain production from that
          wellbore in the Zone then open to production. If the interest of the abandoning
          party is or includes an Oil and Gas Interest, such party shall execute
          and
          deliver to the non-abandoning party or parties an oil and gas lease, limited
          to
          the wellbore and the Zone then open to production, for a term of one (1)
          year
          and so long thereafter as Oil and/or Gas is produced from the Zone covered
          thereby, such lease to be on the form attached as Exhibit “B”. The assignments
          or leases so limited shall encompass the Drilling Unit upon which the well
          is
          located. The payments by, and the assignments or leases to, the assignees
          shall
          be in a ratio based upon the relationship of their respective percentage
          of
          participation in the Contract Area to the aggregate of the percentages
          of
          participation in the Contract Area of all assignees. There shall be no
          readjustment of interests in the remaining portions of the Contract
          Area.

        Thereafter,
          abandoning parties shall have no further responsibility, liability, or
          interest
          in the operation of or production from the well in the Zone then open other
          than
          the royalties retained in any lease made under the terms of this Article.
          Upon
          request, Operator shall continue to operate the assigned well for the account
          of
          the non-abandoning parties at the rates and charges contemplated by this
          agreement, plus any additional cost and charges which may arise as the
          result of
          the separate ownership of the assigned well. Upon proposed abandonment
          of the
          producing Zone assigned or leased, the assignor or lessor shall then have
          the
          option to repurchase its prior interest in the well (using the same valuation
          formula) and participate in further operations therein subject to the provisions
          hereof.

        3. Abandonment
          of Non-Consent Operations:
          The
          provisions of Article VI.E.1. or VI.E.2. above shall be applicable as between
          Consenting Parties in the event of the proposed abandonment of any well
          excepted
          from said Articles; provided, however, no well shall be permanently plugged
          and
          abandoned unless and until all parties having the right to conduct further
          operations therein have been notified of the proposed abandonment and afforded
          the opportunity to elect to take over the well in accordance with the provisions
          of this Article VI.E.; and provided further, that Non-Consenting Parties
          who own
          an interest in a portion of the well shall pay their proportionate shares
          of
          abandonment and surface restoration costs for such well as provided in
          Article
          VI.B.2.(b).

        


        F. Termination
          of Operations:

        Upon
          the
          commencement of an operation for the drilling, Reworking, Sidetracking,
          Plugging
          Back, Deepening, testing, Completion or plugging of a well, including but
          not
          limited to the Initial Well, such operation shall not be terminated without
          consent of parties bearing  51 %
          of the
          costs of such operation; provided, however, that in the event granite or
          other
          practically impenetrable substance or condition in the hole is encountered
          which
          tenders further operations impractical, Operator may discontinue operations
          and
          give notice of such condition in the manner provided in Article Vl.B. 1,
          and the
          provisions of Article VI.B. or VI.E. shall thereafter apply to such operation,
          as appropriate.

        G. Taking
          Production in Kind:

        [
          ]
          Option No. 1:
          Gas Balancing Agreement Attached

        Each
          party shall take in kind or separately dispose of its proportionate share
          of all
          Oil and Gas produced from the Contract Area, exclusive of production which,
          may
          be used in development and producing operations and in preparing and treating
          Oil and Gas for marketing purposes and production unavoidably lost. Any
          extra
          expenditure incurred in the taking in kind or separate disposition by any
          party
          of its proportionate share of the production shall be borne by such party.
          Any
          party taking its share of production in kind shall be required to pay for
          only
          its proportionate share of such part of Operator's surface facilities,
          which it
          uses.

        Each
          party shall execute such division orders and contracts as may be necessary
          for
          the sale of its interest in production from the Contract Area, and, except
          as
          provided in Article VIl.B., shall be entitled to receive payment directly
          from
          the purchaser thereof for its share of all production.

        If
          any
          party fails to make the arrangements necessary to take in kind or separately
          dispose of its proportionate share of the Oil produced from the Contract
          Area,
          Operator shall have the right, subject to the revocation at will by the
          party
          owning it, but not the obligation, to purchase such Oil or sell it to others
          at
          any time and from time to time, to the account of the non-taking party.
          Any such
          purchase or sale by Operator may be terminated by Operator upon at least
          ten
          (10) days written notice to the owner of said production and shall be subject
          always to the right of the owner of the production upon at least ten (10)
          days
          written notice to Operator to exercise at any time its right to take in
          kind, or
          separately dispose of, its share of all Oil not previously delivered to
          a
          purchaser. Any purchase or sale by Operator of any other party's share
          of Oil
          shall be only for such reasonable periods of time as are consistent with
          the
          minimum needs of the industry under the particular circumstances, but in
          no
          event for a period in excess of one (1) year.


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        Any
          such
          sale by Operator shall be in a manner commercially reasonable under the
          circumstances but Operator shall have no duty to share any existing market
          or to
          obtain a price equal to that received under any existing market. The sale
          or
          delivery by Operator of a non-taking party's share of Oil under the terms
          of any
          existing contract of Operator shall not give the non-taking party any interest
          in or make the non-taking party a party to said contract. No purchase shall
          be
          made by Operator without first giving the non-taking party at least ten
          (10)
          days written notice of such intended purchase and the price to be paid
          or the
          pricing basis to be used.

        All
          parties shall give timely written notice to Operator of their Gas marketing
          arrangements for the following month, excluding price, and shall notify
          Operator
          immediately in the event of a change in such arrangements. Operator shall
          maintain records of all marketing arrangements, and of volumes actually
          sold or
          transported, which records shall be made available to Non-Operators upon
          reasonable request.

        In
          the
          event one or more parties' separate disposition of its share of the Gas
          causes
          split-stream deliveries to separate pipelines and/or deliveries which on
          a
          day-to-day basis for any reason are not exactly equal to a party's respective
          proportion-ate share of total Gas sales to be allocated to it, the balancing
          or
          accounting between the parties shall be in accordance with any Gas balancing
          agreement between the parties hereto, whether such an agreement is attached
          as
          Exhibit "E" or is a separate agreement. Operator shall give notice to all
          parties of the first sales of Gas from any well under this
          agreement.

        [X]
          Option
          No. 2:
          No Gas Balancing Agreement:

        Each
          party shall take in kind or separately dispose of its proportionate share
          of all
          Oil and Gas produced from the Contract Area, exclusive of production, which
          may
          be used in development and producing operations and in preparing and treating
          Oil, and Gas for marketing purposes and production unavoidably lost. Any
          extra
          expenditure incurred in the taking in kind or separate disposition by any
          party
          of its proportionate share of the production shall be borne by such party.
          Any
          party taking its share of production in kind shall be required to pay for
          only
          its proportionate share of such part of Operator's surface facilities,
          which it
          uses.

        Each
          party shall execute such division orders and contracts as may be necessary
          for
          the sale of its interest in production from the Contract Area, and, except
          as
          provided in Article VII.B., shall be entitled to receive payment directly
          from
          the purchaser thereof for its share of all production.

        If
          any
          party fails to make the arrangements necessary to take in kind or separately
          dispose of its proportionate share of the Oil and/or Gas produced from
          the
          Contract Area, Operator shall have the right, subject to the revocation
          at will
          by the party owning it, but not the obligation, to purchase such Oil and/or
          Gas
          or sell it to others at any time and from time to time, for the account
          of the
          non-taking party. Any such purchase or sale by Operator may be terminated
          by
          Operator upon at least ten (10) days written notice to the owner of said
          production and shall be subject always to the right of the owner of the
          production upon at least ten (10) days written notice to Operator to exercise
          its right to take in kind, or separately dispose of, its share of all Oil
          and/or
          Gas not previously delivered to a purchaser; provided, however, that the
          effective date of any such revocation may be deferred at Operator's election
          for
          a period not to exceed ninety (90) days if Operator has committed such
          production to a purchase contract having a term extending beyond such ten
          (10)
          -day period. Any purchase or sale by Operator of any other party's share
          of Oil
          and/or Gas shall be only for such reasonable periods of time as are consistent
          with the minimum needs of the industry under the particular circumstances,
          but
          in no event for a period in excess of one (1) year.

        Any
          such
          sale by Operator shall be in a manner commercially reasonable under the
          circumstances, but Operator shall have no duty to share any existing market
          or
          transportation arrangement or to obtain a price or transportation fee equal
          to
          that received under any existing market or transportation arrangement.
          The sale
          or delivery by Operator of a non-taking party's share of production under
          the
          terms of any existing contract of Operator shall not give the non-taking
          party
          any interest in or make the non-taking party a party to said contract.
          No
          purchase of Oil and Gas and no sale of Gas shall be made by Operator without
          first giving the non-taking party ten days written notice of such intended
          purchase or sale and the price to be paid or the pricing basis to be used.
          Operator shall give notice to all parties of the first sale of Gas from
          any well
          under this Agreement.

        All
          parties shall give timely written notice to Operator of their Gas marketing
          arrangements for the following month, excluding price, and shall notify
          Operator
          immediately in the event of a change in such arrangements. Operator shall
          maintain records of all marketing arrangements, and of volumes actually
          sold or
          transported, which records shall be made available to Non-Operators upon
          reasonable request.

        


        ARTICLE
          VII.

        EXPENDITURES
          AND LIABILITY OF PARTIES

        A. Liability
          of Parties:

        The
          liability of the parties shall be several, not joint or collective. Each
          party
          shall be responsible only for its obligations, and shall be liable only
          for its
          proportionate share of the costs of developing and operating the Contract
          Area
          Accordingly, the liens granted among the parties in Article VII.B. are
          given to
          secure only the debts of each severally, and no party shall have any liability
          to third parties hereunder to satisfy the default of any other party in
          the
          payment of any expense or obligation hereunder. It is not the intention
          of the
          parties to create, nor shall this agreement be construed as creating, a
          mining
          or other partnership, joint venture, agency relationship or association,
          or to
          render the parties liable as partners, co-venturers, or principals. In
          their
          relations with each other under this agreement, the parties shall not be
          considered fiduciaries or to have established a confidential relationship
          but
          rather shall be free to act on an arm's-length basis in accordance with
          their
          own respective self-interest, subject, however, to the obligation of the
          parties
          to act in good faith in their dealings with each other with respect to
          activities hereunder.


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        B. Liens
          and Security Interests:

        Each
          party grants to the other parties hereto a lien upon any interest it now
          owns or
          hereafter acquires in Oil and Gas Leases and Oil and Gas Interests in the
          Contract Area, and a security interest and/or purchase money security interest
          in any interest it now owns or hereafter acquires in the personal property
          and
          fixtures on or used or obtained for use in connection therewith, to secure
          performance of all of its obligations under this agreement including but
          not
          limited to payment of expense, interest and fees, the proper disbursement
          of all
          monies paid hereunder, the assignment or relinquishment of interest in
          Oil and
          Gas Leases as required hereunder, and the proper performance of operations
          hereunder. Such lien and security interest granted by each party hereto
          shall
          include such party's leasehold interests, working interests, operating
          rights,
          and royalty and overriding royalty interests in the Contract Area now owned
          or
          hereafter acquired and in lands pooled or unitized therewith or otherwise
          becoming subject to this agreement, the Oil and Gas when extracted therefrom
          and
          equipment situated thereon or used or obtained for use in connection therewith
          (including, without limitation, all wells, tools, and tubular goods), and
          accounts (including, without limitation, accounts arising from gas imbalances
          or
          from the sale of Oil and/or Gas at the wellhead), contract rights, inventory
          and
          general intangibles relating thereto or arising therefrom, and all proceeds
          and
          products of the foregoing.

        To
          perfect the lien and security agreement provided herein, each party hereto
          shall
          execute and acknowledge the recording supplement and/or any financing statement
          prepared and submitted by any party hereto in conjunction herewith or at
          any
          time following execution hereof, and Operator is authorized to file this
          agreement or the recording supplement executed herewith as a lien or mortgage
          in
          the applicable real estate records and as a financing statement with the
          proper
          officer under the Uniform Commercial Code in the state in which the Contract
          Area is situated and such other states as Operator shall deem appropriate
          to
          perfect the security interest granted hereunder. Any party may file this
          agreement, the recording supplement executed herewith, or such other documents
          as it deems necessary as a lien or mortgage in the applicable real estate
          records and/or a financing statement with the proper officer under the
          Uniform
          Commercial Code.

        Each
          party represents and warrants to the other parties hereto that the lien
          and
          security interest granted by such party to the other parties shall be a
          first
          and prior lien, and each party hereby agrees to maintain the priority of
          said
          lien and security interest against all persons acquiring an interest in
          Oil and
          Gas Leases and Interests covered by this agreement by, through or under
          such
          party. All parties acquiring an interest in Oil and Gas Leases and Oil
          and Gas
          Interests covered by this agreement, whether by assignment, merger, mortgage,
          operation of law, or otherwise, shall be deemed to have taken subject to
          the
          lien and security interest granted by this Article VII.B. as to all obligations
          attributable to such interest hereunder whether or not such obligations
          arise
          before or after such interest is acquired.

        To
          the
          extent that parties have a security interest under the Uniform Commercial
          Code
          of the state in which the Contract Area is situated, they shall be entitled
          to
          exercise the rights and remedies of a secured party under the Code. The
          bringing
          of a suit and the obtaining of judgment by a party for the secured indebtedness
          shall not be deemed an election of remedies or otherwise affect the lien
          rights
          or security interest as security for the payment thereof. In addition,
          upon
          default by any party in the payment of its share of expenses, interests
          or fees,
          or upon the improper use of funds by the Operator, the other parties shall
          have
          the right, without prejudice to other rights or remedies, to collect from
          the
          purchaser the proceeds from the sale of such defaulting party's share of
          Oil and
          Gas until the amount owed by such party, plus interest as provided in Exhibit
          “C”, has been received, and shall have the right to offset the amount owed
          against the proceeds from the sale of such defaulting party's share of
          Oil and
          Gas. All purchasers of production may rely on a notification of default
          from the
          non-defaulting party or parties stating the amount due as a result of the
          default, and all parties waive any recourse available against purchasers
          for
          releasing production proceeds as provided in this paragraph.

        If
          any
          party fails to pay its share of cost within one hundred twenty (120) days
          after
          rendition of a statement therefor by Operator, the non-defaulting parties,
          including Operator, shall, upon request by Operator, pay the unpaid amount
          in
          the proportion that the interest of each such party bears to the interest
          of all
          such parties. The amount paid by each party so paying its share of the
          unpaid
          amount shall be secured by the liens and security rights described in Article
          VII.B., and each paying party may independently pursue any remedy available
          hereunder or otherwise.

        If
          any
          party does not perform all of its obligations hereunder, and the failure
          to
          perform subjects such party to foreclosure or execution proceedings pursuant
          to
          the provisions of this agreement, to the extent allowed by governing law,
          the
          defaulting party waives any available right of redemption from and after
          the
          date of judgment, any required valuation or appraisement of the mortgaged
          or
          secured property prior to sale, any available right to stay execution or
          to
          require a marshalling of assets and any required bond in the event a receiver
          is
          appointed. In addition, to the extent permitted by applicable law, each
          party
          hereby grants to the other parties a power of sale as to any property that
          is
          subject to the lien and security rights granted hereunder, such power to
          be
          exercised in the manner provided by applicable law or otherwise in a
          commercially reasonable manner and upon reasonable notice.

        Each
          party agrees that the other parties shall be entitled to utilize the provisions
          of Oil and Gas lien law or other lien law of any state in which the Contract
          Area is situated to enforce the obligations of each party hereunder. Without
          limiting the generality of the foregoing, to the extent permitted by applicable
          law, Non-Operators agree that Operator may invoke or utilize the mechanics'
          or
          materialmen's lien law of the state in which the Contract Area is situated
          in
          order to secure the payment to Operator of any sum due hereunder for services
          performed or materials supplied by Operator.

        C. Advances:

        Operator,
          at its election, shall have the right from time to time to demand and receive
          from one or more of the other parties payment in advance of their respective
          shares of the estimated amount of the expense to be incurred in operations
          hereunder during the next succeeding month, which right may be exercised
          only by
          submission to each such party of an itemized statement of such estimated
          expense, together with an invoice for its share thereof. Each such statement
          and
          invoice for the payment in advance of estimated expense shall be submitted
          on or
          before the 20th day of the next preceding month. Each party shall pay to
          Operator its proportionate share of such estimate within fifteen (15) days
          after
          such estimate and invoice is received. If any party fails to pay its share
          of
          said estimate within said time, the amount due shall bear interest as provided
          in Exhibit “C” until paid. Proper adjustment shall be made monthly between
          advances and actual expense to the end that each party shall bear and pay
          its
          proportionate share of actual expenses incurred, and no more.


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        D. Defaults
          and Remedies:

        If
          any
          party fails to discharge any financial obligation under this agreement,
          including without limitation the failure to make any advance under the
          preceding
          Article VII.C. or any other provision of this agreement, within the period
          required for such payment hereunder, then in addition to the remedies provided
          in Article VII.B. or elsewhere in this agreement, the remedies specified
          below
          shall he applicable. For purposes of this Article VII.D., all notices and
          elections shall be delivered only by Operator, except that Operator shall
          deliver any such notice and election requested by a non-defaulting Non-Operator,
          and when Operator is the party in default, the applicable notices and elections
          can be delivered by any Non-Operator. Election of any one or more of the
          following remedies shall not preclude the subsequent use of any other remedy
          specified below or otherwise available to a non-defaulting party.

        1. Suspension
          of Rights:
          Any
          party may deliver to the party in default a Notice of Default, which shall
          specify the default, specify the action to be taken to cure the default,
          and
          specify that failure to take such action will result in the exercise of
          one or
          more of the remedies provided in this Article. If the default is not cured
          within thirty (30) days of the delivery of such Notice of Default, all
          of the
          rights of the defaulting party granted by this agreement may upon notice
          be
          suspended until the default is cured, without prejudice to the right of
          the
          non-defaulting party or parties to continue to enforce the obligations
          of the
          defaulting party previously accrued or thereafter accruing under this agreement.
          If Operator is the party in default, the Non-Operators shall have in addition
          the right, by vote of Non-Operators owning a majority in interest in the
          Contract Area after excluding the voting interest of Operator, to appoint
          a new
          Operator effective immediately. The rights of a defaulting party that may
          be
          suspended hereunder at the election of the non-defaulting parties shall
          include,
          without limitation, the right to receive information as to any operation
          conducted hereunder during the period of such default, the right to elect
          to
          participate in an operation proposed under Article VI.B. of this agreement,
          the
          right to participate in an operation being conducted under this agreement
          even
          if the party has previously elected to participate in such operation, and
          the
          right to receive proceeds of production from any well subject to this
          agreement.

        2. Suit
          for Damages:
          Non-defaulting parties or Operator for the benefit of non-defaulting parties
          may
          sue (at joint account expense) to collect the amounts in default, plus
          interest
          accruing on the amounts recovered from the date of default until the date
          of
          collection at the rate specified in Exhibit "C" attached hereto. Nothing
          herein
          shall prevent any party from suing any defaulting party to collect consequential
          damages accruing to such party as a result of the default.

        3. Deemed
          Non-Consent:
          The
          non-defaulting party may deliver a written Notice of Non-Consent Election
          to the
          defaulting party at any time after the expiration of the thirty-day cure
          period
          following delivery of the Notice of Default, in which event if the billing
          is
          for the drilling of a new well or the Plugging Back, Sidetracking, Reworking
          or
          Deepening of a well which is to be or has been plugged as a dry hole, or
          for the
          Completion or Recompletion of any well, the defaulting party will be
          conclusively deemed to have elected not to participate in the operation
          and to
          be a Non-Consenting Party with respect thereto under Article VI.B or VI.C.,
          as
          the case may be, to the extent of the costs unpaid by such party,
          notwithstanding any election to participate theretofore made. If election
          is
          made to proceed under this provision, then the non-defaulting parties may
          not
          elect to sue for the unpaid amount pursuant to Article VII.D.2.

        Until
          the
          delivery of such Notice of Non-Consent Election to the defaulting party,
          such
          party shall have the right to cure its default by paying its unpaid share
          of
          costs plus interest at the rate set forth in Exhibit "C," provided, however,
          such payment shall not prejudice the rights of the non-defaulting parties
          to
          pursue remedies for damages incurred by the non-defaulting parties as a
          result
          of the default. Any interest relinquished pursuant to this Article VII.D.3.
          shall be offered to the non-defaulting parties in proportion to their interests,
          and the non-defaulting parties electing to participate in the ownership
          of such
          interest shall be required to contribute their shares of the defaulted
          amount
          upon their election to participate therein.

        4. Advance
          Payment:
          If a
          default is not cured within thirty (30) days of the delivery of a Notice
          of
          Default, Operator, or Non-Operators if Operator is the defaulting party,
          may
          thereafter require advance payment from the defaulting party of such defaulting
          party's anticipated share of any item of expense for which Operator, or
          Non-Operators, as the case may be, would be entitled to reimbursement under
          any
          provision of this agreement, whether or not such expense was the subject
          of the
          previous default. Such right includes, but is not limited to, the right
          to
          require advance payment for the estimated costs of drilling a well or Completion
          of a well as to which an election to participate in drilling or Completion
          has
          been made. If the defaulting party fails to pay the required advance payment,
          the non-defaulting parties may pursue any of the remedies provided in this
          Article VILD. or any other default remedy provided elsewhere in this agreement.
          Any excess of funds advanced remaining when the operation is completed
          and all
          costs have been paid shall be promptly returned to the advancing
          party.

        5. Costs
          and Attorneys' Fees.
          In the
          event any party is required to bring legal proceedings to enforce any financial
          obligation of a party hereunder, the prevailing party in such action shall
          be
          entitled to recover all court costs, costs of collection, and a reasonable
          attorney's fee, which the lien provided for herein shall also
          secure.

        E. Rentals,
          Shut-in Well Payments and Minimum Royalties:

        Rentals,
          shut-in well payments and minimum royalties which may be required under
          the
          terms of any lease shall be paid by the party or parties who subjected
          such
          lease to this agreement at its or their expense. In the event two or more
          parties own and have contributed interests in the same lease to this agreement,
          such parties may designate one of such parties to make said payments for
          and on
          behalf of all such parties. Any party may request, and shall be entitled
          to
          receive, proper evidence of all such payments. In the event of failure
          to make
          proper payment of any rental, shut-in well payment or minimum royalty through
          mistake or oversight where such payment is required to continue the lease
          in
          force, any loss which results from such non-payment shall be borne in accordance
          with the provisions of Article IV.B.2.

        Operator
          shall notify Non-Operators of the anticipated completion of a shut-in well,
          or
          the shutting in or return to production of a producing well, at least five
          (5)
          days (excluding Saturday, Sunday and legal holidays) prior to taking such
          action, or at the earliest opportunity permitted by circumstances, but
          assumes
          no liability for failure to do so. In the event of failure by Operator
          to so
          notify Non-Operators, the loss of any lease contributed hereto by Non-Operators
          for failure to make timely payments of any shut-in well payment shall be
          borne
          jointly by the parties hereto under the provisions of Article
          lV.B.3.

        F. Taxes:

        Beginning
          with the first calendar year after the effective date hereof, Operator
          shall
          render for ad valorem taxation all property subject to this agreement which
          by
          law should be rendered for such taxes, and it shall pay all such taxes
          assessed
          thereon before they become delinquent. Prior to the rendition date, each
          Non-Operator shall furnish Operator information as to burdens (to include,
          but
          not be limited to, royalties, overriding royalties and production payments)
          on
          Leases and Oil and Gas Interests contributed by such Non-Operator. If the
          assessed valuation of any Lease is reduced by reason of its being subject
          to
          outstanding excess royalties, overriding royalties or production payments,
          the
          reduction in ad valorem taxes resulting therefrom shall inure to the benefit
          of
          the owner or owners of such Lease, and Operator shall adjust the charge
          to such
          owner or owners so as to reflect the benefit of such reduction. If the
          ad
          valorem taxes are based in whole or in part upon separate valuations of
          each
          party's working interest, then notwithstanding anything to the contrary
          herein,
          charges to the joint account shall be made and paid by the parties hereto
          in
          accordance with the tax value generated by each party's working interest.
          Operator shall bill the other parties for their proportionate shares of
          all tax
          payments in the manner provided in Exhibit “C”.


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        If
          Operator considers any tax assessment improper, Operator may, at its discretion,
          protest within the time and manner prescribed by law, and prosecute the
          protest
          to a final determination, unless all parties agree to abandon the protest
          prior
          to final determination. During the pendency of administrative or judicial
          proceedings, Operator may elect to pay, under protest, all such taxes and
          any
          interest and penalty. When any such protested assessment shall have been
          finally
          determined, Operator shall pay the tax for the joint account, together
          with any
          interest and penalty accrued, and the total cost shall then be assessed
          against
          the parties, and be paid by them, as provided in Exhibit "C."

        Each
          party shall pay or cause to be paid all production, severance, excise,
          gathering
          and other taxes imposed upon or with respect to the production or handling
          of
          such party’s share of Oil and Gas produced under the terms of this
          agreement.

        ARTICLE
          VIII.

        ACQUISITION,
          MAINTENANCE OR TRANSFER OF INTEREST

        A. Surrender
          of Leases:

        The
          Leases covered by this agreement, insofar as they embrace acreage in the
          Contract Area, shall not be surrendered in whole or in part unless all
          parties
          consent thereto. However, should any party desire to surrender its interest
          in
          any Lease or in any portion thereof, such party shall give written notice
          of the
          proposed surrender to all parties, and the parties to whom such notice
          is
          delivered shall have thirty (30) days after delivery of the notice within
          which
          to notify the party proposing the surrender whether they elect to consent
          thereto. Failure of a party to whom such notice is delivered to reply within
          said 30 day period shall constitute a consent to the surrender of the Leases
          described in the notice. If all parties do not agree or consent thereto,
          the
          party desiring to surrender shall assign, without express or implied warranty
          of
          title, all of its interest in such Lease, or portion thereof, and any well,
          material and equipment which may be located thereon and any rights in production
          thereafter secured, to the parties not consenting to such surrender. If
          the
          interest of the assigning party is or includes an Oil and Gas Interest,
          the
          assigning party shall execute and deliver to the party or parties not consenting
          to such surrender an oil and gas lease covering such Oil and Gas Interest
          for a
          term of one (1) year and so long thereafter as Oil and/or Gas is produced
          from
          the land covered thereby, such lease to be on the form attached hereto
          as
          Exhibit “B”. Upon such assignment or lease, the assigning party shall be
          relieved from all obligations thereafter accruing, but not theretofore
          accrued,
          with respect to the interest assigned or leased and the operation of any
          well
          attributable thereto, and the assigning party shall have no further interest
          in
          the assigned or leased premises and its equipment and production other
          than the
          royalties retained in any lease made under the terms of this Article. The
          party
          assignee or lessee shall pay to the party assignor or lessor the reasonable
          salvage value of the latter's interest in any well's salvable materials
          and
          equipment attributable to the assigned or leased acreage. The value of
          all
          salvable materials and equipment shall be determined in accordance with
          the
          provisions of Exhibit “C”, less the estimated cost of salvaging and the
          estimated cost of plugging and abandoning and restoring the surface. If
          such
          value is less than such costs, then the party assignor or lessor shall
          pay to
          the party assignee or lessee the amount of such deficit. If the assignment
          or
          lease is in favor of more than one party, the interest shall be shared
          by such
          parties in the proportions that the interest of each bears to the total
          interest
          of all such parties. If the interest of the parties to whom the assignment
          is to
          be made varies according to depth, then the interest assigned shall similarly
          reflect such variances.

        Any
          assignment, lease or surrender made under this provision shall not reduce
          or
          change the assignor's, lessor's or surrendering party’s interest as it was
          immediately before the assignment, lease or surrender in the balance of
          the
          Contract Area; and the acreage assigned, leased or surrendered, and subsequent
          operations thereon, shall not thereafter be subject to the terms and provisions
          of this agreement but shall be deemed subject to an Operating Agreement
          in the
          form of this agreement.

        B. Renewal
          or Extension of Leases:

        If
          any
          party secures a renewal or replacement of an Oil and Gas Lease or Interest
          subject to this agreement, then all other parties shall be notified promptly
          upon such acquisition or, in the case of a replacement Lease taken before
          expiration of an existing Lease, promptly upon expiration of the existing
          Lease.
          The parties notified shall have the right for a period of thirty (30) days
          following delivery of such notice in which to elect to participate in the
          ownership of the renewal or replacement lease, insofar as such lease affects
          lands within the Contract Area, by paying to the party who acquired it
          their
          proportionate shares of the acquisition cost allocated to that part of
          such
          Lease within the Contract Area, which shall be in proportion to the interests
          held at that time by the parties in the Contract Area. Each party who
          participates in the purchase of a renewal or replacement Lease shall be
          given an
          assignment of its proportionate interest therein by the acquiring
          party.

        If
          some,
          but less than all, of the parties elect to participate in the purchase
          of a
          renewal or replacement Lease, it shall be owned by the parties who elect
          to
          participate therein, in a ratio based upon the relationship of their respective
          percentage of participation in the Contract Area to the aggregate of the
          percentages of participation in the Contract Area of all parties participating
          in the purchase of such renewal or replacement lease. The acquisition of
          a
          renewal or replacement lease by any or all of the parties hereto shall
          not cause
          a readjustment of the interests of the parties stated in Exhibit “A”, but any
          renewal or replacement Lease in which less than all parties elect to participate
          shall not be subject to this agreement but shall be deemed subject to a
          separate
          Operating Agreement in the form of this agreement.

        If
          the
          interests of the parties in the Contract Area vary according to depth,
          then
          their right to participate proportionately in renewal or replacement leases
          and
          their right to receive an assignment of interest shall also reflect such
          depth
          variances.

        The
          provisions of this Article shall apply to renewal or replacement leases
          whether
          they are for the entire interest covered by the expiring lease or cover
          only a
          portion of its area or an interest therein. Any renewal or replacement
          Lease
          taken before the expiration of its predecessor Lease, or taken or contracted
          for
          or becoming effective within six (6) months after the expiration of the
          existing
          Lease, shall be subject to this provision so long as this agreement is
          in effect
          at the time of such acquisition or at the time the renewal or replacement
          lease
          becomes effective; but any lease taken or contracted for more than six
          (6)
          months after the expiration of an existing lease shall not be deemed a
          renewal
          or replacement lease and shall not be subject to the provisions of this
          agreement. The provisions in this Article shall also be applicable to extensions
          of Oil and Gas leases.


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        C. Acreage
          or Cash Contributions:

        While
          this agreement is in force, if any party contracts for a contribution of
          cash
          towards the drilling of a well or any other operation on the Contract Area,
          such
          contribution shall be paid to the party who conducted the drilling or other
          operation and shall be applied by it against the cost of such drilling
          or other
          operation. If the contribution be in the form of acreage, the party to
          whom the
          contribution is made shall promptly tender an assignment of the acreage,
          without
          warranty of title, to the Drilling Parties in the proportions said Drilling
          Parties shared the cost of drilling the well. Such acreage shall become
          a
          separate Contract Area and, to the extent possible, be governed by provisions
          identical to this agreement. Each party shall promptly notify all other
          parties
          of any acreage or cash contributions it may obtain in support of any well
          or any
          other operation on the Contract Area The above provisions shall also be
          applicable to optional rights to earn acreage outside the Contract Area
          which
          are in support of well drilled inside the Contract Area. 

        If
          any
          party contracts for any consideration relating to disposition of such party's
          share of substances produced hereunder, such consideration shall not be
          deemed a
          contribution as contemplated in this Article VIlI.C.

        D. Assignment;
          Maintenance of Uniform Interest:

        For
          the purpose of maintaining uniformity of ownership in the Contract Area
          in the
          Oil and Gas leases, Oil and Gas Interests, wells, equipment and production
          covered by this agreement no party shall sell, encumber, transfer or make
          other
          disposition of its interest in the Oil and Gas leases and Oil and Gas Interests
          embraced within the Contract Area or in wells, equipment and production
          unless
          such disposition covers either:

        1. the
          entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests,
          wells, equipment and production; or

        2. an
          equal undivided percent of the party's present interest in all Oil and
          Gas
          Leases, Oil and Gas Interests, wells, equipment and production in the Contract
          Area.

        Every
          sale, encumbrance, transfer or other disposition made by any party shall
          be made
          expressly subject to this agreement and shall be made without prejudice
          to the
          right of the other parties, and any transferee of an ownership interest
          in any
          Oil and Gas Lease or Interest shall be deemed a party to this agreement
          as to
          the interest conveyed from and after the effective date of the transfer
          of
          ownership; provided, however, that the other parties shall not be required
          to
          recognize any such sale, encumbrance, transfer or other disposition for
          any
          purpose hereunder until thirty (30) days after they have received a copy
          of the
          instrument of transfer or other satisfactory evidence thereof in writing
          from
          the transferor or transferee. No assignment or other disposition of interest
          by
          a party shall relieve such party of obligations previously incurred by
          such
          party hereunder with respect to the interest transferred, including without
          limitation the obligation of a party to pay all costs attributable to an
          operation conducted hereunder in which such party has agreed to participate
          prior to making such assignment, and the lien and security interest granted
          by
          Article VII.B. shall continue to burden the interest transferred to secure
          payment of any such obligations.

        If,
          at
          any time the interest of any party is divided among and owned by four or
          more
          co-owners, Operator, at its discretion, may require such co-owners to appoint
          a
          single trustee or agent with full authority to receive notices, approve
          expenditures, receive billings for and approve and pay such party's share
          of the
          joint expenses, and to deal generally with, and with power to bind, the
          co-owners of such party's interest within the scope of the operations embraced
          in this agreement; however, all such co-owners shall have the right to
          enter
          into and execute all contracts or agreements for the disposition of their
          respective shares of the Oil and Gas produced from the Contract Area and
          they
          shall have the right to receive, separately, payment of the sale proceeds
          thereof.

        E. Waiver
          of Rights to Partition:

        If
          permitted by the laws of the state or states in which the property covered
          hereby is located, each party hereto owning an undivided interest in the
          Contract Area waives any and all rights it may have to partition and have
          set
          aside to it in severalty its undivided interest therein.

        F. Preferential
          Right to Purchase:

        [
          ]
          (Optional; Check if applicable.)

        Should
          any party desire to sell all or any part of its interests under this agreement,
          or its rights and interests in the Contract Area, it shall promptly give
          written
          notice to the other parties, with full information concerning its proposed
          disposition, which shall include the name and address of the prospective
          transferee (who must be ready, willing and able to purchase), the purchase
          price, a legal description sufficient to identify the property, and all
          other
          terms of the offer. The other parties shall then have an optional prior
          right,
          for a period of ten (10) days after the notice is delivered, to purchase
          for the
          stated consideration on the same terms and conditions the interest which
          the
          other party proposes to sell; and, if this optional right is exercised,
          the
          purchasing parties shall share the purchased interest in the proportions
          that
          the interest of each bears to the total interest of all purchasing parties.
          However, there shall be no preferential right to purchase in those cases
          where
          any party wishes to mortgage its interests, or to transfer title to its
          interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage
          of its interests, or to dispose of its interests by merger, reorganization,
          consolidation, or by sale of all or substantially all of its Oil and Gas
          assets
          to any party, or by transfer of its interests to a subsidiary or parent
          company
          or to a subsidiary of a parent company, or to any company in which such
          party
          owns a majority of the stock.

        


        ARTICLE
          IX.

        INTERNAL
          REVENUE CODE ELECTION

        If,
          for
          federal income tax purposes, this agreement and the operations hereunder
          are
          regarded as a partnership, and if the parties have not otherwise agreed
          to form
          a tax partnership pursuant to Exhibit “G” or other agreement between them, each
          party thereby affected elects to be excluded from the application of all
          of the
          provisions of Subchapter “K”, Chapter 1, Subtitle “A” of the Internal Revenue
          Code of 1986, as amended ("Code"), as permitted and authorized by Section
          761 of
          the Code and the regulations promulgated thereunder. Operator is authorized
          and
          directed to execute on behalf of each party hereby affected such evidence
          of
          this election as may be required by the Secretary of the Treasury of the
          United
          States or the Federal Internal Revenue Service, including specifically,
          but not
          by way of limitation, all of the returns, statements, and the data required
          by
          Treasury Regulations Â§1.761. Should there be any requirement that each party
          hereby affected give further evidence of this election, each such party
          shall
          execute such documents and furnish such other evidence as may be required
          by the
          Federal Internal Revenue Service or as may be necessary to evidence this
          election. No such party shall give any notices or take any other action
          inconsistent with the election made hereby. If any present or future income
          tax
          laws of the state or states in which the Contract Area is located or any
          future
          income tax laws of the United States contain provisions similar to those
          in
          Subchapter “K”, Chapter 1, Subtitle “A”, of the Code, under which an election
          similar to that provided by Section 761 of the Code is permitted, each
          party
          hereby affected shall make such election as may be permitted or required
          by such
          laws. In making the foregoing election, each such party stares that the
          income
          derived by such party from operations hereunder can be adequately determined
          without the computation of partnership taxable income.


        
          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        ARTICLE
          X.

        CLAIMS
          AND LAWSUITS

        Operator
          may settle any single uninsured third party damage claim or suit arising
          from
          operations hereunder if the expenditure does not exceed __ten
          thousand_ Dollars ($10,000.00)
          and if
          the payment is in complete settlement of such claim or suit. If the amount
          required for settlement exceeds the above amount, the parties hereto shall
          assume and take over the further handling of the claim or suit, unless
          such
          authority is delegated to Operator. All costs and expenses of handling,
          settling, or otherwise discharging such claim or suit shall be at the joint
          expense of the parties participating in the operation from which the claim
          or
          suit arises. If a claim is made against any party or if any party is sued
          on
          account of any matter arising from operations hereunder over which such
          individual has no control because of the rights given Operator by this
          agreement, such party shall immediately notify all other parties, and the
          claim
          or suite shall be treated as any other claim or suit involving operations
          hereunder.

        


        ARTICLE
          XI.

        FORCE
          MAJEURE

        If
          any
          party is rendered unable, wholly or in part, by force majeure to carry
          out its
          obligations under this agreement, other than the obligation to indemnify
          or make
          money payments or furnish security, that party shall give to all other
          parties
          prompt written notice of the force majeure with reasonably full particulars
          concerning it; thereupon, the obligations of the party giving the notice,
          so far
          as they are affected by the force majeure, shall be suspended during, but
          no
          longer than, the continuance of the force majeure. The term "force majeure,"
          as
          here employed, shall mean an act of God, strike, lockout, or other industrial
          disturbance, act of the public enemy, war, blockade, public riot, lightning,
          fire, storm, flood or other act of nature, 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
          suspension.

        The
          affected party shall use all reasonable diligence to remove the force majeure
          situation as quickly as practicable. The requirement that any 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,
          contrary
          to its wishes; how all such difficulties shall be handled shall be entirely
          within the discretion of the party concerned.

        


        ARTICLE
          XII.

        NOTICES

        All
          notices authorized or required between the parties by any of the provisions
          of
          this agreement, unless otherwise specifically provided, shall be in writing
          and
          delivered in person or by United States mail, courier service, telegram,
          telex,
          telecopier or any other form of facsimile, postage or charges prepaid,
          and
          addressed to such parties at the addresses listed on Exhibit "A." All telephone
          or oral notices permitted by this agreement shall be confirmed immediately
          thereafter by written notice. The originating notice given under any provision
          hereof shall be deemed delivered only when received by the party to whom
          such
          notice is directed, and the time for such party to deliver any notice in
          response thereto shall run from the date the originating notice is received.
          "Receipt" for purposes of this agreement with respect to written notice
          delivered hereunder shall be actual delivery of the notice to the address
          of the
          party to be notified specified in accordance with this agreement, or to
          the
          telecopy, facsimile or telex machine of such party. The second or any responsive
          notice shall be deemed delivered when deposited in the United States mail
          or at
          the office of the courier or telegraph service, or upon transmittal by
          telex,
          telecopy or facsimile, or when personally delivered to the party to be
          notified,
          provided, that when response is required within 24 or 48 hours, such response
          shall be given orally or by telephone, telex, telecopy or other facsimile
          within
          such period. Each party shall have the right to change its address at any
          time,
          and from time to time, by giving written notice thereof to all other parties.
          If
          a party is not available to receive notice orally or by telephone when
          a party
          attempts to deliver a notice required to be delivered within 24 or 48 hours,
          the
          notice may be delivered in writing by any other method specified herein
          and
          shall be deemed delivered in the same manner provided above for any responsive
          notice.

        


        ARTICLE
          XIII,

        TERM
          OF AGREEMENT

        This
          agreement shall remain in full force and effect as to the Oil and Gas Leases
          and/or Oil and Gas Interests subject hereto for the period of time selected
          below; provided, however, no party hereto shall ever be construed as having
          any
          right, title or interest in or to any Lease or Oil and Gas Interest contributed
          by any other party beyond the term of this agreement.

        [
          X
          ]
Option
          No. 1:
          So long
          as any of the Oil and Gas Leases subject to this agreement remain or are
          continued in force as to any part of the Contract Area, whether by production,
          extension, renewal or otherwise.

        [
          ]
Option
          No. 2:
          In the
          event the well described in Article VI.A., or any subsequent well drilled
          under
          any provision of this agreement, results in the Completion of a well as
          a well
          capable of production of Oil and/or Gas in paying quantities, this agreement
          shall continue in force so long as any such well is capable of production,
          and
          for an additional period of  days
          thereafter; provided, however, if, prior to the expiration of such additional
          period, one or more of the parties hereto are engaged in drilling, Reworking,
          Deepening, Sidetracking, Plugging Back, testing or attempting to Complete
          or
          Re-complete a well or wells hereunder, this agreement shall continue in
          force
          until such operations have been completed and if production results therefrom,
          this agreement shall continue in force as provided herein. In the event
          the well
          described in Article VI.A., or any subsequent well drilled hereunder, results
          in
          a dry hole, and no other well is capable of producing Oil and/or Gas from
          the
          Contract Area, this agreement shall terminate unless drilling, Deepening,
          Sidetracking, Completing, Re-completing, Plugging Back or Reworking operations
          are commenced within    days
          from
          the date of abandonment of said well. "Abandonment" for such purposes shall
          mean
          either (i) a decision by all parties not to conduct any further operations
          on
          the well or (ii) the elapse of 180 days from the conduct of any operations
          on
          the well, whichever first occurs.


        
          
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              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        The
          termination of this agreement shall not relieve any party hereto from any
          expense, liability or other obligation or any remedy therefor which has
          accrued
          or attached prior to the date of such termination.

        Upon
          termination of this agreement and the satisfaction of all obligations hereunder,
          in the event a memorandum of this Operating Agreement has been filed of
          record,
          Operator is authorized to file of record in all necessary recording offices
          a
          notice of termination, and each party hereto agrees to execute such a notice
          of
          termination as to Operator's interest, upon request of Operator, if Operator
          has
          satisfied all its financial obligations.

        


        ARTICLE
          XIV.

        COMPLIANCE
          WITH LAWS AND REGULATIONS

        


        A. Laws,
          Regulations and Orders:

        This
          agreement shall be subject to the applicable laws of the state in which
          the
          Contract Area is located, to the valid rules, regulations, and orders of
          any
          duly constituted regulatory body of said state; and to all other applicable
          federal, state, and local laws, ordinances, rules, regulations and
          orders.

        B. Governing
          Law:

        This
          agreement and all matters pertaining hereto, including but not limited
          to
          matters of performance, non-performance, breach, remedies, procedures,
          rights,
          duties, and interpretation or construction, shall be governed and determined
          by
          the law of the state in which the Contract Area is located. If the Contract
          Area
          is in two or more states, the law of the state of Nevada
          shall
          govern.

        C. Regulatory
          Agencies:

        Nothing
          herein contained shall grant, or be construed to grant, Operator the right
          or
          authority to waive or release any rights, privileges, or obligations which
          Non-Operators may have under federal or state laws or under rules, regulations
          or orders promulgated under such laws in reference to oil, gas and mineral
          operations, including the location, operation, or production of wells,
          on tracts
          offsetting or adjacent to the Contract Area.

        With
          respect to the operations hereunder, Non-Operators agree to release Operator
          from any and all losses, damages, injuries, claims and causes of action
          arising
          out of, incident to or resulting directly or indirectly from Operator's
          interpretation or application of rules, rulings, regulations or orders
          of the
          Department of Energy or Federal Energy Regulatory Commission or predecessor
          or
          successor agencies to the extent such interpretation or application was
          made in
          good faith and does not constitute gross negligence. Each Non-Operator
          further
          agrees to reimburse Operator for such Non-Operator's share of production
          or any
          refund, fine, levy or other governmental sanction that Operator may be
          required
          to pay as a result of such an incorrect interpretation or application,
          together
          with interest and penalties thereon owing by Operator as a result of such
          incorrect interpretation or application.

        


        ARTICLE
          XV.

        MISCELLANEOUS

        A. Execution:

        This
          agreement shall be binding upon each Non-Operator when this agreement or
          a
          counterpart thereof has been executed by such Non-Operator and Operator
          notwithstanding that this agreement is not then or thereafter executed
          by all of
          the parties to which it is tendered or which are listed on Exhibit “A” as owning
          an interest in the Contract Area or which own, in fact, an interest in
          the
          Contract Area. Operator may, however, by written notice to all Non-Operators
          who
          have become bound by this agreement as aforesaid, given at any time prior
          to the
          actual spud date of the Initial Well but in no event later than five days
          prior
          to the date specified in Article VI.A. for commencement of the Initial
          Well,
          terminate this agreement if Operator in its sole discretion determines
          that
          there is insufficient participation to justify commencement of drilling
          operations. In the event of such a termination by Operator, all further
          obligations of the parties hereunder shall cease as of such termination.
          In the
          event any Non-Operator has advanced or prepaid any share of drilling or
          other
          costs hereunder, all sums so advanced shall be returned to such Non-Operator
          without interest. In the event Operator proceeds with drilling operations
          for
          the Initial Well without the execution hereof by all persons listed on
          Exhibit
          "A" as having a current working interest in such well, Operator shall indemnify
          Non-Operators with respect to all costs incurred for the Initial Well which
          would have been charged to such person under this agreement if such person
          had
          executed the same and Operator shall receive all revenues which would have
          been
          received by such person under this agreement if such person had executed
          the
          same.

        B. Successors
          and Assigns:

        This
          agreement shall be binding upon and shall inure to the benefit of the parties
          hereto and their respective heirs, devisees, legal representatives, successors
          and assigns, and the terms hereof shall be deemed to run with the Leases
          or
          Interests included within the Contract Area.

        C. Counterparts:

        This
          instrument may be executed in any number of counterparts, each of which
          shall be
          considered an original for all purposes.

        D. Severability:

        For
          the
          purposes of assuming or rejecting this agreement as an executory contract
          pursuant to federal bankruptcy laws, this agreement shall not be severable,
          but
          rather must be assumed or rejected in its entirety, and the failure of
          any party
          to this agreement to comply with all of its financial obligations provided
          herein shall be a material default.

        


        


        



        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
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            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        


        ARTICLE
          XVI.

        OTHER
          PROVISIONS

        


        Article
          XVI.

        Other
          Provisions

        


        1. AFE
          Overruns: Notwithstanding
          anything hereinabove to the contrary, in the event it appears that the
          actual
          costs and expenses to be incurred in a proposed operation as defined hereinabove
          by Article VI., will exceed one hundred twenty-five percent (125%) of the
          estimated costs and expenses therefore as set forth in the most recent
          Authorization for Expenditure (AFE) mutually agreed upon by the Consenting
          Parties, then any of such Consenting Parties shall have the right (subject
          to
          the obligation to pay their pro rata share of the one hundred twenty-five
          percent (125%) of the costs set forth in the last mutually agreed upon
          AFE) to
          elect to become a Non-Consenting Party and be governed by Article VI.B.2.
          hereof. The additional costs and expenses incurred in the proposed operation
          by
          any of the other Consenting Parties and the penalties provided for in Article
          VI.B.2. (b) hereof, as modified below, shall be based upon only those costs
          and
          expenses exceeding one hundred twenty-five percent (125%) of the last mutually
          agreed upon AFE which would have been chargeable to the Non-Consenting
          Party if
          it had continued to participate in the operations being conducted. The
          election
          provided above must be sent in writing by the Party making such election
          to each
          of the Consenting Parties within five (5) days after: (1) Such Party sending
          the
          notice has actually paid one hundred twenty-five percent (125%) of the
          costs and
          expenses set forth on the last mutually approved AFE, (2) Such Party has
          received from the Operator a proposed, revised AFE setting forth costs
          and
          expenses totaling more than one hundred twenty-five percent (125%) of the
          last
          mutually approved AFE, whichever shall first occur. The Operator shall
          furnish
          all Consenting Parties with daily drilling reports, which shall show the
          cumulative costs, and expenses, which have been incurred in the proposed
          operation. In addition, a proposed revised AFE shall be prepared by the
          Operator
          and furnished to all Consenting Parties immediately after that point in
          time
          when the Operator estimates that costs and expenses have been incurred
          which
          total more than one-hundred twenty-five percent (125%) of the last mutually
          approved AFE.

        


        In
          the
          event a Party elects to be a Non-Consenting Party under the provisions
          of this
          Article, the penalties shall be the same as those provided for in Article
          VI.B.2
          (a) and (b).

        


        These
          provisions shall never be applicable to emergency situations such as blowouts
          and other catastrophes and all Consenting Parties shall continue to be
          liable
          for their proportionate share of all costs until such emergency situation
          has
          been resolved and all costs associated therewith, including the cost of
          any
          damages which may have been incurred, have been paid, unless the emergency
          develops after a Party elects to go non-consent pursuant to this
          provision.

        


        


        2.  Priority
          of Operations. If
          at any
          time there is more than one operation proposed in connection with any well
          subject to this agreement, then unless all Consenting Parties agree on
          the
          sequence of such operations, such proposals shall be considered and disposed
          of
          in the following order of priority:

        


        (a).
          Proposals to do additional testing, coring or logging.

        


        (b).
          Proposals to attempt a completion in the objective zone.

        


        (c).
          Proposals to plug back and attempt completions in shallower zones, in ascending
          order.

        


        (d).
          Proposals to deepen the well, in descending order.

        


        (e).
          Proposals to sidetrack the well.

        


        With
          respect to any single well, no Party may propose conducting any new operation
          on
          such well (i) while there is pending a prior proposal for any operation
          respecting such well until that proposal is withdrawn or until the operation
          contemplated thereby has been completed, or (ii) while there is in progress
          any
          operation on such well until such operation has been completed.

        


        


        3. Accounting
          Procedures.
          Notwithstanding anything to the
          contrary in the COPAS, attached as Exhibit C to the JOA, Non-Operator has
          the
          right to request and receive from the Operator any third party backup invoices
          for any itemized statement furnished to the Non-Operator by the Operator
          and the
          Operator agrees to furnish such backup as requested by the Non-Operator
          within
          thirty (30) days of such
          request, at no expense to the non-operator.

        



        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -20-

            
              

            

          

          
            
            

            
            

            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        4. Discounts,
          Credits and Tubulars.
          The
          following, notwithstanding anything herein to the contrary, shall be made
          a part
          of and
          included in the Accounting Procedure attached hereto as Exhibit
          "C":

        


        
          
            	
                  	a.	
                    In
                      the event any Non-Operator is required under any applicable
                      provisions
                      of the
                      Operating Agreement or under Article I (3) of the
                      Accounting Procedure attached hereto as Exhibit "C" to advance
                      or prepay
                      funds for any operation to which it has consented, any discounts
                      offered
                      by vendors selling to the Joint Account during the applicable
                      provision of
                      such prepay situation shall be credited pro rata by Operator
                      to such
                      Non-Operator.

                  


          

        

        


        
          	 	
                  b.

                	
                  Any
                    volume discounts or special rebates, which are credited to the
                    Operator by
                    vendors selling to the Joint Account, shall be credited to the
                    Joint
                    Account when received by Operator.

                


        

        


        
          	 	
                  c.

                	
                  In
                    the event Operator plans to use its own equipment for any operations
                    hereunder, or the equipment of any
                    subsidiary, parent company or sister company, Operator agrees
                    that the
                    charge to the Joint Account for the use of such
                    equipment shall be lower than or equal to the competitive market
                    price for
                    the use of similar
                    equipment.

                


        

        


        
          	 	
                  d.

                	
                  In
                    the event Operator plans to purchase goods and/or services for
                    the Joint
                    Account from its own subsidiaries, parent company or sister companies,
                    such goods and services shall be competitively
                    priced.

                


        

        


        
          	 	
                  e.

                	
                  After
                    close of operations
                    on any well drilled hereunder, any unused or salvaged tubulars
                    shall be
                    credited to the
                    Joint Account, offered proportionately to the Non-Operators "in
                    kind" or
                    sold to a third party with a credit being reflected to the Joint
                    Account.

                


        

          
          

        
          	
                	f.	
                  Operator
                    agrees to acquire
                    any tubular goods obtained for the Joint Account at competitive
                    market
                    price. If Operator
                    wishes to use tubular goods from its
                    own inventory, or the inventory of any
                    subsidiary, parent company or sister company, such tubulars shall
                    be
                    charged to the
                    Joint Account at prices, which are equal to or lower than competitive
                    market price. In no event shall Operator charge the Joint Account
                    for
                    material transfers from its
                    own inventory at mill price when mill price is in excess of competitive
                    market price

                


        

        


        


        5. Option
          to Act
          as
          Operator. Notwithstanding
          anything herein contained to the
          contrary, in the event that Operator is a Non-Consenting Party for any
          particular operation, then a Non-Operator may conduct such operation upon
          approval of a
          majority of the
          Consenting Parties. Such Non-Operator will operate the well through the
          Non-Consent period and handle. the accounting and distribution of
          funds.

        


        


        6. Participation
          in Required Wells:

        


        a. The
          parties understand and agree that the non-consent provisions of Article
          VI.B.2.
          of this Agreement shall be applicable only to any well that is not (i)
          an
          earning well that will earn an additional lease or leases or interest therein
          pursuant to any farmout or other agreement or (ii) a well that will prevent
          the
          expiration of a lease that is within six (6) months of expiration. Any
          such well
          that is an earning well or a lease perpetuation well shall be deemed to
          be a
          "Required Well."

        


        b. As
          to any
          Required Well proposed by any party that is an earning well under a farm-in
          or
          other agreement in which any other party elects not to participate, if
          the well
          is drilled within the time and to the depth stated in the notice of such
          well,
          the Non-Consenting Party shall release and relinquish forever to the Consenting
          Parties, in proportion to their interests, all of its interest in and to
          the
          farmin agreement not theretofore earned under the terms of the farm-in
          agreement. If a party elects not to participate in a completion attempt
          of such
          a Required Well and if completion of the well as a producer is necessary
          to earn
          interest under the farm-in or other agreement, such non-participation shall
          be
          treated as a non-participation in the drilling of such well for purposes
          of this
          Article XVI.6.


        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -21-

            
              

            

          

          
            
            

            
            

            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        c. As
          to any
          well proposed by a party that is necessary to perpetuate an expiring lease
          or
          leases in which any other party elects not to participate the Non-Consenting
          Party shall release and relinquish forever to the Consenting Parties, in
          proportion to their interests, all of its interest in the lease or leases
          to be
          perpetuated by such well, together with any lease or interest therein pooled
          therewith to form a spacing or production unit pursuant to governmental
          regulation. For purposes of this para-graph, a well shall be deemed necessary
          to
          perpetuate an expiring lease if proposed within six (6) months of the date
          of
          expiration of the term of the lease.

        


        d. The
          interests relinquished under this Article XVI.6. shall be assigned by a
          Non-Consenting Party to the Consenting Parties with warranty of title as
          to
          claims by, through, or under assignor and shall be free of any additional
          burdens not otherwise described in this Operating Agreement or the Agreement
          to
          which this Operating Agreement is attached. Nothing in this Article XVI.6.
          shall
          be construed as requiring a relinquishment of any Non-Consenting Party's
          interest in any producing wells or spacing units associated therewith.
          Jointly
          owned interests in which a party relinquishes interest thereunder shall
          be
          deemed subject to an Operating Agreement in the form of this Operating
          Agreement, modified to reflect the interests of the parties
          thereto.

        


        


        7. Non-Drilling
          Operations: Notwithstanding
          any provision hereof to the contrary, should any Party to this Agreement
          propose
          the acquisition, construction, and/or operation of gathering line(s), disposal
          well(s), or any production, transportation or marketing facilities to serve,
          in
          whole or in part, the Contract Area, then such Party shall deliver written
          notice thereof to all other parties to this Agreement providing each such
          Party
          with the estimated costs and terms of such acquisition, construction and/or
          operation. Each non-proposing Party shall have the option, for a period
          of
          thirty (30) days from its receipt of such notice, to elect to participate
          in the
          proposed non-drilling operation for the same undivided interest as set
          forth on
          Exhibit "A." If any Party to this Agreement elects not to participate in
          the
          proposed non-drilling operation, then such Party shall have no interest
          in such
          facility and shall be subject to such fees for use of the facility as may
          be
          charged by the owner(s) thereof that are reasonable for the area. Any Party
          who
          elects to participate in the proposed non-drilling operation shall be obligated
          to pay its proportionate share of the costs of the proposed project in
          accordance with Article VII.C. Any Party who elects to participate in the
          proposed project and who pays its share of the cost thereof shall own that
          undivided interest in the facility. No fee shall ever be charged to a
          participating Party for any use of the non-drilling facility attributable
          to
          production from the Contract Area.

        


        If
          any
          Party to this Agreement conducts seismic operations on the Contract Area,
          that
          Party shall offer all the other Parties their proportionate share and interest
          in the seismic operations, subject to the other Parties paying their
          proportionate share of such cost of the seismic operations. Any Party electing
          not to participate in the seismic operations shall have no access to the
          seismic
          operations. All Parties must pay their proportionate share of the seismic
          costs
          within thirty (30) days, or at the option of the Party or Parties conducting
          the
          seismic operations, the Parties will be denied access to such seismic operations
          and resulting data.

        


        


        8. Operator's
          Reporting Obligations: Operator
          shall inform Non-Operators of its recommendation for drilling, completing,
          testing, equipping, including building of facilities, in enough time to
          allow
          Non-Operators to provide their input regarding these operations. Operator
          shall,
          throughout the course of all operations conducted hereunder, keep Non-Operators
          fully informed with respect thereto, furnishing to Non-Operators in a timely
          manner, among other things, copies of all location plats, well prognosis,
          forms
          required by any governmental office or body, daily drilling reports, notices
          of
          shows, notices prior to logging, coring and testing, and copies of all
          logs,
          core analysis and testing results. Non-Operators shall be notified in sufficient
          time prior to logging, coring or testing in order to have the opportunity
          of
          having their representatives present. Non-Operators and its duly authorized
          agents, employees, and representatives shall have access to said well at
          all
          times at their sole risk and expense.

        


        


        9. Receipt
          of Revenue: Subject
          to Operator's liens, the Operator will use its best efforts to facilitate
          the
          Non-Operator's right to receive its revenue directly from the crude oil
          purchaser. However, in the event any purchaser of production from the Contract
          Area remits all of the proceeds therefore to the Operator for distribution,
          the
          Operator shall remit to each working interest owner and royalty owner his
          or its
          proportionate share of said proceeds received by the Operator within thirty
          (30)
          days after receipt by the Operator of such proceeds, and if Non-Operator
          does
          not receive its proceed within said thirty (30) day period, the Operator
          will be
          liable for interest payments of prime plus 1 % as reported by Chase Manhattan
          Bank, New York, New York, which interest payments will be computed after
          the
          expiration of the thirty (30) day period set forth above. .

        



        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -22-

            
              

            

          

          
            
            

            
            

            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        


        10. Effect
          of Bankruptcy: If
          Operator becomes insolvent, bankrupt or is placed in receivership, it shall
          be
          deemed to have resigned without any action by Non-Operators, except the
          selection of a successor. If a petition for relief under the federal bankruptcy
          laws is filed by or against Operator, and the removal of Operator is prevented
          by the federal bankruptcy court, all Non-Operators and Operator shall comprise
          an interim operating committee to serve until Operator has elected to reject
          or
          assume this agreement pursuant to the Bankruptcy Code, and an election
          to reject
          this agreement by Operator as a debtor in possession, or by a trustee in
          bankruptcy, shall be deemed a resignation as Operator without any action
          by
          Non-Operators, except the selection of a successor. During the period of
          time
          the operating committee controls operations, all actions shall require
          the
          approval of two (2) or more Parties owning a majority interest based on
          ownership as shown on Exhibit "A". In the event there are only two (2)
          Parties
          to this agreement, during the period of time the operating committee controls
          operations, a third Party acceptable to Operator, Non-Operator and the
          federal
          bankruptcy court shall be selected as a member of the operating committee,
          and
          all actions shall require the approval of two (2) members of the operating
          committee without regard for their interest in the Contract Area based
          on
          Exhibit" A".

        


        


        11. Marketing
          of Hydrocarbons: On
          all
          sales of hydrocarbons, the Non-Operator's revenue shall be based on total
          gross
          proceeds received by the Operator or its affiliates. The Operator shall
          disclose
          to the Non-Operator any affiliate transactions or trades related to crude
          oil
          and gas sales from the Contract Area.

        


        


        12. Confidentiality:
          Each
          Party entitled to information obtained hereunder or pursuant to this Agreement
          may use such information for its sole benefit. However, the Parties shall
          take
          such measures with respect to operations of internal security as are appropriate
          in the circumstances to keep confidential from third parties all such
          information, except information which the Parties have expressly agreed
          among
          themselves to release and information: disclosed by a Party:

        


        
          	
                	a.	
                  when
                    and to the extent required by the Regulations and Securities
                    laws
                    applicable to such Party, provided that such Party shall invoke
                    any
                    confidentiality protection permitted by such Regulation and Securities
                    laws;

                


        

         

        
          	
                	b.	
                  to
                    a third person to which such Party has been permitted to assign
                    a portion
                    of its interest hereunder, provided that a binding covenant is
                    obtained
                    from such third person prior to disclosure which provides, inter
                    alia,
                    that none of such information shall be disclosed by it to any
                    other third
                    person; and

                


        

         

        to
          the
          technical, financial or other professional consultants of such Party which
          require such information to provide their services to such Party or to
          a bank or
          other financial institution from which such Party is attempting to obtain
          financing, provided that a binding covenant is obtained from such consultant
          or
          financier, as the case may be, prior to such disclosure, which provides,
          inter
          alia, that none of such information shall be disclosed by it to any other
          third
          person or used for any purposes other than advising such Party or providing
          financing to such Party, as the case may be.

        


        13. Casing
          Point Election for Horizontal Wells (Pilot Well): In
          the
          event any well proposed hereunder or under the Participation Agreement
          to which
          this is Operating Agreement is attached is proposed as a horizontal well
          the
          Parties electing to participate in such well shall have a casing point
          election
          as further described in this Article 13. When such pilot hole has reached
          its
          authorized depth, has been logged, and a copy of such log has been furnished
          to
          the participating parties, Operator shall give immediate notice to the
          Non-Operators who have participated in the drilling of the pilot hole if
          Operator proposes drilling a horizontal borehole from such pilot hole,
          describing in such notice the formation and the length of horizontal borehole
          to
          be drilled. The parties receiving such notice shall have twenty-four (24)
          hours
          (inclusive of Saturday, Sunday and legal holidays) in which to elect to
          participate in the drilling of the proposed horizontal borehole. Such election,
          when made, shall include consent to all necessary expenditures for the
          drilling
          of the proposed horizontal borehole, any open hole completion costs and
          all
          necessary tankage and/or surface facilities. Failure of any party receiving
          such
          notice to reply within the period above fixed shall constitute an election
          by
          that party not to participate in the cost of the drilling of the horizontal
          borehole. If the well to which this election applies is an Initial Exploratory
          Test Well, as described in Article 3. of the Participation Agreement and
          if one
          or more, but less than all of the parties, elect to drill the horizontal
          borehole, the provisions of said Article 3. shall apply to the Parties
          electing
          not to participate in the drilling of the horizontal bore hole. For all
          other
          wells to which such election applies any Party electing not to participate
          in
          the drilling of the horizontal bore hole shall be subject to the terms
          of
          Article VI.B.2 hereof (the phrase "reworking, deepening or plugging back"
          as
          contained in Article VI.B.2 shall be deemed to include "drilling of a horizontal
          borehole").

          


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        


        


        IN
          WITNESS WHEREOF, this agreement shall be effective as of the 1st
          day of
November
          2005


        
          
            	 	 	 	 	 
	 	 	 	 
	ATTEST
                    OR WITNESS:	 	 	OPERATOR	 
	 	 	 	 
	 	 	By:  	 
	 	 	
                  
	 	 	Type
                    or print name
	 	Title	 
	 	Date	 
	 	Tax
                    ID or S.S. No. 	 


          

     

        NON-OPERATORS

        


        
          
            	 	 	 	 
	 	 	 	 	 
	 	 	 	 
	 	 	By:  	 
	 	 	
                  
	 	 	Type
                    or print name
	 	Title	 
	 	Date	 
	 	Tax
                    ID or S.S. No. 	 


          


          


          
            
              	 	 	 	 
	 	 	 	 	 
	 	 	 	 
	 	 	By:  	 
	 	 	
                    
	 	 	Type
                      or print name
	 	Title	 
	 	Date	 
	 	Tax
                      ID or S.S. No. 	 


            


        

        



        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -23-

            
              

            

          

          
            
            

            
            

            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        ACKNOWLEDGMENTS

        


        Note: The
          following forms of acknowledgment are the short forms approved by the Uniform
          Law on Notarial Acts. The validity and effect of these forms in any state
          will
          depend upon the statutes of that state.

         

        Individual
          acknowledgment:

        


        State
          of
          __________________)


        )
          ss.


        County
          of________________)

        


        This
          instrument was acknowledged before me on

         

        

          
            	
                  	
                    by

                  	 
	 	 	 
	 	 	 
	
                    (Seal,
                      if any)

                  	 
	 	
                    Title
                      (and Rank)____________________________________________

                  
	 	
                    My
                      commission
                      expires:______________________________________

                  


          

        

        


        Acknowledgment
          in representative capacity:

        


        
          State
            of
            __________________)


          )
            ss.


          County
            of________________)

          




        This
          instrument was acknowledged before me on

        
          

            
              	
                    	
                      by

                    	 	 as
	 	 	 	 
	 	 	 	 
	
                      (Seal,
                        if any)

                    	 	 
	 	
                      Title
                        (and Rank)____________________________________________

                    	 
	 	
                      My
                        commission expires:______________________________________

                    	 


            

          

          
 

        


        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -24-

            
              

            

          

          
            
            

            
            

            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        


        EXHIBIT
          “A”

        


        Attached
          to and made a part of that certain Operating Agreement, dated November
          1, 2005,
          by and between Eden Energy Corp., as Operator and Merganser Limited as
          Non
          Operator.

        


        


        1. LANDS
          SUBJECT TO THE OPERATING AGREEMENT (“CONTRACT AREA”)

        Township
          9 North, Ranges 53-54 East

        Township
          10 North, Ranges 53-54 East

        Township
          11 North, Ranges 53-54 East

        Township
          12 North, Ranges 53-54 East

        Township
          13 North, Ranges 53-54 East

        


        2. RESTRICTIONS,
          IF ANY, AS TO DEPTH, FORMATIONS AND SUBSTANCES

        


        None

        


        3. PARTIES
          WORKING INTEREST OWNERSHIP WITHIN THE CONTRACT AREA

        


        
          	
                  Eden
                    Energy Corp.

                	
                  50%

                
	
                  Merganser
                    Limited

                	
                  50%*

                


        

        


        *After
          payment of the Consideration as described in the Participation Agreement
          to
          which this is attached.

        


        4. OIL
          AND
          GAS LEASES SUBJECT TO THIS AGREEMENT

        


        To
          be
          provided at a later date

        


        



        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -25-

            
              

            

          

          
            
            

            
            

            A.A.P.L.
              FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
              (REVISED)

          

        


        


        EXHIBIT
          “D”

        


        Attached
          to and made a part of that certain Operating Agreement, dated November
          1, 2005,
          by and between Eden Energy Corp., as Operator and Merganser Limited as
          Non
          Operator

        


        INSURANCE
          EXHIBIT

        


        


        Operator
          shall maintain the following insurance coverage with respect to operations
          performed on the properties under the Operating Agreement to which this
          Exhibit
          D is attached for the benefit of the Joint Account of the Parties.

        


        1. WORKERS’
          COMPENSATION AND EMPLOYER’S LIABILITY INSURANCE

        
          	
                	a.	
                  Statutory
                    workers’ compensation coverage as required by the laws of the state in
                    which operations are conducted.

                


        

        
          	
                	b.	
                  Employer’s
                    liability limit of at least $1,000,000 for bodily injury or
                    death.

                


        

        


        2. COMPREHENSIVE
          GENERAL LIABILITY INSURANCE

        


        
          	
                	a.	
                  $1,000,000
                    per occurrence combined single limit bodily injury and property
                    damage
                    including all operations, independent contractors, completed
                    operations
                    and blanket contractual liability (including oral
                    contracts).

                


        

        
          	
                	b.	
                  $1,000,000
                    per occurrence broad form property damage liability, including
                    all
                    operations, independent contractors, completed operations and
                    blanket
                    contractual liability (including oral
                    contracts).

                


        

        


        3. AUTOMOBILE
          LIABILITY INSURANCE

        


        
          	
                	a.	
                  $1,000,000
                    each accident combined single limit bodily injury and property
                    damage
                    liability including owned, non-owned and hired
                    vehicles.

                


        

        


        4. UMBRELLA
          POLICY

        


        
          	
                	a.	
                  Limits
                    of at least $5,000,000 covering liability of the parties for
                    loss or
                    damage exceeding the insurance coverage specified above or otherwise
                    not
                    covered by insurance maintained by Operator or any third party
                    contractor.

                


        

        


        5. WELL
          CONTROL INSURANCE

        


        Each
          participant will automatically be included under the coverage provided
          by
          Operator’s policy unless within ten (10) days of commencing actual drilling
          operations for the affected well, Operator has received a written refusal
          of the
          coverage provided by Operator and proof of such refusing party's equivalent
          or
          better coverage. Joint participants afforded coverage under Operator’s policy
          will be billed for their proportionate share of insurance costs that will
          include both drilling and producing costs. This policy will protect from
          losses
          customarily covered by well control and operator extra expense coverage.
          The
          policy limits afforded will depend upon the location of the well and its
          proposed total depth and may vary from year to year based on the prices
          and
          coverage’s reasonably and commercially available to Operator.

        


        
          
            BIG
              SAND SPRING VALLEY JOA initial ____

            
            

          

          
            -26-