Exhibit 10.5


             


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


            
            REVISED


            
            MODEL FORM OPERATING AGREEMENT


            by
            and between


            
            Energy Oil & Gas, Inc.,


            
            Operator


            
            and


            The
            Dolphin Group, Inc and MCM Capital Management, Inc.


            
            Non-Operators


            
            OPERATING AGREEMENT


             


            
            DATED


             


            
            September 9th, 2005


             


             


            
                	
                            
                            OPERATOR

                        	
                            
                            ENERGY OIL & GAS, INC.

                        
	
                            
                             

                        	
                            
                            

                            

                        
	
                            
                             

                        	
                            
                             

                        
	
                            
                            CONTRACT AREA

                        	
                            
                            “Land Partnership” Contract Area more
                            particularly described on Exhibit A attached hereto

                        
	
                            
                             

                        	
                            
                            

                            

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                             

                        
	
                            
                            COUNTY OF

                        	
                            
                            Logan

                        	
                            
                            STATE OF

                        	
                            
                            Colorado

                        
	
                            
                             

                        	
                            
                            

                            

                        	
                            
                             

                        	
                            
                            

                            

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                             

                        
	
                            
                            COUNTY OF

                        	
                            
                            Morgan

                        	
                            
                            STATE OF

                        	
                            
                            Colorado

                        
	
                            
                             

                        	
                            
                            

                            

                        	
                            
                             

                        	
                            
                            

                            

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                             

                        


            


             


            
                	
                            
                             

                        	
                            
                             

                        	
                            
                             

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            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

                        


            


             


             

            
            

            

             


            JOA
            89 Revised


             


            
            TABLE OF CONTENTS


             


            
                	
                            
                            Article

                        	
                            
                            Title

                        	
                            
                            Page

                        
	
                            
                            I.

                        	
                            
                            DEFINITIONS

                        	
                            
                            1

                        
	
                            
                            II.

                        	
                            
                            EXHIBITS

                        	
                            
                            2

                        
	
                            
                            III.

                        	
                            
                            INTERESTS OF
                            PARTIES.

                        	
                            
                            3

                        
	
                            
                             

                        	
                            
                            A.

                        	
                            
                            OIL AND GAS INTERESTS:

                        	
                            
                            3

                        
	
                            
                             

                        	
                            
                            B.

                        	
                            
                            INTERESTS OF PARTIES IN COSTS AND PRODUCTION:

                        	
                            
                            3

                        
	
                            
                             

                        	
                            
                            C.

                        	
                            
                            SUBSEQUENTLY CREATED INTERESTS:

                        	
                            
                            3

                        
	
                            
                            IV.

                        	
                            
                            TITLES

                        	
                            
                            4

                        
	
                            
                             

                        	
                            
                            A.

                        	
                            
                            TITLE EXAMINATION:

                        	
                            
                            4

                        
	
                            
                             

                        	
                            
                            B.

                        	
                            
                            LOSS OR FAILURE OF TITLE:

                        	
                            
                            4

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            1.

                        	
                            
                            Failure of Title

                        	
                            
                            4

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            2.

                        	
                            
                            Loss by Non-Payment or Erroneous Payment of Amount
                            Due

                        	
                            
                            5

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            3.

                        	
                            
                            Other Losses

                        	
                            
                            6

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            4.

                        	
                            
                            Curing Title

                        	
                            
                            6

                        
	
                            
                            V.

                        	
                            
                            OPERATOR

                        	
                            
                            6

                        
	
                            
                             

                        	
                            
                            A.

                        	
                            
                            DESIGNATION AND RESPONSIBILITIES OF OPERATOR:

                        	
                            
                            6

                        
	
                            
                             

                        	
                            
                            B.

                        	
                            
                            RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF
                            SUCCESSOR:

                        	
                            
                            6

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            1.

                        	
                            
                            Resignation or Removal of Operator

                        	
                            
                            6

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            2.

                        	
                            
                            Selection of Successor Operator

                        	
                            
                            7

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            3.

                        	
                            
                            Effect of Bankruptcy

                        	
                            
                            7

                        
	
                            
                             

                        	
                            
                            C.

                        	
                            
                            EMPLOYEES AND CONTRACTORS:

                        	
                            
                            7

                        
	
                            
                             

                        	
                            
                            D.

                        	
                            
                            RIGHTS AND DUTIES OF OPERATOR:

                        	
                            
                            8

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            1.

                        	
                            
                            Competitive Rates and Use of Affiliates

                        	
                            
                            8

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            2.

                        	
                            
                            Discharge of Joint Account Obligations

                        	
                            
                            8

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            3.

                        	
                            
                            Protection from Liens

                        	
                            
                            8

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            4.

                        	
                            
                            Custody of Funds

                        	
                            
                            8

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            5.

                        	
                            
                            Access to Contract Area and Records

                        	
                            
                            8

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            6.

                        	
                            
                            Filing and Furnishing Governmental Reports

                        	
                            
                            8

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            7.

                        	
                            
                            Drilling and Testing Operations

                        	
                            
                            9

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            8.

                        	
                            
                            Cost Estimates

                        	
                            
                            9

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            9.

                        	
                            
                            Insurance

                        	
                            
                            9

                        
	
                            
                            VI.

                        	
                            
                            DRILLING AND DEVELOPMENT

                        	
                            
                            9

                        
	
                            
                             

                        	
                            
                            A.

                        	
                            
                            INITIAL WELL:

                        	
                            
                            9

                        
	
                            
                             

                        	
                            
                            B.

                        	
                            
                            SUBSEQUENT OPERATIONS:

                        	
                            
                            9

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            1.

                        	
                            
                            Proposed Operations

                        	
                            
                            9

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            2.

                        	
                            
                            Operations by Less Than All Parties

                        	
                            
                            10

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            3.

                        	
                            
                            Stand-By Costs

                        	
                            
                            13

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            4.

                        	
                            
                            Deepening

                        	
                            
                            13

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            5.

                        	
                            
                            Sidetracking

                        	
                            
                            14

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            6.

                        	
                            
                            Order of Preference of Operations

                        	
                            
                            14

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            7.

                        	
                            
                            Conformity to Spacing Pattern

                        	
                            
                            14

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            8.

                        	
                            
                            Paying Wells

                        	
                            
                            14

                        
	
                            
                             

                        	
                            
                            C.

                        	
                            
                            COMPLETION OF WELLS; REWORKING AND PLUGGING
                            BACK:

                        	
                            
                            15

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            1.

                        	
                            
                            Completion

                        	
                            
                            15

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            2.

                        	
                            
                            Rework, Recomplete or Plug Back

                        	
                            
                            15

                        
	
                            
                             

                        	
                            
                            D.

                        	
                            
                            OTHER OPERATIONS

                        	
                            
                            15

                        
	
                            
                             

                        	
                            
                            E.

                        	
                            
                            ABANDONMENT OF WELLS

                        	
                            
                            16

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            1.

                        	
                            
                            Abandonment of Dry Holes

                        	
                            
                            16

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            2.

                        	
                            
                            Abandonment of Wells That Have Produced

                        	
                            
                            16

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            3.

                        	
                            
                            Abandonment of Non-Consent Operations

                        	
                            
                            17

                        
	
                        	
                        	
                        	
                        	
                        	
                        	
                        	
                        	
                        


            


             


             


            
                

            

            

             


            


            
                	
                            
                             

                        	
                            
                            F.

                        	
                            
                            TERMINATION OF OPERATIONS:

                        	
                            
                            17

                        
	
                            
                             

                        	
                            
                            G.

                        	
                            
                            TAKING PRODUCTION IN KIND:

                        	
                            
                            17

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            (Option 1)

                        	
                            
                            Gas Balancing Agreement

                        	
                            
                            17

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            (Option 2)

                        	
                            
                            No Gas Balancing Agreement

                        	
                            
                            18

                        
	
                            
                            VII.

                        	
                            
                            EXPENDITURES AND LIABILITY OF
                            PARTIES

                        	
                            
                            19

                        
	
                            
                             

                        	
                            
                            A.

                        	
                            
                            LIABILITY OF PARTIES:

                        	
                            
                            19

                        
	
                            
                             

                        	
                            
                            B.

                        	
                            
                            LIENS AND SECURITY INTERESTS:

                        	
                            
                            19

                        
	
                            
                             

                        	
                            
                            C.

                        	
                            
                            ADVANCES:

                        	
                            
                            21

                        
	
                            
                             

                        	
                            
                            D.

                        	
                            
                            DEFAULTS AND REMEDIES:

                        	
                            
                            21

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            1.

                        	
                            
                            Suspension of Rights

                        	
                            
                            21

                        
	
                            
                             

                        	
                            
                             

                        	
                            
                            2.

                        	
                            
                            Suits for Damages

                        	
                            
                            21

                        
	
                            
                             

                        	
                            
                            

                        	
                            
                            3.

                        	
                            
                            Deemed Non-Consent

                        	
                            
                            21

                        
	
                            
                             

                        	
                            
                            

                        	
                            
                            4.

                        	
                            
                            Advance Payment

                        	
                            
                            22

                        
	
                            
                             

                        	
                            
                            

                        	
                            
                            5.

                        	
                            
                            Costs and Attorneys’ Fees

                        	
                            
                            22

                        
	
                            
                             

                        	
                            
                            E.:

                        	
                            
                            RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM
                            ROYALTIES:

                        	
                            
                            22

                        
	
                            
                             

                        	
                            
                            F.

                        	
                            
                            TAXES:

                        	
                            
                            22

                        
	
                            
                            VIII.

                        	
                            
                            ACQUISITION, MAINTENANCE OR TRANSFER OF
                            INTEREST

                        	
                            
                            23

                        
	
                            
                             

                        	
                            
                            A.

                        	
                            
                            SURRENDER OF LEASES

                        	
                            
                            23

                        
	
                            
                             

                        	
                            
                            B.

                        	
                            
                            RENEWAL OR EXTENSION OF LEASES:

                        	
                            
                            24

                        
	
                            
                             

                        	
                            
                            C.:

                        	
                            
                            ACREAGE OR CASH CONTRIBUTIONS

                        	
                            
                            24

                        


            


             


             


            
                 
            


            
            i

            
            

            

             


            JOA
            89 Revised


            
            TABLE OF CONTENTS


             


            
                	
                            
                             

                        	
                            
                            D.

                        	
                            
                            ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST:

                        	
                            
                            25

                        
	
                            
                             

                        	
                            
                            E.

                        	
                            
                            WAIVER OF RIGHTS TO PARTITION:

                        	
                            
                            25

                        
	
                            
                             

                        	
                            
                            F.

                        	
                            
                            PREFERENTIAL RIGHT TO PURCHASE:

                        	
                            
                            26

                        
	
                            
                            IX.

                        	
                            
                            INTERNAL REVENUE CODE ELECTION

                        	
                            
                            26

                        
	
                            
                            X.

                        	
                            
                            CLAIMS AND LAWSUITS

                        	
                            
                            26

                        
	
                            
                            XI.

                        	
                            
                            FORCE MAJEURE

                        	
                            
                            27

                        
	
                            
                            XII.

                        	
                            
                            NOTICES

                        	
                            
                            27

                        
	
                            
                            XIII.

                        	
                            
                            TERM OF AGREEMENT

                        	
                            
                            27

                        
	
                            
                            XIV.

                        	
                            
                            COMPLIANCE WITH LAWS AND
                            REGULATIONS

                        	
                            
                            28

                        
	
                            
                             

                        	
                            
                            A.

                        	
                            
                            LAWS, REGULATIONS AND ORDERS:

                        	
                            
                            28

                        
	
                            
                             

                        	
                            
                            B.

                        	
                            
                            GOVERNING LAW:

                        	
                            
                            28

                        
	
                            
                             

                        	
                            
                            C.

                        	
                            
                            REGULATORY AGENCIES:

                        	
                            
                            28

                        
	
                            
                            XV.

                        	
                            
                            MISCELLANEOUS

                        	
                            
                            29

                        
	
                            
                             

                        	
                            
                            A.

                        	
                            
                            EXECUTION:

                        	
                            
                            29

                        
	
                            
                             

                        	
                            
                            B.

                        	
                            
                            SUCCESSORS AND ASSIGNS:

                        	
                            
                            29

                        
	
                            
                             

                        	
                            
                            C.

                        	
                            
                            COUNTERPARTS:

                        	
                            
                            29

                        
	
                            
                             

                        	
                            
                            D.

                        	
                            
                            SEVERABILITY:

                        	
                            
                            29

                        
	
                            
                            XVI.

                        	
                            
                            OTHER PROVISIONS

                        	
                            
                            29

                        
	
                            
                             

                        	
                            
                            A.

                        	
                            
                            ASSIGNMENT

                        	
                            
                            30

                        
	
                            
                             

                        	
                            
                            B.

                        	
                            
                            ADVANCE OF WELL COSTS

                        	
                            
                            30

                        
	
                            
                             

                        	
                            
                            C.

                        	
                            
                            SECURITY

                        	
                            
                            30

                        
	
                            
                             

                        	
                            
                            D.

                        	
                            
                            NO THIRD-PARTY BENEFICIARIES

                        	
                            
                            30

                        
	
                            
                             

                        	
                            
                            E.

                        	
                            
                            DEEPER DRILLING PROVISION

                        	
                            
                            30

                        
	
                            
                             

                        	
                            
                            F.

                        	
                            
                            SUCCESSOR OPERATOR TO ENERGY OIL & GAS,
                            INC.

                        	
                            
                            31

                        
	
                            
                             

                        	
                            
                            G.

                        	
                            
                            COUNTERPART

                        	
                            
                            31

                        
	
                        	
                        	
                        	
                        	
                        


            


             


            
            ii


            

            

            

            

            

            
                           


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


            
            JOA ’89 Revised


            


            
            OPERATING AGREEMENT


            
            THIS AGREEMENT is between Energy Oil & Gas, Inc., designated and referred to as
            “Operator,” and the signatory party or parties other than Operator,
            sometimes referred to individually as “Non-Operator,” and collectively as
            “Non-Operators.”


            
            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 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 provided for in this
            Agreement.


            
            Operator and Non-Operator agree as follows:


            
            ARTICLE
            I.


            
            DEFINITIONS


            
             


            
            As used in this Agreement, the following words and terms shall have the following
            meaning:


            
            A.     The term “AFE” shall mean Authority
            for Expenditure prepared by a party to this Agreement for the purpose of estimating the
            costs to be incurred in conducting an operation under the terms of this Agreement.


            
            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 the 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. The 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 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 as provided in Article VI.A.


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


            
            1


            

            
            

            

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


            
            K.     The term “Oil and Gas” shall mean
            oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous
            hydrocarbons and other produced marketable substances, 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 in which a deeper Zone is abandoned in order to attempt a Completion
            in a shallower Zone.


            
            O.     The term “Recompletion” or
            “Recomplete” shall mean an operation in which 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.
            Rework operations include, but are not limited to, well stimulation operations but
            exclude any routine repair or maintenance work or drilling, Sidetracking, Deepening,
            Completing, Recompleting, or Plugging Back of a well.


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


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


            
            Unless the context clearly indicates otherwise, 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 to this Agreement and are incorporated in and made a part
            of it:


            	
                        
                            
                            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

                        

                    	
                        
                         

                    	
                        
                        B.

                    	
                        
                        Exhibit “B,” Form of Lease.

                    
	
                        
                            
                            X

                        

                    	
                        
                         

                    	
                        
                        C.

                    	
                        
                        Exhibit “C,” Accounting
                        Procedure.

                    
	
                        
                            
                            X

                        

                    	
                        
                         

                    	
                        
                        D.

                    	
                        
                        Exhibit “D,” Insurance.

                    
	
                        
                            
                             

                        

                    	
                        
                         

                    	
                        
                        E.

                    	
                        
                        Exhibit “E,” Gas Balancing
                        Agreement.

                    
	
                        
                            
                             

                        

                    	
                        
                         

                    	
                        
                        F.

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

                    
	
                        
                            
                             

                        

                    	
                        
                         

                    	
                        
                        G.

                    	
                        
                        Exhibit “G,” Tax Partnership.

                    
	
                        
                            
                             

                        

                    	
                        
                         

                    	
                        
                        H.

                    	
                        
                        Other:

                    	
                        
                            
                             

                        

                    
	
                    	
                    	
                    	
                    	
                    	
                    



            


            2


            

            

            

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


            
            ARTICLE III.

            INTERESTS OF PARTIES


            
            A.     Oil and Gas Interests:


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


            
            B.     Interests of Parties in Costs and
            Production:


            
            From the date of this agreement, 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 in this Agreement.


            
            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, actual burdens of record at this date and shall indemnify, defend,
            and hold the other parties free from any liability therefore Except as otherwise
            expressly provided in this Agreement, if any party has contributed 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, the party so
            burdened shall assume and alone bear all the excess obligations and shall indemnify,
            defend and hold the other parties hereto harmless from any and all claims attributable
            to the 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 the party has contributed to this Agreement, and
            shall indemnify, defend, and hold the other parties free from any liability
            therefore.


            
            No party shall ever be responsible, on a price basis higher than the price received by
            the party, to any other party’s lessor or royalty owner, and if the 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 the higher price.


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


            
            C.     Subsequently Created Interests:


            
            If any party has contributed 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, the burden shall be deemed a “Subsequently
            Created Interest.” Further, if any party has contributed a Lease or Interest
            burdened with an overriding royalty, production payment, net profits interest, or other
            burden payable out of production created prior to the date of this Agreement, and the
            burden is not shown on Exhibit “A,” the burden shall also be deemed a
            Subsequently Created Interest to the extent the burden causes the burdens on the
            party’s Lease or Interest to exceed the amount stipulated in Article III.B.
            above.


            
            3

            

            

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


            
             


            
             The party whose interest is burdened with the Subsequently Created Interest (the
            “Burdened Party”) shall assume and along 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 under this Agreement, all provisions
            of Article VII.B. shall be enforceable against the Subsequently Created Interest in the
            same manner as they are enforceable against the working interest of the Burdened Party.
            If the Burdened Party is required under this Agreement to assign or relinquish to any
            other party, or parties, all or a portion of its working interest and/or the production
            attributable to that interest, the other party, or parties, shall receive the
            assignment and/or production free and clear of the 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 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 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
            those interests appear in Exhibit “A.” Operator shall make no charge for
            services rendered by its staff attorneys or other personnel in the performance of the
            above functions.


            
            Each party shall be responsible for securing curative matter and pooling amendments or
            agreements required in connection with Leases or Oil and Gas Interests contributed by
            the 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 under this
            Agreement. This shall not prevent any party from appearing on its own behalf at any
            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 provided in Exhibit “C.” 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 provided above, and
            (2) the title has been approved by the examining attorney or title has been accepted by
            all of the Drilling Parties in the well.


            
            B.     Loss or Failure of Title:


            
            1.      Failure of Title: Should
            any Oil and Gas Interest or Oil and Gas Lease be lost through failure of title, which
            results in a reduction of interest from that shown on Exhibit “A,” the
            party credited with contributing the affected Lease or Interest (including, if
            applicable, a successor in interest to that party) shall have ninety (90) days from
            final determination of title


            4


            

            

            

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


            
             


            
             failure to acquire a new lease or other instrument curing the entirety of the
            title failure, which acquisition will not be subject to Article VIII.B., and failing to
            do so, this Agreement, nevertheless, shall continue in force as to all remaining Oil
            and Gas Leases and Interests; and,


            
            (a)     The party credited with contributing the Oil
            and Gas Lease or Interest affected by the title failure (including, if applicable, a
            successor in interest to the party) shall alone bear the entire loss and it shall not
            be entitled to recover from Operator or the other parties any development or operating
            costs which it may have previously paid or incurred, but there shall be no additional
            liability on its part to the other parties to this Agreement by reason of the title
            failure;


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


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


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


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


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


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


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


            
            5

            

            

            
            


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


            
            costs previously paid on account of the Lease or Interest, it shall be reimbursed for
            unrecovered actual costs previously paid by it (but not for its share of the cost of
            any dry hole previously drilled or wells previously abandoned) from so much of the
            following as is necessary to effect reimbursement:


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


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


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


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


            
            4.      Curing Title: In the event
            of a Failure of Title under Article IV.B.1. or a loss of title under Article IV.B.2.
            above, any Lease or interest acquired by any party (other than the party whose interest
            has failed or was lost) during the ninety (90) day period provided by Article IV.B.1.
            and Article IV.B.2. above covering all or a portion of the interest that has failed or
            was lost shall be offered at cost to the party whose interest has failed or was lost,
            and the provisions of Article VIII.B. shall not apply to the acquisition.


            
            ARTICLE V.

            OPERATOR


            
            A.     Designation and Responsibilities of
            Operator:


            
            Energy Oil & Gas, Inc. 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 under this Agreement 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 to
            Non-Operators. If Operator terminates its legal existence, no longer owns an interest
            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


            
            6

            

            

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


            
            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; the 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 of this paragraph, “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.1., the resignation or removal shall not become effective
            until 7:00 a.m. on the first day of the calendar month following the expiration of
            ninety (90) days after the giving of notice of resignation by Operator or action by the
            Non-Operators to remove Operator, unless a successor Operator has been selected and
            assumes the duties of Operator at an earlier date. Operator, after the effective date
            of resignation or removal, shall be bound by the terms of this Agreement 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 of 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 the successor Operator is selected. The successor Operator
            shall be selected by the affirmative vote of two (2) or more parties owning a majority
            interest based on ownership as shown on Exhibit “A”; provided, however, if
            an Operator which has been removed or is deemed to have resigned fails to vote or votes
            only to succeed itself, the successor Operator shall be selected by the affirmative
            vote of the party or parties owning a majority interest based on ownership as shown on
            Exhibit “A” remaining after excluding the voting interest of the Operator
            that was removed or resigned. The former Operator shall promptly deliver to the
            successor Operator all records and data relating to the operations conducted by the
            former Operator to the extent those 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, their
            selection, and the hours of labor and the compensation for services performed shall be
            determined by Operator, and all employees or contractors shall be the employees or
            contractors of Operator.


            
            7

            

            

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


            
            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 shall not exceed the prevailing rates in the area and the rate of the charges
            shall be agreed on by the parties in writing before drilling operations are commenced,
            and the 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 otherwise specifically provided in this
            Agreement, Operator shall promptly pay and discharge expenses incurred in the
            development and operator of the Contract Area pursuant to this Agreement and shall
            charge each of the parties with their respective proportionate shares on the expense
            basis provided in Exhibit “C.” Operator shall keep an accurate record of
            the joint account under this Agreement, 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, and shall keep the Contract Area free from liens and
            encumbrances 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 under this Agreement, or
            as a result of the sale of production from the Contract Area, and the funds shall
            remain the funds of the Non-Operators on whose account they are advanced or paid until
            used for their intended purpose or otherwise delivered to the Non-Operators or applied
            toward the payment of debts as provided in Article VII.B. Nothing in this paragraph
            shall be construed to establish a fiduciary relationship between Operator and
            Non-Operators for any purpose other than to account for Non-Operator funds as
            specifically provided for in this Agreement. 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 in this Agreement,
            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 on or production from the
            Contract Area, including Operator’s related books and records. These access
            rights shall not be exercised in a manner interfering with Operator’s conduct of
            an operation and shall not obligate Operator to furnish any geologic or geophysical
            data of an interpretive nature unless the cost of preparation of the interpretive data
            was charged to the joint account. Operator will furnish to each Non-Operator, on
            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 the
            expenditures shall be conducted in accordance with the audit protocol specified in
            Exhibit “C.”


            
            6.      Filing and Furnishing Governmental
            Reports: Operator will file, and on 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 that are
            the subject of this Agreement. Each Non-Operator shall provide to Operator on a timely
            basis all information necessary to Operator to make such filings.


            
            8

            

            

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


            
            7.      Drilling and Testing
            Operations: The following provisions shall apply to each well drilled
            under the terms of this Agreement, 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 Non-Operators the 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 quantitis as a result of examination of the electric log or any other logs or
            cores or tests conducted.


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


            
            9.      Insurance: At all times
            while operations are conducted under this Agreement, 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 those
            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 benefits of the joint account of the parties as outlined in
            Exhibit “D” to this Agreement. 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 Exhibit “D,” or
            subsequently receives the approval of the parties, no direct charge shall be made by
            Operator for premiums paid for insurance for Operator’s automotive equipment.


            
            ARTICLE VI.

            DRILLING AND DEVELOPMENT


            
            A.     Initial Well:


            
            The initial wells have been drilled on each lease. The participation in them by all
            parties is obligatory, subject to Article VI.C.1. as to participation in Completion
            operations and Article VI.F. as to termination of operations, and Article XI as to
            occurrence of force majeure.


            
            B.     Subsequent Operations:


            
            1.      Proposed Operations: If
            any party 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 the 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 a well
            shall give written notice of the proposed operation to the parties who have not
            otherwise relinquished their interest in the objective Zone under this Agreement and to
            all other parties in the case of a proposal for Sidetracking or Deepening, specifying
            the work to be performed, the location, proposed depth, objective Zone, and the
            Estimated cost of the operation. The parties to whom 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 a notice is delivered to reply within the
            specified period 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.


            
            9

            

            

            
             


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


            
            If all parties to whom notice is delivered elect to participate in the proposed
            operation, the parties shall be contractually committed to participate, provided the
            operations are commenced within the time period provided below, 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 then complete it with due diligence at the risk and expense of the
            parties participating in it; provided, however, the commencement date may be extended
            on written notice by Operator to the other parties, for a period of up to thirty (30)
            additional days if, in the sole opinion of Operator, the 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 as specifically
            permitted, or in the force majeure provisions of Article IX) and if any party still
            desires to conduct the operation, written notice proposing it must be resubmitted to
            the other parties in accordance with the provisions of this Agreement, as if no prior
            proposal has been made. Those parties that did not participate in the drilling of a
            well for which a proposal to Deepen or Sidetrack is made 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 a notice is
            delivered as provided in Article VI.B.1. 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 the other parties electing 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 the proposed operation for the account of the
            Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to
            perform the work. The rights and duties granted to and imposed on the Operator under
            this Agreement are granted to and imposed on 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 the operation
            and its recommendation as to whether the Consenting Parties should proceed with the
            operation as proposed. Each Consenting Party, within forty-eight (48) hours (exclusive
            of Saturday, Sunday, and legal holidays) after delivery of the notice, shall advise the
            proposing party of its desire to (i) limit participation to the party’s interest
            as shown on Exhibit “A” or (ii) carry only its proportionate part
            (determined by dividing the 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 the 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 a response shall not exceed a total of forty-eight (48) hours (exclusive
            of Saturday, Sunday, and legal holidays). The proposing party, at its election, may
            withdraw the proposal if there is less than 100% participation and shall notify all
            parties of the 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 the operation within the
            period provided in Article VI.B.1., subject to the same extension right as provided in
            that Article.


            
             


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


            
             


            
                 (b)     
            Relinquishment of Interest for Non-Participation. The entire cost
            and risk of conducting the operations shall be borne by the Consenting Parties in the
            proportions they have elected to bear them under the terms of the preceding paragraph.
            Consenting Parties shall keep the leasehold estates involved in the operations free and
            clear of all liens and encumbrances of every kind created by or arising from the
            operations of the Consenting Parties. If 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. On commencement of operations for the drilling, Reworking, Sidetracking,
            Recompleting, Deepening, or Plugging Back of any 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 the
            Non-Consenting Party’s interest in the well and share of production from it, or,
            in the case of a Reworking, Sidetracking, Deepening, Recompleting, or Plugging Back, or
            a Completion pursuant to Article VI.C.1. Option No. 2, all of the Non-Consenting
            Party’s interest in the production obtained from the operation in which the
            Non-Consenting Party did not elect to participate. This relinquishment shall be
            effective until the proceeds of the sale of the share, calculated at the well, or
            market value of it, if the 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 the well accruing with respect to the interest until it reverts), shall equal the
            total of the following:


            


            
                 (i)     
            300% of each of the Non-Consenting Parties’ 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
            of the Non-Consenting Parties’ share of the cost of operating the well commencing
            with first production and continuing until each 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 the costs and equipment
            will be that interest which would have been chargeable to the Non-Consenting Party had
            it participated in the well from the beginning of the operations; and,

             


            
                 (ii)     
            300% 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 VIII.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 the Non-Consenting Party if
            it had participated.


            
             


            
             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 of that 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 Non-Consenting Party shall have the option to participate in the initial proposed
            Completion of the well by paying its share of the cost of drilling the well to its
            actual depth, calculated in the manner provided in Article VI.B.4.(a). If any
            Non-Consenting Party does not elect to participate in the first Completion proposed for
            the well, the relinquishment provisions of this Article VI.B.2.(b) shall apply to the
            party’s interest.


            
             


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


            
            

             

                    
              (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 or Plugging Back operation proposed in a well, or
            portion of it, 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 a well, or portion of it, 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
            Reworking, Recompleting, or Plugging Back operation conducted during the recoupment
            period shall be deemed part of the cost of operation of the well and there shall be
            added to the sums to be recouped by the Consenting Parties 300% of that portion
            of the costs of the Reworking, Recompleting, or Plugging Back operation which would
            have been chargeable to Non-Consenting Party had it participated. If a Reworking,
            Recompleting, or Plugging Back operation is proposed during a recoupment period, the
            provisions of this Article VI.B. shall be applicable as between the Consenting Parties
            in the 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
            from it, 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 the equipment shall
            remain unchanged; and on abandonment of a well after the Reworking, Sidetracking,
            Plugging Back, Recompleting or Deepening, the Consenting Parties shall account for all
            the equipment to the owners of it, 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 the 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 operation which would have been
            owned by a Non-Consenting Party had it participated shall be credited against the total
            unreturned costs of the work done and of the equipment purchased in determining when
            the interest of the Non-Consenting Party shall revert to it as provided above; and, if
            there is a credit balance, it shall be paid to the Non-Consenting Party.

             

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


            
             


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


            
            

             

                  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 furnished to the
            parties, or when operations on the well have been otherwise terminated pursuant to
            Article VI.F., stand-by costs incurred pending response to a party’s notice
            proposing a Reworking, Sidetracking, Deepening, Recompleting, Plugging Back or
            Completing operation in a well (including the period required under Article VI.B.6. to
            resolve competing proposals) shall be charged and borne as part of the drilling or
            Deepening operation just completed. Stand-by costs subsequent to all parties
            responding, or expiration of the response time permitted, whichever first occurs, and
            prior to agreement as to the participating interests of all Consenting Parties pursuant
            to the terms of the second grammatical paragraph of Article VI.B.2.(a), shall be
            charged to and borne as part of the proposed operation, but if the proposal is
            subsequently withdrawn because of insufficient participation, the 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 extended response period; Operator may
            require the 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 additional time to
            respond to the notice, standby costs shall be allocated between the parties taking
            additional time to respond on a day-to-day basis in the proportion each electing
            party’s interest as shown on Exhibit “A” bears to the total interest
            as shown on Exhibit “A” of all the electing parties.

             

                  4.     
            Deepening: If less than all the parties elect to participate in a
            drilling, Sidetracking, or Deepening operation proposed pursuant to Article VI.B.1.,
            the interest relinquished by the Non-Consenting Parties to the Consenting Parties under
            Article VI.B.2. shall relate only and be limited to the lesser of (i) the total depth
            actually drilled or (ii) the objective depth or Zone of which the parties were given
            notice under Article VI.B.1. (“Initial Objective”). The 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, the party shall give
            notice, complying with the requirements of Article VI.B.1., to all parties (including
            Non-Consenting Parties). Then, Articles VI.B.1. and 2. shall apply and all parties
            receiving the notice shall have the right to participate or not participate in the
            Deepening of the well pursuant to Articles VI.B.1. and 2. If a Deepening operation is
            approved pursuant to those provisions, and if any Non-Consenting Party elects to
            participate in the Deepening operation, the 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 a well as a well capable of
            producing in paying quantities, the 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 the well from the surface to the Initial Objective
            which Non-Consenting Party would have paid had the Non-Consenting Party agreed to
            participate, 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, the 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 the 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


            
             


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


            
             percentage of the well Non-Consenting
            Party would have owned had it previously participated in the Non-Consent Well) of the
            costs of salvable materials and equipment remaining in the hole and salvable surface
            equipment used in connection with the 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 the 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 the 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, on 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 the 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. The 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 a party under this Article VI, the party
            shall have fifteen (15) days from delivery of the initial proposal, in the case of a
            proposal to drill a well or to perform an operation on a well where no drilling rig is
            on location, or twenty-four (24) hours, exclusive of Saturday, Sunday, and legal
            holidays, from delivery of the initial proposal, if a drilling rig is on location for
            the well on which the operation is to be conducted, to deliver to all parties entitled
            to participate in the proposed operation the party’s alternative proposal, that
            alternate proposal to contain the same information required to be included in the
            initial proposal. Each party receiving these proposals shall elect by delivering a
            notice to Operator within five (5) days after expiration of the proposal period, or
            within twenty-four (24) hours (exclusive of Saturday, Sunday, and legal holidays) if a
            drilling rig is on location for the well that is the subject of the proposals, to
            participate in one of the competing proposals. Any party not electing within the time
            required shall be deemed not to have voted. The proposal receiving the vote of parties
            owning the largest aggregate percentage interest of the parties voting shall have
            priority over all other competing proposals; in the case of a tie vote, the initial
            proposal shall prevail. Operator shall deliver notice of the 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 the notice to
            elect by delivery of notice to Operator to participate in the operation or to
            relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.,
            failure by a party to deliver a notice within the period shall be deemed an election
            not to participate in the prevailing proposal.

             

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

             

                  8.      Paying
            Wells. No party shall conduct any Reworking, Deepening, Plugging Back,
            Completion, Recompletion, or Sidetracking operation under this Agreement with
            respect


            
             


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


            
            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 the
            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:

             

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

             

                x    
            Option No. 2: All necessary expenditures for the drilling,
            Deepening or Sidetracking, and testing of the well. When the well has reached its
            authorized depth, and all logs, cores, and other tests have been completed, and the
            results 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 the notice shall
            have forty-eight (48) hours (exclusive of Saturday, Sunday, and legal holidays) in
            which to elect, by delivery of notice to Operator, to participate in a recommended
            Completion attempt or to make a Completion proposal with an accompanying AFE. Operator
            shall deliver any completion proposal, or any Completion proposal conflicting with
            Operator’s proposal, to the other parties entitled to participate in the
            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 the well, including necessary tankage and/or
            surface facilities but excluding any stimulation operation not contained on the
            Completion AFE. Failure of any party receiving a notice to reply within the specified
            period shall constitute an election by that party not to participate in the cost
            of the Completion attempt; provided, that Article VI.B.6. shall control in the case of
            conflicting Completion proposals. If one or more, but less than all of the parties,
            elect to attempt a Completion, the provisions of Article VI.B.2. (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 then conducted by less than all parties; provided, however,
            that Article VI.B.2 shall apply separately to each separate Completion or Recompletion
            attempt undertaken, and an election to become a Non-Consenting Party as to one
            Completion or Recompletion attempt shall not prevent a party from becoming a Consenting
            Party in subsequent Completion or Recompletion attempts regardless whether the
            Consenting Parties as to earlier Completions or Recompletions have recouped their costs
            pursuant to Article VI.B.2.; provided further, that any recoupment of costs by a
            Consenting Party shall be made solely from the production attributable to the Zone in
            which the Completion attempt is made. Election by a previous Non-Consenting Party to
            participate in a subsequent Completion or Recompletion attempt shall require the 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 the materials and equipment benefit the Zone in which the
            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 the operations and
            Completing and equipping of the 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 ten thousand Dollars
            ($10,000.00) except in connection with the drilling, Sidetracking, Reworking,
            Deepening, Completing, Recompleting, or Plugging Back of a well that has been
            previously authorized by or pursuant to this Agreement; provided, however, that, in
            case of explosion, fire, flood, or other sudden emergency, whether of the same or
            different nature, Operator may take the steps and incur the expenses as in its opinion
            are required


            
             


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


            
             


            
            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 ten thousand Dollars ($10,000.00). Any party who
            has not relinquishes 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 or other similar project (but not
            including the installation of gathering lines or other transportation or marketing
            facilities, the installation of which shall be governed by separate agreement between
            the parties) reasonably estimated to require an expenditure in excess of the amount
            first set forth above in this Article VI.D. (except in connection with an operation
            required to be proposed under Articles VI.B.1. or VI.C.1. Option No. 2, which shall be
            governed exclusively by those Articles). Operator shall deliver the proposal to all
            parties entitled to participate. If within thirty (30) days of the proposal, Operator
            secures the written consent of any party or parties owning at least 51% of the
            interests of the parties entitled to participate in the operation, each party having
            the right to participate in the project shall be bound by the terms of the proposal and
            shall be obligated to pay its proportionate share of the costs of the proposed project
            as if it had consented to the project pursuant to the terms of the proposal.

             


            
            E.     Abandonment
            of Wells:

             

                  1.     
            Abandonment of Dry Holes: Except for any well drilled or Deepened
            pursuant to Article VI.B.2., any well which has been drilled or Deepened under the
            terms of this Agreement and is proposed to be completed as a dry hole shall not be
            plugged and abandoned without the consent of all parties. Should Operator, after
            diligent effort, be unable to contact any party, or should any party fail to reply
            within forty-eight (48) hours (exclusive of Saturday, Sunday, and legal holidays) after
            delivery of notice of the proposal to plug and abandon the well, the party shall be
            deemed to have consented to the proposed abandonment. All 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 a well by notice delivered to Operator
            within forty-eight (48) hours (exclusive of Saturday, Sunday, and legal holidays) after
            delivery of notice of the proposed plugging shall take over the well as of the end of
            such forty-eight (48) hour notice period and conduct further operations in search of
            Oil and/or Gas subject to the provisions of Article VI.B.; failure of a party to
            provide proof reasonably satisfactory to Operator of its financial capability to
            conduct the operations or to take over the well within that period or to then conduct
            operations on the well or plug and abandon the 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 further operations conducted on the 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 for which the Consenting Parties have
            not been fully reimbursed as provided for in this Agreement, any well which has been
            completed as a producer shall not be plugged and abandoned without the consent of all
            parties. If all parties consent to the abandonment, the well shall be plugged and
            abandoned in accordance with applicable regulations and at the cost, risk, and expense
            of all the parties to this Agreement. Failure of a party to reply within sixty (60)
            days of delivery of notice of a 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 a
            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 the parties. Failure of a party or parties to provide proof reasonably satisfactory
            to Operator of their financial capability to conduct operations or to take over the
            well within the required period or then to conduct operations on the well shall entitle
            Operator to retain or take possession of the well and plug and abandon the well.

             

                  Parties taking over a well, as provided above, shall
            tender to each of the other parties its proportionate share of the value of the
            well’s salvable material and equipment, determined in


            
             


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


            
             


            
            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 the 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 an Oil and Gas Interest, the 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, the
            lease to be on the form attached as Exhibit “B.” The assignments or leases
            as limited shall encompass the Drilling Unit on which the well is located. The payments
            by, and the assignments or leases to, the assignees shall be in a ratio based on 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.

             

                  After that time, 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. On 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. On 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 subject to the provisions of this Agreement.

             

            
                 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 those Articles; provided,
            however, no well shall be permanently plugged and abandoned unless and until all
            parties having the right to conduct further operations have been notified of the
            proposed abandonment and afforded the opportunity to elect to take over the well in
            accordance with the provisions of this Article VI.E.; and provided further, that
            Non-Consenting Parties who own an interest in a portion of the well shall pay their
            proportionate shares of abandonment and surface restoration costs for the well as
            provided in Article VI.B.2.(b).

             


            
            F.     Termination
            of Operations:

             

                  On 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, the operation shall not be
            terminated without consent of parties bearing 51% of the costs of the 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 the condition in
            the manner provided in Article VI.B.1., and the provisions of Article VI.B. or VI.E.
            shall then apply to the operation, as appropriate.

             


            
            G.     Taking
            Production in Kind:


            


            
            
            o     Option No. 1: Gas
            Balancing Agreement Attached

             


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


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


            
             


            
            Each party shall execute division orders and contracts as may be necessary for the sale
            of its interest in production from the Contract Area, and, except as provided in
            Article VII.B., shall be entitled to receive payment directly from the purchaser 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 the Oil or sell it to others at any time and from time to
            time, for the account of the non-taking party. Any purchase or sale by Operator may be
            terminated by Operator on at least ten (10) days written notice to the owner of the
            production and shall be subject always to the right of the owner of the production, on
            at least ten (10) days written notice to Operator to exercise at any time its right to
            take in kind, or separately dispose of, its share of all Oil not previously delivered
            to a purchaser. Any purchase or sale by Operator of any other party’s share of
            Oil shall be only for the 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 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 the contract. No purchase shall be made by Operator without
            first giving the non-taking party at least ten (10) days written notice of the 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 marketing 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 on 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, whether such an agreement is attached as Exhibit “E”
            or is a separate agreement. Operator shall give notice to all parties of the first
            sales of Gas from any well under this agreement.


            


            
            x    Option No.
            2: No Gas Balancing Agreement:

             


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


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


            
            If any party fails to make the arrangements necessary to take in kind or separately
            dispose of its proportionate share of the Oil and/or Gas produced from the Contract
            Area, Operator shall have the right, subject to the revocation at will by the party
            owning it, but not the obligation, to purchase 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 purchase
            or sale by Operator may be terminated by Operator upon at least ten (10) days written
            notice to the owner of the production and shall be subject always to the right of the
            owner of the production on at least ten (10) days written notice to Operator to
            exercise its right to take in kind, or separately dispose of, its share of all Oil
            and/or Gas not


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


            
            previously delivered to a purchaser; provided, however, that the effective date of any
            revocation may be deferred at Operator’s election for a period not to exceed
            ninety (90) days if Operator has committed the production to a purchase contract having
            a term extending beyond the ten (10)-day period. Any purchase or sale by Operator of
            any other party’s share of Oil and/or Gas shall be only for the 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 sale by Operator shall be in a manner commercially reasonable under the
            circumstances, but Operator shall have no duty to share any existing market or
            transportation arrangement or to obtain a price or transportation fee equal to that
            received under any existing market or transportation arrangement. The sale or delivery
            by Operator of a non-taking party’s share of production under the terms of any
            existing contract of Operator shall not give the non-taking party any interest in or
            make the non-taking party a party to that contract. No purchase of Oil and Gas and no
            sale of Gas shall be made by Operator without first giving the non-taking party ten
            (10) days written notice of the intended purchase or sale and the price to be paid or
            the pricing basis to be used. Operator shall give notice to all parties of the first
            sale of Gas from any well under this Agreement.


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


            
            ARTICLE VII.

            EXPENDITURES AND LIABILITY OF PARTIES


            


            
            A.     Liability
            of Parties:

             


            
            The liability of the parties shall be
            several, not joint or collective. Each party shall be responsible only for its
            obligations, and shall be liable only for its proportionate share of the costs of
            developing and operating the Contract Area. Accordingly, the liens granted among the
            parties in Article VII.B. are given to secure only the debts of each severally, and no
            party shall have any liability to third parties to satisfy the default of any other
            party in the payment of any expense or obligation. 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-ventures, 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 under this Agreement.


            


            
            B.     Liens and
            Security Interests:

             


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


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


            
             


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


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


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


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


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


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


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


            
            C.     Advances:


             


            
            Operator, at its election, shall have the
            right from time to time to demand and receive from one or more of the other parties
            payments in advance of their respective shares of the estimated amount of the expense
            to be incurred in operations during the next succeeding month, which right may be
            exercised only by submission to each party of an itemized statement of the estimated
            expense, together with an invoice for its share of those expenses. Each statement and
            invoice for the payment in advance of estimated expense shall be submitted on or before
            the 20th day of the next preceding month. Each party shall pay to Operator its
            proportionate share of the estimate within thirty (30) days after the estimate and
            invoice is received. If any party fails to pay its share of said estimate within said
            time, the amount due shall bear interest as provided in Exhibit “C” until
            paid. Proper adjustment shall be made monthly between advances and actual expense to
            the end that each party shall bear and pay its proportionate share of actual expenses
            incurred, and no more.


            
            D.     Defaults
            and Remedies:


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


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


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

             

                 3.     Deemed
            Non-Consent: The non-defaulting party may deliver a written Notice of
            Non-Consent Election to the defaulting party at any time after the expiration of the
            thirty (30) day cure period following delivery of the Notice of Default, in which event
            if the billing is for the drilling of a new well or the Plugging Back, Sidetracking,
            Reworking or Deepening of a well which is to be or has been plugged as a dry hole, or
            for the Completion or Recompletion of any well, the defaulting party will be
            conclusively deemed to have elected not to participate in the operation and to be a
            Non-Consenting Party with respect to the operation under Article VI.B. or


            
             


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


            
             


            
            VI.C., as the case may be, to the extent of the costs unpaid by the party,
            notwithstanding any election to participate previously made. If election is made to
            proceed under this provision, then the non-defaulting parties may not elect to sue for
            the unpaid amount pursuant to Article VII.D.2.

             


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


            


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

             

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


            


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

             


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


            


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

             


            
            F.     Taxes:

             

                 Beginning with the first calendar year after the
            effective date of this Agreement, Operator shall render for ad valorem taxation all
            property subject to this Agreement which by law should be rendered for those taxes, and
            it shall pay all the taxes assessed on the property before they become delinquent.
            Prior to the rendition date, each Non-Operator shall furnish Operator information as to
            burdens (to include, but not be limited to, royalties, overriding royalties and
            production payments) on Leases and Oil and Gas Interests contributed by the
            Non-Operator. If the assessed valuation of any Lease is reduced by reason of its being
            subject to outstanding excess royalties, overriding royalties or production payments,
            the resulting reduction in ad valorem taxes shall inure to the benefit of the owner or
            owners of the lease, and Operator shall


            
             


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


            
             


            
            adjust the charge to the owner or owners so as to reflect the benefit of that
            reduction. If the ad valorem taxes are based in whole or in part on separate valuations
            of each party’s working interest, then notwithstanding anything to the contrary
            in this Agreement, charges to the joint account shall be made and paid by the parties
            in accordance with the tax value generated by each party’s working interest.
            Operator shall bill the other parties for their proportionate shares of all tax
            payments in the manner provided in Exhibit “C.”

             

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

             

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

             


            
            ARTICLE VIII.

            ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST


            


            
            A.     Surrender
            of Leases:

             

                  The Leases covered by this Agreement, insofar as they
            embrace acreage in the Contract Area, shall not be surrendered in whole or in part
            unless all parties consent to the surrender.

             

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

             

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


            
             


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


            
            

             


            
            B.     Renewal
            or Extension of Leases:


            


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

             

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

             

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

             

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

             

                  The provisions in this Article shall also be applicable
            to extensions of Oil and Gas Leases.

             


            
            C.     Acreage
            or Cash Contributions:

             

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

             

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


            
             


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


            
            

             


            
            D.     Assignment;
            Maintenance of Uniform Interest:

             

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

             

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

             

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

             

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

             

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

             


            
            E.     Waiver
            of Rights to Partition:

             

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


            
             


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


            
             


            
            F.     Preferential
            Right to Purchase:

             

            
            
            o     (Optional; Check if applicable.)


            


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

             


            
            ARTICLE IX.

            INTERNAL REVENUE CODE ELECTION


            


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

             


            
            ARTICLE X.

            CLAIMS AND LAWSUITS


            


            
                 Operator
            may settle any single uninsured third party damage claim or suit arising from
            operations under this Agreement if the expenditure does not exceed five thousand
            Dollars ($5,000.00) and if the payment is in complete settlement of the claim or suit.
            If the amount required for settlement exceeds the above amount, the parties shall
            assume and take over the further handling of the claim or suit, unless that authority
            is delegated to Operator. All costs and expenses of handling, settling, or otherwise
            discharging a claim or suit shall be at the joint expense of the parties participating
            in the operation from which the claim or suit arises. If a claim is made against any
            party or if any party is sued on account of any matter arising from operations under
            this Agreement over which the individual has no control because of the rights given
            Operator by this Agreement, the party shall immediately notify all other parties, and
            the claim or suite shall be treated as any other claim or suit involving operations
            under this Agreement.


            
             


            
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            A.A.P.L. FORM 610 – MODEL FORM
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            ARTICLE XI.

            FORCE MAJEURE


            


            
                 If
            any party is rendered unable, wholly or in part, by force majeure to carry out its
            obligations under this Agreement, other than the obligation to indemnify or make money
            payments or furnish security, that party shall give to all other parties prompt written
            notice of the force majeure with reasonably full particulars concerning it; then, the
            obligations of the party giving the notice, so far as they are affected by the force
            majeure, shall be suspended during, but no longer than, the continuance of the force
            majeure. The term “force majeure,” as here employed, shall mean an act of
            God, strike, lockout, or other industrial disturbance, act of the public enemy, war,
            blockade, public riot, lightning, fire, storm, flood, or other act of nature,
            explosion, governmental action, governmental delay, restraint, or inaction,
            unavailability of equipment, and any other cause, whether of the kind specifically
            enumerated above or otherwise, which is not reasonably within the control of the party
            claiming suspension.

             

                  The affected party shall use all reasonable diligence to
            remove the force majeure situation as quickly as practicable. The requirement that any
            force majeure shall be remedied with all reasonable dispatch shall not require the
            settlement of strikes, lockouts, or other labor difficulty by the party involved,
            contrary to its wishes; how any of these difficulties shall be handled shall be
            entirely within the discretion of the party concerned.

             


            
            ARTICLE XII.

            NOTICES


            


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


            


            
            ARTICLE XIII.

            TERM OF AGREEMENT


            


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

             


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


            


            
            
            o        Option No. 2: In the
            event the well described in Article VI.A., or any subsequent well drilled under any
            provision of this Agreement, results in the completion of a well as a well capable of
            production of Oil and/or Gas in paying quantities, this agreement shall continue in
            force so long as any well is capable of production, and for an additional period of
            120 days after that time; provided, however, if, prior to the expiration of
            this


            
             


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


            
             


            
                     
            additional period, one or more of
            the parties are engaged in drilling, Reworking, Deepening, Sidetracking, Plugging Back,
            testing or attempting to Complete or Re-complete a well or wells, this Agreement shall
            continue in force until the operations have been completed and if production results,
            this Agreement shall continue in force as provided in this provision. In the event the
            well described in Article VI.A., or any subsequent well drilled, results in a dry hole,
            and no other well is capable of producing Oil and/or Gas from the Contract Area, this
            Agreement shall terminate unless drilling, Deepening, Sidetracking, Completing,
            Re-completing, Plugging Back, or Reworking operations are commenced within 90
            days from the date of abandonment of the well. “Abandonment” for these
            purposes shall mean either (i) a decision by all parties not to conduct any further
            operations on the well, or (ii) the lapse of 180 days from the conduct of any
            operations on the well, whichever first occurs.


            


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

             

                  On termination of this Agreement and the satisfaction of
            all obligations under it, in the event a memorandum of this Operating Agreement has
            been filed of record, Operator is authorized to file of record in all necessary
            recording offices a notice of termination, and each party agrees to execute a notice of
            termination as to Operator’s interest, on request of Operator, if Operator has
            satisfied all its financial obligations.

             


            
            ARTICLE XIV.

            COMPLIANCE WITH LAWS AND REGULATIONS


            


            
            A.     Laws,
            Regulations, and Orders:


            


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


            


            
            B.     Governing
            Law:


            


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

             


            
            C.     Regulatory
            Agencies:


            


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


            


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


            
             


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


            
                    


            
            ARTICLE XV.


            
            MISCELLANEOUS


            


            
            A.     Execution:


            


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

             


            
            B.     Successors and Assigns:


            


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

             


            
            C.     Counterparts:


            


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

             


            
            D.     Severability:


            


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


            


            
            ARTICLE XVI.

            OTHER PROVISIONS


            


            
            A. ASSIGNMENT.


            


            
            No assignment or other transfer or disposition of an interest subject to
            this Agreement shall be effective as to Operator or the other parties hereto until 7:00
            a.m. on the first day of the calendar month following the month in which Operator
            receives (i) a photocopy of the recorded instrument evidencing such assignment,
            transfer or disposition and (ii) an instrument, satisfactory to the Operator in both
            form and content, by which the person to whom such assignment, transfer or disposition
            is being made has become obligated to observe, perform and be bound by all covenants,
            terms and conditions of this Agreement. Prior to such date, neither Operator nor any
            other party shall be required to recognize such assignment, transfer or disposition for
            any purpose, but instead may continue to deal exclusively with the party making such
            assignment, transfer or disposition in all matters under or in connection with this
            Agreement, including billings. No assignment or other transfer or disposition of an
            interest subject to this Agreement shall relieve a party of its obligations accrued
            prior to the aforesaid effective date of its liability for its share of costs and
            expenses which may thereafter be incurred


            
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            in any operation to which such party had agreed or consented prior to the aforesaid
            effective date.


            


            
            B. ADVANCE OF WELL
            COSTS.


            


            
            Notwithstanding any other provision
            contained herein, Operator shall have the right to request and receive payment from
            each Non-Operator for such Non-Operator’s respective share of the anticipated
            cost, as reasonable estimated by the Operator, of any reworking, recompletion, plugging
            back operation and additional wells to which such Non-Operator has consented. Such
            request for advance payment may be made upon all Non-Operators or upon any one or more
            of them to the exclusion of others, all in Operator’s sole discretion. Any such
            request shall be made in writing or by telex no earlier than thirty (30) days prior to
            the anticipated commencement date for such operation and shall be paid in full to the
            Operator in cash, check or certified funds within thirty (30) days after the date of
            such request.

             

             Payment of an advance shall in no event relieve a Non-Operator of its obligation to
            pay its share of the actual cost of the operation; when the actual cost of such
            operation has been determined, Operator shall adjust the accounts of the parties by
            refunding any amount due or invoicing the parties for any additional amount owing,
            which additional amount shall be paid in accordance with the Accounting Procedure
            attached hereto as Exhibit C.

             

             If a Non-Operator who was has been asked to make an advance payment does not, within
            the time and manner above provided, fully satisfy the request for advance payment, then
            Operator may, at its election, make a second written or telex request for such advance.
            If a second request is made, the Non-Operator shall pay for such advance as aforesaid
            within five (5) days from receipt of such second request. Failure to make such payment
            within said five (5) day period shall conclusively be deemed an Irrevocable election by
            such Non-Operator to relinquish its interest as a Consenting Party under Article VI.B.
            Amounts previously paid by such party in connection with the operation shall not,
            however, be refunded, although credit will be given for all amounts actually paid by
            such party in determining the costs and expenses which may be recovered by the
            remaining Consenting Parties pursuant to Article VI.B.

             


            
            C. SECURITY.


            


            
            The lien and security interest
            granted by each Non-Operator to Operator and by Operator to the Non-Operators under
            Article VII.B. shall extend not only to such party’s oil and gas rights in the
            Contract Area (which for greater certainty shall include all of each party’s
            leasehold and overriding royalty interest in the Contract Area), the oil and/or gas
            when extracted, and all equipment (as mentioned in said Article), but also to all
            accounts, contract sights, inventory and general intangibles comprising a part of,
            relating to or arising out of said oil and gas rights, extracted oil and gas and said
            equipment, or which are otherwise owned or held by such party in the Contract Area.
            Further, the lien and security interest of each of said parties shall extend to all
            proceeds and products of all of the property and collateral described in this paragraph
            and in Article VII.B. as being subject to said lien and security interest. Any party,
            to the extent it believes necessary to perfect the lien and security Interest provided
            herein, may file this Operating Agreement as a lien or mortgage in the applicable real
            property records and as a financing statement in the Uniform Commercial Code records in
            all locations necessary or convenient for such purpose.

             


            
            D. NO THIRD-PARTY
            BENEFICIARIES.


            


            
            This agreement is made solely for
            the benefit of those parties who are signatory parties hereto (including those persons
            succeeding to all or any portion of the interest of an original party, if such
            succession is recognized under the other provisions hereof), and no other person shall
            have or claim or be entitled to enforce any rights, benefits or obligations under this
            Agreement.

             


            
            E. DEEPER DRILLING
            PROVISION.


            


            
            If less than all of the parties
            elect to participate in a drilling or deepening operation proposed pursuant to Article
            VI.B, such well shall not be drilled to a depth deeper than the initial proposed
            objective without first affording all non-consenting parties the opportunity to
            participate in such deeper drilling operation by reimbursing the consenting parties for
            the costs


            
             


            
            30

            
            

            

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


            
               


            
             


            
            and expenses such non-consenting party would have paid if said well had initially been
            proposed to be drilled to such deeper depth and the non-consenting party had agreed to
            participate therein; provided, however, that all costs for testing and completion or
            attempted completion of the well incurred by consenting parties prior to the point of
            actual operations to drill deeper than the initial proposed objective shall be for the
            sole account of consenting parties. Non-consenting parties shall have thirty (30) days
            (or 24 hours, inclusive of weekends and legal holidays, if a rig is on location) after
            receipt of notice by Operator of intended deeper drilling and the amount of
            reimbursement due within which to make such reimbursement to Operator. Failure to make
            such required reimbursement within the period above fixed shall constitute an election
            not to participate in such deeper drilling.

             


            
            F. SUCCESSOR OPERATOR TO ENERGY OIL & GAS, INC.


            


            
            Notwithstanding any other provisions contained herein, in the event of resignation or
            removal of Energy Oil & Gas, Inc., Inc. as Operator, whether by assignment of all
            of Energy Oil & Gas, Inc., Inc.’s interest in the Contract Area or otherwise,
            MCM Capital Management, Inc. or its assignee shall automatically become the successor
            operator provided that Capital Management, Inc. owns an interest in the Contract Area
            at the time of such resignation or removal. In the event that MCM Capital Management,
            Inc. does not own an interest, then the provisions for successor operator elsewhere in
            this agreement shall apply.

             


            
            G. COUNTERPART.


            


            
            This Agreement may be executed in any number of multiple counterparts, each of which
            shall be deemed an original, but all of which together shall constitute but one and the
            same instrument. One copy of this Agreement (with or without a U.C.C.-1 form) with all
            signature pages attached may be recorded in lieu of recording each such
            counterpart.


            
             


            
            31

             

            
            

            

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


            
                   


            
             


            
            IN WITNESS WHEREOF, this agreement shall be effective as of the 9th day of September,
            2005.


            


            	
                        
                        ATTEST OR
                        WITNESS:

                    	
                      	
                        
                        OPERATOR

                    
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Energy Oil & Gas,
                        Inc.

                    
	
                      	
                      	
                      
	
                      	
                        
                        By:

                    	
                     /s/ Duane D.
                    Bacon 
	
                      	
                      	
                      
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Duane D.
                        Bacon

                    
	
                      	
                      	
                        
                        (Type or print
                        name)

                    
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Title:

                    	
                        
                        President

                    
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Date:

                    	
                    September 21,
                    2005  
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Tax ID or SS
                        No.

                    	
                        
                        84-1584802

                    
	
                      	
                      	
                      
	
                      	
                      	
                        
                        NON-OPERATORS

                    
	
                      	
                      	
                      
	
                      	
                      	
                        
                        MCM Capital Management,
                        Inc.

                    
	
                      	
                      	
                      
	
                      	
                        
                        By:

                    	
                     /s/ Raymond E.
                    McElhaney 
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Raymond E.
                        McElhaney

                    
	
                      	
                      	
                        
                        (Type or print
                        name)

                    
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Title:

                    	
                        
                        President

                    
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Date:

                    	
                    September 21,
                    2005  
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Tax ID or SS
                        No.

                    	
                    84-0966012
	
                      	
                      	
                      
	
                      	
                      	
                        
                        The Dolphin Group,
                        Inc.

                    
	
                      	
                      	
                      
	
                      	
                        
                        By:

                    	
                     /s/ Robert H.
                    Johnson 
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Robert H.
                        Johnson

                    
	
                      	
                      	
                        
                        (Type or print
                        name)

                    
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Title:

                    	
                        
                        President

                    
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Date:

                    	
                     September 21,
                    2005 
	
                      	
                      	
                      
	
                      	
                      	
                        
                        Tax ID or SS
                        No.

                    	
                     84-1210908 



            


            
              32 


            

            

            

            
                  


            
            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.


            


            	
                        
                        State of-

                    	
                        
                        Colorado

                    	
                        
                        )

                    	
                      	
                      	
                      
	
                      	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                        
                        )ss

                    	
                      	
                      	
                      
	
                      	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                      	
                      	
                      	
                      
	
                        
                        County of

                    	
                     Boulder 
                    	
                        
                        )

                    	
                      	
                      	
                      
	
                      	
                      	
                      	
                      	
                      	
                     



            


            
            This instrument was acknowledged before me on


            	
                    September 21, 2005  	
                        
                        by

                    	
                      	
                        
                        Duane D.
                        Bacon

                    
	
                        
                        as President of Energy
                        Oil & Gas, Inc., a Colorado corporation, on behalf of said
                        corporation.

                    
	
                      	
                      	
                      	
                      	
                      	
                      



            


            	
                        
                        (Seal, if
                        any)

                    	
                      	
                      	
                      	
                    /s/ Scott
                    Kassner  
	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                      	
                      	
                        
                        Title (and
                        Rank)

                    	
                    Notary Public 
                    
	
                      	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                      	
                      	
                        
                        My commission
                        expires:

                    	
                     07/24/2006



            


            
            This instrument was acknowledged before me on


            	
                     September 22, 2005 	
                        
                        by

                    	
                      	
                        
                        Raymond E.
                        McElhaney

                    
	
                        
                        as President of MCM
                        Capital Management, Inc., a Colorado corporation, on behalf of said
                        corporation.

                    
	
                      	
                      	
                      	
                      	
                      	
                      



            


            	
                        
                        (Seal, if
                        any)

                    	
                      	
                      	
                      	
                    /s/ Donna K.
                    Klimas  
	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                      	
                      	
                        
                        Title (and
                        Rank)

                    	
                    Notary Public 
                    
	
                      	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                      	
                      	
                        
                        My commission
                        expires:

                    	
                    08/22/2007 
                    



            


            
            This instrument was acknowledged before me
            on


            	
                    September 21, 2005 	
                        
                        by

                    	
                      	
                        
                        Robert H.
                        Johnson

                    
	
                        
                        as President of The
                        Dolphin Group, Inc., a Colorado corporation, on behalf of said
                        corporation.

                    
	
                      	
                      	
                      	
                      	
                      	
                      



            


            	
                        
                        (Seal, if
                        any)

                    	
                      	
                      	
                      	
                    /s/ Scott
                    Kassner  	
                    	
                    
	
                      	
                      	
                      	
                      	
                      	
                    	
                    
	
                      	
                      	
                      	
                      	
                        
                        Title (and
                        Rank)

                    	
                    Notary Public
	
                      	
                      	
                      	
                      	
                      	
                      	
                    	
                    
	
                      	
                      	
                      	
                      	
                        
                        My commission
                        expires:

                    	
                    07/24/2006



            


            33
            


            

            

            

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


            
             


            
             


            
            EXHIBIT “A”


            


            
            Attached to and made a part of
            Operating Agreement dated September 9, 2005, between Energy Oil & Gas, Inc.., as
            Operator, and MCM Capital Management, Inc. and The Dolphin Group, Inc. as
            Non-Operators.


            


            
            LANDS AND INTERESTS


            


            	
                        
                        A. Lands subject to
                        the Agreement (“Land Partnership” Contract
                        Area):

                    
	
                      	
                        
                        Lutin #1

                    	
                      	
                        
                        Marostica #1

                    	
                      
	
                        
                        1)

                    	
                        
                        T9N,R51W,6th
                        P.M.

                    	
                        
                        2)

                    	
                        
                        T10N,R51W,6th
                        P.M.

                    	
                      
	
                      	
                        
                        Sec. 9: NW
                        1⁄4

                    	
                      	
                        
                        Sec. 15: W 1⁄2 SE
                        1⁄4, E 1⁄2 SW 1⁄4, NW 1⁄4 SW 1⁄4

                    
	
                      	
                        
                        Sec. 8: SE
                        1⁄4

                    	
                      	
                        
                        Logan County,
                        Colorado

                    
	
                      	
                        
                        Logan County,
                        Colorado

                    	
                      	
                        
                        Containing 200 acres,
                        more or less

                    
	
                      	
                        
                        Containing 320 acres,
                        more or less

                    	
                      	
                      	
                      
	
                      	
                        
                        Stroh #1

                    	
                      	
                      	
                      
	
                        
                        3)

                    	
                        
                        T3N,R57W,6th
                        P.M.

                    	
                      	
                      	
                      
	
                      	
                        
                        Sec. 35: SW
                        1⁄4

                    	
                      	
                      	
                      
	
                      	
                        
                        Morgan County,
                        Colorado

                    	
                      	
                      	
                      
	
                      	
                        
                        Containing 160 acres,
                        more or less

                    	
                      	
                      	
                     
	
                     	
                     	
                     	
                     	
                     



            


            
            This Agreement shall apply as to all depths owned by the parties hereto.


            
            B. Committed Leasehold Interests:


            
            Each oil and gas lease owned, at the time of this agreement, by either party hereto
            covering lands within the above Contract Areas is committed insofar, and only insofar,
            as it covers lands within the applicable Contract Area. Additionally under the Purchase
            and Sale agreement dated 23 December 2004 an Area of Mutual Interest has been
            established that extends for a three mile radius of the existing Contract Area. Should
            any lease be obtained by any party hereto after the date of this Agreement which covers
            any portion of the Contract Area, such lease shall be deemed to have been committed
            insofar as such lease covers lands within the Contract Area. Should any lease owned by
            either party hereto cover lands in addition to those set forth in (A) above, such
            additional lands are specifically excluded herefrom.


            


            
            C. Interests of the Parties:


            


            
            Percentages of Working Interest Costs to
            Be Borne by Each Party:


            


            	
                     	
                      	
                        
                        Energy Oil & Gas,
                        Inc., Inc.

                    	
                        
                        Undivided
                        47.5%

                    	
                      
	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                        
                        MCM Capital Management,
                        Inc.

                    	
                        
                        Undivided
                        23.75%

                    	
                      
	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                        
                        The Dolphin Group,
                        Inc.

                    	
                        
                        Undivided
                        28.75%

                    	
                      
	
                      	
                      	
                      	
                      	
                      



            


            
            Percentages of Working Interest
            Revenues of Each Party:


            


            	
                      	
                      	
                        
                        Energy Oil & Gas,
                        Inc., Inc.

                    	
                        
                        Undivided
                        47.5%

                    	
                      
	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                        
                        MCM Capital Management,
                        Inc.

                    	
                        
                        Undivided
                        23.75%

                    	
                      
	
                      	
                      	
                      	
                      	
                      
	
                      	
                      	
                        
                        The Dolphin Group,
                        Inc.

                    	
                        
                        Undivided
                        28.75%

                    	
                      



            


            
            D. Addresses of the
            Parties:


            


            	
                      	
                      	
                        
                        Energy Oil & Gas,
                        Inc.

                    	
                        
                        The Dolphin Group,
                        Inc.

                    	
                      
	
                      	
                      	
                        
                        P.O. Box 910

                    	
                        
                        1st Bank
                        Tower, Suite 301

                    	
                      
	
                      	
                      	
                        
                        Niwot, CO
                        80544     

                    	
                        
                        1707 N. Main
                        Street

                    	
                      
	
                      	
                      	
                        
                        (303)
                        545-2620

                    	
                        
                        Longmont, CO
                        80501

                    	
                      
	
                      	
                      	
                        
                        (303) 545-2620
                        Fax

                    	
                        
                        (303)
                        485-0000

                    	
                      
	
                      	
                      	
                        
                        (303) 579-6353
                        Cell

                    	
                        
                        (303) 776-8655
                        Fax

                    	
                      
	
                      	
                      	
                      	
                        
                        (303) 884-0000
                        Cell

                    	
                      
	
                      	
                      	
                        
                        MCM Capital Management,
                        Inc.

                    	
                      	
                      
	
                      	
                      	
                        
                        5525 Erindale Drive,
                        Suite 201

                    	
                      	
                      
	
                      	
                      	
                        
                        Colorado Springs, CO
                        80918

                    	
                      	
                      
	
                      	
                      	
                        
                        (719)
                        260-8509

                    	
                      	
                      
	
                      	
                      	
                        
                        (719) 260-8516
                        Fax

                    	
                      	
                      
	
                      	
                      	
                        
                        (719) 491-0057
                        Cell

                    	
                      	
                      
	
                      	
                      	
                      	
                     	
                     



            


            


            Page 1 of
             1     


            

            

            

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


            
                    


            
             


            
            
            EXHIBIT “B”

             


            
            FORM OF LEASE


            
             


            
             


            
             


            
            Page 1 of
             1     


            


            

            

            

            


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


            
             


            
            EXHIBIT “C-”


            
            Attached to and made a part of Joint Operating Agreement dated September 9, 2005
            between Energy Oil & Gas, Inc., as Operator, and MCM Capital Management, Inc. and
            The Dolphin Group, Inc. as Non-Operators


            


            
            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 thirty (30) 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.

                    



            Page 1 of  11


            

            

            

            


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

            

            


            	
                     	
                        
                        B.

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

                    
	
                     	
                     
	
                     	
                     
	
                        
                        4.     Adjustments

                    
	
                     	
                     
	
                     	
                        
                        Payment of any such bills shall not prejudice the right of any Non-Operator
                        to protest or question the correctness thereof; provided, however, all
                        bills and statements rendered to Non-Operators by Operator during any
                        calendar year shall 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.

                    
	
                     	
                     
	
                        
                        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 L 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-Operator 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

                    
	
                     
	
                        
                        With the approval of the Non-Operators and in accordance with paragraph 6
                        above the 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.

                    


            

            


            Page 2 of 11

            

            

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


            	
                        
                        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 IL 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 H. 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 313 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.

                    
	
                     	
                     	
                     
	
                        
                        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.  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.

                    



            


            Page 3 of  11


            

            

            

            


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

            

            


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

                    
	
                     	
                     	
                     
	
                        
                        8.     Equipment
                        and Facilities Furnished By Operator

                    
	
                     	
                     	
                     
	
                     	
                        
                        A.

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

                    
	
                     	
                     	
                     
	
                     	
                        
                        B.

                    	
                        
                        In lieu of charges in Paragraph XA 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.

                    


            

            


            

            

            
                Page 4 of 11
            


            

            

            

            


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

            

            	
                        
                        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

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

                    
	
                     	
                     	
                     
	
                        
                        14.     Communications

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

                    
	
                        
                        15.     Other Expenditures

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

                    
	
                     	
                     	
                     
	
                        
                        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 lB

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

                    
	
                     	
                     	
                     
	
                     	
                        
                        ii.

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

                    
	
                     	
                     	
                     
	
                     	
                     	
                        
                        ( ) shall be covered by the overhead rates, or

                    
	
                     	
                     	
                        
                        (X) shall not be covered by the overhead rates

                    
	
                     	
                     	
                     
	
                     	
                        
                        iii.

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

                    



            

            

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

            

            	
                     	
                      	
                        
                        ( ) shall be covered by
                        the overhead rates, or

                    
	
                      	
                      	
                        
                        (X) 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 $ 400.00
                        per day  

                    
	
                      	
                      	
                      	
                        
                        (Prorated for less than a full
                        month)

                    
	
                      	
                      	
                      	
                      
	
                      	
                      	
                      	
                        
                        Producing Well Rate $ 450.00
                        per month  

                    
	
                      	
                      	
                      	
                      
	
                      	
                      	
                        
                        (2)

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

                    
	
                      	
                      	
                      	
                      
	
                      	
                        
                        (a)

                    	
                        
                        Drilling Well Rate

                    
	
                      	
                      	
                      	
                      
	
                      	
                      	
                        
                        (1)

                    	
                        
                        Charges fur 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 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

                    



            

            

            
                Page 6 of 11
            


            

            

            

            


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

            

            	
                      	
                      	
                        
                        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 negotiate a rate prior to the beginning
                        of construction.

                    
	
                      	
                      	
                      
	
                        
                        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.

                    
	
                      	
                      	
                      
	
                        
                        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 Operators
                        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 Properly 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)

                    
	
                      	
                      	
                      	
                      
	
                      	
                      	
                        
                        (1)

                    	
                        
                        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.



            
                
                    Page 7 of 11

                    

                    

                    

                

            

            

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


            
                 
            


            	
                     	
                     	
                     	
                     	
                        
                        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 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, fob. 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 fob. 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 01)) 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) as provided
                        above. Freight charges shall be calculated from Lorain, Ohio.

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                     	
                        
                        (c)

                    	
                        
                        Line pipe 24 inch OD and over and 3⁄4 inch wall and larger shall be
                        priced fob. 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.(l) and (2).

                    



            

            

            
                Page 8 of 11
            


            

            

            

            


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

            

            	
                     	
                     	
                     	
                     	
                     
	
                     	
                        
                        B.

                    	
                        
                        Good Used Material (Condition B)

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                        
                        (1)

                    	
                        
                        Material moved to the Joint Property

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                        
                        (2)

                    	
                        
                        Material used on and moved from the Joint Property

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                     	
                        
                        (a)

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                     	
                        
                        (b)

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                        
                        (3)

                    	
                        
                        Material not used on and moved from the Joint Property

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

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                        
                        C.

                    	
                        
                        Other Used Material

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                        
                        (1)

                    	
                        
                        Condition C

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                        
                        (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.

                    



            

            

            
                Page 9 of 11
            


            

            

            

            


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

            

            	
                     	
                     	
                        
                        (3)

                    	
                        
                        Condition E

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                        
                        D.

                    	
                        
                        Obsolete Material

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                        
                        E.

                    	
                        
                        Pricing Conditions

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                        
                        (1)

                    	
                        
                        Loading or unloading costs may be charged to the Joint Account at the rate
                        of twenty-five cents (250) 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
                        l.A.(3). Each year, the rate calculated shall be rounded to the nearest
                        cent and shall be the rate in effect until the first day of April next
                        year. Such rate shall be published each year by the Council of Petroleum
                        Accountants Societies.

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                     	
                        
                        (2)

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                        
                        3.     Premium Prices

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                        
                        4.     Warranty of Material Furnished By
                        Operator

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

                    
	
                      	
                      	
                      	
                      	
                     
	
                        
                        V. INVENTORIES

                    
	
                        
                        The Operator shall maintain detailed records of Controllable Material.

                    
	
                     	
                     	
                     	
                     	
                     
	
                        
                        1.     Periodic Inventories, Notice and
                        Representation

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

                    



            

            

            
                Page 10 of 11
            

            

            

            	
                        
                        2.     Reconciliation and Adjustment of
                        Inventories

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                        
                        3.     Special Inventories

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                        
                        4.     Expense of Conducting
                        Inventories

                    
	
                     	
                     	
                     
	
                     	
                        
                        A.

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

                    
	
                     	
                     	
                     	
                     	
                     
	
                     	
                        
                        B.

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

                    



            

            

            
                Page 11 of 11
            

            

            

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


            
             


            
            EXHIBIT “D”


            
            Attached to and made a part of Operating Agreement dated September 9, 2005, between
            Energy Oil & Gas, Inc., as Operator, and MCM Capital Management, Inc. and The
            Dolphin Group, Inc. as Non-Operators.


            


            
            INSURANCE


            
            Operator shall carry and name Non-Operators as additional insured on an insurance
            policy to cover the risk of accidents and damages to persons and property which may
            occur in the course of operations conducted under this Agreement, a proportionate part
            of the premium of which will be charged to the Joint Account in a manner consistent
            with Operator’s accounting practices:


            
            1. Comprehensive General Public Liability Insurance in the amount of $500,000 for
            injury or death of one person and $500,000 for injury or death of more than one person
            in any one accident and Property Damage Insurance with limits of $250,000 for any one
            accident.


            
            2. Automobile Insurance in the amount of $500,000 for injury or death of one person and
            $500,000 for injury or death of more than one person in any one automobile accident,
            and Property Damage Insurance with a limit of $250,000 as an aggregate for any
            automobile accident.


            
            3. Excess Liability coverage with a limit of $1,000,000 for Bodily Injury and Property
            Damage combined.


            
            Operator is not required to carry blowout insurance, although each party to the
            Operating Agreement may provide blowout insurance to protect its own interest in the
            jointly owned property and its own expense.

            Operator shall not be held responsible for the financial solvency of any insurance
            carrier or for Operator’s failure or inability to obtain the insurance coverage
            described above.


            
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