Document:

EXPLORATION AGREEMENT

      This Exploration Agreement is made and entered into effective the first
day of February, 2002 (this "Agreement"), by and between Fortune Natural
Resources Corporation ("Fortune"), PrimeEnergy Management Corporation ("Prime"),
Channel Exploration, LLC ("Channel"), Cymraec Exploration, Inc. ("Cymraec"),
Lonesome Dove Petroleum, Inc. ("Lonesome Dove"), Braveheart Holdings, LLC
("Braveheart"), and Southwestern Eagle, LLC ("Southwestern"), Lonesome Dove,
Braveheart, Southwestern, and Cymraec are sometimes hereinafter referred to
collectively as the "Seismic Partners", or individually as a "Seismic Partner".
Fortune, Prime, Channel, Cymraec and each of the Seismic Partners are sometimes
hereinafter referred to collectively as the "Parties" or, individually, as a
"Party."

      WHEREAS, Cymraec, Seismic Exchange Inc. ("SEI"), Milestone Seismic LLC
("MSLLC"), and Channel entered into a license and reprocessing agreement dated
February 22, 2001 (the "Seismic Agreement") whereby SEI agreed to license to
Cymraec certain 2D seismic data in exchange for Cymraec agreeing to reprocess
the data, delineate drillable oil and gas prospects from the data, and convey to
MSLLC an overriding royalty interest in all oil and gas leases covering lands in
those prospects in which Cymraec or its assigns or delegees acquired an
interest; and

      WHEREAS, the Seismic Partners have agreed to assume Cymraec's obligation
to pay for the reprocessing of the seismic data provided by SEI as more
particularly set forth in this Agreement; and

      WHEREAS, Cymraec, Lonesome Dove and Thorp Petroleum Corporation ("Thorp")
formed Channel for the purpose of holding the license obtained from SEI to the
seismic data which is the subject of the Seismic Agreement (the "License"); and

      WHEREAS, Fortune and Prime desire to obtain an option to acquire an
ownership interest in Channel, and the owners of Channel desire that Prime and
Fortune acquire that option, and the Parties desire that Prime and Fortune fund
certain costs arising out of the Seismic Agreement

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in order to earn the "Operators' Base 50% Working Interest," as that term is
defined in Section 3.1 of this Agreement, all as those matters are more
particularly set forth in this Agreement; and

      WHEREAS, the Parties desire to have Fortune and Prime determine, in
accordance with the "Operations Sharing Agreement, attached hereto as Exhibit
"A," which company, Fortune or Prime, shall operate the "Prospects," as that
term is defined in Article II of this Agreement, and, thereafter, act in
accordance with such determination as the operator of the Prospects; and

      WHEREAS, the Parties desire that this Agreement set forth their respective
rights, obligations, undertakings and agreements with respect to (i) the use of
the "Seismic Data," as that term is defined in Article I of this Agreement, (ii)
the selection, development and operation of the Prospects, and (iii) the other
matters provided herein.

      NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual and dependent covenants hereinafter set forth, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Parties agree as follows:

                                    ARTICLE I
                              SEISMIC REPROCESSING
                              --------------------

      1.1   PAYMENT OF REPROCESSING FEE. Cymraec has committed to reprocess the
seismic data acquired from SEI, as more fully described on Exhibit "B", attached
hereto (the "Seismic Assets"), through an agreement dated March 1, 2001, (the
"Reprocessing Agreement") with Kelman Technologies, Inc. ("Kelman"). Cymraec
agrees to diligently enforce all its rights under the Reprocessing Agreement and
the Seismic Agreement, and to diligently perform or cause to be performed all
its obligations and undertakings under the Reprocessing Agreement and the
Seismic Agreement, all in accordance with the respective terms of the
Reprocessing Agreement and the Seismic Agreement.

      Subject to Cymraec's full and timely performance of its obligations under
the Reprocessing Agreement and the Seismic Agreement, the Seismic Partners shall
each pay Cymraec their respective Seismic Participation Percentage (as defined
in this Section 1.1) of the Six Million Five Hundred Thousand Dollars
($6,500,000) for the reprocessing (the "Reprocessing Fee"). The

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Reprocessing Fee is payable in ten (10) consecutive quarterly payments of Six
Hundred Fifty Thousand Dollars ($650,000) each. Each such quarterly payment
shall be delivered in readily available funds in accordance with Cymraec's
wiring instructions no later than the eleventh (11th) day of the calendar month
immediately preceding the commencement of each calendar quarter during the ten
(10) consecutive calendar quarter period, beginning April 1, 2001, and ending
September 30, 2003. The Parties acknowledge the first calendar quarter payment
was due March 11, 2001 and the first four quarterly payments were made in a
timely manner. The Seismic Partners have agreed to pay the Reprocessing Fee in
accordance with the following percentages (the "Seismic Participation
Percentages"): Lonesome Dove - 45%, Southwestern - 20%, Braveheart - 15%, and
Cymraec - 20%. Each of the Seismic Partners hereby agrees to continue to pay its
Seismic Participation Percentage of the Reprocessing Fee on a timely basis, with
the next such payment due and payable March 11, 2002 for the calendar quarter
beginning April 1, 2002. Cymraec agrees to pay in full the quarterly payments
owing to Kelman by the fifteenth (15th) day of the month preceding the
commencement of each calendar quarter in accordance with the terms of the
Reprocessing Agreement (the "Kelman Payments").

      1.2   NO MODIFICATION. During the term of this Agreement, neither Channel,
nor Cymraec will assign, alter, modify, amend, terminate or cancel, or agree to
or permit any alteration, modification, amendment, termination or assignment of
any term or provision of the Seismic Agreement, the Reprocessing Agreement or
the License without all Parties' written consent. Any such assignment,
alteration, termination, modification or cancellation of any term or provision
of the Seismic Agreement, the Reprocessing Agreement and/or the License without
that consent shall be void and of no force or effect.

                                   ARTICLE II
                 PROSPECT IDENTIFICATION, PROPOSAL, AND ELECTION

      2.1   PROSPECT PROPOSAL. During the term of this Agreement, Cymraec shall
schedule weekly meetings at its principal place of business during its customary
business hours with Fortune, Prime, and those Seismic Partners who desire to
attend, either in person or by conference call, to fully apprise those Parties
as to the ongoing status of the reprocessing of the Seismic Assets and each
potential Prospect being prepared or reviewed. Either Fortune or Prime will be
selected as the operator pursuant to the provisions of Article III of this
Agreement for each area of specific acreage which has been reasonably identified
and recommended by Cymraec, utilizing the Seismic Assets, as having potential
viability for the production of oil and/or gas in sufficient quantities to

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recommend to the Parties the acquisition of oil and gas leases covering all or
portions of that acreage and the potential drilling of one or more oil and/or
gas wells thereon, and as to which Prime and Fortune, after their respective
review of Cymraec's recommendation concerning that acreage, have concurred with
Cymraec's recommendation (a "Prospect").

      2.1.1 When a Prospect has been selected, the Party (i.e., Prime or
Fortune) designated as the operator of that Prospect (the "Operator") will, at
each of the weekly meetings occurring after that designation, present an
operational update as to the actions undertaken or proposed to be undertaken by
the Operator to prepare the Prospect for oil and gas exploration and
development. Among the items to be discussed by all Parties in attendance at
each weekly meeting are the activities needed to prepare a prospect for
drilling, principally, the need for the acquisition of additional seismic data
by either licensing and reprocessing existing data or acquiring and processing
proprietary data (which shall not be acquired and billable to the Parties
without the prior written consent of the Operator), the examination of land and
lease titles to determine properties available for lease or farmout, the
leasing of lands within the Prospect, the identification of potential drill
sites and potentially productive zones or formations within the Prospect and,
as applicable, the necessity of obtaining farmouts, mapping, easements, and
governmental and private party authorizations, licenses and permits.

      2.1.2 During at least one weekly meeting each calendar month, Cymraec and
the applicable Operator shall provide the Seismic Partners with a status report
concerning each Prospect for which an Operator has been selected. The monthly
status report shall, in addition to other matters, identify each Prospect which,
in the sole discretion, judgment and opinion of the Operator, is at that time a
viable and drillable prospect for which sufficient preparatory work has been
performed and developed (including the acquisition of oil and gas leases) so as
to warrant the expenditure of additional funds preparatory to the drilling of an
oil or gas well in the Prospect ("Prepared Prospect"). At such time as the
Operator deems appropriate, an authorization for expenditure ("AFE") of the
costs associated with the drilling and completion of the initial well in a
Prepared Prospect shall be presented to all Parties together with a written
report identifying in reasonable detail (i) the work performed and the actions
taken to date by the Operator to prepare the Prospect for the possible drilling
of the initial oil or gas well thereon, (ii) all "Prospect Costs," as that term
is defined in this Section 2.1.2, theretofore incurred by the Operator in
connection with the development of the Prospect, (iii) the Operator's
recommendation for and estimate of the cost of any additional work or actions to
be undertaken before drilling can commence, and (iv) to the extent identifiable,
potential well locations and target formation(s) in that Prospect ("Prospect
Proposal"). Wherever used in this Agreement, the term "Prospect Costs" shall
mean all out-of-pocket costs incurred by the Operator that are associated with
the generation of a Prospect, including, without limitation, (i) lease
acquisition cost, (ii) bonus, delay rental and shut-in royalty

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payments, (iii) the cost of third-party brokerage work, (iv) the cost of
acquiring or obtaining digital landgrids, non-Exxon seismic data, velocity data,
data or document reproduction, digital well data, well logs, map information,
aerial photographs, and scout services, the cost of third party analytical
reports, and (vi) the cost of regulatory approvals, permits and licenses.
Prospect Costs shall not include the Operator's administrative overhead cost.
The AFE shall set forth the Operator's estimate of dry hole costs for the
proposed well and other costs properly chargeable at that time under the
applicable operating agreement covering the Prepared Prospect ("AFE
Pre-Completion Costs"). The AFE shall also set forth the Operator's estimate of
completion costs for the proposed well.

      2.1.3(a) Each Prospect Proposal shall offer each Party (except Channel)
the option to acquire a working interest in that Prospect thereby entitling each
such Party to a working interest in each oil and gas lease or other leasehold
cost bearing interest which is an "AMI Dedicated Interest" (as that term is
defined in Article VI of this Agreement) acquired by the Operator in such
Prospect ("Prospect Working Interest"). Each Seismic Partner shall have an
election to acquire a Prospect Working Interest of up to one hundred percent
(100%) of that Seismic Partner's Prospect Working Interest, which shall equal
one-half (1/2) of that Seismic Partner's Seismic Participation Percentage
(herein referred to collectively as the "Seismic Partners' Prospect Working
Interest" and, individually, as a Seismic Partner's Prospect Working Interest).
Each Prospect Proposal shall offer Prime and Fortune the right to each elect to
participate in a Prospect for twenty-five percent (25%) Prospect Working
Interest.

      2.1.3(b) All AMI Dedicated Interests are subject to (i) the Seismic ORRIs,
as that term is defined in this Section 2.1.3(b), and (ii) all royalties,
overriding royalties, net profits interests, production payments, and back-ins
burdening those leases as of the date those leases are acquired by a Party or
otherwise created pursuant to the terms of this Agreement. In accordance with
Section 6.2 and 6.3 of this Agreement, all AMI Dedicated Interests acquired by a
Party shall be offered and transferred to the Parties accepting that offer
without any burden created in favor of the acquiring Party or any Affiliate of
the acquiring Party. Wherever used in this Agreement, the term "Seismic ORRIs"
shall mean the Cymraec ORRI, as that term is defined in Section 2.3 of this
Agreement and the MSLLC ORRI, as that term is defined in Section 7.3 of this
Agreement.

      2.1.4 If the Operator acquires less than one hundred percent (100%) of the
total working interest or leasehold cost bearing interest in any AMI Dedicated
Interest, the percentage working interest that the Seismic Partners may acquire
in that AMI Dedicated Interest shall be proportionately reduced in relation to
the total percentage working interest acquired by the Operator in each such
lease or other working interest. For example, if, at the time a Prospect
Proposal is made, the Operator had acquired eighty percent (80%) of the total
working interest in

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an oil and gas lease which is an AMI Dedicated Interest covering lands in the
Prospect, the working interest in that lease to be assigned to each Seismic
Partner which acquired a Prospect Working Interest in the Prospect shall be
limited to no more than fifty percent (50%) of its Seismic Participation
Percentage of that eighty percent (80%) working interest. Each Party which
elects to participate in a Prospect shall be entitled to obtain its
proportionate share (based upon its percentage working interest in the Prospect)
of all AMI Dedicated Interests thereafter acquired by a Party in that Prospect
in accordance with the terms of Article VI of this Agreement, but subject to the
applicable terms of the Operating Agreement, if any, covering that Prospect.

      2.1.5 Upon twenty-four (24) hours prior notice, any Seismic Partner may
inspect and review any information in Cymraec's or the Operator's possession
regarding the Prospects, including any information as to title. The inspection
shall occur during normal business hours at the office or location where that
information is located.

      2.2   SEISMIC PARTNERS' PROSPECT ELECTION. Each Seismic Partner shall have
fifteen (15) calendar days following its receipt of a Prospect Proposal to
deliver to the Operator its unequivocal written election as to whether it will
participate in the Prospect (the "Prospect Proposal Election"). Each Prospect
Proposal Election made by a Seismic Partner shall (i) specify the size of the
working interest, if any, that the Seismic Partner elects to take in the
Prospect, based upon the Parties owning one hundred percent of all working
interest in the Prospect, (ii) include that Seismic Partner's payment of its
share of all Prospect Costs as specified in the Prospect Proposal based upon its
Seismic Partner's Prospect Working Interest, and (iii) include that Seismic
Partner's payment of its share of all AFE Pre-Completion Costs based upon its
working interest ownership in the proposed well. Except as otherwise provided in
this Agreement, all Prospect Costs shall be borne by each Party which elected to
participate as a working interest owner in the Prospect in accordance with the
decimal interest obtained by dividing its working interest (excluding all
back-in after payout interests) in the Prospect by the aggregate working
interests (excluding all back-in after payout interests) of all Parties which
elected to participate as working interest owners in the Prospect. All costs
properly chargeable under the terms of the applicable Operating Agreement shall
be borne, except as otherwise provided in this Agreement with respect to
"Non-Participating Seismic Partners," as that term is defined in Section 2.2.1
of this Agreement, by the working interest owners in that well in accordance
with their respective pro rata share of electing interests in accordance with,
and as specified in, the applicable Operating Agreement covering that proposed
well.

      2.2.1 The failure of any Seismic Partner to deliver its unequivocal
Prospect Proposal Election to the Operator and to pay its share of the Prospect
Costs and the AFE Pre-Completion Costs set forth in the Prospect Proposal within
the 15-day period provided for in Section 2.2 of this

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Agreement shall be conclusively deemed to be an election by that Seismic Partner
to not participate in the Prospect. In the event any Seismic Partner elects (or
is deemed to have elected) not to participate in a Prospect ("Non-Participating
Seismic Partner"), such Non-Participating Seismic Partner shall, except with
respect to the "Non-Participating Seismic Partner's BIAPO," as that term is
defined in this Section 2.2.1, no longer have any right to participate in such
Prospect and that right shall be acquired or retained equally by Fortune and
Prime as provided in Section 2.2.3 of this Agreement. As compensation for that
right, each Non-Participating Seismic Partner shall be assigned a back-in after
payout working interest in the AMI Dedicated Interests covering lands located in
the Prospect, which are then or thereafter owned by the Parties, equal to 12.5%
of its non-participating Seismic Partner's Prospect Working Interest (the
"Non-Participating Seismic Partner's BIAPO"). The Non-Participating Seismic
Partner's BIAPO shall be subject to the Seismic ORRIs and all other burdens
thereon existing as of the date each such AMI Dedicated Interest is acquired by
a Party, except as otherwise provided in this Agreement. For example, if the
Operator acquires ninety percent (90%) of the working interest in an oil and gas
lease (which is an AMI Dedicated Interest) covering lands in the Prospect, the
Non-Participating Seismic Partner's BIAPO in the lease shall equal 90%
multiplied by 50% multiplied by 12.5% multiplied by the Seismic Participation
Percentage of that Non-Participating Seismic Partner. The Non-Participating
Seismic Partner's BIAPO shall be borne solely out of and burden (in equal
shares) the working interest acquired or obtained by Prime and Fortune from or
attributable to that Non-Participating Seismic Partner as same may be
proportionally reduced by the Parties' aggregate working interest in each such
lease. The Non-Participating Seismic Partner's BIAPO shall not burden the
Operators' Base 50% Working Interest or (ii) the working interest of any other
Seismic Partner in any Prospect.

      2.2.2 In the event any Seismic Partner elects to participate in a Prospect
at a working interest level which is less than its total Seismic Partner's
Prospect Working Interest (a "Partially Participating Seismic Partner"), such
Partially Participating Seismic Partner shall be assigned a back-in after payout
working interest in the AMI Dedicated Interests then or thereafter owned by the
Parties participating in the Prospect equal to 12.5% of the difference between
that Seismic Partner's Prospect Working Interest offered in the Prospect
Proposal and the working interest in that Prospect actually selected by the
Partially Participating Seismic Partner for participation in that Prospect (as
such interest is proportionately reduced by the aggregate working interest
acquired by the Parties in said lease), and shall be subject to the Seismic
ORRIs and all other burdens thereon existing as of the date each such lease was
acquired by a Party. Any back-in after payout working interest assigned to a
Partially Participating Seismic Partner pursuant to this Section 2.2.2 shall be
subject to the restrictions and limitations set forth in Section 2.2.7 for
Non-Participating Seismic Partners and Partially Participating Seismic Partners.

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      2.2.3 In the event any Seismic Partner elects or is deemed to have elected
not to participate in a Prospect, or elects to participate in a Prospect at less
than the full working interest in the Prospect to which it could have elected
(i.e., the Seismic Partner's Prospect Working Interest), the Seismic Partner's
participation rights in the Prospect and the AMI Dedicated Working Interest
which that Seismic Partner did not elect to acquire shall, except as provided in
Section 2.2.6, be acquired or retained, as applicable, equally by Fortune and
Prime, subject only to (i) the applicable back-in after payout working interest
provided for in Section 2.2.1 or 2.2.2 of this Agreement, (ii) the Seismic
ORRIs, and (iii) the other burdens existing thereon as of the date of the
election. Thereafter, Fortune and Prime shall be free to deal with such acquired
interest in the Prospect for their own accounts or sell or farmout all or any
portion of those interests as they deem appropriate in their respective sole
discretion, subject only to an obligation to preserve and convey the appropriate
Non-Participating Seismic Partner's BIAPO working interest prior to the spudding
of the initial oil or gas well in the Prospect in question to the applicable
Seismic Partner(s).

      2.2.4 Subject to the prior satisfaction of all "Mandatory Drilling
Conditions Precedent," as that term is defined in Section 2.2.6, the Operator
shall drill the oil or gas well proposed in each Prospect Proposal within a
"Reasonable Time" (as that term is defined in this Section 2.2.4) after the
submission to the Parties of the Prospect Proposal and the lapse of all election
periods pertinent to the Parties' (except Channel) participation or
non-participation in the proposed Prospect and the drilling of the initial oil
or gas well in that Prospect. After the submission of a Prospect Proposal, all
further oil and gas and related operations on and development of such Prospect
shall be conducted in accordance with a joint operating agreement in
substantially the form as that attached hereto as Exhibit "C" ("Operating
Agreement"). Wherever used in this Agreement, the term "Reasonable Time" shall
mean, as applicable, such period of time that a similarly situated, reasonably
prudent operator of oil and gas exploration and development properties, acting
in good faith and in consideration of all then existing or reasonably
anticipated circumstances, would allow to lapse before performing the matter in
question. Factors to be considered in determining whether a Reasonable Time has
lapsed include the percentage of leasehold working interest ownership acquired
in the Prospect by the Operator, the adequacy or quality of title to those
interests, the identification of a specific well location and target formations
in the Prospect, the receipt of all required governmental and private party
authorizations and consents, rig availability and cost, current and projected
product pricing, the availability of pipeline or storage and transporting
facilities (if pertinent), the productive potential of the Prospect relative to
other Prospects then being considered for development, and such other factors
that a reasonably prudent operator would consider under similar circumstances.

      2.2.5 Prior to the commencement of the initial oil and gas well in a
Prospect, each Party which is a working interest participant in the Prospect,
including, without limitation, each Party

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having a back-in or reversionary interest in the Prospect shall execute an
Operating Agreement covering that Prospect.

      2.2.6 Notwithstanding anything contained in this Agreement or the
applicable Operating Agreement to the contrary, Prime and Fortune shall not be
obligated to drill and/or participate as working interest participants in any
initial oil or gas well drilled in a Prospect pursuant to this Agreement until
(i) a Prospect Proposal covering that well has been prepared and circulated by
the Operator to all Seismic Partners and Prime or Fortune, as applicable, and
(ii) the Seismic Partners have (a) contractually committed to acquire or obtain
one hundred percent (100%) of the aggregate Seismic Partners' Working Interest
in that Prospect, (b) paid their share of the Prospect Costs and AFE
Pre-Completion Costs specified in the Prospect Proposal, and (c) contractually
committed to participate in and pay the cost of the drilling of that well with
one hundred percent (100%) of the aggregate Seismic Partners' Working Interest
(the "Mandatory Drilling Conditions Precedent"). Except as provided in the
immediately preceding sentence, neither Prime nor Fortune shall be obligated to
drill or participate in any oil or gas well in a Prospect until it affirmatively
elects to do so. If one or more of the Seismic Partners is a Non-Participating
Seismic Partner or a Partially Participating Seismic Partner as respects a
Prospect, then Prime and/or Fortune may (in its or their sole discretion) elect
(i) to assume the working interests of the Non-Participating Seismic Partners
and Partially Participating Seismic Partners in the Prospect subject to the
back-in after payout working interest retained by each Non-Participating Seismic
Partner and Partially Participating Seismic Partner, all as more particularly
provided in Section 2.2.1 and 2.2.2 of this Agreement, as applicable, and (ii)
to proceed with the development of the Prospect, including, without limitation,
drilling, or causing the drilling of, an oil or gas well therein or, if one or
both so desire (in its or their sole discretion) and are able, through farmout
or other arrangement, to arrange for the drilling or acquisition of those
Seismic Partners' Working Interests by a third party on terms which require the
third party to bear (i) the Seismic Partners' back-in interest described herein
and (ii) the Seismic Partners' share of the Seismic ORRIs.

      2.2.7 Upon the occurrence of payout of a Prospect, each Non-Participating
Seismic Partner and each Partially Participating Seismic Partner, as respects
its back-in after payout interest, shall thereafter be (i) required under the
terms of the applicable Operating Agreement to make an election to participate
or not participate as a working interest participant in each subsequent
operation undertaken by one or more working interest owners in that Prospect
(including, without limitation, the drilling of any additional well or wells in
the Prospect, and the reworking, recompletion, plugging back, and deepening of
any existing wells in the Prospect), all as more particularly provided in the
Operating Agreement, and (ii) subject to the non-consent provisions of the
Operating Agreement with respect to each such election, all as more particularly
provided in the Operating Agreement.

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      2.2.8 For purposes of this Agreement, a "Producing Prospect" is any
Prospect in which either or both Prime and Fortune are working interest
participants pursuant to the terms of this Agreement in a producing oil or gas
well located on acreage within that Prospect including, without limitation, any
oil or gas well for which neither Prime nor Fortune are the designated operator
thereof. For purposes of this Agreement, a "Non-Producing Prospect" is any
Prospect satisfying the description of a Prospect in clause (ii), (iii) or (iv)
of the next sentence. As respects (i) any Cymraec recommendation for a Prospect
as to which Prime and Fortune do not concur (an "Operator Rejected Prospective
Prospect"), (ii) any Prospect (except a Producing Prospect) that Fortune and
Prime have informed Cymraec and the Seismic Partners that neither Prime nor
Fortune will perform any additional services or work with respect to that
Prospect, (iii) any Prospect (except a Producing Prospect) as to which neither
Prime nor Fortune has performed additional services or work that a reasonably
prudent operator under the same circumstances would have performed to develop
that Prospect as a drilling prospect, or (iv) any Prospect (except a Producing
Prospect) that the Operator thereof has not commenced the drilling of an oil or
gas well therein within a Reasonable Time after making the Prospect Proposal, a
Seismic Partner may, at its sole election, notify Prime and Fortune in writing
("Notification Letter") of its desire to assume Prime and Fortune's rights,
obligations, and undertakings with respect to that Operator Rejected Prospective
Prospect or that Non-Producing Prospect ("Proposed Assumption").

      2.2.9 As respects each Non-Producing Prospect, the Notification Letter
shall set forth in detail and with specificity the bases for the Proposed
Assumption. The Operator shall have twenty (20) days from the day of its receipt
of the Notification Letter to deliver a written response to each Seismic Partner
that sent or signed a Notification Letter informing that Seismic Partner whether
or not the Operator consents to the Proposed Assumption (the "Operator Response
Letter").

      2.2.10 As respects each Non-Producing Prospect for which the Operator
consents to the Proposed Assumption and as respects each Operator Rejected
Prospective Prospect, Fortune and Prime shall, at the request of any Seismic
Partner and upon Fortune and Prime's receipt of all Prospect Costs and all AFE
costs, incurred by Prime and Fortune in connection with that Non-Producing
Prospect or Operator Rejected Prospective Prospect, release any and all rights
which Fortune and Prime may have arising under this Agreement with respect to
that Non-Producing Prospect or Operator Rejected Prospective Prospect to the
Seismic Partners. The Seismic Partners shall thereafter be free to deal with
such Non-Producing Prospect or Operator Rejected Prospective Prospect for their
own account, but shall not utilize Cymraec or one or more of its principals to
market or perform any other task with respect to such Non-Producing Prospect or
Operator-Rejected Prospective Prospect without the written consent of Prime and
Fortune, which may be withheld for any reason. It being understood and agreed by
the Parties that Cymraec and its

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principals shall devote all their respective expertise and Business Time (as
hereinafter defined) to the matters provided in this Agreement for their
respective performance.

      2.2.11 If the Operator does not consent to a Proposed Assumption of a
Non-Producing Prospect, the Operator Response Letter shall either set forth
therein (i) that the Operator will promptly undertake and diligently prosecute
all actions reasonably necessary to perform the matters set forth in the
Notification Letter and to provide the Seismic Partners on a weekly basis with a
status report of the actions undertaken and performed by the Operator to date
with respect to those matters ("Action Response"), or (ii) the specific reasons
why the Operator disputes the claims or matters set forth in the Notification
Letter ("Rejected Assumption"). If the Operator Response Letter contains an
Action Response but neither Prime nor Fortune promptly undertake and diligently
prosecute all actions reasonably necessary to perform the matters set forth in
the Notification Letter ("Inadequate Action Response"), then Fortune and Prime
shall, at the request of any Seismic Partner and upon Fortune and Prime's
receipt of all Prospect Costs, and all AFE costs, incurred by Prime and Fortune
in connection with that Non-Producing Prospect, release any and all rights which
Fortune and Prime may have arising under this Agreement with respect to that
Non-Producing Prospect to the Seismic Partners.

      2.2.12 If the Operator Response Letter contains a Rejected Assumption but
a majority of the Seismic Partners (as determined by their aggregate Seismic
Participation Percentages) do not reasonably believe that the Operator's bases
for the Rejected Assumption satisfy the Reasonable Time and reasonably prudent
operator standards provided in this Agreement for the discharge of those
obligations, the Seismic Partners and the Operator shall submit the matter to
binding and conclusive arbitration to be conducted before a single neutral
arbitrator of the American Arbitration Association in Houston, Texas in
accordance with the Commercial Arbitration rules of the American Arbitration
Association. The arbitrator shall have extensive experience in connection with
the exploration, drilling and operation of oil or gas properties, and the
prevailing party, as determined by the arbitrator shall be entitled to its
reasonable attorneys' fees and other costs incurred in connection with the
arbitration.

      2.2.13 In the event any Seismic Partner desires to take over Fortune and
Prime's interest in any Operator Rejected Prospective Prospect or any
Non-Producing Prospect for which the Operator (i) has consented to the Proposed
Assumption, (ii) has performed an Inadequate Action Response, or (iii) is not
the prevailing party in any arbitration proceeding concerning the Rejected
Assumption, it shall notify, in writing, the other Seismic Partners of such
desire. The Seismic Partners shall be entitled to take over such Operator
Rejected Prospective Prospect or Non-Producing Prospect pro rata according to
their Seismic Participation Percentage as compared to the Seismic Participating
Percentage of other Seismic Partners wishing to do so. Any Seismic Partner
desiring to participate

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in taking over Prime and Fortune's interest shall tender the required monies to
the notifying Seismic Partner within fifteen (15) days of being notified by such
Seismic Partner that such an assumption is proposed. Failure to tender such
monies shall be conclusively deemed to be an election by that Seismic Partner
not to participate in the assumption of Fortune and Prime's interest in the
Operator Rejected Prospective Prospect or Non-Producing Prospect.

      2.3   CYMRAEC OVERRIDING ROYALTY INTEREST. Before the spudding of the
initial oil or gas well in a Prospect, the Operator shall assign Cymraec an
overriding royalty interest in each AMI Dedicated Interest (which is a leasehold
cost bearing or working interest) covering lands in the Prospect. The overriding
royalty interest to be assigned to Cymraec shall be derived from an 8/8ths
working interest in that AMI Dedicated Interest, calculated under the terms of a
sliding scale attached hereto and incorporated herein by reference for all
purposes as Exhibit "D" (the "Cymraec ORRI"). The Cymraec ORRI shall be free and
clear of all pre-production and production costs whatsoever, but shall bear its
proportionate share of any post-production costs, including, but not limited to,
gathering, processing, compression, dehydration, treating, and transportation
costs, and shall bear its proportionate share of all ad valorem, severance,
production and other taxes. The Cymraec ORRI shall not be subject to any
internal overhead charges or internal fee for services provided by the Operator.
The Cymraec ORRI shall be referenced in each Operating Agreement. The Operator
shall execute an assignment of the Cymraec ORRI to Cymraec prior to making an
assignment of any other interest in an AMI Dedicated Interest to any Party. The
Cymraec ORRI shall burden each Party's working interest in each oil and gas
lease (which is an AMI Dedicated Interest) in every Prospect in which that Party
is to be assigned an interest, but shall be proportionately reduced in
accordance with the Parties' aggregate ownership interest in each lease and
further proportionately reduced in accordance with the total ownership interest
that lease bears to the total ownership in the lands covered thereby. The
Cymraec ORRI shall be assigned to Cymraec using the form of the "ORRI
Assignment" attached hereto as Exhibit "E."

      2.4   CYMRAEC BACK-IN WORKING INTEREST. Before the spudding of the initial
well in a Prospect, the Operator shall assign to Cymraec a back-in working
interest after payout in each AMI Dedicated Interest (which is a leasehold cost
bearing or working interest) covering lands in the Prospect which is equal to
12.50% of the Operators' Base 50% Working Interest in each such lease
("Cymraec's Back-in Working Interest"). Such assignment shall be made utilizing
the form of assignment attached hereto as Exhibit "F". Cymraec's Back-in Working
Interest shall be borne solely (in equal proportions) out of the Operators' Base
50% Working Interest and shall not burden any working interest acquired or
retained by Prime and/or Fortune that is attributable to a Non-Participating
Seismic Partner or a Partially Participating Seismic Partner. By way of further
example, if all Seismic Partners, Prime and Fortune participate with their
respective total interests as working interest owners in the drilling and
completion of the initial well drilled in a Prospect and the Parties

                                       12
<PAGE>

own one hundred percent (100%) of all working interest or leasehold cost bearing
interest in the Prospect, then the after payout working interest of the Parties
in that well would be Prime - 21.875%, Fortune - 21.875%, all Seismic Partners -
50%, and Cymraec - 6.25%. Cymraec's Back-in Working Interest in each such AMI
Dedicated Interest shall be proportionately reduced in accordance with the
proportionate reduction, if any, of the Operators' Base 50% Working Interest in
accordance with Section 3.1 of this Agreement. Any successors and/or assigns of
Fortune and/or Prime shall take their interests subject to Cymraec's Back-in
Working Interest. Cymraec's Back-in Working Interest shall be referenced in each
Operating Agreement.

      2.5   Payout. Wherever used in this Agreement, with respect to any
Prospect, the term "payout" shall be defined as the first point in time after
the first commercially productive oil or gas well in the Prospect has been
drilled and completed when the Party designated as the operator of that
Prospect shall have recovered out of the proceeds attributable to its net
revenue interest from the sale of production from or attributable to, or the
salvage of any of the personal property, fixtures or equipment on, all then
existing oil and gas wells drilled on lands included in the Prospect pursuant
to the terms of this Agreement, net of all gross production, ad valorem or
other taxes measured by production, a sum equal to all unreimbursed costs
incurred by the operator in connection with the development, exploration,
operation and identification of the Prospect, including, without limitation,
the unreimbursed (i) Prospect Costs, (ii) AFE Pre-Completion Costs, (iii) the
operator's share of the payment made to Thorp pursuant to Section 3.1.1(a) of
this Agreement, (iv) the operator's share of the production payment made to
Thorp pursuant to Section 3.1.1(f) of this Agreement, and (v) costs incurred in
connection with the drilling, testing, equipping, completing and operating
(including, without limitation, direct, indirect and the applicable COPAS
overhead fee) oil and gas wells in the Prospect and other facilities,
appurtenances, equipment, and machinery related to the development of the
Prospect, including, without limitation, disposal, injection and water wells;
storage, dehydration and compression facilities and equipment; and flow lines
and pipelines.

                                   ARTICLE III
                  DESIGNATION AND RESPONSIBILITIES OF OPERATOR
                  --------------------------------------------

      3.1   Fortune or Prime, as determined pursuant to the provisions of the
Operations Sharing Agreement, shall act as the operator of all Prospects. In
addition to the interests in AMI Dedicated Interests acquired, obtained or
retained pursuant to the terms of this Agreement by Prime and/or Fortune from
Non-Participating Seismic Partners and Partially Participating Seismic Partners,
Prime and Fortune shall each be entitled to acquire, obtain or retain an
undivided twenty-five percent (25%) interest in each AMI Dedicated Interest
acquired in each Prospect (the "Operators'

                                       13
<PAGE>

Base 50% Working Interest"). The Operators' Base 50% Working Interest shall be
proportionally reduced (as shall all Parties' interests) in accordance with the
Parties' aggregate ownership in each such AMI Dedicated Interest and further
proportionally reduced in accordance with the total ownership that such AMI
Dedicated Interest bears to the total fee mineral ownership in the lands covered
by that AMI Dedicated Interest. The relationship between the Parties regarding
the acquisition of AMI Dedicated Interests and the drilling, development, and
operation of oil and gas wells on each Prospect shall be governed by an
Operating Agreement, except to the extent inconsistent with the terms of this
Agreement, in which event the terms of this Agreement shall control. Whenever
Prime is the designated Operator of a Prospect, Prime Operating Company shall be
designated as the operator in the Operating Agreement covering that Prospect,
and Prime Operating Company shall be responsible for discharging the operator's
undertakings provided in the Operating Agreement.

      3.1.1 In addition to the payment of their respective share of the costs of
drilling, development, and operation as provided for in the applicable Operating
Agreement, Fortune and Prime as provided in Exhibit "A", each agree, severally
but not jointly, as respects its obligations only, as follows:

            (a) to pay Twenty-Five Thousand Dollars ($25,000) to Thorp upon the
      last to occur of (i) the termination of that certain Joint Exploration
      Agreement dated February 22, 2001, (the "Thorp Agreement"), by and among
      Thorp, Cymraec, et al., by all the parties thereto, (ii) the execution and
      delivery of that certain Settlement Agreement dated February ___, 2002
      (the "Settlement Agreement"), by and among Thorp, Cymraec, et al., and
      (iii) their receipt of Thorp's release (in form and substance satisfactory
      to Prime and Fortune) of any and all claims, causes of action and choses
      in action that Thorp has, may have or could assert against one or more of
      the other parties to the Thorp Agreement, Prime and/or Fortune with
      respect to their respective negotiations, discussions, and agreements
      concerning the Seismic Assets and the exploration, development, and
      operation of prospects generated in connection therewith. The matters
      described in clauses (i), (ii) and (iii) of the immediately preceding
      sentence shall be hereinafter referred to as the "Conditions Precedent."

            (b) to pay Cymraec one-half (1/2) of all actual out-of-pocket
      administrative overhead expenses incurred by Cymraec in connection with
      its and its principals'

                                       14
<PAGE>

       performance of their respective obligations under this Agreement
      (excluding any expenses related to the Kelman Payments) for the period
      February 1, 2002 through April 30, 2002 ("Initial Overhead Payments"), in
      accordance with this Article III (i.e., on a calendar month basis), upon
      satisfaction of all the Conditions Precedent and upon the submission to
      Prime and Fortune of complete and accurate documentation substantiating
      those expenses. In no event shall either Prime or Fortune be required or
      obligated to pay more than Sixty Two Thousand Five Hundred Dollars
      ($62,500) with respect to the Initial Overhead Payments.

            (c) upon satisfaction of all the Conditions Precedent, to reimburse
      Thorp an amount, to be determined as provided for in Section 3 of the
      Settlement Agreement, for a portion of Thorp's prospect lease acquisition
      costs, Tobin Data costs, and seismic costs associated with any of the
      "Selected Prospects" (as that term is defined in the Settlement
      Agreement), in return for Thorp's assignment of all right, title and
      interest in and to all oil, gas and mineral leases acquired to date by
      Thorp pursuant to or in connection with the Thorp Agreement or the Seismic
      Assets (all as provided for in the Settlement Agreement). The assignment
      shall be in form and substance satisfactory to Prime and Fortune, and
      contain a special warranty of title.

            (d) upon satisfaction of all the Conditions Precedent, and at such
      time Prime chooses to continue and otherwise not exercise its Initial
      Termination Right (as provided under this Article III) Prime shall pay
      Cymraec Seventy-Seven Thousand Nine Hundred Twenty-Four and 23/100 Dollars
      ($77,924.23), as payment in full of Prime's share of Cymraec's
      out-of-pocket administrative overhead costs for the period October 1, 2001
      through January 31, 2002 (the "Unpaid Overhead Costs").

            (e) upon satisfaction of all the Conditions Precedent are satisfied,
      Fortune shall pay Cymraec Seventy-Seven Thousand Nine Hundred Twenty-Four
      Dollars and 23/100 Dollars ($77,924.23) no later than May 1, 2002, as
      payment in full of Fortune's share of the Unpaid Overhead Costs.

            (f) upon satisfaction of all the Conditions Precedent, to convey to
      Thorp (pursuant to an instrument in the form and substance attached hereto
      as Exhibit "F") a production payment of Fifty Thousand Dollars ($50,000)
      payable, as provided in the Thorp Production Payment Agreement, out of
      certain net proceeds attributable to the interests of

                                       15
<PAGE>

      Fortune and Prime in Prospects generated in connection with the activities
      contemplated by this Agreement.

      3.2   All Parties agree and understand that neither Prime nor Fortune's
failure to perform any undertaking or obligation provided for its undertaking
pursuant to this Agreement or any Operating Agreement (including, without
limitation, its failure to pay any amount provided for its payment under this
Agreement) shall entitle any other Party to terminate this Agreement as respects
any non-breaching Party or to seek any redress, right or claim against any
non-breaching Party with respect to that breach or default.

      3.3   Notwithstanding any other provision of this Agreement to the
contrary, Prime, at its sole election and discretion, may elect, at any time
from May 1, 2002 through May 10, 2002, to terminate all its rights and
obligations under this Agreement, except as otherwise provided in this
Section 3.3 ("Initial Termination Right"). Such election shall be given in
writing to Cymraec, Fortune, and each of the Seismic Partners ("Termination
Notice"), and shall be effective as of April 30, 2002. If Prime does not
exercise its Initial Termination Right, Prime shall have an identical right
during the remainder of calendar year 2002 to terminate all its rights and
obligations under this Agreement, except as otherwise provided in this
paragraph, by delivering the Termination Notice (as provided in the second
sentence of this Section 3.3) on any day from the first through the tenth day
of any calendar month during 2002, beginning June 1, 2002, and such termination
shall be effective on the last day of the calendar month immediately preceding
the date of the Termination Notice (the "Monthly Termination Right"); provided,
however, that the Monthly Termination Right shall cease at such time as Fortune
has notified Prime, and Prime has verified to its reasonable satisfaction, that
Fortune has obtained and received at least Three Million Dollars ($3,000,000)
gross funds by virtue of a private placement offering currently underway.
Thereafter, whether or not Fortune has successfully raised such funds, Prime
shall have a one-time election, exercisable by delivering a Termination Notice
as provided for in this Section 3.3 on any day from December 20, 2002 through
December 31, 2002, which shall be effective as of December 31, 2002, to
terminate all its rights and obligations under this Agreement, except as
otherwise provided in this Section 3.3. In the event Prime elects, at any time
provided for in this Section 3.3, to terminate its participation under this
Agreement, it shall have no further rights, obligations, liabilities, or
undertakings under this Agreement from and after the effective date of that
termination, except such rights, obligations, liabilities and undertakings (i)
with respect to all

                                       16
<PAGE>

Prospects identified and recommended by Cymraec designated as such under this
Agreement and as to which Prime has concurred with that recommendation on or
before the effective date of Prime's election to terminate, (ii) arising in
connection with the breach of this Agreement by any other Party, and/or (iii)
attributable to Prime's breach of this Agreement prior to the effective date of
termination (all rights, obligations, liabilities, and undertakings described in
clauses (i), (ii) and (iii) of this sentence shall be hereinafter referred to as
the "Prime Vested Rights and Interests").

      3.4   If Prime exercises its termination rights provided in this
Agreement, Fortune shall, subject to Fortune's satisfaction of the conditions
set forth below, have the right to assume, farmout or otherwise deal with any
or all rights, interests, obligations and undertakings, not theretofore accrued
or incurred by Prime and which Prime would have otherwise received or obtained
under this Agreement (other than the Prime Vested Rights and Interests) if it
had not exercised its termination rights ("Prime's Assumable Rights and
Obligations") provided that, in the event Prime exercises its termination
rights, Fortune shall not have the right to assume Prime's Assumable Rights and
Obligations unless Fortune has obtained and received, (i) At the time of Prime's
termination, One Million Five Hundred Thousand Dollars ($1,500,000) in gross
funds by virtue of its private placement offering and related fund raising
currently underway, followed by an additional One Million Five Hundred Thousand
Dollars ($1,500,000) in "New Funds," as defined in this Section 3.4, within each
of the three 120-day periods immediately following Prime's termination, or (ii)
if Fortune has raised Three Million Dollars ($3,000,000) in such funds prior to
the date of Prime's termination, then an additional One Million Five Hundred
Thousand Dollars ($1,500,000) in each of the two 120-day periods immediately
following the date of Prime's termination. If Fortune successfully raises the
New Funds during the time periods specified in the preceding sentence, Fortune
shall be entitled to assume, farmout or otherwise deal with Prime's Assumable
Rights and Obligations for the remainder of the term of this Agreement. Prime's
Assumable Rights and Obligations do not include any of Prime's Vested Rights and
Interests. As used herein, the term "New Funds" shall include the total of (i)
the gross funds raised by Fortune by virtue of a private placement offering and
related fund raising currently underway, (ii) all funds expended by Prime in
furtherance of its obligations and rights hereunder prior to the effective date
of its termination, and (iii) gross proceeds attributable to Fortune's share of
the sale of production from any well drilled hereunder.

                                       17
<PAGE>

      3.4.1 Each Seismic Partner shall have the right to elect to acquire its
pro rata share of Prime's Assumable Rights and Obligations, exercisable only by
written notice delivered to Fortune within ninety (90) days following (i) the
effective date of Prime's termination, in the event Fortune has not by that date
raised the $1,500,000 provided for in item (i) of the first sentence of Section
3.4, above, or (ii) the expiration of each 120-day period provided in item (i)
or (ii) of the first sentence of Section 3.4, if Fortune fails to meet any of
the funding requirements provided in Section 3.4. The failure of any Seismic
Partner to elect to acquire such interest within such ten-day period shall be
conclusively deemed to be an election not to acquire such interest. Any interest
not acquired by a Seismic Partner shall be retained by Fortune and all of
Prime's Assumable Rights and Obligations shall vest in Fortune until such time
as a notice electing to acquire such interest is delivered by the Seismic
Partner making such election. All such interests acquired by a Seismic Partner
shall be treated for all purposes hereunder the same as an interest held by
Prime, provided, however, that all such interests shall be non-operating.
Thereafter, Fortune shall be the only Party eligible to be designated as an
Operator hereunder.

      3.4.2 It is agreed and understood by the Parties that if Prime elects to
terminate its participation under this Agreement in accordance with the terms of
this Agreement, Prime shall, nonetheless, retain and have the Prime Vested
Rights and Interests (e.g., any and all of its rights, interests, obligations,
and undertakings provided in this Agreement as respects each Prospect identified
or designated as a Prospect on or before the effective date of Prime's election
to terminate); provided that Prime's Vested Rights and Interests shall be
subject to all of the obligations, liabilities, and undertakings provided in
this Agreement as to Prime in the same manner, and to the same extent as if
Prime had not given its Termination Notice.

      3.5   Each calendar month during the term of this Agreement, Cymraec shall
deliver to Prime (if Prime has not exercised its termination rights provided in
this Agreement), Fortune and, if Prime has exercised its termination rights,
each Seismic Partner which has acquired any portion of Prime's Assumable Rights
and Obligations pursuant to Section 3.4 of this Agreement ("Seismic Partner
Electees"), a complete and accurate invoice detailing its actual out-of-pocket
unpaid administrative overhead expenses, including, without limitation,
salaries, employee benefits, rent, insurance, FICA, supplies, maintenance, geo
tech, communications, reproduction, and postage, but specifically excluding
digital land grids, digital well information, maps, well logs, digitizing work,
scout services, aerial photos, velocities, and reproduction, etc. which are to
be paid on a Prospect-

                                       18
<PAGE>

by-Prospect basis, incurred in connection with its undertakings pursuant to this
Agreement for the previous calendar month, together with substantiating
documentation reasonably acceptable to Prime, if applicable, Fortune and, if
applicable, the Seismic Partner Electee (if Prime has exercised its termination
rights). Prime (if it has not exercised its termination rights provided in this
Agreement), Fortune and each Seismic Partner Electee shall each have fifteen
(15) days from its receipt of the invoice and substantiating documentation to
pay its share of the amount billed in accordance with the terms of this
Agreement (e.g., prior to its exercise of its termination rights, Prime and
Fortune shall each pay one-half of these costs). If any such payment is not
received by Cymraec within fifteen (15) days of the receipt of the invoice,
Cymraec shall provide notice of that fact to the non-paying Party. Failure to
make payment within fifteen (15) days of the date of such notice shall be
considered as a material failure to perform hereunder on the part of the
non-paying Party. Any and all disputes concerning one or more of those invoices
shall be addressed and resolved in accordance with the applicable provisions of
the Operating Agreement attached hereto concerning billing disputes, inquiries
and rights with Cymraec being deemed as the "operator" and Fortune, Prime and,
if applicable, the Seismic Partner Electees being deemed as the "non-operators"
with respect to those matters. Fortune and Prime and, if applicable, the Seismic
Partner Electees shall have the right to audit and review Cymraec's records with
respect to any and all such invoices in accordance with the applicable
provisions of the Operating Agreement attached hereto concerning audits and
audit rights with Cymraec being deemed as the "operator" and Fortune and Prime
and, if applicable, the Seismic Partner Electees being deemed as the
"non-operators" with respect to those matters.

      3.6   For each month commencing after April 30, 2002 during the term of
this Agreement that Prime has not exercised its Initial Termination Right or its
other termination rights, Prime and Fortune shall, in addition to making the
Initial Overhead Payments, each pay on a monthly basis one-half (1/2) of all
actual out-of-pocket administrative overhead expenses incurred by Cymraec
through December 31, 2003, as provided in Section 3.5 of this Agreement. As
respects each month through December 31, 2003 after Prime has exercised its
termination right, Fortune and each Seismic Partner Electee shall pay on a
monthly basis all such administrative expenses incurred during such calendar
month, as provided in Section 3.5. In no event shall Cymraec be entitled to
receive more than One Hundred Twenty Five Thousand Dollars ($125,000) for its
actual administrative and out-of-pocket expenses incurred in any calendar
quarter during calendar year 2002 or 2003.

                                       19
<PAGE>

      3.7   This Agreement shall terminate, as to both Prime and Fortune, on
December 31, 2003 unless either Prime or Fortune notify Cymraec in writing on or
before December 1, 2003, of its election to extend this Agreement as to that
Party until June 30, 2004 ("Electing Operator"). Thereafter, each Electing
Operator shall have the right to extend its participation under this Agreement
as to that Electing Operator for additional consecutive six (6) calendar month
periods through December 31, 2005, by providing Cymraec with written notice of
that election as to that Electing Operator at least thirty (30) days before the
end of the then current six-month period. Thereafter, each Electing Operator
shall have the right to extend its participation under this Agreement as to that
Electing Operator through March 31, 2006, by providing Cymraec in writing of its
election on or before December 1, 2005. Neither Prime nor Fortune shall have the
right to extend their participation under this Agreement if, at the time its
election is made, it is in default in the payment of more than Five Thousand
Dollars ($5,000) required under this Agreement or is otherwise in default in any
material respect of this Agreement. As respects each period beyond December 31,
2003, that Prime and/or Fortune have elected to extend their participation under
this Agreement, this Agreement shall continue in full force and effect in
accordance with the provisions hereof and Prime and/or Fortune, in the
proportion specified in their notice of extension, shall remain obligated to pay
on a monthly basis the actual out-of-pocket administrative overhead expenses
incurred and substantiated by written documentation by Cymraec which are
directly related to its obligations under this Agreement, in an amount not to
exceed One Hundred Twenty Five Thousand Dollars ($125,000) in any calendar
quarter during the extended period. Upon termination of this Agreement, each
Party shall have and retain all rights, interests, benefits, obligations and
undertakings theretofore accrued or incurred prior to the date of termination of
this Agreement, including such Party's obligation to bear the Seismic ORRIs, and
Fortune and Prime's ongoing obligation to assign Cymraec's Back-in Working
Interest to Cymraec, all as more fully defined and described in this Agreement.

      3.8   Following the identification of a Prospect, the Operator shall,
subject to market conditions acceptable to the Operator, use its reasonable
efforts to acquire oil and gas leases (which are AMI Dedicated Interests)
covering lands in the Prospect and, if deemed advisable by the Operator, to make
one or more Prospect Proposals to the Parties concerning the development of the
Prospect within a Reasonable Time. The Operator shall pay all Prospect Costs
associated with the Prospect subject to reimbursement as provided in this
Agreement and will handle joint interest billing, control drilling, and oversee
oil and gas marketing in accordance with the Operating

                                       20
<PAGE>

Agreement. The Operator shall also bill Seismic Partners which elected to
participate in the Prospect on a quarterly basis for one-half (1/2) of the total
cost of all administrative work required in connection with miscellaneous
governmental and regulatory compliance and other matters properly incurred by
the Operator related to each Prospect Proposal for which it is the designated
Operator and which are not otherwise properly chargeable under the applicable
Operating Agreement. As respects any oil or gas well proposed to be drilled in a
Prospect by any person or entity which is not a Party, the designated Operator
of that Prospect shall coordinate and handle all matters for the Parties as
respects the proposed well, and act as an intermediary between the non-Party
operator and the other Parties.

      3.9   All undertakings and obligations of Fortune and Prime provided in
this Agreement, including, without limitation, the obligation to fund the
administrative expenses of Cymraec and to pay ongoing Prospect Costs, may, at
sole election of Fortune and Prime, be suspended whenever any other Party has
failed to perform any material obligation or undertaking of the Party in
accordance with this Agreement, including, without limitation, any failure by
Cymraec to timely make any payment to Kelman pursuant to the Reprocessing
Agreement or by any Seismic Partner to timely pay the Reprocessing Fee as
provided for in Article I of this Agreement. Such suspension shall be ended and
the obligation of Fortune and Prime hereunder shall resume at such time as all
such breaches and defaults have been cured to the reasonable satisfaction of
Prime and Fortune; provided, however, that Prime and Fortune (at their sole
election) may terminate this Agreement (but rightfully retain any and all
interests and rights theretofore accrued, including, without limitation, the
Prime Vested Rights and Interests, the Fortune Vested Rights and Interests and
all rights of indemnity arising hereunder which are included therein) if any
such breach of default has not been cured to the reasonable satisfaction of
Prime and Fortune within thirty (30) days after that breach or default has
occurred.

      3.10  A true and complete copy of the Settlement Agreement is attached
hereto as Exhibit "G." Each Party which is a party to the Settlement Agreement
hereby agrees and covenants not to assign any interest in, or to amend, modify,
revise or terminate, the Settlement Agreement, or release any other party
thereto from any obligation or undertaking under the Settlement Agreement, or
allow, permit or authorize any other party to the Settlement Agreement to assign
any interest in, or amend, modify, revise or terminate, the Settlement
Agreement, or release any other party thereto from any obligation or undertaking
under the Settlement Agreement, without in each of the

                                       21
<PAGE>

foregoing instances, first obtaining the prior written consent of all other
Parties. Any such assignment, amendment, modification, revision or termination
without first obtaining that consent shall be void and of no force or effect.

      3.11  If Prime or any Seismic Partner which has acquired any portion of
Prime's Assumable Rights and Obligations pursuant to Section 3.4 of this
Agreement fails in any material respect to perform any one or more of its
obligations and undertakings provided in this Agreement, the other Parties only
recourse against Prime or that Seismic Partner, as applicable, shall be to
terminate this Agreement as respects Prime or that Seismic Partner, as
applicable, and remove Prime or that Seismic Partner, as applicable, as a Party
to this Agreement, except, as respects Prime, with respect to Prime's Vested
Rights and Interests, and Prime's right to indemnification provided in Section
3.13 of this Agreement. Notwithstanding the immediately preceding sentence,
nothing shall preclude any Party from seeking and obtaining (i) specific
performance or damages as respects Prime's failure to assign or convey any
interest required to be conveyed or assigned by Prime pursuant to this Agreement
to any other Party or (ii) any legal or equitable relief with respect to any
material breach of any Operating Agreement by Prime or (iii) any losses or
damages (except consequential damages) incurred by any Party as a result of the
willful misconduct or gross negligence of Prime in discharging its obligations
and undertakings as Operator.

      3.12  If Fortune fails in any material respect to perform any one or more
of its obligations and undertakings provided in this Agreement, the other
Parties only recourse against Fortune shall be to terminate this Agreement as
respects Fortune and remove Fortune as a Party to this Agreement, except with
respect to Fortune's Vested Rights and Interests, and Fortune's right to
indemnification provided in Section 3.13 of this Agreement. Notwithstanding the
immediately preceding sentence, nothing shall preclude any Party from seeking
and obtaining (i) specific performance or damages as respects Fortune's failure
to assign or convey any interest required to be conveyed or assigned by Fortune
pursuant to this Agreement to any other Party or (ii) any legal or equitable
relief with respect to any material breach of any Operating Agreement by Fortune
or (iii) any losses or damages (except consequential damages) incurred by any
Party as a result of the willful misconduct or gross negligence of Fortune in
discharging its obligations and undertakings as Operator.

                                       22
<PAGE>

      3.13  Each Seismic Partner and Cymraec, severally but not jointly, hereby
agrees to indemnify, defend, and hold harmless Fortune and Prime against any and
all losses, costs, damages, expenses (including, without limitation, reasonable
attorneys' fees), which Fortune and/or Prime may suffer, sustain, incur or
become subject to, as result of, in connection with, or in any manner related
to, each and every breach of any representation, covenant, undertaking,
obligation or warranty made by that Party in this Agreement. The indemnification
provided in this Section 3.13 shall survive the termination of this Agreement
for a period of three (3) years and then be of no further force or effect,
except with respect to any claim for indemnity under this Section 3.13 made by
Fortune and/or Prime before the end of that 3-year period.

                                   ARTICLE IV
                        DUTIES AND OBLIGATIONS OF CYMRAEC
                        ---------------------------------

      4.1   Cymraec along with its three principals, Mike Looney ("Looney"),
Mike Graham ("Graham"), and Steve Zeboski ("Zeboski"), jointly and severally,
hereby covenant and agree to devote all of their respective expertise, and
Business Time to generate commercially reasonable and prudent potential
Prospects from the Seismic Assets for the sole benefit of all Parties. "Business
Time" as used in this Agreement shall mean: (i) during a normal week--fifty
(50) hours or (ii) on an annual basis--approximately two thousand two hundred
(2,200) hours. Looney, Graham and Zeboski each agree by their execution hereof
to devote such time and effort for the time period set forth in this Article IV
and acknowledge that their commitment made in this Agreement is one of the
principal reason that the Seismic Partners, Prime, and Fortune have agreed to
enter into this Agreement. Cymraec, Looney, Graham and Zeboski hereby represent
to the other Parties that their Prospect generation efforts will (i) occupy all
of their respective Business Time and (ii) continue through December 31, 2003
and any extension of this Agreement. Cymraec represents that it will diligently
target the generation of at least fifty (50) potential drillable Prospects prior
to December 31, 2003. Neither Cymraec nor any of its principals shall undertake
any business or commercial enterprise or activity except pursuant to the terms
of this Agreement or as disclosed on the attached Schedule 2, but, as respects
items one through four therein, subject to Prime and Fortune's prior written
approval, which may be withheld for any reason.

      4.2   Cymraec, Looney, Graham and Zeboski each hereby covenants, agrees
and represents to the other Parties that the current retainer payable during
each calendar month by Cymraec to Looney is $9,866.92, to Graham is $9,866.92
and to Zeboski is $9,866.92. At no time

                                       23
<PAGE>

during the term of this Agreement shall any invoice submitted to Prime and/or
Fortune for the payment of Cymraec's actual out-of-pocket administrative
overhead costs contain any charge for any retainer, salary, bonus, pension, and
retirement benefits or other compensation for Graham, Looney and/or Zeboski for
any calendar month in excess of the compensation provided in the immediately
preceding sentence for any such employee or principal. The preceding sentence
notwithstanding, the Parties acknowledge that Cymraec's actual out-of-pocket
costs for health insurance benefits (providing the same or similar coverage) and
FICA and Medicare taxes may increase during the term of this Agreement and such
increases will be passed through as an increase in reimbursable administrative
overhead costs, subject to the prior written consent of Prime and Fortune, which
will not be unreasonably withheld or delayed.

      4.3   In the event Looney, Graham and Zeboski cease devoting all of their
Business Time and effort (except in the instance of disability, death, mental
incapacity or an act of God) to the delineation of potential Prospects pursuant
to the terms of this Agreement prior to the termination of this Agreement, all
back-in working interests that would have otherwise been thereafter assigned to,
or reserved for, Cymraec pursuant to the provisions of this Agreement, shall,
from and after the date of the last principal's cessation of those duties
instead be assigned to Prime and Fortune in such proportions as their respective
working interests in the Prospect in question bear to one another, and all
overriding royalty interest that would have otherwise been thereafter assigned
to, or reserved for, Cymraec pursuant to the provisions of this Agreement shall,
from and after the date of the last principal's cessation of those duties,
instead be assigned to all the Parties in such proportions as their respective
working interests in the Prospect in question bear to one another. Prime and
Fortune shall each have the right to terminate its participation in this
Agreement within thirty (30) days after Looney, Graham, and/or Zeboski ceases
devoting all of his Business Time and effort to the delineation of potential
Prospects pursuant to the terms of this Agreement or, immediately, in the event
of any breach of this Agreement by any one of them or Cymraec. In lieu of
termination of that participation, either Prime and/or Fortune may (in its sole
discretion) require a reduction of Cymraec's Back-in Working Interest and the
Cymraec ORRI in accordance with the next sentence. For each principal of Cymraec
who ceases devoting all his Business Time and effort (except in the instance of
disability, death, mental incapacity or an act of God) to the delineation of
potential Prospects pursuant to the terms of this Agreement prior to the
termination of this Agreement, any Cymraec ORRI and Cymraec's Back-in Working
Interest that would have otherwise been thereafter assigned to, or reserved for,
Cymraec pursuant to the terms of this Agreement shall, from and after the date
of each such cessation, be reduced by thirty-three percent (33%) and the reduced
Cymraec Back-in Working Interest shall be assigned in accordance with the first
sentence and the other terms of this Section 4.3, and the reduced Cymraec ORRI
shall be assigned to each

                                       24
<PAGE>

Party in proportion to the extent the reduced Cymraec ORRI burdens that Party's
working interest in each oil and gas lease in which Cymraec has been assigned
the Cymraec ORRI. Cymraec shall have sixty (60) days to find a replacement for
Looney, Graham or Zeboski acceptable to the other Parties; provided, however,
that, within the first ninety (90) days of the replacement's employment by
Cymraec, each Party (other than Cymraec) shall have the right (exercised in good
faith) to reject such replacement employee as a suitable replacement for Looney,
Graham or Zeboski, as applicable. During the term of this Agreement, Cymraec
agrees to provide the Parties with the services and perform the duties set forth
below:

      (a)   Study, analyze and evaluate all relevant geological, geophysical and
            engineering data available to Cymraec, including the Seismic Assets
            and, on a best efforts basis, initiate, analyze, evaluate, document
            and identify potential Prospects;

      (b)   Work directly with the Operator to recommend potential Prospects for
            oil and gas leasing exploration and development;

      (c)   Coordinate with the Operator to establish drilling priority of the
            Prospects and to recommend specific drill-site locations for the
            initial exploratory well on each Prospect;

      (d)   Assist, at the sole direction and expense of the Operator, the
            marketing of Prospects to third parties, in excess of the actual
            chargeable overhead reimbursement;

      (e)   Provide access to the Parties, during normal business hours and upon
            reasonable notice, to all records and accounts of the operations
            conducted pursuant to this Agreement and other data used by Cymraec
            to develop the leads, potential Prospects and Prospects pursuant to
            this Agreement;

      (f)   Make all payments to Kelman as provided for in Article I, section
            1.1 of this Agreement, in a timely manner in accordance with the
            terms of the Reprocessing Agreement;

      (g)   Satisfy all its obligations and undertakings under the Seismic
            Agreement and the Reprocessing Agreement, and to diligently enforce
            its rights under and the performance of the other parties to those
            agreements;

                                       25
<PAGE>

      (h)   Provide Prime and Fortune with full and complete access to inspect,
            review and evaluate (from time to time during customary business
            hours) all geophysical and geological information, data, mapping,
            interpretations, and work product in the possession or under the
            control of Cymraec and/or Channel, including, without limitation,
            the Seismic Assets, concerning or pertinent to any Prospect or
            prospective Prospect. In the event Prime has exercised any of its
            termination rights provided in this Agreement, Cymraec and Channel
            shall continue to provide Prime with full and complete access to
            inspect, review and evaluate such geophysical and geological
            information, data, mapping, interpretations, and work product, but
            only to the extent pertinent to the Prospects in which Prime
            retained an interest or right pursuant to this Agreement; and

      (i)   To keep the Seismic Assets and all information related thereto
            strictly confidential and not to reveal, disseminate or disclose any
            such data or information from or after the date hereof to any person
            or entity other than Kelman or any employee of any Party hereto
            without the prior written consent of all the Parties.

                                    ARTICLE V
                 DUTIES AND OBLIGATIONS OF THE SEISMIC PARTNERS
                 ----------------------------------------------

      5.1   Pursuant to the Reprocessing Agreement, Cymraec has assumed the
obligation to be responsible for reprocessing the Seismic Assets.
Notwithstanding such obligation, the Seismic Partners have agreed to be
responsible for all reprocessing costs in accordance with their respective
Seismic Participation Percentages.

      5.2   In the event any Seismic Partner fails to pay its Seismic
Participation Percentage of the Reprocessing Fee on or before its due date, as
provided in Article I, section 1.1 of this Agreement, either Fortune, Prime, or
Cymraec may give written notice of such failure to the defaulting Seismic
Partner. If payment is not made within fifteen (15) days after the due date
("Default Date"), the defaulting Seismic Partner shall forfeit all of its rights
and interests under this Agreement in, to or derived from (i) each Prospect that
the Operator thereof had not commenced the drilling (i.e., spudding) of the
initial well thereon as of the date that portion of the Reprocessing Fee was
due, (ii) all prospective (i.e., unidentified) Prospects, (iii) the Seismic
Assets and (iv) its ownership and other interest in Channel, if any. The
defaulting Seismic Partner shall not be entitled to any compensation for, or
refund, reimbursement or return of, any monies expended by that defaulting
Seismic Partner prior to the Default Date, but shall retain all interests in
each Prospect that the Operator thereof had commenced the drilling of the
initial well thereon prior to the Default Date ("Drilled Prospect").

                                       26
<PAGE>

      5.3   The defaulting Seismic Partner shall not be entitled to any
production and/or proceeds from production or the sale of equipment or other
interest attributable to the defaulting Seismic Partner's interest in the
Drilled Prospects until and unless some Party (or Parties) agree(s) to perform
the defaulting Seismic Partner's obligations under this Agreement (except with
respect to the Drilled Prospects) and makes all payments required to be made by
the defaulting Seismic Partner under the Seismic Agreement. The Party or Parties
making those payments shall, in accordance with the amounts paid, be entitled to
its or their pro rata share of the defaulting Seismic Partner's rights and
obligations in all Prospects (except the Drilled Prospects) in which the
defaulting Seismic Partner has or would have any rights or obligations under
this Agreement.

      5.4   Upon the Operator's receipt of written notification from any Seismic
Partner or Cymraec of any Seismic Partner's failure to pay its Seismic
Participation Percentage of the Reprocessing Fee on or before the Default Date,
the Operator shall use its reasonable efforts to cause all proceeds attributable
to the defaulting Seismic Partner's interest in each Drilled Prospect for which
it is the designated Operator to be suspended and not paid to the Seismic
Partner until the Operator receives written notification from all Seismic
Partners and Cymraec that the default has been cured. The Operator shall not be
subject to any damages, liability, responsibility or other undertaking in
connection with its discharge of its obligations set forth in this Article V,
unless the Operator has engaged in willful misconduct. If any default resulting
from the defaulting Seismic Partner's failure to pay its Seismic Participation
Percentage of the Reprocessing Fee when due is not promptly cured, any payments
that would have been due the defaulting Seismic Partner under this Agreement,
including any payments or proceeds attributable to the defaulting Seismic
Partner's interests in the Drilled Prospects, shall first be applied to any
damages incurred by, or contribution rights for damages arising to, the other
Parties before distribution to that defaulting Seismic Partner.

      5.5   In the event of any dispute between any of the Parties concerning
the failure of a Seismic Partner to make any installment payment of the
Reprocessing Fee, the Operator shall, in addition to any and all other rights
of the Operator under this Agreement and the applicable Operating Agreement,
have the right (at its sole election) to suspend or cause to be suspended all
payments of all sums in dispute that are in the Operator's possession or under
the Operator's control. Each Seismic Partner hereby grants the Operator of each
Prospect the right to set off any and all revenues, proceeds and amounts
attributable to that Seismic Partner's interest in a Drilled Prospect against
any and all amounts owing by that Seismic Partner to the Operator in connection
with development and operation of any Prospect in which that Seismic Partner
is a working interest participant and which is operated by that Operator.

      5.6   The remaining Seismic Partners shall have five (5) days from the
Default Date to tender to Cymraec their proportionate share of the defaulting
Seismic Partner's payment of the Reprocessing Fee then due and shall thereafter
be entitled to their proportionate share of the defaulting Seismic Partner's
rights in all Prospects in which the defaulting Seismic Partner had any

                                       27
<PAGE>

right or interest other than Drilled Prospects. If all, or any, of the remaining
Seismic Partners fail to deliver their proportionate share of the defaulting
Seismic Partner's payment, Cymraec shall have five (5) days to pay any shortage
(as compared to the other Seismic Partner's making up the default) and, upon
that payment, shall be entitled to the defaulting Seismic Partner's interest in
all Prospects in which the defaulting Seismic Partner had any right or interest
(other than Drilled Prospects). If neither the other Seismic Partners nor
Cymraec pays the entire shortage, Fortune and Prime shall have the option (at
their respective sole election) to pay any shortage (as compared to any payments
from the other Seismic Partners or Cymraec on the default), and be entitled to
the defaulting Seismic Partner's interest in all Prospects in which the
defaulting Seismic Partner had any rights or interest (other than Drilled
Prospects.) If none of the Parties to this Agreement pay to cover the shortage
caused by the defaulting Seismic Partner, Cymraec will attempt to market the
defaulting Seismic Partner's interest. In addition to acquiring the defaulting
Seismic Partner's interest in all Prospects in which the defaulting Seismic
Partner had any right or interest (other than Drilled Prospects), any
non-defaulting -Party acquiring such interest will be entitled to recover two
hundred percent (200%) of the cost of covering the then pending shortage from
the revenue associated with the working interests (or back-in working interests)
held by (i) the remaining Seismic Partners and (ii) Cymraec in all Prospects in
which the defaulting Seismic Partner had any right or interest (other than
Drilled Prospects).

                                   ARTICLE VI
                             AREA OF MUTUAL INTEREST
                             -----------------------

      6.1   At the time a Prospective Prospect is recommended by Cymraec,
Cymraec and the Operator shall define and identify the areal extent of any
Prospect (and Cymraec shall define and identify the areal extent of any
Prospective Prospect that does not become a Prospect) as the surface
realization of the most likely extent of the commercially productive portion of
the reservoir comprising such Prospect (or Prospective Prospect) but, to the
extent reasonably practicable, by governmental sections or lease boundaries
(the "Prospect Area"). The Parties hereby designate an area of mutual interest
("AMI") encompassing each Prospect Area, together with all lands located within
a one-mile radius or "halo" of the boundaries of the Prospect Area. Any interest
taken by a Party or an Affiliate, as that term is defined in Section 7.4 of this
Agreement, during the period commencing on the date that the Party has received
notification that the Prospect Area for a Prospect or Prospective Prospect has
been identified by the Operator and/or Cymraec and ending March 31, 2008 (the
"Restricted Period") in any oil and gas lease, pooling, communitization or
unitization agreement or order, option, operating agreement, farm-in, royalty,
or any other agreement or arrangement which creates or effects an interest in
or right to obtain or receive hydrocarbons underlying or produced from any of
the lands within the AMI or the proceeds attributable to the sale of those
hydrocarbons or which results in the acquisition of a contractual

                                       28
<PAGE>

right to acquire such an interest, shall be offered to the other Parties (other
than Channel) in accordance with the terms of this Article VI ("AMI Dedicated
Interest"). It is agreed and understood among the Parties that an AMI Dedicated
Interest includes only those oil, gas and mineral interests and rights covering
lands within the AMI which were acquired or obtained by a Party or an Affiliate
during the Restricted Period. It is also agreed and understood among the Parties
that, as respects Prime, the Restricted Period shall end upon the earlier of the
effective date of Prime's exercise of its termination rights under this
Agreement or Prime's no longer being a fully participating Party under the terms
of this Agreement; provided, however, the Restricted Period shall not end with
respect to any AMI identified on or before the effective date of that
termination until two years after its identification or as provided for in any
applicable operating agreement created hereunder for which Prime is a Party.

      6.2   Any Party or an Affiliate which acquires an AMI Dedicated Interest
during the Restricted Period prior to the making of a Prospect Proposal for the
Prospect included in the AMI, shall deliver an "AMI Acquisition Notice," as
hereafter defined, covering that AMI Dedicated Interest to all Parties (other
than Channel) within fifteen (15) days after the later of (i) fifteen (15) days
after the acquisition of the AMI Dedicated Interest or (ii) the date of the
identification of that Prospect as a Prospect. Within thirty (30) days after its
receipt of the AMI Acquisition Notice, the Operator shall have the right (on
behalf of the Parties, in accordance with this Agreement), to elect, in writing,
to acquire all or some portion of that AMI Dedicated Interest. Any Party or an
Affiliate which acquires an AMI Dedicated Interest after a Prospect Proposal has
been made shall deliver to each other Party (other than Channel) an AMI
Acquisition Notice within fifteen (15) days after the acquisition of the AMI
Dedicated Interest. Such notice shall be in writing and shall set forth the
terms of the acquisition, the consideration paid, and any other obligations
assumed in connection with the acquisition ("AMI Acquisition Notice").

      6.3   Each assignment or transfer of an AMI Dedicated Interest shall be
subject to all burdens in effect when the AMI Dedicated Interest was acquired by
the transferring Party, other than any burden created in favor of the acquiring
Party or any Affiliate of the acquiring Party. Each non-acquiring Party (other
than Channel) shall then have the right, within thirty days (30) of receipt of
such AMI Acquisition Notice, to elect, in writing, to receive an assignment of
its share (as to Fortune 25%; as to Prime 25%; as to all Seismic Partners 50%)
(pursuant to each Seismic Partner's Prospect Working Interest election) of such
acquired interest and all obligations associated therewith. Any such acceptance
by a non-acquiring Party shall be accompanied by such Party's share of the
consideration actually paid by the acquiring Party or the Affiliate of that
Party. Timely notice and payment shall entitle the non-acquiring Party to an
immediate assignment of its share of such interest with covenants of special
warranty. Failure to provide notice of an intention to acquire and to tender
payment as provided herein within such thirty (30) day period shall constitute

                                       29
<PAGE>

a binding and conclusive waiver of the non-acquiring Party's right to receive
any portion of such interest.

      6.4   It is understood that Prime, Fortune and the Seismic Partners are
engaged in the business of acquiring, drilling, exploiting, developing and
operating oil and gas properties on their own behalf, and nothing contained in
this Agreement shall preclude them from carrying on or engaging in that business
or any other business for their own account outside of any AMI or within an AMI
to the extent permitted by the terms of this Agreement or any pre-existing
applicable Operating Agreement (e.g., the acquisition of an interest in lands
within an AMI prior to or after the Restricted Period).

                                   ARTICLE VII
                     RECORD TITLE OWNERSHIP AND ASSIGNMENTS
                     --------------------------------------

      7.1   OWNERSHIP OF RECORD. The Operator shall acquire directly and hold
record title to each of the oil and gas leases acquired hereunder subject to the
terms of this Agreement until such time as interests therein are assigned
pursuant to the terms of this Agreement. The Operator shall deliver to each
Party entitled thereto pursuant to the terms of this Agreement and the
applicable Operating Agreement an assignment of that Party's interest in or
carved from the applicable oil and gas leases not later than the time that the
first oil or gas well is spudded on such Prospect. Such assignment shall be made
with covenants of special warranty (i.e., by, through and under the Operator,
but not otherwise) and subject to the applicable Operating Agreement. The
Operator acknowledges that it holds all oil and gas leases acquired pursuant to
the terms of this Agreement on behalf of all Parties to the extent of their
respective rights therein pursuant to the terms of this Agreement, and the
Operator agrees that it will not assign or encumber any oil and gas lease
acquired pursuant to the terms of this Agreement to the extent constituting a
lien or encumbrance on any other Party's right or interest therein, except as
authorized or permitted pursuant to the terms of this Agreement or the
applicable Operating Agreement.

      7.2   ACQUISITION OF INTEREST IN CHANNEL. On or before August 1, 2004,
Fortune and/or Prime may elect, in their sole discretion upon written notice to
Cymraec and provided neither is then in default in any material respect of any
provision of this Agreement, to be assigned an undivided one-third (1/3)
unrestricted and unlimited ownership and membership interest in Channel (in such
proportions as solely determined by Fortune and Prime), which shall be free and
clear of any security interest, mortgage, deed of trust, lien, adverse claim,
material defect or restriction, preferential right or option to purchase,
litigation or adverse encumbrance, except that such interest shall be subject to
the terms of the Seismic Agreement. Such interest shall be conveyed to Fortune
and Prime in separate assignments in the proportions specified in the notice of

                                       30
<PAGE>

promptly upon request. The Parties agree to execute such other and additional
documents from time to time as may be necessary to fully document such
assignment.

      7.3   MSLLC SEISMIC OVERRIDE. Pursuant to the terms of the Seismic
Agreement as in effect on January 1, 2002, an accurate and complete copy of
which is attached to this Agreement as Exhibit "H", Fortune and Prime shall,
as Operator, take all reasonable measures to document, preserve, and assign to
MSLLC an overriding royalty interest of two percent (2%) in all oil and gas
leases acquired pursuant to this Agreement by the Parties (the "MSLLC ORRI").
The MSLLC ORRI overriding royalty interest shall be derived from an 8/8ths
working interest in such leases, but shall be proportionally reduced in
accordance with the Parties' aggregate ownership in each such lease and further
proportionally reduced in accordance with the total ownership interest that
such lease bears to the total fee mineral ownership in the lands covered by
the lease.

      7.4   SUCCESSORS AND ASSIGNS. This Agreement and the duties and
obligations hereunder are unique and individual; as such, no Party's interest
in and to this Agreement may be assigned without the written consent of all
remaining Parties, which consent shall not be unreasonably withheld or delayed;
provided, however, that any Party may assign any or all its rights under this
Agreement and may delegate any or all of its obligations and undertakings under
this Agreement to an "Affiliate," which upon such assignment or delegation
shall become a party to this Agreement, but, notwithstanding such assignment or
delegation, the assigning or delegating Party shall (in addition to its assignee
or delegatee) be jointly and severally liable and responsible for any and all
obligations, undertakings and liabilities of each of the parties to that
assignment or delegation under the terms of this Agreement. Any assignee shall
specifically indicate its acceptance of the terms and provisions of this
Agreement by the ratification hereof. "Affiliate" shall mean a corporation,
partnership, limited liability company or other legal entity which controls a
Party, is controlled by a Party or is under common control with a Party. As
used in this Section 7.4, "control" or "controlled" means that a person or
entity has legal or beneficial ownership (directly or indirectly) of at least
a fifty percent (50%) ownership interest (e.g., stock, membership or
partnership interest) in an entity conferring upon that person or entity the
right to vote for or appoint the managers, directors, managing partners or
officers, as applicable, of such corporation, partnership, limited liability
company or other legal entity. Except as provided in this Section 7.4, any
attempted or purported assignment of this Agreement shall be null and void and
be of no force or effect whatsoever. A Party may, however, at any time
following the designation of a Prospect pursuant to Article II, above, sell,
assign, trade, or farm-out its interest in such Prospect subject to the terms
of this Agreement and the applicable Operating Agreement. To the extent
provided for herein, the provisions hereof shall inure to the benefit of, and
be binding upon, the successors and assigns of the Parties.

                                       31
<PAGE>

                                  ARTICLE VIII
                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

      8.1   REPRESENTATIONS AND WARRANTIES OF CYMRAEC. Cymraec represents and
warrants to all other Parties as follows:

            (a) It has received from the Seismic Partners all payments required
      to be made by the Seismic Partners pursuant to Article I of this Agreement
      on or prior to December 31, 2001 and that all payments due to be made by
      Cymraec to Kelman and others pursuant to the Reprocessing Agreement and
      all other payments to be made by Cymraec with funds from the Seismic
      Partners required to have been made on or prior to December 31, 2001 have
      now been made.

            (b) That, to the best of its knowledge, the Reprocessing Agreement
      is in full force and effect, has not been modified or superceded since its
      execution, and is valid, binding and enforceable in accordance with its
      terms upon all parties thereto, and neither Cymraec nor Kelman is in
      default of any of that party's undertakings or obligations arising under
      or pursuant to the Reprocessing Agreement or any other agreement executed
      in connection therewith.

            (c) That, to the best of its knowledge, the Seismic Agreement is in
      full force and effect and has not been modified or superceded since its
      execution, and is valid, binding and enforceable in accordance with its
      terms upon all parties thereto, and no party to the Seismic Agreement is
      in default of any of that party's undertakings or obligations arising
      under or pursuant to the Seismic Agreement or any other agreement executed
      in connection therewith.

            (d) Cymraec has the right and authority to possess, use, reprocess,
      disclose, and disseminate the Seismic Assets as contemplated by this
      Agreement and the Reprocessing Agreement, and Cymraec's disclosure and
      dissemination of the Seismic Assets to the other Parties and Kelman, and
      their respective use of the Seismic Assets in accordance with the terms of
      this Agreement will not result in any breach or default of any agreement,
      contract, duty or right involving the Seismic Assets or to which they are
      subject.

            (e) Cymraec's execution, delivery and performance of this Agreement
      in accordance with its terms will not result in the breach, default or
      violation of any agreement, lease, license, permit or contract to which
      Cymraec or any of its officers, directors or owners is a party or by which
      the Seismic Assets may be bound or subject.

                                       32
<PAGE>

            (f) To the best of Cymraec's knowledge, Prime and Fortune's
      execution, delivery and performance of this Agreement and all other
      agreements delivered by either of them in connection herewith will not
      interfere with any legal or contractual right of any entity or person with
      whom Cymraec or any of its owners has any contractual relationship or
      other arrangement.

            (g) This Agreement has been duly authorized, executed and delivered
      by Cymraec and all requisite consents, authorizations and approvals
      necessary for Cymraec's proper performance of its obligations and
      undertakings provided in this Agreement have been obtained.

            (h) To the best of Cymraec's knowledge, after due and diligent
      inquiry, the License is in full force and effect (subject to the terms of
      the Seismic Agreement), no claim has been asserted with respect to the
      License, and Channel holds all right, title and interest to the License,
      free and clear of any lien, deed of trust, security interest, mortgage,
      adverse claim, encumbrance, option or preferential right to purchase
      (except as provided in this Agreement), or litigation.

            (i) Except as provided at Schedule 1 to this Agreement, to the best
      of Cymraec's knowledge, after due and diligent inquiry, there is no
      subsisting, valid or enforceable agreement, contract or arrangement
      between any Party and any other person or entity involving the obligations
      or undertakings provided in this Agreement (or any similar obligation or
      undertaking) which Prime and/or Fortune have agreed to assume and perform
      with respect to the Seismic Assets, or the exploration, operation and/or
      development of prospects generated in connection with the Seismic Assets.
      Any such agreement, contract or arrangement set forth at Schedule 1 shall
      be fully released and terminated by all parties thereto concurrently with
      the execution and delivery of this Agreement by all the Parties.

      8.2   REPRESENTATIONS AND WARRANTIES OF SEISMIC PARTNERS. Each of the
Seismic Partners, severally but not jointly, represents and warrants to all
other Parties with respect to itself as follows:

            (a) All payments required to be made by each Seismic Partner
      pursuant to Article I of this Agreement on or prior to December 31, 2001
      have been made and no claim has been asserted against the Seismic Partners
      with respect to those payments.

            (b) Such Seismic Partner's execution and performance of this
      Agreement in accordance with its terms will not result in the breach,
      default or violation of any agreement or contract to which that Seismic
      Partner or any of its officers, members, directors or

                                       33
<PAGE>

      owners, as applicable, is a party or by which any of the Seismic
      Assets may be bound or subject.

            (c) To the best of that Seismic Partner's knowledge, Prime and
      Fortune's execution, delivery and performance of this Agreement and all
      other agreements delivered by either of them in connection herewith will
      not interfere with any legal or contractual right of any entity or person
      with whom that Seismic Partner or any of its owners has any contractual
      relationship or other arrangement.

            (d) This Agreement has been duly authorized, executed and delivered
      by that Seismic Partner and all requisite consents, authorizations and
      approvals necessary for that Seismic Partner's performance of its
      obligations and undertakings provided in this Agreement have been
      obtained.

            (e) Except as provided at Schedule 1 to this Agreement, to the best
      of that Seismic Partner's knowledge, after due and diligent inquiry, there
      is no subsisting, valid or enforceable agreement, contract or arrangement
      between such Party and any other person or entity involving the
      obligations or undertakings provided in this Agreement (or any similar
      obligation or undertaking) which Prime or Fortune have agreed to assume
      and perform with respect to the Seismic Assets, or the exploration,
      operation and/or development of prospects generated in connection with the
      Seismic Assets. Such Seismic Partner covenants to use its commercially
      reasonable efforts to cause any such agreement, contract or arrangement
      set forth at Schedule 1 to be fully released and terminated by all parties
      thereto prior to or concurrently with the execution and delivery of this
      Agreement by all the Parties.

                                   ARTICLE IX
                                 NO PARTNERSHIP
                                 --------------

      9.1   RELATIONSHIP OF THE PARTIES. The rights and liabilities of the
Parties shall be individual and several, not joint or collective (except as
expressly provided herein and where joint responsibility for loss of title or
other costs or expenses is expressly provided for in the Operating Agreement),
and nothing contained in this Agreement or in any Operating Agreement shall be
construed as creating a partnership, joint venture or other partnership or
fiduciary relationship between the Parties or between any of them. In performing
their respective duties and obligations under this Agreement and the Operating
Agreements, Prime and Fortune, as applicable, shall act as a reasonably prudent
operator but shall have no liability to the other Parties or each other for any
errors, omissions, losses sustained or liabilities incurred, except as may
result from its breach of any

                                       34
<PAGE>

provision of this Agreement or any Operating Agreement, or its gross negligence
or willful misconduct. The Parties do not intend to create, nor shall this
Agreement be construed to create, a partnership or joint venture between the
Parties, nor does this Agreement render the Parties liable as partners or create
any fiduciary duty to one another. Nothing in this Agreement shall be construed
as authorization of one Party to act as an agent for any other Party or to
permit any Party to act for or on behalf of any other Party except as
specifically authorized in this Agreement or any other Agreement delivered in
connection with this Agreement.

      9.2   OTHER BUSINESS OF THE PARTIES. This Agreement is expressly limited
in application to the AMI identified and created under either this Agreement or
an applicable Operating Agreement. Neither this Agreement nor the relationship
created hereby shall preclude or limit, in any respect, the right of any party
to engage or invest in any business activity of any nature or description,
including those which may be similar to the activities to be conducted hereunder
and in direct competition therewith, except as otherwise provided in this
Agreement. However, no Party or any "affiliate" of any Party, as that term is
defined in Section 7.4 of this Agreement, shall acquire, obtain or receive any
AMI Dedicated Interest except in accordance with the terms of this Agreement.
For example, any interest acquired by a Party in lands within the AMI prior to
or after the Restricted Period shall not be an AMI Dedicated Interest. Any such
activity may be engaged in independently or with others, and may include, but is
not limited to, the ownership and/or operation of assets similar to the
Prospects, directly or indirectly, for the account of any party or any affiliate
or for the account of others, including any partnership or other entity
organized by any party or any affiliate. No party shall have the right, by
virtue of this Agreement or the relationship created hereby in or to such other
ventures or activities, or the income or proceeds derived therefrom.

                                    ARTICLE X
                                  MISCELLANEOUS
                                  -------------

      10.1  TERM. This Agreement shall remain in effect for a period ending
April 1, 2006, unless terminated earlier or, to the extent terminated earlier,
in accordance with its terms.

      10.2  ENTIRE AGREEMENT. This Agreement, including all schedules and
exhibits hereto, constitutes the entire agreement among the Parties with respect
to the subject matter of this Agreement, and this Agreement supercedes all other
agreements, understandings, representations, and warranties, whether written or
oral, among the Parties with respect to the subject matter hereof. In the event
of any conflict or inconsistency between this Agreement and an Operating
Agreement, this Agreement shall control.

                                       35
<PAGE>

      10.3  FORCE MAJEURE. In the event that any Party is rendered unable, in
whole or in part, to carry out its obligations hereunder by reason of force
majeure, such affected Party shall give written notice of such fact, setting
forth the details of the force majeure, to the other Parties within a reasonable
time after the occurrence of the force majeure. The obligations of the affected
Party, insofar but only insofar, as they are affected by such force majeure,
shall be suspended for the duration caused, which shall be remedied as soon as
reasonably possible. As used herein, "force majeure" shall mean act of God,
strike, lockout, industrial disturbance, war, blockade, riot, terrorist
activity, lightning, fire, storm, flood, explosion, governmental restraint, or
any other cause whether of the kind enumerated herein or otherwise, not
reasonably within the control of the affected Party. Any Party's inability to
pay money or make payments when due shall never be construed to be as the result
of force majeure.

      10.4  GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflicts of law. Venue for any action brought hereunder shall be proper only
if brought in the courts of Harris County, Texas, and the prevailing Party in
any such action shall be entitled to recover, as an item of its costs, its
reasonable attorney's fees.

      10.5  CONFIDENTIALITY. No Party shall issue any press release, give any
interview, or make any public statement in any way relating to the existence of
this Agreement or the Seismic Assets without first consulting with and obtaining
the prior consent of the other Parties, except as such release may be required
by applicable law, rule, or regulation, to satisfy any public disclosure
requirements, or for routine public notice purposes.

      10.6  NOTICES. All notices required hereunder shall be sufficiently made
if in writing and delivered in person or sent by U.S. mail, first-class postage
prepaid or, to the extent receipt is confirmed, by electronic facsimile or
overnight document delivery, addressed as follows:

      To Fortune:              515 W. Greens Road, Suite 720
                               Houston, Texas 77067
                               Facsimile:  (281) 872-1213

      To Prime:                2900 Wilcrest Drive, Suite 475
                               Houston, Texas 77042-6009
                               Facsimile:  (713) 735-0090

                                       36
<PAGE>

      To Channel:              350 N.  Sam  Houston  Parkway  East, Suite 204
                               Houston, Texas 77057
                               Facsimile:  (281) 999-4500

      To Cymraec:              350 N.  Sam  Houston  Parkway  East, Suite 204
                               Houston, Texas 77057
                               Facsimile:  (281) 999-5050

      To Lonesome Dove:        P.O. Box 1236
                               Billings, Montana 59103
                               Facsimile:  (406) 256-3203

      To Braveheart:           4516 Lovers Lane, Suite 154
                               Dallas, Texas 75225
                               Facsimile:

      To Southwestern:         1675 Larimer, Suite 820
                               Denver, Colorado 80202
                               Facsimile:

      10.7  COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which taken together shall constitute one and the same instrument
and each of which shall be considered an original for all purposes. A facsimile
transmission of a Party's execution of this Agreement or any other agreement
attached as a schedule or exhibit to this Agreement shall be binding and
enforceable upon that Party and acceptable as an original for all purposes
hereunder. However, all Parties agree to submit its signed conformed original
signature page of this Agreement to each other Party within seven (7) days of
the execution of this Agreement by all Parties.

      10.8  ATTORNEYS' FEES. The prevailing Party in any lawsuit or litigation
concerning the construction or interpretation of this Agreement or the breach by
any other Party of any provision of this Agreement shall be entitled to such
Party's reasonable attorneys' fees and court costs.

      10.9  EXPENSES. Each Party will bear and pay its own expenses (including,
attorneys' fees) of negotiating and consummating the transactions contemplated
hereby. Such expenses of Cymraec shall be borne entirely by Cymraec and shall
not be part of any of its costs to be billed to or paid by Fortune and/or Prime.

      10.10 INVALIDITY. In the event any provision of this Agreement is
determined to be invalid or unenforceable, then the remainder of this Agreement
shall not be affected thereby.

                                       37
<PAGE>

      10.11 HEADINGS AND TITLES. The headings and titles in this Agreement are
for guidance and convenience of reference only and do not limit or otherwise
affect or interpret the terms or provisions of this Agreement. All references
made in this Agreement to a Section or an Article refers to the applicable
Section or Article in this Agreement, unless the context clearly indicates
otherwise.

      IN WITNESS WHEREOF, this Agreement is executed by the Parties effective as
of the date first above written.

                               FORTUNE NATURAL RESOURCES
                               CORPORATION

                               By: /s/ Ron Nowak
                                   ------------------------------
                               Name:   Ron Nowak
                               Title:  President and COO

                               PRIMEENERGY MANAGEMENT CORPORATION

                               By: /s/ Charles E. Drimal, Jr.
                                   ------------------------------
                               Name:   Charles E. Drimal, Jr.
                                    -----------------------------
                               Title:  President
                                     ------------------------------

                               CHANNEL EXPLORATION, LLC

                               By: /s/ R. Michael Looney
                                   ------------------------------
                               Name:   R. Michael looney
                                    -----------------------------
                               Title:  President
                                     ------------------------------

                               CYMRAEC EXPLORATION, INC.

                               By: /s/ Michael A. Graham
                                   ------------------------------
                               Name:   Michael A. Graham
                                    -----------------------------
                               Title:  President
                                     ------------------------------

                                       38
<PAGE>

                               LONESOME DOVE PETROLEUM, INC.

                               By: /s/ Brett A. Boedecker
                                   ------------------------------
                               Name:   Brett A/ Boedecker
                                    -----------------------------
                               Title:
                                     ------------------------------

                               SOUTHWESTERN EAGLE, LLC

                               By: /s/ James W. Williams, Jr.
                                   ------------------------------
                               Name:   James W. Williams, Jr.
                                    -----------------------------
                               Title:  Manager
                                     ------------------------------

                               BRAVEHEART HOLDINGS, LLC

                               By: /s/ David Jones
                                   ------------------------------
                               Name:   David Jones
                                    -----------------------------
                               Title:  Managing Partner
                                     ------------------------------

                                       39
<PAGE>

            IN ACKNOWLEDGEMENT OF THE OBLIGATIONS OF ARTICLE IV ONLY

/s/ R. Michael Looney                   /s/ Michael A. Graham
------------------------------          ------------------------------
R. Michael Looney                       Michael A. Graham

/s/ Stephen E. Zeboski
------------------------------
Stephen E. Zeboski

<PAGE>

                    LIST OF EXHIBITS TO EXPLORATION AGREEMENT
                    -----------------------------------------

EXHIBIT A - OPERATIONS SHARING AGREEMENT
EXHIBIT B - SEISMIC ASSETS
EXHIBIT C - MODEL FORM OPERATING AGREEMENT
EXHIBIT D - CYMREAC'S SLIDING SCALE OVERRIDING ROYALTY (ORRI) SCHEDULE
EXHIBIT E - ASSIGNMENT OF OVERRIDING ROYALTY INTEREST
EXHIBIT F - ASSIGNMENT OF CYMRAEC'S BACKIN AFTER PAYOUT WORKING INTEREST
EXHIBIT G - SETTLEMENT AGREEMENT
EXHIBIT H - LICENSE AND REPROCESSING AGREEMENT================================================================================

                   SERIES B PREFERRED STOCK PURCHASE AGREEMENT

                          Dated as of February 15, 2002

                                  By and Among

          Fortune Natural Resources Corporation, a Delaware Corporation

                                       and

             Renaissance Capital Growth & Income Fund III, INC. and
                    Renaissance US Growth & Income Trust PLC

================================================================================

<PAGE>

                   SERIES B PREFERRED STOCK PURCHASE AGREEMENT

      This SERIES B PREFERRED STOCK PURCHASE AGREEMENT, dated as of February
_____, 2002 (this "Agreement"), is by and among Fortune Natural Resources
Corporation, a Delaware Corporation, ("Fortune") presently located at One
Commerce Green, 515 W. Greens Rd., Suite 720, Houston, Texas, 77067; Renaissance
Capital Growth & Income Fund and Renaissance US Growth & Income Trust PLC
(collectively "Purchaser").

      WHEREAS,  Fortune  wishes the Purchaser to make an investment in Fortune;

      WHEREAS, Purchaser wishes, subject to the terms and conditions set forth
herein, to make an investment in Fortune through the purchase of Series B
Preferred Stock of Fortune ("Series B Stock" ), with the voting powers,
designations, preferences, rights and qualifications, limitations and
restrictions as set forth in the Certificate of Designation, attached hereto as
EXHIBIT A;

      WHEREAS, as an inducement to Purchaser to enter into this Agreement and to
make the investment hereunder, Fortune has agreed to issue Purchaser a warrant
to purchase certain shares of Fortune's common stock in accordance with the
terms hereof; and

      WHEREAS, as an inducement to Purchaser to enter into this Agreement and to
make the investment hereunder, Fortune has agreed to grant to Purchaser an
option to require Fortune to purchase currently held shares of Fortune's common
stock in accordance with the terms hereof.

      NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:

1.    Sale of Shares; Issuance of Warrants; Put Option.
      ------------------------------------------------

      1.1  SALE OF SHARES. Subject to the terms and conditions set forth herein,
effective as of the date hereof, Fortune shall: (i) sell and issue to each
Purchaser, and each Purchaser shall purchase and accept from Fortune 120,000
shares of Series B Stock for $120,000, which shall be payable by wire transfer
to Fortune ("Purchase Price"); (ii) issue to each Purchaser, a warrant (the
"Warrant") to purchase the shares (subject to adjustment and readjustment from
time to time as provided in the Warrant Agreement as attached hereto as "EXHIBIT
B,") of Common Shares as provided in Section 1.2 below; and (iii) grant to each
Purchaser an option to require Fortune to purchase shares of Fortune Common
Shares currently held by each Purchaser, pursuant to the terms of that certain
Put Option agreement (the "Put") attached hereto as "EXHIBIT C."

      1.2  WARRANT. In further consideration of the value received from
Purchaser, Fortune hereby covenants to issue to each Purchaser, pursuant to the
terms of the Warrant, at the earlier of (i) 180 days after the date of issuance
of the Series B to Purchaser, or (ii) the funding of the Private Placement of
the Corporation's Series A Convertible Participating Preferred Stock ("Series
A"), Three-Year Common Stock Purchase Warrants in accordance with the following
table:

                                       1
<PAGE>
<TABLE>
<CAPTION>

                               Number of Warrants to be issued       Exercise Price as
     Date of issuance of       expressed as percentage of the      percentage of "market
  Warrants after date hereof    value of the redemption rights     price of common stock"
  --------------------------   --------------------------------    ----------------------
     <S>                                      <C>                            <C>

     Less than 76 days                        20%                            150%
        76-105 days                           30%                            140%
       106-140 days                           40%                            130%
       141-170 days                           50%                            120%
    More than 170 days                        60%                            110%

</TABLE>

"Market price of common stock" shall mean the average of the last reported sales
prices on each of the ten trading days prior to the date hereof or, in the event
no reported sale takes place on such day, the last previously reported sales
price, in either case on the over-the-counter bulletin board, principal exchange
on which the common stock is listed, or as reported by the National Association
of Securities Dealers, Inc. through NASDAQ or similar organization.

      1.3  PUT OPTION. In further consideration of the value received from
Purchaser, Fortune hereby covenants to grant to each Purchaser the option to
require Fortune to purchase shares of Fortune Common Shares currently held by
such Purchaser, pursuant to the terms of the Put. The Put shall not be
exercisable if the Series B Preferred Shares, together with all dividends
accrued thereon, are fully paid in accordance with the redemption obligations of
Fortune. In addition, if the Series B Preferred Shares are timely called for
redemption and the certificate shall not have been surrendered for cancellation,
on and after such redemption date, all shares so called for redemption shall no
longer be deemed outstanding and all rights with respect to the Put shall
forthwith on such redemption date cease and terminate, except only the right of
the holders thereof to receive the amount payable on redemption thereof.

2.    Representations and Warranties of Fortune.
      -----------------------------------------

      Fortune hereby represents and warrants to Purchaser as of the date hereof
and as of the Closing as follows:

      2.1  ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. Fortune is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware. Fortune has all requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted and as proposed to be conducted. Fortune is qualified to do business
as a foreign corporation or as otherwise necessary in every jurisdiction in
which the failure to be so qualified would have a material adverse effect on
Fortune's business as now conducted or as proposed to be conducted.

      2.2  ORGANIZATIONAL POWER. Fortune has all requisite legal and
organizational power to execute and deliver this Agreement, to sell and issue
the Series B Stock, the Warrant, and the Put, and to carry out and perform its
obligations under the terms of this Agreement and the agreements referenced
herein.

                                       2
<PAGE>

      2.3  AUTHORIZATION. All corporate and other organizational action on the
part of Fortune, its officers and directors necessary for the authorization,
execution, delivery and performance by Fortune of this Agreement, the
authorization, issuance, sale and delivery of the Series B Stock, the issuance
of the Warrant, the Put, and the performance of all of Fortune's obligations
hereunder has been taken or will be taken prior to the respective Closing. This
Agreement, when executed and delivered by Fortune, will constitute a valid and
legally binding obligation of Fortune, enforceable in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief and other equitable remedies. The Series B Stock, when issued
in compliance with the provisions of this Agreement, will be validly authorized
and issued, fully paid and non-assessable and will have the rights, preferences,
privileges and restrictions described in the Certificate of Designation. The
Series B Stock will be free of any liens or encumbrances, other than any liens
or encumbrances created by or imposed upon the holders thereof through no action
of Fortune; provided, however, that the Series B Stock will be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein.

3.    REPRESENTATIONS AND WARRANTIES OF PURCHASER. In order to induce Fortune to
accept this Agreement, each Purchaser hereby represents and warrants to Fortune,
solely with regard to itself, as follows:

      3.1  INVESTMENT INTENT. Purchaser is acquiring Series B Stock for its own
account for investment and not with a view to any distribution thereof.

      3.2  INDEPENDENT INVESTIGATION. In making its decision to purchase Series
B Stock, Purchaser has relied solely upon independent investigations made by
Purchaser, its representatives and agents.

      3.3  NO REPRESENTATION. Purchaser acknowledges and agrees that Fortune has
made no representation or warranty to Purchaser or any of its affiliates,
employees or agents in connection with Purchaser's purchase of Series B Stock
and the other transactions described herein, except as expressly set forth
herein.

4.    CLOSING.
      -------

      4.1  CLOSING. The Closing shall take place on February 15, 2002 (the
"Closing") at such time and place as the parties may mutually agree upon.

      4.2  DELIVERIES BY FORTUNE. At the Closing, Fortune shall deliver to
Purchaser: (I) all certificates representing the Series B Shares, duly endorsed
for transfer to Purchaser; and (II) executed originals of the agreements
referenced herein.

      4.3  DELIVERIES BY PURCHASER. At Closing, Purchaser shall deliver to
Fortune: (I) the Purchase Price by wire transfer of immediately available funds
to an account designated by Fortune, minus an amount to cover the reasonable
expenses and legal fees incurred with respect to the negotiation and execution
of this Agreement; and (II) executed originals of the agreements referenced
herein.

                                       3
<PAGE>

5.    General Provisions.
      ------------------

      5.1  ENTIRE AGREEMENT. This Agreement is the entire agreement between the
parties with respect to the subject matter hereof and cancels and supersedes any
and all prior agreements, whether written or oral, regarding the subject matter
hereof between the parties. This Agreement and any of the terms hereof may not
be altered, modified, changed, waived or discharged except in writing signed by
each of the parties.

      5.2  ATTORNEY'S FEES. In the event that any action or proceeding,
including arbitration, is commenced by any party hereto for the purpose of
enforcing any provision of this Agreement, the successful or prevailing party
shall recover reasonable attorneys' fees and other reasonable costs incurred
in such action or proceeding.

      5.3  NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given upon receipt of hand
delivery; certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:

           (i)  If to Fortune, to:
                One Commerce Green, 515 W. Greens Rd.
                Suite 720
                Houston, Texas, 77067
                Telecopier:    281-872-1213
                Telephone:     281-287-1170
                Attention:     TYRONE J. FAIRBANKS, Chairman
                               and Chief Executive Officer

           (ii) If to a Purchaser, to:

                Renaissance Capital Group, Inc.
                8080 N. Central Expressway
                Suite 210, LB-59
                Dallas, Texas 75206
                Telecopier:    214-891-8291
                Telephone:     214-891-8294
                Attention:     John Schmit

                (with a copy to)

                Kirkpatrick & Lockhart LLP
                3100 Bank One Center
                1717 Main Street
                Dallas, Texas 75201-4681
                Telecopier:    214-939-4949
                Telephone:     214-939-4900
                Attention:     Norman Miller

Such names and addresses may be changed by written notice to each person listed
above.

                                       4
<PAGE>

      5.4  EXPENSES. Upon closing, Fortune shall pay the all the expenses and
legal fees incurred with respect to the negotiation and execution of this
Agreement and the consummation of the transactions contemplated hereby, which
amount shall be paid upon Closing.

      5.5  COUNTERPARTS; FACSIMILES. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one (1) and the same instrument. Delivery of an
executed counterpart of a signature page to this agreement by telecopier shall
be effective as delivery of a manually executed counterpart of this Agreement.

      5.6  SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.

      5.7  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO CONFLICT OF LAWS
PRINCIPLES.

                            [Signature page follows.]

                                       5
<PAGE>

      IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first set forth above.

                               FORTUNE NATURAL RESOURCES
                               CORPORATION

                               By: /s/ Tyrone J. Fairbanks
                                   -----------------------------------
                                   TYRONE J. FAIRBANKS, Chairman
                                   and Chief Executive Officer

                               RENAISSANCE CAPITAL GROWTH
                               & INCOME FUND III, INC.

                               By: /s/ John A. Schmit
                                   -----------------------------------

                               Name: John A. Schmit
                               ---------------------------------------

                               Title: Vice President
                               ---------------------------------------

                               RENAISSANCE US GROWTH &
                               INCOME TRUST PLC

                               By: /s/ John A. Schmit
                                   -----------------------------------

                               Name: John A. Schmit
                               ---------------------------------------

                               Title:  Vice President, Renaissance
                                       Capital Group, Inc.
                               ---------------------------------------

                                       6
<PAGE>

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