<PAGE>
                                                                   EXHIBIT 10.23


                             JOINT VENTURE AGREEMENT

                                 BY AND BETWEEN

                        UNION OIL COMPANY OF CALIFORNIA

                                       AND

                           IVANHOE ENERGY (USA), INC.

                              EFFECTIVE JULY 1,2001

                               CRESLENN RANCH AREA

                             HENDERSON COUNTY, TEXAS

<PAGE>


STATE OF TEXAS
COUNTY OF HENDERSON

                            JOINT VENTURE AGREEMENT

     THIS JOINT VENTURE AGREEMENT ("JVA") is made and entered as of the
Effective Date, by and between UNION OIL COMPANY OF CALIFORNIA, a California
corporation ("UNOCAL"), and IVANHOE ENERGY (USA) INC., a Nevada corporation
("IVANHOE"), UNOCAL and IVANHOE sometimes referred to individually as a "Party"
or collectively as the "Parties."

     WITNESSETH, THAT:

     WHEREAS, UNOCAL represents, but does not warrant, that it owns the UNOCAL
Leases, as set forth on Exhibit "B" attached hereto and made a part hereof; and,

     WHEREAS, IVANHOE represents, but does not warrant, that it owns the IVANHOE
Leases, as set forth on Exhibit "C" attached hereto and made a part hereof; and,

     WHEREAS, it is the desire of the Parties to jointly explore and develop the
Participation Area for the production of oil and/or gas and other hydrocarbon
substances.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, it is understood and agreed by and between the
Parties as follows:

                                   ARTICLE 1.
                                  DEFINITIONS

     For purposes of this JVA the terms listed below shall have the following
meanings:

1.1 ACTUAL DRILLING OPERATIONS - shall be deemed to have commenced when a
dirrick, a rig and machinery capable of drilling to a depth sufficient to test a
prospective oil and/or gas horizon have been erected, and when such well has
been spudded in and the rotary bit is rotating under power.

1.2 AFFILIATE - shall mean any company or other entity which (i) controls, (ii)
is controlled by or (iii) is under common control with one of the Parties. For
the purpose of this definition, control shall mean the ownership, directly or
indirectly, of fifty percent (50%) or more of the stock or other units of
ownership having the right to vote for the election of directors of such company
or other entity.

                                       1
<PAGE>


1.3 AREA OF MUTUAL INTEREST or AMI - shall have the meaning given in Paragraph
5.1 hereinbelow.

1.4 AMI COST ALLOCATION - shall have the meaning given in Paragraph 5.2
hereinbelow.

1.5 EFFECTIVE DATE - shall mean the effective date of this JVA, being 7:00 a.m.,
Central Standard Time, July 1,2001.

1.6 LEASE - shall mean and include an oil and gas lease and any oil, gas and
mineral lease or any other instrument granting the right to explore for, drill
and take oil, gas and other minerals.

1.7 IVANHOE LEASES - shall mean those Leases listed on Exhibit "C" attached
hereto and made a part hereof, INSOFAR AND ONLY INSOFAR as located within the
geographical confines of the Participation Area.

1.8 MINERAL INTEREST - shall mean a fee interest, leasehold interest, mineral
interest, royalty interest, or the contractual right or option to earn or
acquire a leasehold, fee interest, mineral interest, or royalty interest, or any
renewal thereof (unless a Party previously elected not to participate in a
rental or acquisition with respect thereto).

1.9 NON-PROPOSING PARTY - shall mean the Party or Parties receiving the Prospect
Proposal referenced in Paragraph 4.2 hereinbelow.

1.10 PARTICIPATION AREA - shall refer to the Creslenn Ranch Area and comprising
10,433 acres, more or less, and as further shown outlined in red on the plat
attached hereto and made a part hereof as Exhibit "A."

1.11 PARTICIPATION ELECTION DATE - shall mean thirty (30) days after receipt of
the Prospect Proposal by the Non-Proposing Party, as referred to in Paragraph
4.3 hereinbelow.

1.16 PARTICIPATION INTEREST - shall mean the share or interest of each Party
under this JVA, and as of the Effective Date the Participation Interests of
UNOCAL and IVANHOE are established at 50% each.

1.17 PARTY and PARTIES - shall refer to UNOCAL and IVANHOE and their successors
and assigns under this JVA.

1.18 JOINT OPERATING AGREEMENT ("JOA") - shall mean the joint operating
agreement referred to in Paragraph 4.4, a form of which is attached hereto and
made a part hereof as Exhibit "E."

                                       2
<PAGE>

1.19 PROPOSING PARTY - shall mean the Party proposing the drilling of a Prospect
Well by written notice to the other Party, as referenced in Paragraph 4.2
hereinbelow.

1.20 PROSPECT AREA - shall mean the area designated in the Prospect Proposal
around a Prospect Well, which area so designated shall (i) cover the geographic
outline of the area believed, based upon technical interpretation of seismic
and/or well data to be productive of oil and/or gas, and (ii)
cover all depths below the surface of the ground, unless limited by depth in any
lease within the Prospect Area. Notwithstanding the foregoing, unless otherwise
mutually agreed upon by the Parties, no Prospect Area shall be considered
greater than 710 acres. In the case of a Prospect Area which overlaps a
previously designated Prospect Area, the depths within the overlapping portion
which were included in the previously designated Prospect Area shall be excluded
from the subsequent Prospect Area.

1.22 PROSPECT WELL PROPOSAL - shall mean a written proposal to drill a Prospect
Well, which shall include the following information with regard to the Prospect
Well and Prospect Area: (i) the proposed surface and bottom hole location of the
Prospect Well; (ii) the name(s) and projected depth(s) of the objective
zone(s) for the Prospect Well; (iii) the projected total depth of the Prospect
Well, (iv) all applicable details regarding directional drilling; (v) the
proposed date for commencing the Prospect Well; (vi) a reasonably detailed
estimate of dry hole costs and completed well costs; and (vii) a plat showing
the geographical configuration of the proposed Prospect Area.

1.23 PROSPECT WELL - shall mean the well proposed in the Prospect Well Proposal.

1.24 UNOCAL LEASES - shall mean those Leases listed on Exhibit "B" attached
hereto and made a part hereof, INSOFAR AND ONLY INSOFAR as located within the
geographical confines of the Participation Area.

                                   ARTICLE 2.
                                    EXHIBITS

2.1 EXHIBITS The following exhibits, attached hereto, are incorporated herein
and made a part hereof for all purposes, to-wit:


     EXHIBIT "A"       AMI/Participation Area Plat
     EXHIBIT "B"       UNOCAL Leases
     EXHIBIT "C"       IVANHOE Leases
     EXHIBIT "D"       Partial Assignment of Oil, Gas and Mineral Leases
     EXHIBIT "E"       JOA Form

                                   ARTICLE 3.
                         CROSS ASSIGNMENT OF LEASEHOLD

                                       3
<PAGE>

3.1 ASSIGNMENT Simultaneously with the execution hereof, UNOCAL shall assign to
IVANHOE, without warranty of title, express or implied, even for the return of
the purchase price, except by, through or under UNOCAL, fifty percent (50%) of
UNOCAL's interest in the UNOCAL Leases, and IVANHOE shall assign to UNOCAL,
without warranty of title, express or implied, even for the return of the
purchase price, except by, through or under IVANHOE, fifty percent (50%) of
IVANHOE's interest in the IVANHOE Leases, both using the form of Act of Partial
Assignment attached hereto and made a part hereof as Exhibit "D." UNOCAL hereby
represents that it has not burdened the UNOCAL Leases with burdens beyond the
lessor's royalty. IVANHOE hereby represents that the IVANHOE Leases are burdened
by i) that certain Assignment of Net Profits Interest dated effective December
14, 2000 by and between IVANHOE, as Assignor, and Geneve Energy Partners,
L.L.C., a Texas Limited Liability Company, as Assignee, and ii) the obligation
of IVANHOE to deliver to R.A.M. Energy, Inc. and TriOks Exploration Co., LLC,
collectively, an overriding royalty equal to the difference between existing
burdens and 22%. Other then the foregoing, IVANHOE hereby represents that it has
not burdened the IVANHOE Leases with burdens beyond the lessor's royalty.

                                   ARTICLE 4.
                            DRILLING AND DEVELOPMENT
                        PROSPECT WELLS AND PROSPECT AREAS

4.1 PROSPECT MEETINGS Subject to Paragraph 4.7 hereof, at any time after the
execution of this JVA and during the term of this JVA, any Party may initiate
the process of proposing a Prospect Well by calling for a meeting ("Prospect
Meeting"). Unless otherwise agreed, the Prospect Meeting shall be called by
notice to the Non-Proposing Party (which notice shall be in writing, shall
designate the time and place of the Prospect Meeting and shall be delivered to
the Non-Proposing Party at least ten (10) days prior to the Prospect Meeting).
The Party who called the Prospect Meeting shall present its planned Prospect
Well Proposal at the Prospect Meeting.

4.2 PROSPECT WELL PROPOSALS Subject to Paragraph 4.7 hereof, at any time at,
during or after a Prospect Meeting, either Party ("Proposing Party") may make a
Prospect Well Proposal by written notice to the other Party ("Non-Proposing
Party"). The Prospect Well Proposal should be similar to that presented at the
Prospect Meeting, but may be revised or modified.

4.3 PROSPECT ELECTION The Non-Proposing Party shall have thirty (30) days after
receipt of the Prospect Well Proposal to give written notice to the Proposing
Party of its election to participate or not participate in the drilling of the
Prospect Well ("Participation Election Date").

                                       4
<PAGE>

4.4 PROSPECT OPERATIONS All operations hereunder shall be governed in accordance
the terms and conditions of that certain Joint Operating Agreement (the "JOA")
attached hereto as Exhibit "E" and made a part hereof. The Parties shall execute
the JOA simultaneously with the execution hereof. UNOCAL shall be designated
Operator under the JOA. In the event of a conflict between the terms and
conditions of this Agreement and the JOA, the terms and conditions of this
Agreement shall prevail.

4.5 INITIAL PROSPECT EXPLORATORY WELL Notwithstanding anything to the contrary
in the JOA, in the event that a Party does not participate in the initial test
well of a Prospect, then upon commencement of Actual Drilling Operations
thereon, the non-participating Party shall assign all of its leasehold interest
in and to the Prospect Area to the participating Party(s); however, in no event
shall a Party be required to assign leasehold to the extent that same is
currently producing from another Prospect Area.

4.6 FAILURE TO PROCEED If Actual Drilling Operations are not commenced for the
Prospect Well within one hundred and twenty (120) days from the Participation
Election Date, the Prospect Proposal shall be deemed to not have been made and
the Leases within the former Prospect Area shall again be subject to the terms
and provisions of this JVA.

4.7 PROSPECT WELL PROPOSAL LIMITATIONS Except for (I) a development well, or an
operation (ii) must be carried out to comply with the terms and conditions of a
lease, or (iii) is considered a lease maintenance operation, or (iv) to earn a
lease or interest therein under an agreement that would otherwise expire unless
such operations are conducted, there shall be no more than one (1) outstanding
Prospect Well Proposal from either Party at any one time unless both Parties
mutually agree to a second Prospect Well Proposal. A Prospect Well Proposal
shall be deemed to be "outstanding" for purposes of this Paragraph 4.7 from the
time of the receipt of the Prospect Well Proposal by the Non-Proposing Party,
unless withdrawn, until the completion or abandonment (temporary or permanent)
of the Prospect Well, regardless of whether the Non-Proposing Party elects to
participate; provided however, if a current Prospect Well Proposal is
outstanding for more than forty-five (45) days, a second or further Prospect
Well Proposal may be made. Development wells may be proposed and operations
conducted thereon in accordance with the JOA, without the restriction of this
Section 4.7. For purposes hereof, a development well is one drilled as an offset
to a producing well or to define the limits of a discovery.


                                   ARTICLE 5.
                             AREA OF MUTUAL INTEREST

                                       5
<PAGE>

5.1 ESTABLISHMENT/DURATION Effective as of the Effective Date, UNOCAL and
IVANHOE do hereby establish an Area of Mutual Interest ("AMI") covering the
Participation Area, subject to lands being excluded as provided below. The AMI
shall terminate on December 31, 2003 and be of no further force and effect. The
following lands and/or depths shall be excluded from the AMI:(i) lands as to
which less than all Parties maintain a Lease by virtue of a delay rental
election pursuant to Article 6 hereinbelow; and (ii) lands as to which less than
all Parties acquire a Mineral Interest by virtue of an election pursuant to
Subparagraph 5.2 hereinbelow.

5.2 ACQUISITION/OPTION Should any Party acquire, directly or indirectly, a
Mineral Interest affecting any lands located, fully or partially, within the
AMI, such Party (the "Acquiring Party") shall immediately give written notice
thereof to the other Party (the "Non-Acquiring Party"), together with all
pertinent details and information, including copies of all instruments of
conveyance (including but not limited to, copies of leases, assignments,
subleases, farmouts and other contracts affecting the Mineral Interest), copies
of paid drafts or checks and itemized invoices of the actual costs incurred by
the Acquiring Party, including any bonus, administrative fees, brokerage, legal,
and recordation costs and any other direct costs (said actual costs are referred
to as "Acquisition Costs"), an AMI Cost Allocation (if so required) and all
other available data pertaining to the acquisition of the Mineral Interest. If
the Mineral Interest is located partially outside of the AMI and/or within a
Prospect Area, the Acquiring Party shall also prepare and submit an allocation
of the portion of Acquisition Costs attributable to the portion of the Mineral
Interest located within the AMI ("AMI Cost Allocation"), to be calculated on a
surface acre basis. The Non-Acquiring Party shall have thirty (30) days, or
forty-eight (48) hours if a rig capable of performing the operation is on
location, from receipt of such notice to elect in writing to acquire its
proportionate interest in the Mineral Interest by paying its proportionate share
of the cost and assuming its proportionate share of the obligations. If two or
more offerings are made in the same notice by the Acquiring Party, the
Non-Acquiring Party shall have a separate right of election as to each such
interest. Failure to respond by the deadline stated herein shall be deemed an
election not to participate in the acquisition as described in said notice.
Failure to pay said proportionate share of costs within sixty (60) days
following an election to participate shall result in a forfeiture of the
Non-Acquiring Party's interest with the same effect as if said Party had
initially elected not to participate. If less than all Parties elect to
participate in said acquisition, the lands and/or depths covered by any such
Mineral Interest shall be excluded from the AMI and the Mineral Interest
acquired shall not be subject to this JVA; however, said interest shall be
subject to an operating agreement substantially in the form as that set forth in
Exhibit "E."

5.3 PAYMENT/ASSIGNMENT If the Non-Acquiring Party elects to participate in such
acquisition it shall pay to the Acquiring Party its proportionate share of the
Acquisition Costs or, if applicable, its proportionate share of the AMI Cost
Allocation for such interest, within sixty (60) days after receipt of an invoice
for said costs. Upon receipt of said payment, the Acquiring Party shall execute
and deliver to the Non-Acquiring Party

                                       6
<PAGE>

an assignment of the interest due the Non-Acquiring Party, utilizing a form
similar to the form attached hereto as EXHIBIT "D", pursuant to which the
Non-Acquiring Party shall bear and assume its proportionate share of all
obligations, covenants, conditions, requirements and terms associated with the
acquisition.

5.4 ENCUMBRANCES Any assignment made pursuant to this Article 5 shall be free
and clear of any encumbrances placed on the assigned Mineral Interests in favor
of or by the Acquiring Party, but otherwise shall be made without warranty of
title, either express or implied, except by, through and under the Acquiring
Party. The assignment shall be made and accepted subject to, and assignee shall
expressly assume its proportionate share of all of the obligations of the
assignor pertaining to the Mineral Interest assigned, excluding overriding
royalty interests, mortgages, liens, production payments or other burdens placed
on the Mineral Interest by the assignor.

5.5 MERGER The provisions of this Article 5 shall not be applicable to
acquisitions resulting from mergers, consolidations, or reorganizations.

                                   ARTICLE 6.
                                  DELAY RENTALS

6.1 PAYMENT OF DELAY RENTALS Subject to the terms and provisions of this JVA,
the Party who contributed a Lease (e.g., UNOCAL, in the case of the UNOCAL
Leases, IVANHOE, in the case of the IVANHOE Leases and the Acquiring Party, in
the case of a Lease acquired pursuant to the AMI) (hereafter the "Administering
Party") shall be responsible for and shall make a diligent effort to pay each
delay rental or other lease maintenance payment for such Lease as to the portion
thereof within the AMI. The Administering Party shall not be liable to the other
Party for any loss resulting from a good-faith effort to properly pay said
payments. In the event a Lease for which a delay rental or other lease
maintenance payment is located partially outside of the AMI or a portion of a
Lease is owned by less than all Parties, the delay rental or other lease
maintenance payment shall be allocated on a surface acre basis. In the event a
Lease for which a delay rental or other lease maintenance payment is located all
or partially within a Prospect Area, the Parties participating in the Prospect
Area shall be responsible for the delay rental or other lease maintenance
payment on a surface acre basis for the acreage located within the Prospect
Area.

6.2 OTHER PARTY ELECTIONS The other Party shall have fourteen (14) days after
receipt of an invoice of a delay rental or other lease maintenance payment or a
notice of a delay rental or other lease maintenance payment coming due from the
Administering Party within which to notify the Administering Party in writing of
its election to pay its share of such payment. If it elects to pay its share,
the other Party shall pay the Administering Party its share of such payment
within thirty (30) days after the Administering Party's receipt of such
election. Failure to notify shall be deemed to be an election to pay its share.
In the event the other Party elects not to pay its share and the Administering
Party makes the payment, the other Party shall, upon the written request of the
Administering

                                       7
<PAGE>

Party, assign to the Administering Party such portions of the other Party's
interest in the Lease as would be maintained by such payment.

6.3 ADMINISTERING PARTY'S ELECTION NOT TO PAY Should the Administering Party
elect not to pay its share of any delay rental or other lease maintenance
payment, such Party shall notify the other Party at least thirty (30) days prior
to the date on which such payment is due. The other Party shall have fourteen
(14) days after receipt of said notice within which to notify the Administering
Party of its election to pay the full amount of such payment. In the event the
other Party elects to make the full payment, unless otherwise agreed, the
Administering Party shall make the payment on behalf of the other Party, and the
other Party shall reimburse the Administering Party and the Administering Party
shall assign to the other Party such portions of the Administering Party's
interest in the Lease as would be maintained by such payment. FAILURE TO MAKE AN
ELECTION SHALL BE AN ELECTION TO AGREE TO NOT PAY.

6.4 POST EFFECTIVE DATE RENTALS It is recognized that UNOCAL and IVANHOE may
have made certain delay rental payments for their respective Leases after the
Effective Date and prior to execution of this JVA. Notwithstanding the
provisions of this Article 6, each shall be obligated to reimbursement from the
other for one-half (l/2) of such delay rental payments made. Within thirty (30)
days after the execution of this JVA, UNOCAL and IVANHOE shall provide to each
other the details and amounts of such payments, which shall be offset to the
extent possible and the Party who made the lesser payment shall reimburse the
other Party for the difference owed.

                                   ARTICLE 7.
                   ADDITIONAL TERMS, PROVISIONS AND COVENANTS

7.1 NOTICES All notices between the Parties authorized or required by any of the
provisions of this JVA, unless otherwise specifically provided, shall be given
in writing and delivered in person, by mail, courier service or telegram,
postage or charges prepaid, or by telex or telecopier and addressed to the Party
to whom the notice is given as follows:

<TABLE>

     <S>                      <C>
     UNOCAL:                  UNION OIL COMPANY OF CALIFORNIA
     Street Address:          14141 Southwest Freeway
                              Sugar Land Texas 77478

     Mailing Address:         P.0. Box 4551
                              Houston, TX 77210-4551

     Attention:               Burt James
     Telephone:               281-287-7273
     Facsimile:               281-287-5113

</TABLE>

                                       8
<PAGE>

<TABLE>

     <S>                      <C>
     IVANHOE:                 IVANHOE ENERGY U.S.A., INC.
     Street Address:          1200 Discovery Drive, Suit 301
                              Bakersfield, CA 93309

     Mailing Address          P.O. Box 9279
                              Bakersfield, CA 93389-9279

     Attention:               Roger Narinian
                              Land Department
     Telephone:               661-869-8344
     Facsimile:               661-325-2961

</TABLE>

The originating notice given under any provision hereof shall be deemed given
only when received by the Party to whom such notice is directed, and the time
for such Party to give any notice in response thereto shall run from the date
the originating notice is received. The second or any responsive notice shall be
deemed given when deposited in the mail or with the courier service, with
postage or charges prepaid, or upon transmission by facsimile or telecopier.
Each Party shall have the right to change its address at any time, and from time
to time, by giving written notice thereof to the other Party.

7.2 TERM OF JVA Unless terminated sooner by operation of any of the provisions
heretofore contained, this JVA shall terminate on December 31, 2003. The
Parties agree that the termination of this JVA for any reason whatsoever, in
whole or in part, shall neither relieve any Party hereto from any liability
which has accrued or attached prior to the date of such termination, including
any payment obligation or other liability which may have already accrued.

7.3 SUCCESSORS AND ASSIGNS This JVA shall be binding upon the Parties hereto,
their representatives, successors, heirs and assigns. This JVA and interests in
the Leases may not be assigned or transferred, in whole or in part, without the
prior written consent of the non-assigning Parties which consent shall not be
unreasonably withheld or delayed. Any assignment of this JVA or the Leases shall
be made expressly subject to this JVA and the JOA and the assignee shall
expressly assume the obligations under same to the extent of the interest
acquired. Notwithstanding the foregoing, the assignor shall not be released from
obligations hereunder incurred prior to the effective date of such assignment or
transfer, absent an express written release from all of the Parties.

7.4 RELATIONSHIP OF PARTIES This JVA does not create, and shall not be construed
to create, a partnership, association, joint venture or fiduciary relationship
of any kind or character between the Parties, and shall not be construed to
impose any duty, obligation, or liability arising from such a relationship by or
with respect to any Party. Notwithstanding any provisions herein that the rights
and liabilities hereunder are several and not joint or collective or that the
agreement and the operations hereunder shall not constitute a partnership, each
Party elects to be excluded from the application of all or

                                       9
<PAGE>

any part of the provisions of Subchapter "K", Chapter 1, Subtitle "A", Internal
Revenue Code of 1986, as amended, or similar provisions of applicable state
laws.

7.5 CONFIDENTIALITY No confidential information resulting from the conduct of
operations hereunder shall be given or made available to any party not a Party
to this JVA unless otherwise agreed to by the other Party, except that this
prohibition shall not apply to the Affiliate of any Party, any prospective
mortgagee, pledgee or assignee of any Party of any interest in a Lease or this
JVA, or to any third party not a Party hereto if such information required for
the purpose of raising finance or arranging farmouts or sales of the Lease(s),
an interest in the Agreement as to all of the AMI or any designated portion
thereof and/or any Prospect Area(s) and/or required for the purpose of review by
its consultants, provided, however, the recipient of any such information shall
be required to execute a Confidentiality Agreement. This confidentiality
provision shall not apply to information or data that: (i) is now or hereafter
becomes a part of the public domain other than as a result of a wrongful act or
omission by UNOCAL or IVANHOE; (ii) is hereafter made known to one or more of
such Parties by a third party who has the lawful right to make such disclosure
and who has no other confidential obligation with respect to the information or
data; (iii) is required to be disclosed pursuant to any applicable law, rule,
regulation, or order issued by any court or governmental agency having
jurisdiction over such information and data, including the rules or regulations
of any stock exchange on which any securities or such Party or any Affiliate are
traded; or (iv) is in the possession of a Party prior to the Effective Date of
this JVA.

7.6 ENTIRE AGREEMENT When executed by the duly authorized representatives of
IVANHOE and UNOCAL, this JVA shall constitute the entire agreement between the
Parties regarding the UNOCAL Leases, IVANHOE Leases and the Participation Area
and shall supersede and replace any and all other writings, understandings, or
memoranda of understanding entered into or discussed prior to the execution date
hereof.

7.7 SAVINGS CLAUSE If any part or portion of this JVA is held to be invalid,
such invalidity of any such part or portion shall not affect any remaining part
or portion hereof.

7.8 CORPORATE AUTHORITY The Parties represent that, as of the date of the
execution hereof, they are corporations duly authorized, validly existing and in
good standing under the laws of the states of their incorporation and are
qualified and authorized to do business in the State of Texas and that all
requisite corporate power and authority to execute, deliver and effectuate this
JVA have been duly obtained.

7.9 HEADINGS FOR CONVENIENCE The article and paragraph headings used in this JVA
are inserted for convenience only and shall not be regarded in construing this
JVA.

7.10 AMENDMENTS This JVA may be amended, modified, changed, altered or
supplemented only by written instrument duly executed by the Parties
specifically for such purpose and which specifically refers to this JVA.

                                       10
<PAGE>

7.11 CONFLICTS In the event of conflict between provisions of this JVA and those
contained in any of the agreements attached hereto, the provisions of this JVA
shall control.

7.12 GOVERNING LAW This JVA and the exhibits attached hereto shall be governed
by and interpreted in accordance with the laws of the State of Texas.

7.13 COUNTERPARTS This JVA may be executed in any number of counterparts, each
of which shall be considered an original for all purposes, but this JVA shall be
binding on the Parties only if both Parties execute same.

     WITNESS the execution hereof by the Parties as of the dates of the
acknowledgments of their execution, but effective for all purposes as of the
Effective Date.

                                   UNION OIL COMPANY OF CALIFORNIA
    [IVANHOE ENERGY STAMP]

                                   By: /s/ Richard H. Smith
                                      ------------------------------------
                                           Richard H. Smith
                                            Attorney-in-Fact

                                   IVANHOE ENERGY U.S.A., INC.


                                   By: /s/ Joseph M. McKniff
                                      ------------------------------------
                                           Joseph M. McKniff
                                    Vice-President and Exploration Manager

                                       11
<PAGE>

STATE OF TEXAS

COUNTY OF FORT BEND

     On this the 30th day of September, 2001, before me appeared RICHARD H.
SMITH, to me personally known, who, being by me duly sworn, did say that he is
the Attorney-in-Fact for UNION OIL COMPANY OF CALIFORNIA, and that the foregoing
instrument was executed in behalf of said corporation by authority of its Board
of Directors, and said appearer acknowledged said instrument to be the free act
and deed of said corporation.


                                        /s/ Cheryl D. Smith
                                        ------------------------------
                                                NOTARY PUBLIC
                                                State of Texas

My commission expires: 30-12-2004

[CHERYL D. SMITH STAMP]


STATE OF CALIFORNIA

COUNTY OF CALIFORNIA


     On this 10th day of October, 2001, before me appeared Joseph M. McKniff, to
me personally known, who, being by me duly sworn, did say that he is the Vice
President and Exploration Manager for IVANHOE ENERGY (USA) INC. and that the
foregoing instrument was executed in behalf of said corporation by authority of
its Board of Directors, and said appearer acknowledged said instrument to be the
free act and deed of said corporation.



[ROSALEE INGRAM STAMP]                  /s/ Rosalee Ingram
                                        ------------------------------
                                                NOTARY PUBLIC
                                             State of California

My commission expires: 10-2-2003

O:\winword\dkh\Ivanhoe Participation Agreement - Texas.doc

                                       12
<PAGE>


                                  EXHIBIT "A"

                                     [MAP]




                                       13
<PAGE>
                                   EXHIBIT "B"

Oil Gas and Mineral Lease dated 06/07/1952, by and between G. A. G-amble and E.
L. Lancaster, as Lessors, and P. N. Wiggins and C. E. Hyde, as Lessees, recorded
in Book 393, Page 126, of the records of Henderson County, Texas Unocal Lease
No. 15904).

Oil Gas and Mineral Lease dated 06/20/1952, by and between Mary W. Harwell, et
al, as Lessor, and P. N. Wiggins and C. E. Hyde, as Lessees, recorded in Book
393, Page 349, of the records of Henderson County, Texas (Unocal Lease No.
15910).

Oil Gas and Mineral Lease dated 1l/15/1944, by and between Stephens Lake Land
Company, as Lessor, and Wilma Waddell, as Lessee, recorded in Book 32, Page
55, of the records of Henderson County, Texas (Unocal Lease No. 15913).

Oil Gas and Mineral Lease dated 06/l5/1962, by and between Alton N. Justiss, et
al, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 521, Page 151,
of the records of Henderson County, Texas (Unocal Lease No. 61954).

Oil Gas and Mineral Lease dated 06/14/1962, by and between Agnes Blanding
Stroud, et al, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 521,
Page 149, of the records of, Henderson County, Texas (Unocal Lease No. 61955).

Oil Gas and Mineral Lease dated 06/15/1962, by and between Robert S. Neblett, et
al, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 521, Page 153,
of the records of Henderson County, Texas (Unocal Lease No. 61956).

Oil Gas and Mineral Lease dated 06/14/1962, by and between G. A. N. McFaddin,
et al, as 1 Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 519, Page
387, of the records of Henderson County, Texas (Unocal Lease No. 61957).

Oil Gas and Mineral Lease dated 06/14/1962, by and between John F. Sullivan,
Jr., et al, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 519,
Page 385, of the records of Henderson County, Texas (Unocal Lease No. 61958).

Oil Gas and Mineral Lease dated 06/14/1962, by and between Mrs. Garnett Pitts,
et vir, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 519, Page
383, of the records of Henderson County, Texas (Unocal Lease No. 61959).

Oil Gas and Mineral Lease dated 12/28/1954, by and between W. R. Kinabrew, as
Lessor, and Ted Weiner as Lessee recorded in Book 14, Page 553, of the records
of Henderson County, Texas (Unocal Lease No. 1002480).

Oil Gas and Mineral Lease dated 12/28/1954, by and between George
Riddlesperger, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 14,
Page 551, of the records of Henderson) County, Texas (Unocal Lease No. 1002481).

                                       14
<PAGE>

                                  EXHIBIT "C"

Oil Gas and Mineral Lease dated 07/25/2000, by and between Lester Kinabrew, Jr.,
Enterprises, Inc., as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on
12/07/2000, File# 19291, of the records of Henderson County, Texas
(C2319-213-001-01)

Oil Gas and Mineral Lease dated 07/25/2000, by and between Reba J. Hatton,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19294, of the records of Henderson County, Texas
(C2319-213-00l-02)

Oil Gas and Mineral Lease dated 07/25/2000, by and between Virginia Browning,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19295, of the records of Henderson County, Texas
(C2319-213-001-03)

Oil Gas and Mineral Lease dated 1l/19/2000, by and between Leland Dale Dosser,
Guardian for Juanita Riddlesperger, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 02/14/2001, File# 0002539, of the records of Henderson
County, Texas (C2319-213-001-04)

Oil Gas and Mineral Lease dated 07/10/2000, by and between Margaret Ann Resse,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19292, of the records of Henderson County, Texas
(C2319-213-00l-05)

Oil Gas and Mineral Lease dated 10/30/2000, by and between R.E. Dwelle, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19300,
of the records of Henderson County, Texas (C2319-213-00l-06)

Oil Gas and Mineral Lease DATED 08/29/2000, by and between Mack Adams, General
Partner, Adams Family Ltd., as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File/# 19293, of the records of Henderson County, Texas
(C2319-213-00l-07)

Oil Gas and Mineral Lease dated 10/17/2000, by and between Jean Adams Marital
Trust #2- GST Exempt and GST Non Exempt, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 12/07/2000, File# 19310, of the records of Henderson County,
Texas (C2319-213-00l-08)

Oil Gas and Mineral Lease dated 10/17/2000, by and between Julie Feilds, Manager
of the JAJ Partnership, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded
on 12/07/2000, File# 19308, of the records of Henderson County, Texas
(C2319-213-00l-09)

Oil & Gas and Mineral Lease dated 12/14/2000, by and between Mickey Darnell
Lewis and wife, Norma Lewis and Mickey Darnel, as Lessor, Gild R.A.M. ENERGY,
INC., as Lessee, recorded on 0l/02/2001, File# 0000019, of the records of
Henderson County, Texas (C2319-213-001-10)

Oil Gas and Mineral Lease dated 12/14/2000, by, and between Robby Lee Lewis, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 01/02/2001, File#
0000020, of the records of Henderson County, Texas (C2319-213-001-l1)

Oil Gas and Mineral Lease dated 12/22/2000, by and between Curlie Nell Seamayer,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001, File#
0006106, of the records of Henderson County, Texas (C2319-213-00l-12)

Oil Gas and Mineral Lease dated 12/07/2000, by and between Jacqleen Matthews
Cook, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001,
File# 0002527, of the records of Henderson County, Texas (C2319-213-001-19)

Oil Gas and Mineral Lease dated 10/26/2000, by and between J.N. Davis, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19303,
of the records of Henderson County, Texas (C2319-213-001-20)

                                       15
<PAGE>

Oil Gas and Mineral Lease dated 12/13/2000, by and between Larkin Davis, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 01/02/2001, File#
0000016, of the records of Henderson County, Texas (C2319-213-00l-21)

Oil Gas and Mineral Lease dated 12/ll/2000, by and between Minnie Davis, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002581, of the records of Henderson County, Texas (C2319-213-001-22)

Oil Gas and Mineral Lease dated 1l/16/2000, by and between Davis R. Harton and
wife, Billie G. Harton, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded
on 02/14/2001, File# 0002505, of the records of Henderson County, Texas
(C2319-213-001-23)

Oil Gas and Mineral Lease dated 1l/16/2000, by and between Vernon R. Harton, as
Lessor, and R,A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002507, of the records of Henderson County, Texas (C2319-213-001-24)

Oil Gas and Mineral Lease dated 12/07/2000, by and between Carl Lee Matthews,
Jr. and wife, Bobbie Morrison Matthews, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 02/l 4/200 1, File# 0002528, of the records of Henderson
County, Texas (C2319-213-00l-25)

Oil Gas and Mineral Lease dated 12/07/2000, by and between Lettie Mae Matthews,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002529, of the records of Henderson County, Texas (C2319-213-00l-26)

Oil Gas and Mineral Lease dated 1l/16/2000, by and between Lena Harton Spinger,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002506, of the records of Henderson County, Texas (C2319-213-001-27)

Oil Gas and Mineral Lease dated 1l/09/2000, by and between Henry Ford Davis
Trust, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000,
File# 19321, of the records of Henderson County, Texas (C2319-213-00l-36)

Oil Gas and Mineral Lease dated 10/3l/2000, by and between Hazel Danna Smith,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002485, of the records of Henderson County, Texas (C2319-213-001-37)

Oil Gas and Mineral Lease dated 10/31/2000, by and between Milton C. Smith, Jr.,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002486, of the records of Henderson County, Texas (C2319-213-001-38)

Oil Gas and Mineral Lease dated 12/05/2000, by and between LUCILLE TIDGREN, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001, File# 0006
129, of the records of Henderson County, Texas (C2319-213-00l-58)

Oil Gas and Mineral Lease dated 12/22/2000, by and between Patricia Glenn Kuhn,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 05/l l/2001, File#
0007719, of the records of Henderson County, Texas (C2319-213-001-65)

Oil Gas and Mineral Lease dated 12/13/2000, by and between Becky Balcolm, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on O5/ll/2001, File#
0007720, of the records of Henderson County, Texas (C2319-213-00l-66)

Oil Gas and Mineral Lease dated 1l/22/2000, by and between Charles Davis, Jr.
acting as Agent and Attorney-In-Fact for, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 02/14/2001, File# 0002544, of the records of Henderson
County, Texas (C2319-213-00l-80)

                                       16
<PAGE>

Oil Gas and Mineral Lease dated 05/29/2001, by and between GENE WOOD, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 06/08/2001, File #
0009473, of the records of Henderson County, Texas (C2319-213-00l-84)

Oil Gas and Mineral Lease dated 08/22/2000, by, and between Elva Barton
Thornton, Trustee of the Elva Barton Thornton Family Trust, as Lessor, and
R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19296, of the
records of Henderson County, Texas (C2319-213-04l-00)

Oil Gas and Mineral Lease dated 10/19/2000, by and between Dora Margaret
Williams, as Lessor, and R.A.M. ENERGY, INC., as Lessee; recorded on 12/07/2000,
File# 19313, of the records of Henderson County, Texas (C2319-213-042-00)

Oil Gas and Mineral Lease dated 10/25/2000, by and between Osborne W. Williams,
et ux, Eula Beth Williams, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19298, of the records of Henderson County, Texas
(C2319-213-047-01)

Oil Gas and Mineral Lease dated 10/28/2000, by and between Mary Eddynell White
and Husband Edward H. White, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 02/14/2001, File# 0002488, of the records of Henderson County, Texas
(C2319-213-047-02)

Oil Gas and Mineral Lease dated 10/28/2000, by and between Dewey Elton Thornton
and wife Evelyn L. Thornton, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19314, of the records of Henderson County, Texas
(C2319-213-047-03)

Oil Gas and Mineral Lease dated 11/01/2000, by and between Lola A Welch, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19301,
of the records of Henderson County, Texas (C2319-213-065-01)

Oil Gas and Mineral Lease dated 11/02/2000, by and between Marguerite Cade, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19306,
of the records of Henderson County, Texas (C2319-213-065-03)

Oil Gas and Mineral Lease dated 11/02/2000, by and between Dan M. Royall, Jr.,
Executor for the Estate of Dan M. Royal, as Lessor, and R.A.M. ENERGY, INC.,
as Lessee, recorded on 12/07/2000, File# 19307, of the records of Henderson
County, Texas (C2319-213-065-04)

Oil Gas and Mineral Lease dated 11/10/2000, by and between John Henry Bevel,
Jr., as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000,
File# 19336, of the records of Henderson County, Texas (C2319-213-065-05)

Oil Gas and Mineral Lease dated 11/08/2000, by and between Curtis Rhett Barton,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File#
19316, of the records of Henderson County, Texas (C2319-213-075-01)

Oil Gas and Mineral Lease dated 11/08/2000, by and between Paula Steele, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19317,
of the records of Henderson County, Texas (C2319-213-075-02)

Oil Gas and Mineral Lease dated 11/08/2000, by and between Gary Barton, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002489, of the records of Henderson County, Texas (C2319-213-075-03)

Oil Gas and Mineral Lease dated 11/08/2000, by and between Cindy Barton
Maxwell, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001,
File# 0002490, of the records of Henderson County, Texas (C2319-213-075-04)

                                       17
<PAGE>

Oil Gas and Mineral Lease dated 11/08/2000, by and between Jacquelyn Barton
Coker, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001,
File# 0002491, of the records of Henderson County, Texas (C2319-213-075-05)

Oil Gas and Mineral Lease dated 11/08/2000, by and between Kimberly A. Barton
Scott, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000,
File# 19318, of the records of Henderson County, Texas (C2319-213-075-06)

Oil Gas and Mineral Lease dated 04/04/2001, by and between Dorothy Bruton, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 05/11/2001, File#
0007768, of the records of Henderson County, Texas (C2319-213-082-00)

Oil Gas and Mineral Lease dated 02/13/2001; by and between Ernest C. Ledwell,
Jr., as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001,
File# 0006141, of the records of Henderson County, Texas (C2319-213-249-01)

Oil Gas and Mineral Lease dated 02/13/2001, by and between L.W. Ledwell, Jr., as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001, File#
0006161, of the records of Henderson County, Texas (C2319-213-249-02)

Oil Gas and Mineral Lease dated 02/13/2001, by and between Wanda Lou Ledwell, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001, File#
0006158, of the records of Henderson County, Texas (C2319-213-249-03)

Oil Gas and Mineral Lease dated 02/15/2001, by and between Suzanne Barber Owens,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001, File#
0006159, of the records of Henderson County, Texas (C2319-213-249-04)

Oil Gas and Mineral Lease dated 02/13/2001, by and between Josephine Ledwell
Reddy, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001,
File# 0006157, of the records of Henderson County, Texas (C2319-213-249-05)

Oil Gas and Mineral Lease dated 12/17/2000, by and between Virginia Browning,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 02/14/2001, File# 0002562, of the records of Henderson County, Texas
(C2319-213-271-01)

Oil Gas and Mineral Lease dated 12/17/2000, by and between Reba J. Hatton,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 02/14/200 1, File# 0002561, of the records of Henderson County,
Texas (C2319-213-271-02)

Oil Gas and Mineral Lease dated 12/17/2000, by and between Lester Kinabrew, Jr.,
Enterprises, Inc., as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on
02/14/2001, File# 0002563, of the records of Henderson County, Texas
(C2319-213-27l-03)

Oil Gas and Mineral Lease dated 12/13/2000, by and between Post Oak Cemetery
Association, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on
01/02/2001, File# 0000021, of the records of Henderson County, Texas
(C2319-213-347-00)

                                       18
<PAGE>

                                   EXHIBIT "D"

                PARTIAL ASSIGNMENT OF OIL, GAS AND MINERAL LEASES

 STATE OF

 COUNTY OF

     THIS AGREEMENT, IS DATED EFFECTIVE AS OF         ("EFFECTIVE DATE"), BY AND
BETWEEN:

     UNION OIL COMPANY OF CALIFORNIA, A CALIFORNIA CORPORATION, WHOSE ADDRESS IS
     14141 SOUTHWEST FREEWAY, SUGAR LAND, TEXAS 77478, HEREINAFTER REFERRED TO
     AS "ASSIGNOR" AND IVANHOE ENERGY U.S.A. INC. A NEVADA CORPORATION, WHOSE
     ADDRESS IS 1200 DISCOVERY DRIVE, BAKERSFIELD, CALIFORNIA 93309, HEREINAFTER
     REFERRED TO AS "ASSIGNEE,"

     W I T N E S S E T H: THAT,

     FOR AND IN CONSIDERATION OF ONE HUNDRED ($100.00) DOLLARS AND OTHER GOOD
AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY
ACKNOWLEDGED, ASSIGNOR DOES, BY THESE PRESENTS, BARGAIN, SELL, CONVEY, ASSIGN,
GRANT, TRANSFER, SET OVER AND DELIVER UNTO ASSIGNEE AN UNDIVIDED         PERCENT
(   %) OF ITS RIGHT, TITLE AND INTEREST IN AND TO THOSE CERTAIN OIL, GAS AND
MINERAL LEASES (THE "SUBJECT LEASES") SET FORTH ON EXHIBIT "A," ATTACHED HERETO
AND MADE A PART HEREOF.

     TO HAVE AND TO HOLD THE SUBJECT LEASES UNTO ASSIGNEE AND ITS SUCCESSORS AND
ASSIGNS FOREVER.

     IT IS AGREED BY ASSIGNOR AND ASSIGNEE (SOMETIMES COLLECTIVELY REFERRED TO
HEREINAFTER AS "PARTIES" OR SINGULARLY AS "PARTY") THAT THIS ASSIGNMENT IS
SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS:

1.   THIS ASSIGNMENT IS MADE SUBJECT TO THAT CERTAIN JOINT VENTURE AGREEMENT
     ("JV AGREEMENT") DATED EFFECTIVE JULY I, 2001, BETWEEN ASSIGNOR AND
     ASSIGNEE; ALL TERMS AND CONDITIONS OF THE "JV AGREEMENT" ARE INCORPORATED
     HEREIN BY REFERENCE TO THE SAME EXTENT AND WITH THE SAME EFFECT AS IF
     COPIED IN FULL HEREIN.

2.   THIS ASSIGNMENT IS EXECUTED WITHOUT ANY WARRANTY OF TITLE WHATSOEVER EITHER
     EXPRESS OR IMPLIED, EXCEPT FOR ACTS BY, THROUGH AND UNDER ASSIGNOR, BUT
     OTHERWISE WITHOUT RECOURSE AGAINST ASSIGNOR, EVEN FOR THE RETURN OF THE
     PURCHASE PRICE, BUT WITH FULL SUBSTITUTION AND SUBROGATION TO ALL RIGHTS
     AND ACTIONS OF WARRANTY AGAINST ALL FORM&R OWNERS AND VENDORS.

3.   ASSIGNEE HEREBY ASSUMES ITS PROPORTIONATE SHARE OF ALL DUTIES, LIABILITIES
     AND OBLIGATIONS, EXPRESS OR IMPLIED, IMPOSED UPON ASSIGNOR UNDER THE
     PROVISIONS OF THE SUBJECT LEASES.

                                       19
<PAGE>

4.   ASSIGNEE AGREES THAT IT WILL NOT ASSIGN, SUBLEASE OR TRANSFER, IN WHOLE OR
     PM ANY RIGHTS ACQUIRED HEREIN WITHOUT REQUIRING ITS ASSIGNEES, SUBLESSEES,
     AND TRANSFEREES TO EXPRESSLY ASSUME THEIR SHARE OF ALL OBLIGATIONS IMPOSED
     UPON OR OWED TO ASSIGNOR UNDER THE TERMS OF THIS ASSIGNMENT AND THE "JV
     AGREEMENT", AND ALL SUCH PERTINENT TERMS SHALL BE INCORPORATED INTO ANY
     AND ALL FUTURE INSTRUMENTS TRANSLATIVE OF TITLE. ANY ASSIGNMENT, SUBLEASE
     OR TRANSFER, EXECUTED IN CONTRAVENTION OF THIS PROVISION SHALL BE NULL AND
     VOID.

5.   NOTWITHSTANDING ASSIGNEE'S RIGHT TO ASSIGN ALL OR PART OF THE SUBJECT
     LEASES TO THIRD PARTIES AS CONDITIONED BY PARAGRAPH 4 ABOVE, ASSIGNEE SHALL
     REMAIN FULLY RESPONSIBLE AND LIABLE FOR FULFILLMENT OF ALL THE OBLIGATIONS
     AND LIABILITIES IMPOSED HEREIN, AND FOR COMPLIANCE WITH ALL TERMS AND
     CONDITIONS ESTABLISHED HEREIN, WHETHER EXPRESS OR IMPLIED.

6.   THIS ASSIGNMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE
     PARTIES HERETO AND THEIR RESPECTIVE HEIRS, ASSIGNS, SUCCESSORS AND
     TRANSFEREES.

     IN WITNESS WHEREOF, ASSIGNOR AND ASSIGNEE HAVE EXECUTED THIS AGREEMENT IN
THE PRESENCE OF THE UNDERSIGNED COMPETENT WITNESSES AS OF THE DATES SET FORTH
BELOW, BUT EFFECTIVE FOR ALL PURPOSES AS OF THE EFFECTIVE DATE.

<TABLE>

<S>                                   <C>
WITNESSES:                            ASSIGNOR:

                                      UNION OIL COMPANY OF CALIFORNIA


                                      By:
----------------------------             -----------------------------
                                               RICHARD H. SMITH
                                               ATTORNEY-IN-FACT
                                      Date:
----------------------------               ---------------------------


WITNESSES:                            ASSIGNEE:

                                      (NAME)

                                      By:
----------------------------             -----------------------------


                                      Date:
----------------------------               ---------------------------
</TABLE>

                                       20
<PAGE>

STATE OF

COUNTY OF


     ON THIS        DAY OF          , BEFORE ME APPEARED              , TO ME
PERSONALLY KNOWN, WHO, BEING BY ME DULY SWORN DID SAY THAT HE IS THE ATTORNEY-
IN-FACT OF UNION OIL COMPANY OF CALIFORNIA, AND THAT THE FOREGOING INSTRUMENT
WAS EXECUTED ON BEHALF OF SAID CORPORATION BY AUTHORITY OF ITS BOARD OF
DIRECTORS, AND SAID APPEARER ACKNOWLEDGED SAID INSTRUMENT TO BE THE FREE ACT AND
DEED OF SAID CORPORATION.



                                         ---------------------------------
                                                   NOTARY PUBLIC


MY COMMISSION EXPIRES:
                      ----------------------------


STATE OF

COUNTY OF

     ON THIS         DAY OF          , BEFORE ME APPEARED               , TO ME
PERSONALLY KNOWN, WHO, BEING BY ME DULY SWORN, DID SAY THAT             IS
THE                   OF                    , AND THAT THE FOREGOING INSTRUMENT
EXECUTED ON BEHALF OF SAID CORPORATION BY AUTHORITY OF ITS BOARD OF DIRECTORS,
AND SAID APPEARER ACKNOWLEDGED SAID INSTRUMENT TO BE THE FREE ACT AND DEED OF
SAID CORPORATION.



                                         ---------------------------------
                                                   NOTARY PUBLIC

MY COMMISSION EXPIRES:
                      ------------------------------

O:\winword\dkh\Ivanhoe Participation Agreement - Texas.doc

                                       21
<PAGE>

                                   EXHIBIT "A"

ATTACHED TO AND MADE A PART OF THAT CERTAIN PARTIAL ASSIGNMENT OF OIL, GAS AND
MINERAL LEASES DATED EFFECTIVE                          , BY AND BETWEEN UNION
OIL COMPANY OF CALIFORNIA, AS ASSIGNOR, AND                     , AS ASSIGNEE.


                                     LEASES

1.   OIL, GAS AND MINERAL LEASE DATED                         , BY AND BETWEEN
                      , Lessor, and Union Oil Company of California, Lessee
     recorded in Conveyance/Minerals Book        , Page        , of the records
     of Henderson County, Texas.

O:\winword\dkh\Ivanhoe Participation Agreement - Texas.doc

                                       22
<PAGE>

                            A.A.P.L. FORM 610 - 1989

                         MODEL FORM OPERATING AGREEMENT






                               OPERATING AGREEMENT

                                      DATED


                                 JULY 1,  2001
                                 -------  ----
                                          YEAR

OPERATOR  UNION OIL COMPANY OF CALIFORNIA
          ----------------------------------------------------------------------


CONTRACT AREA  CRESLENN RANCH AREA I.
               -----------------------------------------------------------------


--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------



 COUNTY OF HENDERSON, STATE OF TEXAS
           ---------           -----




                                 COPYRIGHT 1989 - ALL RIGHTS RESERVED
                                 AMERICAN ASSOCIATION OF PETROLEUM
                                 LANDMEN, 4100 FOSSIL CREEK BLVD.
                                 FORT WORTH, TEXAS, 76137, APPROVED FORM.

                                         A.A.P.L. NO. 610 - 1989




<PAGE>

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Article                          Title                                          Page
-------                          -----                                          ----
<S>     <C>                                                                     <C>
I.      DEFINITIONS.............................................................  1
II.     EXHIBITS................................................................  1
III.    INTERESTS OF PARTIES....................................................  2
        A. OIL AND GAS INTERESTS: ..............................................  2
        B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION: .......................  2
        C. SUBSEQUENTLY CREATED INTERESTS: .....................................  2
IV.     TITLES..................................................................  2
        A. TITLE EXAMINATION: ..................................................  2
        B. LOSS OR FAILURE OF TITLE: ...........................................  3
           1. Failure of Title..................................................  3
           2. Loss by Non-Payment or Erroneous Payment of Amount Due............  3
           3. Other Losses......................................................  3
           4. Curing Title......................................................  3
V.      OPERATOR................................................................  4
        A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR: .......................  4
        B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR: ......  4
           1. Resignation or Removal of Operator................................  4
           2. Selection of Successor Operator...................................  4
           3. Effect of Bankruptcy..............................................  4
        C. EMPLOYEES AND CONTRACTORS: ..........................................  4
        D. RIGHTS AND DUTIES OF OPERATOR: ......................................  4
           1. Competitive Rates and Use of Affiliates...........................  4
           2. Discharge of Joint Account Obligations............................  4
           3. Protection from Liens.............................................  4
           4. Custody of Funds..................................................  5
           5. Access to Contract Area and Records...............................  5
           6. Filing and Furnishing Governmental Reports........................  5
           7. Drilling and Testing Operations...................................  5
           8. Cost Estimates....................................................  5
           9. Insurance.........................................................  5
VI.     DRILLING AND DEVELOPMENT................................................  5
        A. INITIAL WELL: .......................................................  5
        B. SUBSEQUENT OPERATIONS: ..............................................  5
           1. Proposed Operations...............................................  5
           2. Operations by Less Than All Parties...............................  6
           3. Stand-By Costs....................................................  7
           4. Deepening.........................................................  8
           5. Sidetracking......................................................  8
           6. Order of Preference of Operations.................................  8
           7. Conformity to Spacing Pattern.....................................  9
           8. Paying Wells......................................................  9
        C. COMPLETION OF WELLS; REWORKING AND PLUGGING BACK: ...................  9
           1. Completion........................................................  9
           2. Rework, Recomplete or Plug Back...................................  9
        D. OTHER OPERATIONS: ...................................................  9
        E. ABANDONMENT OF WELLS: ...............................................  9
           1. Abandonment of Dry Holes..........................................  9
           2. Abandonment of Wells That Have Produced........................... 10
           3. Abandonment of Non-Consent Operations............................. 10
        F. TERMINATION OF OPERATIONS: .......................................... 10
        G. TAKING PRODUCTION IN KIND: .......................................... 10
           (Option 1) Gas Balancing Agreement................................... 10
           (Option 2) No Gas Balancing Agreement................................ 11
VII.    EXPENDITURES AND LIABILITY OF PARTIES................................... 11
        A. LIABILITY OF PARTIES: ............................................... 11
        B. LIENS AND SECURITY INTERESTS: ....................................... 12
        C. ADVANCES: ........................................................... 12
        D. DEFAULTS AND REMEDIES: .............................................. 12
           1. Suspension of Rights.............................................. 13
           2. Suit for Damages.................................................. 13
           3, Deemed Non-Consent................................................ 13
           4. Advance Payment................................................... 13
           5. Costs and Attorneys' Fees......................................... 13
        E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES: ............... 13
        F. TAXES: .............................................................. 13
VIII.   ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST........................ 14
        A. SURRENDER OF LEASES: ................................................ 14
        B. RENEWAL OR EXTENSION OF LEASES: ..................................... 14
        C. ACREAGE OR CASH CONTRIBUTIONS: ...................................... 14
</TABLE>

                                        i

<PAGE>

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Article                          Title                                          Page
-------                          -----                                          ----
<S>     <C>                                                                     <C>
        D. ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: ........................ 15
        E. WAIVER OF RIGHTS TO PARTITION: .....................................  15
        F. PREFERENTIAL RIGHT TO PURCHASE: ....................................  15
IX.     INTERNAL REVENUE CODE ELECTION.........................................  15
X.      CLAIMS AND LAWSUITS....................................................  15
XI.     FORCE MAJEURE..........................................................  16
XII.    NOTICES................................................................  16
X111.   TERM OF AGREEMENT .....................................................  16
XIV.    COMPLIANCE WITH LAWS AND REGULATIONS...................................  16
        A. LAWS, REGULATIONS AND ORDERS: ......................................  16
        B. GOVERNING LAW: .....................................................  16
        C. REGULATORY AGENCIES: ...............................................  16
XV.     MISCELLANEOUS..........................................................  17
        A. EXECUTION: .........................................................  17
        B. SUCCESSORS AND ASSIGNS: ............................................  17
        C. COUNTERPARTS: ......................................................  17
        D. SEVERABILITY .......................................................  17

XVI.    OTHER PROVISIONS.......................................................  17
</TABLE>


                                       ii


<PAGE>

                            A.A.P.L. FORM 610 - 1989

                         MODEL FORM OPERATING AGREEMENT











                               OPERATING AGREEMENT

                                      DATED


                                 JULY 1,  2001
                                 -------  ----
                                          YEAR



OPERATOR UNION OIL COMPANY OF CALIFORNIA
         -----------------------------------------------------------------------

CONTRACT AREA CRESLENN RANCH AREA
              ------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------



COUNTY OF HENDERSON, STATE OF TEXAS
          ---------           -----

                                        COPYRIGHT 1989 - ALL RIGHTS RESERVED
                                        AMERICAN ASSOCIATION OF PETROLEUM
                                        LANDMEN, 4100 FOSSIL CREEK BLVD.
                                        FORT WORTH, TEXAS, 76137, APPROVED FORM.

                                               A.A.P.L. NO. 610 - 1989




<PAGE>


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989



                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article                          Title                                          Page
-------                          -----                                          ----
<S>     <C>                                                                     <C>
I.      DEFINITIONS.............................................................  1
II.     EXHIBITS................................................................  1
III.    INTERESTS OF PARTIES....................................................  2
        A. OIL AND GAS INTERESTS: ..............................................  2
        B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION: .......................  2
        C. SUBSEQUENTLY CREATED INTERESTS: .....................................  2
IV.     TITLES..................................................................  2
        A. TITLE EXAMINATION: ..................................................  2
        B. LOSS OR FAILURE OF TITLE: ...........................................  3
           1. Failure of Title..................................................  3
           2. Loss by Non-Payment or Erroneous Payment of Amount Due............  3
           3. Other Losses......................................................  3
           4. Curing Title......................................................  3
V.      OPERATOR................................................................  4
        A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR: .......................  4
        B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR: ......  4
           1. Resignation or Removal of Operator................................  4
           2. Selection of Successor Operator...................................  4
           3. Effect of Bankruptcy..............................................  4
        C. EMPLOYEES AND CONTRACTORS: ..........................................  4
        D. RIGHTS AND DUTIES OF OPERATOR: ......................................  4
           1. Competitive Rates and Use of Affiliates...........................  4
           2. Discharge of Joint Account Obligations............................  4
           3. Protection from Liens.............................................  4
           4. Custody of Funds..................................................  5
           5. Access to Contract Area and Records...............................  5
           6. Filing and Furnishing Governmental Reports........................  5
           7. Drilling and Testing Operations...................................  5
           8. Cost Estimates....................................................  5
           9. Insurance.........................................................  5
VI.     DRILLING AND DEVELOPMENT................................................  5
        A. INITIAL WELL: .......................................................  5
        B. SUBSEQUENT OPERATIONS: ..............................................  5
           1. Proposed Operations...............................................  5
           2. Operations by Less Than All Parties...............................  6
           3. Stand-By Costs....................................................  7
           4. Deepening.........................................................  8
           5. Sidetracking......................................................  8
           6. Order of Preference of Operations.................................  8
           7. Conformity to Spacing Pattern.....................................  9
           8. Paying Wells......................................................  9
        C. COMPLETION OF WELLS; REWORKING AND PLUGGING BACK: ...................  9
           1. Completion........................................................  9
           2. Rework, Recomplete or Plug Back...................................  9
        D. OTHER OPERATIONS: ...................................................  9
        E. ABANDONMENT OF WELLS: ...............................................  9
           1. Abandonment of Dry Holes..........................................  9
           2. Abandonment of Wells That Have Produced........................... 10
           3. Abandonment of Non-Consent Operations............................. 10
        F. TERMINATION OF OPERATIONS: .......................................... 10
        G. TAKING PRODUCTION IN KIND: .......................................... 10
             (Option 1) Gas Balancing Agreement................................. 10
             (Option 2) No Gas Balancing Agreement.............................. 11
VII.    EXPENDITURES AND LIABILITY OF PARTIES................................... 11
        A. LIABILITY OF PARTIES: ............................................... 11
        B. LIENS AND SECURITY INTERESTS: ....................................... 12
        C. ADVANCES: ........................................................... 12
        D. DEFAULTS AND REMEDIES: .............................................. 12
           1. Suspension of Rights.............................................. 13
           2. Suit for Damages.................................................. 13
           3, Deemed Non-Consent................................................ 13
           4. Advance Payment................................................... 13
           5. Costs and Attorneys' Fees......................................... 13
        E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES: ............... 13
        F. TAXES: .............................................................. 13
VIII.   ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST........................ 14
        A. SURRENDER OF LEASES: ................................................ 14
        B. RENEWAL OR EXTENSION OF LEASES: ..................................... 14
        C. ACREAGE OR CASH CONTRIBUTIONS: ...................................... 14
</TABLE>

                                        i

<PAGE>

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Article                          Title                                          Page
-------                          -----                                          ----
<S>     <C>                                                                     <C>
        D. ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: ........................ 15
        E. WAIVER OF RIGHTS TO PARTITION: .....................................  15
        F. PREFERENTIAL RIGHT TO PURCHASE: ....................................  15
IX.     INTERNAL REVENUE CODE ELECTION.........................................  15
X.      CLAIMS AND LAWSUITS....................................................  15
XI.     FORCE MAJEURE..........................................................  16
XII.    NOTICES................................................................  16
X111.   TERM OF AGREEMENT .....................................................  16
XIV.    COMPLIANCE WITH LAWS AND REGULATIONS...................................  16
        A. LAWS, REGULATIONS AND ORDERS: ......................................  16
        B. GOVERNING LAW: .....................................................  16
        C. REGULATORY AGENCIES: ...............................................  16
XV.     MISCELLANEOUS..........................................................  17
        A. EXECUTION: .........................................................  17
        B. SUCCESSORS AND ASSIGNS: ............................................  17
        C. COUNTERPARTS: ......................................................  17
        D. SEVERABILITY .......................................................  17
XVI.    OTHER PROVISIONS.......................................................  17
</TABLE>


                                       ii

<PAGE>


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

                              OPERATING AGREEMENT

     THIS AGREEMENT, entered into by and between UNION OIL COMPANY OF
CALIFORNIA, 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 of Oil and 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 V1.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 VI.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.

     0. 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 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.

     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.

                                  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.

 X   C.  Exhibit "C," Accounting Procedure.
---

 X   D.  Exhibit "D," Insurance.
---

 X   E.  Exhibit "E," Gas Balancing Agreement.
---

 X   F.  Exhibit "F," Non-Discrimination and Certification of Non-Segregated
---      Facilities.

 X   H.  Other: Memorandum of Operating Agreement
---
                                                     -l-


<PAGE>

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989


                               OPERATING AGREEMENT

     THIS AGREEMENT, entered into by and between UNION OIL COMPANY OF
CALIFORNIA, 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 of Oil and 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 mote 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" shalt 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 V1.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 VI.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 teases 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.

     0. 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 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.

     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.

                                   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 of 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.

 X   C. Exhibit "C," Accounting Procedure.
---

 X   Exhibit D. "D," Insurance.
---

 X   E. Exhibit "E," Gas Balancing Agreement.
---

 X   F. Exhibit "F," Non-Discrimination and Certification of Yen-Segregated
        Facilities.
---

 X   H. Other: Memorandum of Operating Agreement
---


                                       -1-

<PAGE>

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

     If any provision of any exhibit, except Exhibits "E" & "F" 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

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 party 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 party 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, the amounts agreed upon in
the Participation Agreement (as hereinafter defined) 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 interests, 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 V1I.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.

                                   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.


     Operator 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 not be covered by the
administrative overhead charges as provided in Exhibit "C."


                                      -2-


<PAGE>

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

Operator shall make no charge for services rendered by its staff attorneys or
other personnel in the performance of the above functions.

     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:

     All losses of Leases or Interests committed to the agreement, shall be
joint losses and shall be horne 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 Areas on account of any joint
loss.

                                      -3-
<PAGE>

A.A.P.L. FORM 610 MODEL FORM OPERATING AGREEMENT 1989

                               ARTICLE V. OPERATOR

A.   DESIGNATION AND RESPONSIBILITIES OF OPERATOR:

     Union Oil Company of California 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.

     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, alter 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 one (1) 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.

     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 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

                                       -4-

<PAGE>


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT 1989

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 VIIB. 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: 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.

     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

B.   SUBSEQUENT OPERATIONS:

     1. Proposed Operations: If any party hereto should desire to drill any well
on the Contract Area, 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


                                      -5-

<PAGE>


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT 1989

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.l. or VI.C.1. (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.

     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
after receipt 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. 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 V1.B. I., 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 NonConsenting Party's interest in the well and share of
production therefrom or, in the case of a Reworking, Sidetracking,


                                      -6-
<PAGE>

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article
VI.C.1, Option No. 2, all of such NonConsenting 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:

     (i) 100 % 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

     (ii) 400% 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
VII.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
NonConsenting 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 NonConsenting 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.

     (c) Reworking Recompleting 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, Recompleting 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 200% 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 V1.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
NonConsenting 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,

                                       -7-


<PAGE>


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

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), should 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 VI.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 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 NonConsenting Parties). Thereupon, Articles VI.B.1. and 2. shall
apply and all parties receiving such notice shall have the right to participate
or not participate in the Deepening of such well pursuant to said Articles
VI.B.1. and 3. 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.

     (a) 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 NonConsenting 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.

     (b) 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 VI.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:

          (a) 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.

          (b) 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 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 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

                                      -8-
<PAGE>


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

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 VI.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. Conformitv 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. Paving 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:


[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 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 provision 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 Recompletion 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 Fifty Thousand Dollars ($50,OOO.OO) 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 be 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

                                      -9-


<PAGE>


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT 1989

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 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 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 V1.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.

     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 capable of production, whether or not such well has produced
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 right to obtain production
from that wellbore in the Zone then open to production. If the interest of the
abandoning party is or includes and 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 V1.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 cost 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 75% 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 renders
further operations impractical, Operator may discontinue operations and give
notice of such condition in the manner provided in Article V1.B.1, and the
provisions of Article V1.B. or VI.E. shall thereafter apply to such operation,
as appropriate.

G.   TAKING PRODUCTION IN KIND:

[X]  OPTION NO. 1: GAS BALANCING AGREEMENT ATTACHED

          Each party shall have the right to 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

                                      -10-


<PAGE>

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

     production from the Contract Area, and, except as provided in Article
     VIIB., shall be entitled to receive payment


                                      -10-

<PAGE>


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT 1989

     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 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 at any time its right to take in kind, or separately
     dispose of, its share of all Oil and/or Gas not previously delivered to a
     purchaser. 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 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 proportionate 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.

                                  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.

                                      -11-
<PAGE>


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

                                 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


--------- of -------------------------------------------------------------------

(Seal, if any)                  ------------------------------------------------

                                Title (and Rank)--------------------------------

                                My commission expires:--------------------------



                                      -19-

<PAGE>


                                   EXHIBIT "A"

  Attached to and made a part of that certain Operating Agreement dated July 1,
   2001, by and between Union Oil Company of California, Operator and Ivanhoe
                         Energy USA, Inc., Non-operator.

I.   Contract Area

     10,433 acres more or less in Henderson County, Texas, which falls within
     the outline on the attached Exhibit "A-2".

II.  Interests of the Parties

     Union Oil Company of California              50.00%
     14141 Southwest Freeway
     Sugar Land, Texas 77478

     Ivanhoe Energy USA, Inc.                     50.00%
     1200 Discovery Drive, Suite 301
     Bakersfield, California 93309




<PAGE>


                                   EXHIBIT "A"

Oil Gas and Mineral Lease dated 07/25/2000, by and between Lester Kinabrew, Jr.,
Enterprises, Inc., as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on
12/07/2000, File# 19291, of the records of Henderson County, Texas
(C2319-213-001-O1)

Oil Gas and Mineral Lease dated 07/25/2000, by and between Reba J. Hatton,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19294, of the records of Henderson County, Texas
(C2319-213-00l-02)

Oil Gas and Mineral Lease dated 07/25/2000, by and between Virginia Browning,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19295, of the records of Henderson County, Texas
(C2319-213-00l-03)

Oil Gas and Mineral Lease dated 1l/19/2000, by and between Leland Dale Dosser,
Guardian for Juanita Riddlesperger, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 02/14/2001, File# 0002539, of the records of Henderson
County, Texas (C2319-213-00l-04)

Oil Gas and Mineral Lease dated 07/10/2000, by and between Margaret Ann Resse,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19292, of the records of Henderson County, Texas
(C2319-213-00l-05)

Oil Gas and Mineral Lease dated 10/30/2000, by and between R.E. Dwelle, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19300,
of the records of Henderson County, Texas (C2319-213-00l-06)

Oil Gas and Mineral Lease dated 08/29/2000, by and between Mack Adams, General
Partner, Adams Family Ltd., as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19293, of the records of Henderson County, Texas
(C2319-213-00l-07)

Oil Gas and Mineral Lease dated 10/17/2000, by and between Jean Adams Marital
Trust #2-GST Exempt and GST Non Exempt, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 12/07/2000, File# 19310, of the records of Henderson
County, Texas (C2319-213-00l-08)

Oil Gas and Mineral Lease dated 10/17/2000, by and between Julie Feilds,
Manager of the JAJ Partnership, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19308, of the records of Henderson County, Texas
(C2319-213-001-09)

Oil Gas and Mineral Lease dated 12/14/2000, by and between Mickey Darnell Lewis
and wife, Norma Lewis and Mickey Darnel, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 0l/02/2001, File# 0000019, of the records of Henderson
County, Texas (C2319-213-00l-10)

Oil Gas and Mineral Lease dated 12/14/2000, by and between Robby Lee Lewis, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 01/02/2001, File/#
0000020, of the records of Henderson County, Texas (C2319-213-00l-11)

Oil Gas and Mineral Lease dated 12/22/2000, by and between Curlie Nell Seamayer,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001, File#
0006106, of the records of Henderson County, Texas (C2319-213-00l-12)

Oil Gas and Mineral Lease dated 12/07/2000, by and between Jacqleen Matthews
Cook, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001,
File# 0002527, of the records of Henderson County, Texas (C2319-213-00l-19)

Oil Gas and Mineral Lease dated 10/26/2000, by and between J.N. Davis, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19303,
of the records of Henderson County, Texas (C2319-213-00l-20)

<PAGE>

Oil Gas and Mineral Lease dated 12/13/2000, by and between Larkin Davis, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 01/02/2001, File#
0000016, of the records of Henderson County, Texas (C2319-213-001-21)


Oil Gas and Mineral Lease dated 12/11/2000, by and between Minnie Davis, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002581, of the records of Henderson County, Texas (C2319-213-00l-22)

Oil Gas and Mineral Lease dated 1l/16/2000, by and between Davis R. Harton and
wife, Billie G. Harton, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded
on 02/14/2001, File# 0002505, of the records of Henderson County, Texas
(C2319-213-001-23)

Oil Gas and Mineral Lease dated 1l/16/2000, by and between Vernon R. Harton.,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002507, of the records of Henderson County, Texas (C2319-213-00l-24)

Oil Gas and Mineral Lease dated 12/07/2000, by and between Carl Lee Matthews,
Jr. and wife, Bobbie Morrison Matthews, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 02/14/2001, File# 0002528, of the records of Henderson
County, Texas (C2319-213-00l-25)

Oil Gas and Mineral Lease dated 12/07/2000, by and between Lettie Mae Matthews,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002529, of the records of Henderson County, Texas (C2319-213-00l-26)

Oil Gas and Mineral Lease dated 1l/16/2000, by and between Lena Harton Spinger,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002506, of the records of Henderson County, Texas (C2319-213-001-27)

Oil Gas and Mineral Lease dated 11/09/2000, by and between Henry Ford Davis
Trust, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000,
File# 19321, of the records of Henderson County, Texas (C2319-213-00l-36)

Oil Gas and Mineral Lease dated 10/3l/2000, by and between Hazel Danna Smith,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002485, of the records of Henderson County, Texas (C2319-213-00l-37).

Oil Gas and Mineral Lease dated 10/31/2000, by and between Milton C. Smith, Jr.,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002486, of the records of Henderson County, Texas (C2319-213-00l-338)

Oil Gas and Mineral Lease dated 12/05/2000, by and between Lucille Tidgren, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001,
File# 0006129, of the records of Henderson County, Texas (C2319-213-00l-58)

Oil Gas and Mineral Lease dated 12/22/2000, by and between Patricia Glenn Kuhn,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 05/ll/2001, File#
0007719, of the records of Henderson County, Texas (C2319-213-00l-65)

Oil Gas and Mineral Lease dated 12/13/2000, by and between Becky Balcolm, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 05/ll/2001, File#
0007720, of the records of Henderson County, Texas (C2319-213-00l-66)

Oil Gas and Mineral Lease dated 1l/22/2000, by and between Charles Davis, Jr.
acting as Agent and Attorney-In-Fact for, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 02/14/2001, File# 0002544, of the records of Henderson
County, Texas (C2319-213-00l-80)

<PAGE>

Oil Gas and Mineral Lease dated 05/29/2001, by and between GENE WOOD, as Lessor,
and R.A.M. ENERGY, INC., as Lessee, recorded on 06/08/2001, File # 0009473, of
the records of Henderson County, Texas (C2319-213-00l-84)

Oil Gas and Mineral Lease dated 08/22/2000, by and between Elva Barton Thornton,
Trustee of the Elva Barton Thornton Family Trust, as Lessor, and R.A.M. ENERGY,
INC., as Lessee, recorded on 12/07/2000, File# 19296, of the records of
Henderson County, Texas (C2319-213-041-00)

Oil Gas and Mineral Lease dated 10/19/2000, by and between Dora Margaret
Williams, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000,
File# 19313, of the records of Henderson County, Texas (C2319-213-042-00)

Oil Gas and Mineral Lease dated 10/25/2000, by and between Osborne W. Williams,
et ux, Eula Beth Williams, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19298, of the records of Henderson County, Texas
(C2319-213-047-01)

Oil Gas and Mineral Lease dated 10/28/2000, by and between Mary Eddynell White
and Husband Edward H. White, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 02/14/2001, File# 0002488, of the records of Henderson County,
Texas (C2319-213-047-02)

Oil Gas and Mineral Lease dated 10/28/2000, by and between Dewey Elton Thornton
and wife Evelyn L. Thornton, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 12/07/2000, File# 19314, of the records of Henderson County,'
Texas (C2319-213-047-03)

Oil Gas and Mineral Lease dated 1l/01/2000, by and between Lola A Welch, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19301,
of the records of Henderson County, Texas (C2319-213-065-01)

Oil Gas and Mineral Lease dated 1l/02/2000, by and between Marguerite Cade, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded in 12/07/2000, File# 19306,
of the records of Henderson County, Texas (C2319-213-065-03)

Oil Gas and Mineral Lease dated 1l/02/2000, by and between Dan M. Royall, Jr.,
Executor for the Estate of Dan M. Royal, as Lessor, and R.A.M. ENERGY, INC., as
Lessee, recorded on 12/07/2000, File# 19307, of the records of Henderson County,
Texas (C2319-213-065-04)

Oil Gas and Mineral Lease dated 1l/10/2000, by and between John Henry Bevel,
Jr., as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000,
File# 19336, of the records of Henderson County, Texas (C2319-213-065-05)

Oil Gas and Mineral Lease dated 1l/08/2000, by and between Curtis Rhett Barton,
as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000,
File# 19316, of the records of Henderson County, Texas (C2319-213-075-01)

Oil Gas and Mineral Lease dated 11/08/2000, by and between Paula Steele, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000, File# 19317,
of the records of Henderson County, Texas (C2319-213-075-02)

Oil Gas and Mineral Lease dated 1l/08/2000, by and between Gary Barton, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001, File#
0002489, of the records of Henderson County, Texas (C2319-213-075-03)

Oil Gas and Mineral Lease dated 1l/08/2000, by and between Cindy Barton
Maxwell, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001,
File# 0002490, of the records of Henderson County, Texas (C2319-213-075-04)

<PAGE>

Oil Gas and Mineral Lease dated 1l/08/2000, by and between Jacquelyn Barton
Coker, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 02/14/2001,
File# 0002491, of the records of Henderson County, Texas (C2319-213-075-05)

Oil Gas and Mineral Lease dated 1l/08/2000, by and between Kimberly A. Barton
Scott, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 12/07/2000,
File## 19318, of the records of Henderson County, Texas (C2319-213-075-06)

Oil Gas and Mineral Lease dated 04/04/2001, by and between Dorothy Bruton, as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 05/ll/2001, File#
0007768, of the records of Henderson County, Texas (C2319-213-082-00)

Oil Gas and Mineral Lease dated 02/13/2001, by and between Ernest C. Ledwell,
Jr., as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001,
File# 0006141, of the records of Henderson County, Texas (C2319-213-249-01).

Oil Gas and Mineral Lease dated 02/13/2001, by and between L.W. Ledwell, Jr., as
Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001, File#
0006161, of the records of Henderson County, Texas (C2319-213-249-02)

Oil Gas and Mineral Lease dated 02/13/2001, by and between Wanda Lou Ledwell, as
Lessor, and R. A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001, File#
0006158, of the records of Henderson County, Texas (C2319-213-249-03)

Oil Gas and Mineral Lease dated 02/l5/2001, by and between Suzanne Barber
Owens, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001,
File# 0006159, of the records of Henderson County, Texas (C2319-213-249-04)

Oil Gas and Mineral Lease dated 02/13/2001, by and between Josephine Ledwell
Reddy, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on 04/17/2001,
File# 0006157, of the records of Henderson County, Texas (C2319-213-249-05)

Oil Gas and Mineral Lease dated 12/17/2000, by and between Virginia Browning,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 02/14/2001, File# 0002562, of the records of Henderson County, Texas
(C2319-213-271-01)

Oil Gas and Mineral Lease dated 12/17/2000, by and between Reba J. Hatton,
Dealing With Her Sole Property, as Lessor, and R.A.M. ENERGY, INC., as Lessee,
recorded on 02/14/2001, File# 0002561, of the records of Henderson County,
Texas (C2319-213-27l-02)

Oil Gas and Mineral Lease dated 12/17/2000, by and between Lester Kinabrew, Jr.,
Enterprises, Inc., as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on
02/14/2001, File# 0002563, of the records of Henderson County, Texas
(C2319-213-27l-03)

Oil Gas and Mineral Lease dated 12/13/2000, by and between Post Oak Cemetery
Association, as Lessor, and R.A.M. ENERGY, INC., as Lessee, recorded on
01/02/2001, File# 0000021, of the records of Henderson County, Texas
(C2319-213-347-00)

<PAGE>

                                 EXHIBIT "A-2"

                                     [MAP]


<PAGE>


                                   EXHIBIT "B"


Oil Gas and Mineral Lease dated 06/07/1952, by and between G. A. Gamble and E.
L. Lancaster, as Lessors, and P. N. Wiggins and C. E. Hyde, as Lessees, recorded
in Book 393, Page 126, of the records of Henderson County, Texas (Unocal Lease
No. 15904).

Oil Gas and Mineral Lease dated 06/20/1952, by and between Mary W. Harwell, et
al, as Lessor, and P. N. Wiggins and C. E. Hyde, as Lessees, recorded in Book
393, Page 349, of the records of Henderson County, Texas (Unocal Lease No.
15910).

Oil Gas and Mineral Lease dated 1l/15/1944, by and between Stephens Lake Land
Company, as Lessor, and Wilma Waddell, as Lessee, recorded in Book 32, Page 55,
of the records of Henderson County, Texas (Unocal Lease No. 15913).

Oil Gas and Mineral Lease dated 06/15/1962, by and between Alton N. Justiss, et
al, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 521, Page 151,
of the records of Henderson County, Texas (Unocal Lease No. 61954).

Oil Gas and Mineral Lease dated 06/14/1962, by and between Agnes Blanding
Stroud, et al, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 521,
Page 149, of the records of v Henderson County, Texas (Unocal Lease No. 61955).

Oil Gas and Mineral Lease dated 06/15/1962, by and between Robert S. Neblett, et
al, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 521, Page 153, of
the records of Henderson County, Texas (Unocal Lease No. 61956).

Oil Gas and Mineral Lease dated 06/14/1962, by and between G. A. N. McFaddin, et
al, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 519, Page 387, of
the records of Henderson County, Texas (Unocal Lease No. 61957).

Oil Gas and Mineral Lease dated 06/14/1962, by and between John F. Sullivan,
Jr., et al, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 519,
Page 385, of the records of Henderson County, Texas (Unocal Lease No. 61958).

Oil Gas and Mineral Lease dated 06/14/1962, by and between Mrs. Garnett Pitts,
et vir, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 519, Page
383, of the records of Henderson County, Texas (Unocal Lease No. 61959).

Oil Gas and Mineral Lease dated 12/28/1954, by and between W. R. Kinabrew, as
Lessor, and Ted Weiner, as Lessee, recorded in Book 14, Page 553, of the records
of Henderson County, Texas (Unocal Lease No. 1002480).

Oil Gas and Mineral Lease dated 12/28/1954, by and between George
Riddlesperger, as Lessor, and W. R. Kinabrew, as Lessee, recorded in Book 14,
Page 551, of the records of Henderson County, Texas (Unocal Lease No. 1002481).

<PAGE>


                                  EXHIBIT "B"

ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT DATED JULY 1,
2001 BETWEEN UNION OIL COMPANY OF CALIFORNIA, AS OPERATOR, AND IVANHOE ENERGY
(USA), INC., AS NON-OPERATOR.




                     (this exhibit intentionally left blank)


<PAGE>

                                                      COPAS 1984 ONSHORE
                                                      Recommended by the Council
                                                      of Petroleum Accountants
                                                      Societies

                                  EXHIBIT "C"

Attached to and made a part of THAT CERTAIN OPERATING AGREEMENT DATED JULY
1,2001 BY AND BETWEEN UNION OIL COMPANY OF CALIFORNIA, AS OPERATOR, AND IVANHOE
ENERGY (USA), INC., 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 or 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 fifteen (15) days
          after receipt of the billing 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 fifteen
          (15) 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 J. P. MORGAN CHASE on the first day of the month in which
          delinquency occurs plus 13% 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 conclusively 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 (c) 1985 BY THE COUNCIL OF PETROLEUM ACCOUNTANTS SOCIETIES.



                                     - 1 -
<PAGE>


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
          portion 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 180 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 environmental
     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 or
              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 Paragraphs 3A and 3B of this
          Section II.

4.   EMPLOYEE BENEFITS

     Operator's current costs or 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 not to exceed the percent
     most recently recommended by the Council of Petroleum Accountants
     Societies.



                                     - 2 -
<PAGE>

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.

     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 EIGHT percent ( 8 %) 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 judgments 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.



                                     - 3 -
<PAGE>


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.

13.  ABANDONMENT AND RECLAMATION

     cost 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.

                                  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 IA, or
          (   ) Percentage Basis, Paragraph IB

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

     111. 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 $ 7,500.00
                                  ---------------
                  (Prorated for less than a full month)

          Producing Well Rate $ 800.00
                              ----------------

          (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 drilling
                         rig, completion rig, or other units used in completion
                         of the well is released, whichever





                                     - 4 -
<PAGE>


                    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
                         governing 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.

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



                                     - 5 -
<PAGE>


     Account for overhead based on the following rates for any Major
     Construction project in excess of $ 25,OOO.OO:

     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,OOO,OOO, plus

     C.   2 % of costs in excess of $ I,OOO,OOO.


     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,OOO,OOO;
          plus

     C.   2 % of total costs in excess of $ 1,OOO,OOO.

     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:

     A.   New Material (Condition A)


          (I)  Tubular Goods Other than Line Pipe

               (a)  Tubular goods, sized 2 3/8 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.(l)(a). For transportation cost from points
                    other than eastern mills, the 30,000



                                     - 6 -
<PAGE>


                    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 3/8 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.(l)(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 Paragraph
                    A.(l)(a) ES provided above. Freight charges shall be
                    calculated from Lorain, Ohio.

               (c)  Line pipe 24 inch OD and over and S 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.(I) 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 the 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.



                                     - 7 -
<PAGE>


               (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 for 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 (25c) 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 1A.(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 MATERIALS 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 0perator 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



                                     - 8 -
<PAGE>


     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.

5.   EXCESS INVENTORY

     THE OPERATOR SHALL NOT BE REQUIRED TO MAINTAIN INVENTORY THAT IT DOES NOT
     DEEM PRUDENT; THEREFORE, IN THE EVENT OPERATOR DETERMINES THAT WELLHEAD AND
     ASSOCIATED COMPONENTS, INCLUDING, BUT NOT LIMITED TO XMAS TREE, FLOWLINE
     VALVES AND BLAST JOINTS (THE "EXCESS INVENTORY") HAVE NO FURTHER ON-SITE
     UTILIZATION, OPERATOR MAY SHIP THE EXCESS INVENTORY, OR ANY PART THEREOF,
     TO A THIRD PARTY RECOGNIZED IN THE INDUSTRY AS A WELLHEAD SPECIALTY
     COMPANY. THIS COMPANY SHALL SUGGEST A CLASSIFICATION WHICH WILL BE REVIEWED
     BY THE OPERATOR TO DETERMINE FUTURE UTILITY AND MARKET VALUE. ALL EXCESS
     INVENTORY ITEMS DETERMINED BY THE OPERATOR TO BE REUSABLE AFTER
     RECONDITIONING WILL BE ASSIGNED A CREDIT INDEXED TO LIST PRICE. ITEMS
     CLASSIFIED AS OBSOLETE, OR UNECONOMICAL TO REPAIR WILL BE SOLD AS JUNK AT
     CURRENT SCRAP VALUE. THE OPERATOR WILL CREDIT THE JOINT ACCOUNT
     PROPORTIONATELY TO EACH PARTY'S WORKING INTEREST OWNERSHIP IN ANY EXCESS
     INVENTORY SOLD OR JUNKED.





                                     - 9 -
<PAGE>


                                  EXHIBIT " D "

ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT DATED JULY 1,
2001 BETWEEN UNION OIL COMPANY OF CALIFORNIA, AS OPERATOR, AND IVANHOE ENERGY
(USA), INC., AS NON-OPERATOR.

                                    INSURANCE

1.   At all times during the conduct of operations hereunder, Operator shall
     maintain in force the following minimum limits of insurance at the expense
     of, and for the benefit of the Joint Account:

     (a)  Workers Compensation Insurance in accordance with the laws of the
          state(s) in which operations are covered under this Agreement.

     (b)  Employer's Liability Insurance with a minimum limit of $1,OOO,OOO per
          occurrence.

     (c)  All vessels owned or bareboat chartered by Operator shall be
          adequately covered by Hull and Protection and Indemnity Insurance.

     (d)  All aircraft owned by Operator shall be adequately covered by Aircraft
          Liability Insurance.

2.   No other insurance shall be carried by Operator for the benefit of the
     Joint Account; however, the Operator and each Non-Operator shall provide
     and maintain in force the following minimum limits of insurance at its sole
     expense and for its own benefit covering operations on lands subject to
     this Agreement. Upon evidence of the ability to do so, each party shall
     have the right to self-insure any of the coverages listed below at its
     option.

     (a)  Commercial General Liability Insurance with $1,OOO,OOO combined
          single limit per occurrence and $5,000,000 in the aggregate.

     (b)  Commercial Automobile Liability Insurance covering owned, non-owned
          and hired automobiles with a combined single limit of $1,OOO,OOO per
          occurrence.

     (c)  Umbrella Liability Insurance, including liability for environmental
          damage, with a combined single limit per occurrence of $5,000,000.

3.   Any party may at its own expense acquire such other insurance as it deems
     proper to protect itself against any claims, losses, damages or destruction
     arising out of operations of the joint property.

4.   Operator shall require all contractors and subcontractors working or
     performing services hereunder to comply with the Worker's Compensation and
     Employer's Liability Laws, both State and Federal, and to carry Commercial
     General Liability and such other insurance as Operator deems necessary.

5.   Operator may include Workers Compensation Insurance and Employer's
     Liability Insurance risks under its qualified self-insurance program
     provided Operator complies with all applicable laws, and in such event,
     Operator shall charge the joint account with an amount that shall not
     exceed the amount of the premium that would be charged at the manual rate
     effective for insurance coverage as if Operator were a purchaser of such
     coverage from an insurance company or companies.

6.   Operator shall require that owners of aircraft and boats chartered
     hereunder (other than bareboat charters) shall be adequately covered by
     Hull and Protection and Indemnity Insurance.



<PAGE>


7.   In connection with all losses, Operator shall upon request i) furnish
     copies of accident reports as they are received; ii) give notification of
     the service of all summons and legal processes; iii) provide information as
     to the status of any claim or suit of any payment made in connection
     therewith; and, iv) furnish any other available information required for
     the purpose of fixing or adjusting premiums or to support any claims.

8.   Operator and each Non-Operator agree to mutually waive subrogation in favor
     of each other on all insurances carried by each party and/or obtain such
     waiver from the insurance carrier if so required by the insurance contract.
     If such waiver is not obtained, the party failing to do so shall indemnify
     the other party(s) for any claim by an insurance carrier arising out of
     subrogation.

9.   All uninsured losses and all damages to the joint property shall be borne
     by the parties hereto in proportion to their respective interests herein.


<PAGE>


                                   EXHIBIT "E"

      ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT DATED
       EFFECTIVE JULY 1,2001, BETWEEN UNION OIL COMPANY OF CALIFORNIA, AS
            OPERATOR, AND IVANHOE ENERGY (USA), INC., AS NON-OPERATOR

                            GAS BALANCING AGREEMENT
                                    ONSHORE

I.   Definitions

     A.   "Agreement" shall mean this Gas Balancing Agreement.

     B.   "Balanced" is that condition which occurs when a party hereto has
          taken the same percentage of the cumulative volume of Gas production
          it is entitled to take pursuant to the terms of the Operating
          Agreement.

     C.   "Contract Area" is the area affected by the Operating Agreement.

     D.   "Gas" includes natural gas produced from a Well that produces Gas Well
          Gas, including all constituent parts of such natural gas, except
          liquid hydrocarbons and condensate recovered by primary separation
          equipment.

     E.   "Gas Well Gas" is gas produced from a Well classified as a gas well by
          the regulatory body having jurisdiction.

     F.   "Oil Well Gas" is gas produced from a Well classified as an oil well
          by the regulatory body having jurisdiction.

     G.   "Overproduced" is the status of a party when the percentage of the
          cumulative volume of Gas taken by that party exceeds that party's
          percentage interest of the volume of cumulative Gas production of all
          parties to the Operating Agreement under and pursuant to the terms of
          said Operating Agreement.

     H.   "Underproduced" is the status of a party when the percentage of
          cumulative volume of Gas taken by that party is less than that party's
          percentage interest of the volume of cumulative Gas production of all
          parties to the Operating Agreement under and pursuant to the terms of
          said Operating Agreement.

     I.   "Well" is defined as each well subject to the Operating Agreement that
          produces Gas. If a single Well is completed in two or more reservoirs,
          such Well shall be considered a separate Well with respect to, but
          only with respect to, each reservoir from which the Gas produced is
          not commingled in the wellbore.

II.  Application of this Agreement

The parties to the Operating Agreement to which this Gas Balancing Agreement is
attached own the working or operating interests in the Gas underlying the
Contract Area covered by such Agreement and are entitled to share in the
percentages therein as stated in the Operating Agreement.

In accordance with the terms of the Operating Agreement, each party shall take
its share of Gas produced from the Contract Area and market or otherwise dispose
of same. In the event a party hereto does not take in kind or market its share
of gas or has contracted to sell its share of Gas produced from the Contract
Area to a purchaser which, at any time while this Agreement is in effect, fails
to take the share of Gas attributable to the interest of such party, the terms
of this Gas Balancing Agreement shall automatically become effective.


<PAGE>


The Operator has the duty to control Gas production and the responsibility of
administering the provisions of this Gas Balancing Agreement. The Operator shall
cause deliveries to be made to the Gas purchasers at such rates as may be
required to give effect to the intent that the Gas production accounts of all
parties are, to the extent practicable, to be or become Balanced.

III. Storing and Making Up Gas Production

     A.   Right to Take and Market Gas

          During any period or periods when any party hereto does not take, has
          no market for, or the market of a party is not sufficient to take that
          party's full share of the Gas produced from a Well located on the
          Contract Area, or such party's purchaser otherwise fails to take such
          party's share of Gas produced from any such Well in the Contract Area,
          resulting in such party becoming Underproduced (such party being
          herein referred to as an "Underproduced party") the other party or
          parties shall be entitled, but not required to produce from said Well
          in the Contract Area and take or deliver to their respective
          purchaser(s), each month, all or a part of that portion of the
          allowable Gas production assigned to such Well by the regulatory body
          having jurisdiction. Any party so taking or delivering Gas which
          results in such party becoming Overproduced is herein referred to as
          an "Overproduced party".

          Those parties which are capable of taking and/or marketing quantities
          of Gas allocable to an Underproduced party, in the absence of any
          other agreement between them, shall each take a share of the Gas
          attributed to the Underproduced party or parties in the direct
          proportion that their respective interests bear to the total interest
          of all parties taking Gas who are also considered Overproduced.

          All parties hereto shall share in and own the liquid hydrocarbons
          recovered from such Gas by primary separation equipment in
          accordance with their respective interests and subject to the terms of
          the above described Operating Agreement, whether or not such parties
          are actually taking and/or marketing Gas at such time.

     B.   Making Up Underproduction

          Each party failing to market its share of the total volume of Gas
          produced or failing to take its full share of the total volume of Gas
          produced shall be considered Underproduced and shall be credited with
          Gas in storage equal to its percentage share of the total volume of
          Gas produced under this Agreement, less that portion of the Gas
          actually marketed or taken by such party, gas used in operations,
          vented, or lost. Any Underproduced party shall endeavor to bring its
          taking of Gas into a Balanced condition. Upon at least 30 days written
          notice to the Operator, any Underproduced party may thereafter begin
          taking or delivering to its purchaser its full share of the Gas
          produced from a Well (less any used in operations, vented, or lost).
          To allow an Underproduced party to balance, upon 30 days written
          notice, an Underproduced party shall be entitled to take or deliver to
          a purchaser its full share of Gas produced from such Well (less any
          used in operations, vented, or lost) plus, (i) for the months of
          March, April, May, June, July, August, September and October only of
          any calendar year or years during which this agreement may be in
          place, an amount up to an additional fifty percent (50%) of the
          monthly quantity of gas attributable to the Overproduced party or
          parties, or (ii) for the months of November, December, January and
          February only of any calendar year or years during which this
          agreement may be in place, an amount up to an additional twenty-five
          percent (25%) of the monthly quantity of Gas attributable to the
          Overproduced party or parties, beginning the first of the month
          immediately following the twenty (20) days written notice.


<PAGE>


          If more than one Underproduced party is entitled to take additional
          Gas, they shall divide the additional Gas in proportion to their
          respective Underproduced accounts. The first Gas made up shall be
          assumed to be the first Gas Underproduced.

     C.   Gas Balance Reporting

          Each party taking Gas shall furnish or cause to be furnished to the
          Operator a monthly written statement of Gas volumes taken and the
          identity of its Gas purchaser, if any, no later than thirty (30) days
          after the production month. Operator shall not be required to adjust
          its Gas accounting statements reflecting a different Gas purchaser
          until the first day of the month following the month in which such
          notice is received by the Operator. The Operator will maintain
          appropriate accounting on a monthly and cumulative basis of the
          quantities of Gas each party is entitled to take and/or market and the
          quantities of Gas taken and/or marketed by each of the parties to
          their respective Gas purchasers. With respect to Gas purchased from or
          transported for more than one party by or through one pipeline
          connected to the Well, each party selling to or transporting through
          such one pipeline shall furnish to Operator or cause the pipeline
          owner to furnish to Operator monthly volume statements showing the
          split of ownership through such pipeline's sales or pipeline inlet
          meter during the preceding calendar month. Within ninety (90) days
          after the end of each producing calendar month, the Operator shall
          furnish each party a statement showing the status of the Overproduced
          and Underproduced accounts of all parties.

          To determine respective volumes of Gas taken by separate gas pipeline
          connected to the Well, measurement of Gas for overproduction and
          underproduction shall be accomplished by use of sales meters and well
          measurement equipment which shall be in accordance with AGA
          requirements.

          Each party to this agreement agrees that it will not utilize any
          information obtained hereunder for any purpose other than implementing
          or administering the terms of this Gas Balancing Agreement.

     D.   Royalty and Production Tax

          At all times while Gas is produced from the Contract Area, unless
          otherwise required by any State or Federal law or regulations, each
          party shall pay or cause to be paid all royalty due and payable on its
          share of Gas production as if each party were taking or delivering to
          a Gas purchaser its share of Gas production. Each party agrees to hold
          each other party harmless from any and all claims for royalty payments
          asserted by its royalty owners. The term "royalty owner" shall include
          owners of royalty, overriding royalties, production payments, and
          similar interests payable out of production.

          Each party producing and taking or delivering Gas to its Gas purchaser
          shall pay, or cause to be paid, all production and severance taxes due
          on all volumes of Gas actually taken or sold by such party.

IV.  Cash Settlement

     A.   Final Cash Balancing

          Should production of gas from the Contract Area be permanently
          discontinued before the gas accounts are balanced, the Operator shall
          make a final determination of the volume of the last accrued over- and
          underproduction, if any, as of the date of such permanent
          discontinuance and the identity of the party(s) who are over- or
          underproduced. A cash settlement will then be made between


<PAGE>


          the Underproduced and Overproduced parties. In making such settlement,
          the Underproduced parties shall be paid a sum of money by the
          Overproduced parties equal to the value, computed as hereafter set
          forth, of the unrecouped cumulative balance of overproduction, less
          applicable taxes and royalties theretofore paid.

          In determining the value of the unrecouped cumulative balance of
          overproduction, beginning with the most recent month in which the
          Overproduced parties took a volume of gas in excess of the quantity to
          which such parties were entitled, hereafter called "overage," the
          volume of overage during such month shall be multiplied times the
          actual prices received for such overage during such month. The same
          calculation shall be made for the next preceding month in which an
          overage occurred and for each preceding month (progressing backward in
          time) in which an overage occurred until the total volume of the
          overages for these months equals the total volume of the unrecouped
          cumulative balance of overproduction for purposes of the cash
          settlement herein contemplated. Within ninety (90) days of permanent
          discontinuance, the Operator will supply to the Non-operator final
          volume gas balancing statements. Within one hundred eighty (180) days
          of permanent discontinuance, the Overproduced parties will pay or
          cause to be paid to the Underproduced parties their share of overage.
          Operator assumes no liability with respect to any such third party
          payments due any Underproduced party. If refunds are later required by
          any governmental authority, each party shall be accountable for its
          respective share of such refunds as finally balanced hereunder.


     B.   Collection and Distribution

          Operator shall provide within thirty (30) days of permanent
          termination of Gas production a final accounting of the Gas balance to
          all parties hereto. Overproduced parties, within thirty (30) days of
          receipt of the final accounting of the Gas balance, shall provide
          Operator with a monthly statement of volume for each month during
          which overproduction occurred that has not been made-up. Within thirty
          (30) days after the receipt of such monthly statements for
          Overproduced parties, Operator shall calculate and invoice each
          Overproduced party for its share of the cash settlement, based on said
          volume statements, and the Cash Out Value due each Underproduced
          party. Overproduced parties shall make settlement, based on the
          invoice& amount, to the Operator within thirty (30) days after receipt
          of said invoice. Such payment shall relieve an Overproduced party of
          liability to any other party for the sums paid. Operator shall
          promptly distribute the funds it receives to the Underproduced parties
          in that proportion that each Underproduced party's volume of gas in
          storage bears to the total of all Underproduced parties volumes for
          Gas in storage.

     C.   Responsibility and Liability for Collection

          Operator shall not be liable to any Underproduced party for the
          failure of any Overproduced party to any amounts owed pursuant to the
          terms hereof. In the event that any party fails to pay any sum due
          under the terms hereof after demand therefore by the Operator, the
          Operator may turn responsibility for the collection of such sum to the
          party or parties to whom it is owed, and Operator shall have no
          further responsibility in the event that such sums are not paid. Any
          party shall have the right after expiration of thirty (30) days after
          the Operator shall have provided a final accounting of the Gas balance
          to all parties hereto to demand on thirty (30) days advance written
          notice to both Operator and all Overproduced parties that any payments
          due to such party for such party's Underproduced volumes shall be paid
          directly to such party by the Overproduced party(s), rather than being
          paid through Operator. In the event that any Overproduced party pays
          to Operator any sums due to an Underproduced party at any time after
          thirty (30) days following the receipt of such written notification of
          a demand that such

<PAGE>

          Underproduced party receive such payment directly, the Overproduced
          party(s) shall continue to be liable to such Underproduced party for
          any sums so paid, until such payment is actually received by such
          Underproduced party. In no event shall Operator be liable or
          responsible for any amount of cash settlement based on a value
          asserted by an Underproduced party different than the value calculated
          based on the volume statements and Cash Out Value provided by the
          Overproduced party or parties. .

     D.   Ownership Changes

          In the event an Overproduced party intends to sell, assign, exchange
          or otherwise transfer any of its interest in a Well located on the
          Contract area, such Overproduced party shall notify in writing the
          other working interest owners who are parties hereto in such Well of
          such fact within forty-five (45) days prior to closing the
          transaction. Any Underproduced party may demand of such Overproduced
          party in writing, within twenty (20) days after receipt of the
          Overproduced party's notice of intent to sell, assign, exchange or
          otherwise transfer its interest in a Well, a cash settlement of its
          underproduction attributed to such Overproduced party's Overproduction
          in the Well. Any Underproduced party electing to cash settle with the
          Overproduced party shall thereby indemnify and hold the Overproduced
          party harmless against any causes of action, claims, losses or other
          actions which may be claimed by any third party, including, but not
          limited to, any purchaser of the Gas of the Underproduced party, as a
          result of the cash settlement. The Operator shall be notified of any
          such demand and of any cash settlement pursuant to this Paragraph
          IV.D., and the Gas balance accounts of the parties shall be adjusted
          accordingly. Any cash settlement pursuant to this Paragraph 1V.D shall
          be on the same basis as otherwise set forth in Paragraphs 1V.A.
          through 1V.C. hereof.

          The provision of this Paragraph IV.D shall not be applicable in the
          event an Overproduced party has mortgaged its interest, or disposed of
          its interests by merger, reorganization, consolidation, or sale of
          substantially all of its assets to a subsidiary or parent company, or
          to any company in which any parent or subsidiary owns a majority of
          the stock of such company.

V.   Miscellaneous

     A.   Term

          This agreement shall remain in force and effect as long as the
          Operating Agreement to which it is attached remains in force and
          effect, and thereafter until the Gas balance accounts between the
          parties are settled in full, and shall inure to the benefit of and be
          binding upon the parties hereto, their heirs, successors, legal
          representatives and assigns.


<PAGE>



     B.   Expenses

          Nothing herein shall change or affect each party's obligations to
          pay its proportionate share of all costs and liabilities incurred in
          operations on the Contract Area as its share thereof is set forth in
          the Operating Agreement to which this Agreement is attached.

     C.   Well Tests

          Nothing herein shall be construed to deny any party the right, from
          time to time, to produce and take or deliver to its Gas purchaser up
          to one hundred percent (100%) of the entire well stream to meet the
          deliverability test required by its Gas purchaser, provided that such
          tests are reasonable in light of overall industry standards.

     D.   Monitoring of Takes of Production

          Each party shall, at all times, use its best efforts to regulate its
          takes and deliveries from each well on said Contract Area so that no
          well will be shut-in for overproducing the allowable assigned thereto
          by the regulatory body having jurisdiction. Additionally, each party
          shall communicate, as necessary, the contents of this agreement to its
          respective Gas purchaser(s) or transporter(s) and shall monitor its
          deliveries to its respective Gas Purchaser(s) or transporter(s) so as
          to ensure to the greatest extent practicable that its Gas purchaser(s)
          or transporter(s) does not take Gas in excess of the quantities
          provided for herein.

     E.   Method of Tax Accounting

          In the event Internal Revenue Service regulations require a uniform
          method of computing taxable income by all parties, each party agrees
          to compute and report income to the Internal Revenue service based on
          the quantity of Gas taken for its account (the cumulative method) in
          accordance with such regulations.


<PAGE>

                                   EXHIBIT "F"


            ATTACHED TO AND MADE PART OF THAT CERTAIN JOINT OPERATING
              AGREEMENT DATED EFFECTIVE JULY 1, 2000 BY AND BETWEEN

        UNION OIL COMPANY OF CALIFORNIA, AS OPERATOR, AND IVANHOE ENERGY
                          (USA) INC., AS NON-OPERATOR.

                EQUAL OPPORTUNITY & NON-SEGREGATION OF FACILITIES
                          CERTIFICATIONS AND AGREEMENTS

This contract shall be performed by Operator in compliance with all applicable
laws, proclaimed, orders, rules and regulations, including, without limitation,
the following:

1.   EQUAL EMPLOYMENT OPPORTUNITY

     A.   Equal Opportunity Clause (41 CFR 60-l.4). (Applicable to all
          contracts for more than $10,000, individually; or if Operator has such
          contracts or subcontracts with the Government in any 12-month period
          which have an aggregate total value (or can reasonably be expected to
          have an aggregate total value) exceeding $10,000, the $10,000 or under
          exemption does not apply, and the contracts are subject to the order
          and the regulations issued pursuant thereto regardless of whether any
          single contract exceeds $10,000.)

The equal opportunity clause required by Executive Order 11246 of September 24,
1965, and prescribed in section 60-l.4 of Title 41 of the Code of Federal
Regulations is incorporated by reference (as permitted by section 60-1.4(d) of
said Regulations) as if set out in full at this point.

     B.   Certification of Nonsegregated Facilities (41 CFR 60-l.8). (Applicable
          only to contracts which are not exempt from the provisions of the
          Equal Opportunity Clause set out above.) Operator certifies that it
          does not, and will not, maintain or provide for its employees any
          segregated facilities at any of its establishments, and that it does
          not and will not, permit its employees to perform their services at
          any location, under its control, where segregated facilities are
          maintained. Operator agrees that a breach of this certification is a
          violation of the Equal Opportunity Clause required by Executive Order
          11246 of September 24, 1965.

          As used in this certification, the term "segregated facilities" means
          any waiting rooms, work areas, restrooms and washrooms, restaurants
          and other eating areas, time clocks, locker rooms and other storage or
          dressing areas, parking lots, drinking fountains, recreation or
          entertainment areas, transportation, and housing facilities provided
          for employees which are segregated by explicit directive or are in
          fact segregated on the basis of race, color, religion, or national
          origin, because of habit, local custom, or otherwise.

          Operator further agrees that (except where it has obtained identical
          certifications from proposed subcontractors for specific time periods)
          it will obtain identical certifications from proposed subcontractors
          prior to the award of subcontractors exceeding $10,000 which are not
          exempt from the provisions of the Equal Opportunity Clause; that will
          forward that following notice to such proposed subcontractors (except
          where the


<PAGE>


          proposed subcontractors have submitted identical certifications for
          specific time periods):


NOTICE TO PROSPECTIVE SUBCONTRACTORS OR REQUIREMENT FOR CERTIFICATIONS OF
NONSEGREGATED FACILITIES

          A certificate of Nonsegregated Facilities must be a submitted prior to
          the award of a subcontract exceeding $10,000 which is not exempt from
          the provisions of the Equal Opportunity Clause. The certification may
          be submitted either for each subcontract or for all subcontracts
          during a period (i.e., quarterly, semiannually, or annually).

     C.   Affirmative Action Compliance Program (41 CFR 60-l.40). (Applicable
          only if Operator (a) has 50 or more employees and (b) has a contract
          for $50,000 or more.)

          If required under section 60-1.40 of Title 41 of the Code of Federal
          Regulations, Operator certifies that it has developed, or agrees to
          develop, a written affirmative action program for each of its
          establishments within 120 days from the effectiveness of this contact
          or the first of the contracts of sale. Operator shall maintain or the
          first of the contracts of sale. Operator shall maintain such program
          until such time as it is no longer required by law or regulation.
          Operator shall maintain a copy of separate program for each
          establishment, including evaluation of utilization of minority group
          personnel and the job classifications tables, at each local office
          responsible for the personnel matters of such establishment.

     D.   Employer Information Report (41 CFR 60-1.7). (Applicable only if
          Operator (a) had 50 or more employees, (b) is not exempt pursuant to
          41 CFR 60-l.5 from the requirement for filing Employer Information
          Report EEO-1, and (c) has a contract or subcontract amounting to
          $50,000 or more.)

If required under section 60-l.7 of Title 41 of the Code of Federal Regulations
to file, the Employer Information Report, Standard Form 100 (EEO-I), or such
forms as may hereinafter be promulgated in its place, in accordance with the
applicable instructions and will continue to file such report unless and until
Operator is not required to so file by law or regulation.

2.   AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA

     A.   Affirmative Action Clause (41 CFR 60-250.4). (Applicable only to
          contracts for $10,000 or more.)

          The affirmative action clause prescribed in section 60-250.4 of Title
          41 of the Code of Federal Regulations is incorporated by reference (as
          permitted by section 60-250.22 of said Regulations) as if set out in
          full at this point.

     B.   Affirmative Action Program (41 CFR 60-250.5). (Applicable to contracts
          for $10,000 or more only if Operator (a) has 50 or more employees and
          (b) holds a contract of $50,000 or more.)

          The affirmation action program prescribed in sections 60-250.22 of
          said Regulations) as if set out in full at this point.

3.   AFFIRMATIVE ACTION FOR HANDICAPPED WORKERS

     A.   Affirmative Action Clause (41 CFR 60-741.4).(Applicable to contracts
          for $2,500 or more.)


<PAGE>


          The affirmative action clause prescribed in section 60-741.4 of Title
          41 of the Code of Federal Regulations is incorporated herein by
          reference (as permitted by section 60-741.22 of said Regulations) as
          if set out in full at this point.

     B.   Affirmative Action Program (41 CFR 60-741.5). (Applicable to
          contracts for $2,500 or more only if Operator (a) has 50 or more
          employees and (b) holds a contract of $50,000 or more.)

          The affirmative action program prescribed in sections 60-741.5 and
          60-74l-6 of Title 41 of the Code of Federal Regulations is
          incorporated by reference (as permitted by section 60-741.22 of said
          Regulations) as if set out in full at this point.

4.   MINORITY BUSINESS ENTERPRISES (41 CFR 1-1.13, FEDERAL PROCUREMENT
     REGULATIONS)

     A.   Utilization of Minority Business Enterprises (41 CFR l-l.131O-2
          (a)). (Applicable only to contracts which may exceed $10,000 except
          those, and all subcontracts thereunder, to be performed entirely
          outside the United States, its possessions, and Puerto Rico, and those
          of services of a personal nature.)

          (1)  It is the policy of the Government that minority business
               enterprises shall have the maximum practicable opportunity to
               participate in the performance of Government contracts.

          (2)  Operator agrees to use its best efforts to carry out this policy
               in the award of its subcontracts to the fullest extent consistent
               with the efficient performance of this contract. As used in this
               contract, the term "minority business enterprises" means a
               business, at least 50 percent of which is owned by minority group
               members or, in case of publicly owned businesses, at least 51
               percent of the stock of which is owned by minority group members.
               For the purposes of this definition, minority group members are
               Negroes, Spanish speaking American persons, American-Oriental,
               American-Indians, American-Eskimos, and American-Aleut. Operator
               may rely on written representations by subcontractors regarding
               their status as minority business enterprises in lieu of a
               independent investigation.

     B.   Minority Business Enterprises Subcontracting Program (41 CFR
          1-1.1310-2(b)). (Applicable to all contracts which may exceed $500,000
          which contain the clause required by 41 CFR l-l.1310-2(a) and which
          offer substantial subcontracting possibilities.)

          (1)  Operator agrees to establish and conduct a program which will
               enable minority business enterprises (as defined in the above
               clause entitled "Utilization of Minority Business Enterprises")
               to be considered fairly as subcontractors and suppliers under
               this contract. In this connection, Operator shall:

               (a)  Designate a liaison officer who will administer Operator's
                    minority business enterprises program.

               (b)  Provide adequate and timely consideration of the
                    potentialities of known minority business enterprises in all
                    "make-or-buy" decisions.

               (c)  Assure that known minority business enterprises will have an
                    equitable opportunity to compete for subcontracts,
                    particularly by arranging


<PAGE>


                    solicitations, time for the preparation of bids, quantities,
                    specification, and delivery schedules so as to facilitate
                    the participation of minority business enterprises.

               (d)  Maintain records showing (I) procedures which have been
                    adopted to comply with the policies set forth in this
                    clause, including the establishment of a source list of
                    minority business enterprises, (ii) awards to minority
                    business enterprises on the source list, and (iii) specific
                    efforts to identify and ward contracts to minority business
                    enterprises.

               (e)  Include the Utilization of Minority Business Enterprises
                    clause is subcontracts which offer substantial minority
                    business enterprises subcontracting opportunities.

               (f)  Cooperate with the Contracting Officer in any studies and
                    surveys of Operator's minority business enterprises
                    procedures and practices that the Contracting Officer may
                    from time to time conduct.

               (g)  Submit periodic reports of subcontracting to know minority
                    business enterprises with respect to the records referred to
                    in subparagraph (d), above, in such form and manner and at
                    such time (not more often than quarterly) as the Contracting
                    Officer may prescribe.

          (2)  Operator further agrees to inert, in any subcontract hereunder
               which may exceed $500,00 provisions which shall conform
               substantially to the language of this clause, including this
               paragraph (2), and to notify the Contracting Officer of the names
               of such subcontractors.




<PAGE>


                                   EXHIBIT "G"

ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT DATED JULY 1,
2001 BETWEEN UNION OIL COMPANY OF CALIFORNIA, AS OPERATOR, AND IVANHOE ENERGY
(USA), INC., AS NON-OPERATOR.

                     (this exhibit intentionally left blank)




<PAGE>


                                   EXHIBIT "H"

ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT DATED JULY 1,
2001 BETWEEN UNION OIL COMPANY OF CALIFORNIA, AS OPERATOR, AND IVANHOE ENERGY
(USA), INC., AS NON-OPERATOR.

                       MODEL FORM RECORDING SUPPLEMENT TO
                  OPERATING AGREEMENT AND FINANCING STATEMENT

     THIS AGREEMENT, entered into by and between ____________ hereinafter
referred to as "Operator," and the signatory party or parties other than
Operator, hereinafter referred to individually as "Non-Operator," and
collectively as "Non-Operators."
     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" (said land,
Leases and Interests being hereinafter called the "Contract Area"), and in any
instance in which the Leases or Interests of a party are not of record, the
record owner and the party hereto that owns the interest or rights therein are
reflected on Exhibit "A";
     WHEREAS, the parties hereto have executed an Operating Agreement dated
___________ (herein the "Operating Agreement"), covering the Contract Area for
the purpose of exploring and developing such lands, Leases and Interests for Oil
and Gas; and
     WHEREAS, the parties hereto have executed this agreement for the purpose of
imparting notice to all persons of the rights and obligations of the parties
under the Operating Agreement and for the further purpose of perfecting those
rights capable of perfection.
     NOW, THEREFORE, in consideration of the mutual rights and obligations of
the parties hereto, it is agreed as follows:
     1. This agreement supplements the Operating Agreement, which Agreement in
its entirety is incorporated herein by reference, and all terms used herein
shall have the meaning ascribed to them in the Operating Agreement.
     2. The parties do hereby agree that:
          A. The Oil and Gas Leases and/or Oil and Gas Interests of the parties
     comprising the Contract Area shall be subject to and burdened with the
     terms and provisions of this agreement and the Operating Agreement, and the
     parties do hereby commit such Leases and Interests to the performance
     thereof.
          B. The exploration and development of the Contract Area for Oil and
     Gas shall be governed by the terms and provisions of the Operating
     Agreement, as supplemented by this agreement.
          C. All costs and liabilities incurred in operations under this
     agreement and the Operating Agreement shall be borne and paid, and all
     equipment and materials acquired in operations on the Contract Area shall
     be owned, by the parties . hereto, as provided in the Operating Agreement.
          D. Regardless of the record title ownership to the Oil and Gas Leases
     and/or Oil and Gas Interests identified on Exhibit "A," all production of
     Oil and Gas from the Contract Area shall be owned by the parties as
     provided in the Operating Agreement; provided nothing contained in this
     agreement shall be deemed an assignment or cross-assignment of interests
     covered hereby.
          E. Each party shall pay or deliver, or cause to be paid or delivered,
     all burdens on its share of the production from the Contract Area as
     provided in the Operating Agreement.
          F. An overriding royalty, production payment, net profits interest or
     other burden payable out of production hereafter created, assignments of
     production given as security for the payment of money and those overriding
     royalties, production payments and other burdens payable out of production
     heretofore created and defined as Subsequently Created Interests in the
     Operating Agreement shall be (i) borne solely by the party whose interest
     is burdened therewith, (ii) subject to suspension if a party is required to
     assign or relinquish to another party an interest which is subject to such
     burden, and (iii) subject to the lien and security interest hereinafter
     provided if the party subject to such burden fails to pay its share of
     expenses chargeable hereunder and under the Operating Agreement, all upon
     the terms and provisions and in the times and manner provided by the
     Operating Agreement.
          G. The Oil and Gas Leases and/or Oil and Gas Interests which are
     subject hereto may not be assigned or transferred except in accordance with
     those terms, provisions and restrictions in the Operating Agreement
     regulating such transfers. This agreement and the Operating Agreement shall
     be binding upon and shall inure to the benefit of the parties hereto, and
     their respective heirs, devisees, legal representatives, and assigns, and
     the terms hereof shall be deemed to run with the leases or interests
     included within the lease Contract Area.
          H. The parties shall have the right to acquire an interest in renewal,
     extension and replacement leases, leases proposed to be surrendered, wells
     proposed to be abandoned, and interests to be relinquished as a result of
     nonparticipation in subsequent operations, all in accordance with the terms
     and provisions of the Operating Agreement.
          I. The rights and obligations of the parties and the adjustment of
     interests among them in the event of a failure or loss of title, each
     party's right to propose operations, obligations with respect to
     participation in operations on the Contract Area and the consequences of a
     failure to participate in operations, the rights and obligations of the
     parties regarding the marketing of production, and the rights and remedies
     of the parties for failure to comply with financial obligations shall be as
     provided in the Operating Agreement.
          J. Each party's interest under this agreement and under the Operating
     Agreement shall be subject to relinquishment for its failure to participate
     in subsequent operations and each party's share of production and costs
     shall be reallocated on the basis of such relinquishment, all upon the
     terms and provisions provided in the Operating Agreement.
          K. All other matters with respect to exploration and development of
     the Contract Area and the ownership and transfer of the Oil and Gas Leases
     and/or Oil and Gas Interest therein shall be governed by the terms and
     provisions of the Operating Agreement.
     3. The parties hereby grant reciprocal liens and security interests as
follows:
          A. 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

                                     - 1 -
<PAGE>

AAPL-FORM 610RS - 1989


     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 and the Operating Agreement including but not limited to payment
     of expense, interest and fees, the proper disbursement of all monies paid
     under this agreement and the Operating Agreement, the assignment or
     relinquishment of interest in Oil and Gas Leases as required under this
     agreement and the Operating Agreement, and the proper performance of
     operations under this agreement and the Operating Agreement. 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 and the Operating 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 the sale of production at the wellhead),


                                     - 2 -
<PAGE>


     contract rights, inventory and general intangibles relating thereto or
     arising therefrom, and all proceeds and products of the foregoing.
          B. 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 and the Operating 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 and the operating 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
     the Operating Agreement and this instrument as to all obligations
     attributable to such interest under this agreement and the Operating
     Agreement whether or not such obligations arise before or after such
     interest is acquired.
          C. To the extent that the 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, interest 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,
     has been received, and shall have the right to offset the amount owed
     against the proceeds from the sale of such defaulting party or parties
     stating the amount due as a result of the default, and all parties waive
     any 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,
          D. If any party fails to pay its share of expenses 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 this paragraph 3
     and in the Operating Agreement, and each paying party may independently
     pursue any remedy available under the Operating Agreement or otherwise.
          E. If any party does not perform all of its obligations under this
     agreement or the Operating Agreement, and the failure to perform subjects
     such party to foreclosure or execution proceedings pursuant to the
     provisions of this agreement or the Operating 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 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 & to any property that is subject to the lien and
     security rights granted hereunder or under the Operating Agreement, such
     power to be exercised in the manner provided by applicable law or otherwise
     in a commercially reasonable manner and upon reasonable notice.
          F. The lien and security interest granted in this paragraph 3
     supplements identical rights granted under the Operating Agreement.
          G. 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 under this agreement and the Operating
     Agreement for services performed or materials supplied by Operator.
          H. The above described security will be financed at the wellhead of
     the well or wells located on the Contract Area and this Recording
     Supplement may be filed in the land records in the County or Parish in
     which the Contract Area is located, and as a financing statement in all
     recording offices required under the Uniform Commercial Code or other
     applicable state statutes to perfect the above-described security interest,
     and any party hereto may file a continuation statement as necessary under
     the Uniform Commercial Code, or other state laws.
     4. This agreement shall be effective as of the date of the Operating
Agreement as above recited. Upon termination of this agreement and the Operating
Agreement and the satisfaction of all obligations thereunder, 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 the request of Operator, if Operator
has complied with all of its financial obligations.

     5. This agreement and the Operating 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. No sale, encumbrance,
transfer or other disposition shall be made by any party of any interest in the
Leases or Interests subject hereto except as expressly permitted under the
Operating Agreement and, if permitted, shall be made expressly subject to this
agreement and the Operating Agreement and without prejudice to the rights of the
other parties. If the transfer is permitted, the assignee of an ownership
interest in any Oil and Gas Lease shall be deemed a party to this agreement and
the Operating Agreement as to the interest assigned 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 under this agreement or the Operating
Agreement with respect to the interest transferred, including without limitation
the obligation of a party to pay all costs attributable to an operation
conducted under this agreement and the Operating Agreement in which such party
has agreed to participate prior to making such assignment, and the lien and
security interest granted by Article VII.B. of the Operating Agreement and
hereby shall continue to burden the interest transferred to secure payment of
any such obligations.
     6. In the event of a conflict between the terms and provisions of this
agreement and the terms and provisions of the Operating Agreement, then, as
between the parties, the terms and provisions of the Operating Agreement shall
control.
     7. 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. In the event that any provision herein is illegal or
unenforceable, the remaining provisions shall not be affected, and shall be
enforced as if the illegal or unenforceable provision did not appear herein.

                                     - 3 -
<PAGE>

AAPL - FORM 610RS-198

     8. Other provisions.

______________________________who has prepared and circulated this form for
execution, represents and warrants that the form was printed from and, with the
exception(s) listed below, is identical to the AAPL Form 610RS-1989 Model Form
Recording Supplement to Operating Agreement and Financing Statement, as
published in computerized form by Forms On-A-Disk, Inc. No changes, alterations,
or modifications, other than those made by strikethrough and/or insertion and
that are clearly recognizable as changes in Articles ______________________,
have been made to the form.

     IN WITNESS WHEREOF, this agreement shall be effective as of the ___ day of
_____________day of _______________________ year______________,



 ATTEST OR WITNESS:                                    OPERATOR

                                          ------------------------------------

                                          ------------------------------------

-----------------------------             By: --------------------------------
                                                   Type or Print Name



                                          Title:------------------------------

-----------------------------             Date:-------------------------------

                                          Address:----------------------------

 ATTEST OR WITNESS:                                  NON-OPERATOR

                                          ------------------------------------

                                          ------------------------------------

-----------------------------             By: --------------------------------
                                                   Type or Print Name



                                          Title:------------------------------

-----------------------------             Date:-------------------------------

                                          Address:----------------------------
 ATTEST OR WITNESS:

                                          ------------------------------------

                                          ------------------------------------

-----------------------------             By: --------------------------------
                                                   Type or Print Name



                                          Title:------------------------------

-----------------------------             Date:-------------------------------

                                          Address:----------------------------
 ATTEST OR WITNESS:

                                          ------------------------------------

                                          ------------------------------------

-----------------------------             By: --------------------------------
                                                   Type or Print Name



                                          Title:------------------------------

-----------------------------             Date:-------------------------------

                                          Address:----------------------------
 ATTEST OR WITNESS:

                                          ------------------------------------

                                          ------------------------------------

-----------------------------             By: --------------------------------
                                                   Type or Print Name



                                          Title:------------------------------

-----------------------------             Date:-------------------------------

                                          Address:----------------------------


                                     - 4 -