EXHIBIT 10.9


                     FORMATION AND CAPITALIZATION AGREEMENT

        This  Formation  and  Capitalization  Agreement  (this  "Agreement")  is
entered  into as of the 30th day of  December,  1996 by and  between  Snyder Oil
Corporation,  a Delaware  corporation  ("Snyder"),  SOCO International,  Inc., a
Delaware corporation ("SOCO International"),  SOCO International Holdings, Inc.,
a Delaware  corporation  ("Holdings"),  SOCO International  Operations,  Inc., a
Delaware corporation  ("Operations") and Edward T. Story, Jr., a resident of the
State of Texas ("Story").

        WHEREAS, SOCO International is a wholly owned subsidiary of Snyder;

        WHEREAS,  SOCO  International  has recently  incorporated  and organized
Operations and Holdings as wholly-owned subsidiaries of SOCO International;

        WHEREAS, SOCO International owns beneficially and of record one share of
the common stock of Operations  ("Operations Common Stock") and one share of the
common stock of Holdings ("Holdings Common Stock");

        WHEREAS,  pursuant to that certain  agreement by and between  Snyder and
Story  dated  as of  April  30,  1993  (the  "1993  Agreement"),  Story  holds a
non-compensatory  option (the  "Option")  to acquire 100 shares of common  stock
(10% of the then  outstanding  shares) of SOCO  International,  which Option was
received in exchange for common stock of SOCO International then held by Story;

        WHEREAS,  Story and  International  desire to capitalize  Operations and
Holdings by contributing the assets described herein to such corporations in the
manner set forth herein,  subject to the assumption of the liabilities described
herein;

        NOW THEREFORE,  in  consideration  of the premises set forth above,  the
mutual covenants set forth herein and other good and valuable consideration, the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

        1.  DEFINITIONS.

                    (a) "EFFECTIVE TIME" shall mean 9:00 a.m.  (Houston time) on
          the date first set forth above.

                    (b) "CAIRN SHARES" shall mean the shares of capital stock of
          Cairn Energy Plc owned beneficially or of record by SOCO International
          immediately prior to the Effective Time.

                    (c) "HOLDINGS ASSETS" shall mean SOCO International's right,
          title and  interest in any  rights,  privileges,  powers,  franchises,
          properties  or assets  related  to the Cairn  Shares,  (including  any
          dividends and distributions with respect thereto) immediately prior to
          the Effective Time.

                    (d)  "OPERATIONS  ASSETS"  shall  mean SOCO  International's
          right,  title  and  interest  in  any  rights,   privileges,   powers,
          franchises,  properties or assets  immediately  prior to the Effective
          Time, but specifically excluding the Holdings Assets.

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<PAGE>



                    (e)  "LIABILITIES"  shall mean all  losses,  claims,  taxes,
          fines,  penalties,  damages,  costs (including costs of investigation)
          expenses  (including  reasonable  legal fees and  expenses)  and other
          liabilities, whether joint or several.

                    (f)   "INTERCOMPANY   DEBT"  shall  mean  the   intercompany
          indebtedness owed by SOCO  International to Snyder as of the Effective
          Time, which had a balance of $34,504,390 as of November 30, 1996.

                    (g) "HOLDINGS  LIABILITIES" shall mean SOCO  International's
          Liabilities  related to the Holdings Assets and (ii) the  Intercompany
          Debt.

                    (h) "OPERATIONS LIABILITIES" shall mean SOCO International's
          Liabilities  relating  to  the  Operations  Assets,  but  specifically
          excluding the Holdings Liabilities.

                    (i) "SOCO INTERNATIONAL INDEMNIFIED PARTIES" shall mean SOCO
          International  and its subsidiaries  (other than Operations,  Holdings
          and  their  respective   subsidiaries)  and  any  officer,   director,
          employee, agent or other representative thereof (individually, a "SOCO
          International Indemnified Party").

                    (j) "OPERATIONS  INDEMNIFIED  PARTIES" shall mean Operations
          and its subsidiaries  and any officer,  director,  employee,  agent or
          other representative thereof (individually, an "Operations Indemnified
          Party").

                    (k) "HOLDINGS  INDEMNIFIED  PARTIES" shall mean Holdings and
          its subsidiaries and any officer,  director,  employee, agent or other
          representative   thereof   (individually,   an  "Holdings  Indemnified
          Party").

        2. CAPITALIZATION OF OPERATIONS. (a) Effective as of the Effective Time,
SOCO  International  and  Story  hereby  contribute  to  Operations  the  assets
described in paragraphs (b) and (c) hereof,  respectively.  In consideration for
such  contributions,  Operations hereby issues shares of Operations Common Stock
to SOCO International and Story in the respective amounts set forth below:
<TABLE>
<CAPTION>

                                                                   TOTAL SHARES
                                                                   OF OPERATIONS
              SHARES OF OPERATIONS   SHARES OF OPERATIONS        COMMON STOCK OWNED
                 COMMON STOCK        COMMON STOCK TO BE        IMMEDIATELY FOLLOWING
SHAREHOLDER    CURRENTLY OWNED    ISSUED AT EFFECTIVE TIME        EFFECTIVE TIME
-----------    ---------------    ------------------------     ---------------------
<S>                  <C>                  <C>                       <C>
SOCO                 1                    899                         900
International
Story                0                    100                         100
                     -                    ---                       -----
Total                1                    999                       1,000
                     =                    ===                       =====
</TABLE>

          (b) Effective as of the Effective Time, (i) SOCO International  hereby
transfers,  sells,  assigns,  bargains  and  conveys to  Operations  all of SOCO
International's  right,  title and interest in the Operations  Assets,  and (ii)
Operations hereby assumes all of the Operations Liabilities.

        (c)  Effective as of the  Effective  Time,  Story hereby (i)  transfers,
sells,  assigns,  bargains  and conveys to  Operations  such  portion of Story's
right, title and interest in the Option as it relates

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<PAGE>

to the right to purchase 45.65 shares of the common stock of SOCO  International
(together with 45.65% of Story's remaining rights under the 1993 Agreement), and
(ii)  delivers  to  Operations  a  recourse  promissory  note from  Story in the
principal amount of $269,563.25 and substantially in the form attached hereto as
Exhibit A (the "Operations Note").

        (d) Effective as of the Effective  Time,  Operations  hereby delivers to
International  and Story  certificates for the shares of Operations Common Stock
issued pursuant to this Section 2.

        3.  CAPITALIZATION OF HOLDINGS.  (a) Effective as of the Effective Time,
SOCO  International and Story hereby contribute to Holdings the assets described
in  paragraphs  (b) and (c)  hereof,  respectively.  In  consideration  for such
contributions,  Holdings  hereby issues shares of Holdings  Common Stock to SOCO
International and Story in the respective amounts set forth below:
<TABLE>

                                                                    TOTAL SHARES
                                                                     OF HOLDINGS
                 SHARES OF HOLDINGS    SHARES OF HOLDINGS        COMMON STOCK OWNED
                  COMMON STOCK        COMMON STOCK TO BE        IMMEDIATELY FOLLOWING
SHAREHOLDER      CURRENTLY OWNED    ISSUED AT EFFECTIVE TIME       EFFECTIVE TIME
-----------      ---------------    ------------------------    ---------------------
<S>                         <C>                  <C>                   <C>   
SOCO
International               1                    899                     900
Story                       0                    100                     100
                            -                    ---                   -----
Total                       1                    999                   1,000
                            =                    ===                   =====
</TABLE>

        (b) Effective as of the Effective  Time, (i) SOCO  International  hereby
transfers,  sells,  assigns,  bargains  and  conveys  to  Holdings  all of  SOCO
International's  right,  title and interest in all of the Holdings  Assets,  and
(ii) Holdings hereby assumes the Holdings Liabilities.

        (c)  Effective as of the  Effective  Time,  Story hereby (i)  transfers,
sells, assigns,  bargains and conveys to Holdings such portion of Story's right,
title and  interest in the Option as it relates to the right to  purchase  54.35
shares  of the  common  stock of SOCO  International  (together  with  54.35% of
Story's  remaining  rights  under  the 1993  Agreement),  and (ii)  delivers  to
Holdings  a  recourse  promissory  note from  Story in the  principal  amount of
$320,936.75  and  substantially  in the form  attached  hereto as Exhibit A (the
"Holdings Note").  The parties hereto acknowledge that after the transfer of the
Option  pursuant to Sections  2(c) and 3(c) hereof,  Story shall have no further
rights  under the Option or the 1993  Agreement,  and all such  rights  shall be
transferred  to  Operations  and  Holdings in the  respective  amounts set forth
herein.  In accordance  with  paragraph 8 of the 1993  Agreement,  Snyder hereby
consents to the assignments of the Option contemplated by this Agreement.

        (d)  Effective as of the Effective  Time,  Holdings  hereby  delivers to
International  and Story  certificates  for the shares of Holdings  Common Stock
issued pursuant to this Section 3.

        4.  INDEMNIFICATION.

        (a)  Operations  shall  defend,  indemnify  and hold  harmless  the SOCO
International  Indemnified Parties and the Holdings  Indemnified Parties against
any and all  Operations  Liabilities,  whether  or not the result of the sole or
partial  negligence or otherwise culpable conduct or fault of one or more of the
SOCO International Indemnified Parties or the Holdings Indemnified Parties.

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<PAGE>



        (b)  Holdings  shall  defend,  indemnify  and  hold  harmless  the  SOCO
International Indemnified Parties and the Operations Indemnified Parties against
any and all  Holdings  Liabilities,  whether  or not the  result  of the sole or
partial  negligence or otherwise culpable conduct or fault of one or more of the
SOCO International Indemnified Parties or the Operations Indemnified Parties.

        5. INDEMNIFICATION  PROCEDURE. Each person to be indemnified pursuant to
this  Agreement  (an  "Indemnified  Party")  agrees to give prompt notice to the
indemnifying  party of the assertion of any claim,  or the  commencement  of any
suit, action or proceeding,  brought against or sought to be collected from such
Indemnified  Party (each a "Third Party Claim"),  in respect of which  indemnity
may be sought by such Indemnified Party under this Agreement;  provided that the
omission so to promptly  notify the  indemnifying  party with respect to a Third
Party Claim  brought  against or sought to be  collected  from such  Indemnified
Party will not relieve the  indemnifying  party from any  Liability  that it may
have to such  Indemnified  Party under this Agreement  except to the extent that
such failure has materially  prejudiced such indemnifying  party with respect to
the  defense of such Third  Party  Claim.  If any  Indemnified  Party shall seek
indemnity  under this  Agreement  with  respect to a Third Party  Claim  brought
against or sought to be collected from such Indemnified  Party, the indemnifying
party  shall be  entitled  to  participate  therein  and,  to the extent that it
wishes,  to assume and direct the defense and  settlement  thereof  with counsel
satisfactory to such Indemnified Party. After notice from the indemnifying party
to an  Indemnified  Party of its  election  to assume and direct the defense and
settlement of a Third Party Claim brought against or sought to be collected from
such Indemnified  Party that such  indemnifying  party is entitled to assume and
direct under the terms  hereof,  the  indemnifying  party shall not be liable to
such  Indemnified  Party under this  Agreement  for any legal or other  expenses
subsequently  incurred by such Indemnified  Party in connection with the defense
thereof other than reasonable  costs of  investigation,  unless the Indemnifying
Party and the Indemnified Party are both named parties to any such action, claim
or demand  and  representation  of both  parties  by the same  counsel  would be
inappropriate  due to actual or potential  conflicts of interest  between  them.
Notwithstanding  the foregoing  provisions  of this Section 5, the  indemnifying
party shall not (A) without the prior written  consent of an Indemnified  Party,
effect any  settlement  of any pending or  threatened  proceeding  in respect of
which such Indemnified Party is, or with reasonable  foreseeability,  could have
been a party and indemnity could have been sought  hereunder by such Indemnified
Party for a Third Party Claim  brought  against or sought to be  collected  from
such  Indemnified  Party,  unless  such  settlement  includes  an  unconditional
release,  in form and substance  satisfactory to the Indemnified  Party, of such
Indemnified  Party from all Liability  arising out of such proceeding  (provided
that, whether or not such a release is required to be obtained, the indemnifying
party shall remain  liable to such  Indemnified  Party in  accordance  with this
Agreement in the event that a Third Party Claim is subsequently  brought against
or sought to be collected from such Indemnified  Party) or (B) be liable for any
settlement  of any Third Party Claim  brought  against or sought to be collected
from an Indemnified  Party effected  without such  indemnifying  party's written
consent  (which shall not be  unreasonably  withheld),  but if settled with such
indemnifying  party's written  consent,  or if there is a final judgment for the
plaintiff in any such Third Party Claim, such indemnifying  party agrees (to the
extent  stated above) to indemnify  the  Indemnified  Party from and against any
loss,  liability,  claim,  damage or  expense  by reason or such  settlement  or
judgment.  The  indemnification  required  by this  Agreement  shall  be made by
payments  of the  amount  thereof  during  the  course of the  investigation  or
defense,  as and when bills are received or loss,  liability,  claim,  damage or
expense is incurred.

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<PAGE>



        6.  REPRESENTATIONS.  In order to induce  each other party to enter into
this Agreement,  each party hereto hereby  represents and warrants to each other
party hereto that (a) this  Agreement has been duly  authorized by such party by
all necessary corporate action (to the extent such party is a corporation),  (b)
such party has the legal  capacity to enter into this  Agreement  (to the extent
such  party  is an  individual),  (c)  the  performance  by  such  party  of the
obligations  contemplated  hereby to be  performed by such party do not conflict
with the organizational documents (to the extent such party is a corporation) or
any agreement,  judgment,  order, law,  regulation,  rule or instrument to which
such party is subject. Without limiting the generality of the foregoing,  Snyder
and Story each represent that the 1993 Agreement and the Option granted  therein
are in full force and effect,  that such party is not in breach thereof and that
such party has not assigned or transferred any rights  thereunder,  or attempted
to do so, except as expressly contemplated by this Agreement.

        7.  SECURITIES LAW MATTERS.  SOCO  International  and Story represent to
each  other and to  Operations  and  Holdings  that they are  knowledgeable  and
sophisticated  investors with respect to the type of business to be conducted by
Operations  and  Holdings and that they have had access to such  information  as
they have  requested  in  connection  therewith.  SOCO  International  and Story
acknowledge that the shares of Operations Common Stock and Holdings Common Stock
received  by  them  will  not be  registered  under  the  federal  or any  state
securities  laws,  that no party  shall have any  obligation  to  register  such
shares,  and that no sale,  transfer or other  disposition of such shares may be
made without registration or an exemption therefrom. The certificates for shares
of the Operations Common Stock and Holdings Common Stock shall bear such legends
as the issuer thereof shall deem appropriate with respect to the foregoing.

        8. FURTHER  ASSURANCES.  (a)If at any time after the date hereof  either
Operations  or Holdings  shall  consider or be advised that any deeds,  bills of
sale, stock powers, assignments, other documents or assurances or any other acts
or things are  necessary,  desirable or proper to vest,  perfect or confirm,  of
record  or  otherwise,  any  of  the  rights,  privileges,  powers,  franchises,
properties  or  assets  purported  to  be  transferred   pursuant  hereto,  SOCO
International or Story, as applicable, shall execute and deliver all such deeds,
bills of sale, stock powers, assignments,  other documents and assurances and do
all such other acts and things necessary,  desirable or proper to vest,  perfect
or confirm the right,  title or interest of Operations or Holdings,  as the case
may be,  in,  to or under any of the  rights,  privileges,  powers,  franchises,
properties or assets purported to be transferred pursuant hereto.

               (b) If at any time after the date hereof SOCO International shall
consider or be advised that  assumptions,  other documents,  assurances or other
acts or other  things  are  necessary,  desirable  or proper for  Operations  or
Holdings,  as the case may be, to effectively  assume any of the  obligations or
liabilities purported to be assumed hereby,  Operations or Holdings, as the case
may be, shall  execute and deliver all such  assumptions,  other  documents  and
assurances and do all such other acts and things necessary,  desirable or proper
to effectively  assume any of the  obligations  or  liabilities  purported to be
assumed hereby.

               (c)  Notwithstanding the foregoing or the terms and conditions of
such additional documents,  acts or things, such additional  documents,  acts or
things shall  neither  increase nor  decrease  the scope of the  assignment  and
assumption contemplated by this Agreement.

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<PAGE>



        9. ASSIGNMENT. Except by operation of law or in connection with the sale
of all or substantially  all the assets of a party hereto,  this Agreement shall
not be assignable,  in whole or in part,  directly or  indirectly,  by any party
hereto  without the  written  consent of the other  parties,  and any attempt to
assign any rights or  obligations  arising  under this  Agreement  without  such
consent shall be void; provided,  however, that the provisions of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective successors and permitted assigns.

        10.  PARTIES  IN  INTEREST.  Except  as  herein  otherwise  specifically
provided,  nothing in this Agreement  expressed or implied is intended to confer
any right or benefit upon any person,  firm or corporation or other entity other
than  the  parties  hereto,  the SOCO  International  Indemnified  Parties,  the
Operations  Indemnified Parties and the Holdings  Indemnified Parties, and their
respective successors and permitted assigns.

        11. WAIVERS,  ETC. No failure or delay on the part of the parties hereto
in exercising any power or right  hereunder  shall operate as a waiver  thereof,
nor shall any single or  partial  exercise  of any such  right or power,  or any
abandonment  or  discontinuance  of steps  to  enforce  such a right  or  power,
preclude  any other or further  exercise  thereof or the  exercise  of any other
right or power. No modification or waiver of any provision of this Agreement nor
consent  to any  departure  by any  parties  therefrom  shall  in any  event  be
effective  unless the same shall be in writing  and signed by all such  parties,
and then such waiver or consent shall be effective only in the specific instance
and for the  purpose  for which given and only  against  those  parties who have
executed such writing.

        12.  SEVERABILITY.  If any term,  provision,  covenant or restriction of
this Agreement is held by a court of competent  jurisdiction to be invalid, void
or  unenforceable,  the  remainder  of  the  terms,  provisions,  covenants  and
restrictions set forth herein shall remain in full force and effect and shall in
no way be  affected,  impaired  or  invalidated.  It is  hereby  stipulated  and
declared to be the  intention of the parties  that they would have  executed the
remaining terms,  provisions,  covenants and restrictions  without including any
thereof which may be hereafter declared invalid,  void or unenforceable.  In the
event that any such  term,  provision,  covenant  or  restriction  is held to be
invalid,  void or  unenforceable,  the parties hereto shall use their reasonable
efforts  to  find  and  employ  an  alternate  means  to  achieve  the  same  or
substantially  the same  result as that  contemplated  by such term,  provision,
covenant or restriction.

        13.  NOTICES.  Any notices to be given hereunder shall be in writing and
shall be deemed to be  sufficiently  given  when  delivered  personally  or sent
certified or registered mail, postage prepaid and return receipt  requested,  or
by telecopy, and if intended for Story addressed to:

        Edward T. Story, Jr.
        SOCO International, Inc.
        1221 Lamar Street, Suite 1200
        Houston, Texas  77010
        Telecopy No.:  (713) 646-6676

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or if intended for Snyder, SOCO International, Operations or Holdings,
addressed to:

          Snyder Oil Corporation
          777 Main Street, Suite 2500
          Fort Worth, Texas  76012
          Attention: General Counsel
          Telecopy No.:  (817) 882-5982

Any party hereto may change the address for receiving  notice upon notice to the
other parties given in the manner set forth in this Section 13.

          14.  GOVERNING LAW. This Agreement  shall be governed by and construed
in accordance  with the laws of the State of Delaware,  without giving effect to
the principles of conflicts of law thereof.

          15.  AMENDMENT.  This  Agreement may be amended or otherwise  modified
only by a  writing  duly  executed  by  each  of the  parties  hereto  or  their
respective successors or assigns.

          16.  HEADINGS.  The section  headings  used in this  Agreement are for
convenience  only  and  shall  not  be  considered  a part  of,  or  affect  the
construction or interpretation of, any provisions of this

Agreement.

          17.  EXECUTION  OF  COUNTERPARTS.  This  Agreement  may be executed in
counterparts,  and each  such  counterpart  shall be  deemed  to be an  original
instrument, but all such counterparts together for all purposes shall constitute
one agreement.

        EXECUTED as of the day and year first written above.

                                         SNYDER OIL CORPORATION

                                         By:/s/Thomas J. Edelman
                                         -----------------------
                                         Name:  Thomas J. Edelman
                                         Title:  President

                                              SOCO INTERNATIONAL, INC.

                                          By:/s/Edward T. Story, Jr.
                                          --------------------------
                                          Name:  Edward T. Story, Jr.
                                          Title:  President

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<PAGE>


                                          SOCO INTERNATIONAL HOLDINGS, INC.

                                          By:/s/Edward T. Story, Jr.
                                          --------------------------
                                          Name:  Edward T. Story, Jr.
                                          Title:  President

                                          SOCO INTERNATIONAL OPERATIONS, INC.

                                          By:/s/Edward T. Story, Jr.
                                          --------------------------
                                          Name:  Edward T. Story, Jr.
                                          Title:  President

                                          /s/Edward T. Story, Jr.
                                          -----------------------
                                          EDWARD T. STORY, JR.

                                        8