Document:

EXHIBIT "B"
       Attached to and made a part of that certain Participation Agreement
              dated May 25, 2004 by and between Gryphon Exploration
                    Company and Ridgewood Energy Corporation

                                      JOINT

                               OPERATING AGREEMENT

                                     BETWEEN

                          GRYPHON EXPLORATION COMPANY,

                                  AS OPERATOR,

                                       And

                          RIDGEWOOD ENERGY CORPORATION,

                                AS NON-OPERATOR,

                                    COVERING

                          WEST CAMERON AREA, BLOCK 103

                               OFFSHORE LOUISIANA

                                      DATED

                                  May 25, 2004

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                            JOINT OPERATING AGREEMENT

     THIS  AGREEMENT is made  effective the 25th day of May, 2004 by the signers
hereof,  herein  referred to  collectively  as  "Parties"  and  individually  as
"Party".

                                   WITNESSETH:

     WHEREAS the PARTIES are owners of or have  contracted for the right to earn
an interest  in the oil and gas  lease(s)  identified  in Exhibit  "A",  and the
Parties desire to explore, develop, produce and operate said lease(s).

     NOW THEREFORE, in consideration of the premises and of the mutual agreement
herein, it is agreed as follows:

                                    ARTICLE I

                                   APPLICATION

     1.1  APPLICATION  TO BOTH  LEASES.  If more  than one oil and gas  lease is
identified in Exhibit "A", this Agreement  shall apply  separately to each Lease
and each Lease shall be considered as being covered by the operating agreement.

                                   ARTICLE II

                                   DEFINITIONS

     2.1 AFE.  An  Authorization  for  Expenditure  prepared  by a Party for the
purpose of  estimating  the costs to be  incurred  in  conducting  an  operation
hereunder.

     2.2 CASING POINT. That point at which a well drilled hereunder, has reached
the proposed  objective depth or zone,  logged and logs have been distributed to
the  PARTICIPATING  PARTIES and any tests have been made which are  necessary to
reach the decision whether to run casing.

     2.3 DEVELOPMENT OPERATIONS. Operations on the LEASES other than EXPLORATORY
OPERATIONS as defined in Section 2.5 below.

     2.4 DEVELOPMENT WELL. Any well proposed as a DEVELOPMENT OPERATION.

     2.5 EXPLORATORY  OPERATIONS.  Operations on the LEASES, which are scheduled
for an objective zone, horizon or formation:

          (1)  which has not been  established  as producible on the LEASE under
               2.18 below; or,

          (2)  which is already  established  as  producible  on the LEASE under
               2.18 below, but such objective zone, horizon or formation will be
               penetrated  at a location  more than 2,000 feet from the  nearest
               bottom  hole  location on the LEASE at which such  objective  has
               been proved  producible,  or such objective is mutually agreed to
               be in a separate fault block.

     2.6 EXPLORATORY WELL. Any well proposed as an EXPLORATORY OPERATION.

     2.7  FACILITIES.  All  lease  equipment  beyond  the  wellhead  connections
acquired pursuant to this Agreement including any platform(s) necessary to carry
out the operation.

     2.8 LEASE.  The oil and gas leases  identified in Exhibit "A" and the lands
affected  thereby.

     2.9 NON-CONSENT OPERATIONS. DEVELOPMENT or EXPLORATORY OPERATIONS conducted
by fewer than all Parties.

     2.10 NON-CONSENT PLATFORM. A drilling or production platform owned by fewer
than all PARTIES.

     2.11  NON-CONSENT  WELL. A DEVELOPMENT or  EXPLORATORY  WELL owned by fewer
than

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all PARTIES.

     2.12 NON-OPERATOR. Any PARTY to the Agreement other than the OPERATOR.

     2.13  NON-PARTICIPATING  PARTY. Any PARTY other than a PARTICIPATING PARTY.

     2.14  NON-PARTICIPATING  PARTY'S SHARE. The  PARTICIPATING  INTEREST a NON-
PARTICIPATING  PARTY  would  have had if all  PARTIES  had  participated  in the
operation.

     2.15  OPERATOR.  The PARTY  designated  under this Agreement to conduct all
operations.

     2.16  PARTICIPATING   INTEREST.  A  PARTICIPATING   PARTY'S  percentage  of
participation in an operation conducted pursuant to the Agreement.

     2.17  PARTICIPATING  PARTY.  A PARTY  who joins in an  operation  conducted
pursuant to this agreement.

     2.18 PRODUCIBLE  WELL. A well producing oil or gas, or if not producing oil
or gas,  a well  either  declared  or  capable of being  declared  producing  in
accordance  with any applicable  government  authority or by agreement of all of
the Parties.

     2.19 WORKING INTEREST.  The ownership of each PARTY in and to the LEASES as
set forth in Exhibit "A".

                                   ARTICLE III

                                    EXHIBITS

     3.1  EXHIBITS.  Attached  hereto  are  the  following  exhibits  which  are
incorporated herein by reference:

          3.1.1   Exhibit A.   Description of Leases and Working Interest
          3.1.2   Exhibit B.   Insurance Provision
          3.1.3   Exhibit C.   Accounting Procedure
          3.1.4   Exhibit D.   Nondiscrimination Provision
          3.1.5   Exhibit E.   Gas Balancing Agreement

                                   ARTICLE IV

                                    OPERATOR

     4.1 OPERATOR. Gryphon Exploration Company is hereby designated as OPERATOR.
OPERATOR  shall not have the right to assign or transfer  any rights,  duties or
obligations  of  OPERATOR  to  another  PARTY  except  in  accordance  with  the
provisions herein.

     4.2  RESIGNATION.  OPERATOR may resign at any time by giving  notice to the
PARTIES.  Such resignation  shall become effective at 7:00 a.m. on the first day
of the month following a period of ninety (90) days after said notice,  unless a
successor OPERATOR has assumed the duties of OPERATOR prior to that date.

     4.3 REMOVAL OF OPERATOR.  OPERATOR  may be removed if (1) OPERATOR  becomes
insolvent or unable to pay its debts as they mature or makes an  assignment  for
the benefit of creditors or commits any act of  bankruptcy or seeks relief under
laws  providing  for the relief of debtors;  or (2) a receiver is appointed  for
OPERATOR  or for  substantially  all  of its  property  and/or  affairs;  or (3)
OPERATOR or its  designee  no longer owns an interest in the  property or divest
itself of more than fifty percent  (50%) or more of the interest  owned by it in
the Lease at the time it was designated OPERATOR;  or (4) OPERATOR has committed
a material  breach of any substantive  provision  hereof or fails to perform its
duties  hereunder in a reasonable and prudent manner,  or failed to rectify such
default within sixty (60)

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days after  notice from another  PARTY to do so. The PARTY giving  notice to the
OPERATOR  of a default  shall  also  furnish a copy of such  notice to the other
PARTIES.  In such event,  the OPERATOR may be removed by an affirmative  vote of
two (2) or more  PARTIES  having a combined  WORKING  INTEREST of fifty  percent
(50%) in the LEASE.

     4.4  SELECTION OF SUCCESSOR.  Upon  resignation  or removal of OPERATOR,  a
successor  OPERATOR shall be selected by an affirmative  vote of two (2) or more
PARTIES having a combined WORKING  INTEREST of fifty-one  percent (51%) or more;
however,  if the  removed or  resigned  OPERATOR  fails to vote or votes only to
succeed itself,  the successor OPERATOR shall be selected by an affirmative vote
of the PARTIES having a combined WORKING INTEREST of fifty-one  percent (51%) or
more of the remaining  WORKING  INTEREST after excluding the WORKING INTEREST of
the removed or resigned OPERATOR.

     4.5 DELIVERY OF PROPERTY.  Prior to the effective  date of  resignation  or
removal, OPERATOR shall deliver promptly to successor OPERATOR the possession of
everything owned by the PARTIES pursuant to this Agreement.

                                    ARTICLE V

                        AUTHORITY AND DUTIES OF OPERATOR

     5.1 EXCLUSIVE RIGHT TO OPERATE.  Unless otherwise provided herein, OPERATOR
shall have the exclusive  right and duty to conduct all  operations  pursuant to
the Agreement.

     5.2  WORKMANLIKE  CONDUCT.  OPERATOR shall conduct all operations in a good
and workmanlike  manner,  as would a prudent  OPERATOR under the same or similar
circumstances.  OPERATOR shall not be liable to the PARTIES for losses sustained
or liabilities  incurred except such as may result from its gross  negligence or
willful misconduct.  Unless otherwise provided,  OPERATOR shall consult with the
PARTIES and keep them informed of all important matters.

     5.3 LIENS AND  ENCUMBRANCES.  OPERATOR shall endeavor to keep the LEASE and
equipment  free  from  all  liens  and  encumbrances  occasioned  by  operations
hereunder,  except those  provided for in Section 8.5.

     5.4 EMPLOYEES.  OPERATOR shall select employees and determine their number,
hours of labor and compensation.  Such employees shall be employees of OPERATOR.

     5.5 RECORDS.  OPERATOR shall keep accurate  books,  accounts and records of
operations  hereunder which,  unless  otherwise  provided for in this Agreement,
shall be  available  to  NON-OPERATOR  pursuant to the  provisions  contained in
Exhibit "C".

     5.6  COMPLIANCE.  OPERATOR  shall  comply  with and  require all agents and
contractors to comply with all applicable laws, rules, regulations and orders of
any governmental agency having jurisdiction.

     5.7  DRILLING.  OPERATOR  shall have all drilling  operations  conducted by
qualified and responsible  independent  contractors under competitive contracts.
However,  OPERATOR may employ its equipment and personnel in the conduct of such
operations,  but its charges therefor shall not exceed the then prevailing rates
in the area and such work shall be  performed  pursuant  to a written  agreement
among the PARTICIPATING PARTIES.

     5.8 REPORTS.  OPERATOR shall make reports to governmental  authorities that
it has a duty to make as OPERATOR  and shall  furnish  copies of such reports to
the PARTIES.  OPERATOR  shall give timely  written  notice to the PARTIES of all
litigation and hearings affecting the LEASES or operations hereunder.

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     5.9  INFORMATION  TO  PARTICIPATING  PARTIES.  OPERATOR  shall  furnish all
PARTICIPATING PARTIES hereto the following  information  pertaining to each well
being drilled:

          (a)  copy of  application  for  permit  to  drill  and all  amendments
               thereto;

          (b)  daily  drilling  reports by  facsimile  or e-mail;

          (c)  complete  report of all core analyses;

          (d)  two (2) copies of any logs or surveys as run;

          (e)  two (2)  copies of any well test  results,  bottom-hole  pressure
               surveys, gas and condensate analyses or similar information;

          (f)  one (1) copy of reports made to regulatory agencies; and

          (g)  twenty-four  (24) hour  notice of  logging,  coring  and  testing
               operations;

          (h)  upon request prior to resumption of drilling operations,  samples
               of cuttings  and cores  marked as to depth,  to be  packaged  and
               shipped to the requesting PARTY at their expense.

          (i)  all  other   reasonable   information,   available  to  OPERATOR,
               pertaining to any well drilled pursuant to this Agreement.

                                   ARTICLE VI

                          VOTING AND VOTING PROCEDURES

     6.1   DESIGNATION   OF   REPRESENTATIVE.   The  name  and  address  of  the
representative  and  alternate  authorized  to represent and bind each PARTY for
operations  provided  in  Article  IX,  shall be as shown on  Exhibit  "A".  The
designated  representative  or alternate may be changed by written notice to the
other PARTIES.

     6.2 VOTING  PROCEDURES.  Unless  otherwise  provided,  any matter requiring
approval of the PARTIES shall be determined as follows:

          6.2.1 Voting  Interest.  Each PARTY shall have a voting interest equal
to its WORKING INTEREST or its PARTICIPATING INTEREST as applicable.

          6.2.2 Vote Required.  Except as may be specifically provided elsewhere
herein,  if there are three or more  Parties  to this  agreement,  any  proposal
requiring approval of the PARTIES shall be decided by an affirmative vote of two
(2) or more PARTIES having a combined voting interest of fifty-one percent (51%)
or more. If there are only two parties to this agreement, any proposal requiring
approval of the Parties,  other than the proposals described in Article 12.7 and
Article 13.1, shall be decided by an affirmative vote of one (1) or more Parties
having a combined voting interest of fifty-one percent (51%) or more.

          6.2.3 Votes. The PARTIES may vote at meetings, by telephone, confirmed
in writing to OPERATOR; or by letter, telegram,  e-mail or telecopies.  However,
any PARTY not  attending a meeting must vote prior to the meeting in order to be
counted.  Provided,  however,  no vote  shall be taken in a meeting in which all
Parties are not present unless such vote was  specifically set out in the formal
agenda.  OPERATOR shall give prompt notice of the results of such voting to each
PARTY.

          6.2.4 Meetings. Meetings of the PARTIES may be called by OPERATOR upon
its own motion or at the  request of one (1) or more  PARTIES  having a combined
voting  interest  of not less  than ten  percent  (10%).  Except  in the case of
emergency or except when agreed by unanimous consent, no meeting shall be called
on less than five (5)

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days  advance  written  notice,  (including  the agenda for such  meeting).  The
OPERATOR shall be chairman of each meeting.

                                   ARTICLE VII

                                     ACCESS

     7.1 ACCESS TO LEASE.  Each PARTY shall have access to the LEASE as its sole
risk and expense at all reasonable  times to inspect  operations and records and
data pertaining thereto.

     7.2 REPORTS.  OPERATOR shall furnish to a requesting  PARTY any information
to which such PARTY is entitled hereunder. The costs of gathering and furnishing
information  not  otherwise  furnished  under  Article V shall be charged to the
requesting PARTY.

     7.3  CONFIDENTIALITY.  Except as  provided  in  Section  7.4 and except for
necessary  disclosures  to  governmental  agencies,  no PARTY shall  release any
geological,  geophysical or reservoir  information or any logs, surveys or other
information  pertaining to the progress,  tests or results of any well or status
of the LEASE unless agreed to by the PARTICIPATING  PARTIES. At such time as the
PARTIES mutually agree such information is non-confidential,  it may be publicly
released.  Unless otherwise provided,  OPERATOR shall initially release the same
subsequent  to approval of its content by the PARTIES.  OPERATOR  shall have the
exclusive  right to  designate  certain  wells  as  "tite"  for the  competitive
protection of the PARTIES.

     7.4 LIMITED  DISCLOSURE.  Any PARTY may make confidential data available to
affiliates,  to reputable  engineering firms and gas transmission  companies for
hydrocarbon  reserve and other  technical  evaluations,  to reputable  financial
institutions  for study prior to commitment of funds and to bonafide  purchasers
of all of a PARTY'S interest in the LEASE. Any third party permitted such access
shall first agree in writing  neither to disclose such data to others nor to use
such data except for the purpose for which it is disclosed.  Each PARTY shall be
furnished with copies of third parties execution of the same. Any Party may make
limited releases of confidential data to the Offshore Oil Scouts  Association to
the extent and only to the extent such data  satisfies the minimum  requirements
for membership in the Offshore Oil Scouts Association.

                                  ARTICLE VIII

                                  EXPENDITURES

     8.1 BASIS OF CHARGE TO THE  PARTIES.  Subject to other  provisions  of this
Agreement,  OPERATOR shall pay all costs and each PARTY shall reimburse OPERATOR
in proportion to the PARTICIPATING INTEREST. All charges, credits and accounting
for expenditures  shall be pursuant to the Accounting  Procedure attached hereto
as Exhibit "C". The provisions of this  Agreement  shall prevail in the event of
conflict with Exhibit "C".

     8.2  AUTHORIZATION.  OPERATOR shall neither make any single expenditure nor
undertake  any  project  costing  in excess  of  Seventy-five  Thousand  Dollars
($75,000.00)  without prior  approval of the PARTIES.  OPERATOR  shall furnish a
written AFE, for information  purposes only, to the PARTIES on any  expenditures
in  excess  of  Twenty-five  Thousand  Dollars  ($25,000.00).   When  costs  are
anticipated to exceed 120% of a previously  approved AFE, OPERATOR shall issue a
Supplemental AFE for information  purposes only Subject to any election provided
in Article X and XI, approval of a well operation shall include  approval of all
necessary  expenditures through installation of the wellhead. In the event of an
emergency, OPERATOR may immediately make such expenditures as in its opinion are

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required to deal with the emergency.  OPERATOR  shall report to the PARTIES,  as
promptly as possible, the nature of the emergency and action taken.

     8.3 ADVANCE  BILLINGS.  OPERATOR shall have the right to require each PARTY
to advance its respective  share of estimated  expenditures  pursuant to Exhibit
"C". As to any party who fails to pay its share of said advance  payment  within
fifteen (15) days after  receipt of such  statement  and invoice,  Operator will
notify such  affected  party of its default by certified  mail,  return  receipt
requested and if such party fails to cure the default  within ten (10) days from
the date of receipt of Operator's  Notice, by payment in full of the outstanding
invoices for advance payment, at Operator's  election,  the affected Party shall
be deemed non-consent as to the proposed operation attributable thereto.

     8.4  COMMINGLING OF FUNDS.  Funds received by OPERATOR under this Agreement
may be commingled with its own funds.

     8.5 SECURITY RIGHTS.  In addition to any other security rights and remedies
provided by law with  respect to services  rendered or materials  and  equipment
furnished  under  this  Agreement,  OPERATOR  shall  have a first lien upon each
PARTY'S  PARTICIPATING  and/or  WORKING  INTEREST,  including the production and
equipment  credited thereto,  in order to secure payment of charges against such
PARTY,  together with  interest  thereon at the rate set forth in Exhibit "C" or
the maximum rate allowed by law,  whichever is less, plus attorneys' fees, court
costs and other related collection costs. If any PARTY does not pay such charges
when due, OPERATOR shall have the additional right to collect from the purchaser
the proceeds from the sale of such PARTY'S share of production  until the amount
owed has been paid.  Each  purchaser  shall be  entitled  to rely on  OPERATOR'S
statement  concerning the amount owed. Each  NON-OPERATOR  shall have comparable
security rights on OPERATOR'S PARTICIPATING and/or WORKING INTEREST. Such offset
rights shall not apply to amounts owing that are in dispute.

     8.6 UNPAID  CHARGES.  If any PARTY fails to pay the charges due  hereunder,
including  billings under Section 8.3,  within thirty (30) days after payment is
due,  the  PARTICIPATING  PARTIES  shall have the  obligation,  upon  OPERATOR'S
request, to pay the unpaid amount in proportion to their interest. Each PARTY so
paying its share of the unpaid amount shall be subrogated to OPERATOR'S security
rights to the extent of such payment.

     8.7  DEFAULT.  If any PARTY does not pay its share of the charges when due,
or prior to  commencement  of the  approved  operation  for which it is  billed,
whichever  is the  earlier,  OPERATOR  may give such PARTY  notice  that  unless
payment is made within  fifteen (15) DAYS,  such PARTY shall be in default.  Any
PARTY in default shall have no further access to the maps, cores, logs, surveys,
records, data,  interpretations or other information obtained in connection with
said operation.  A defaulting  PARTY shall not be entitled to vote on any matter
until such time as PARTY'S  payments  are current.  The voting  interest of each
non-defaulting PARTY shall be in the proportion its PARTICIPATING INTEREST bears
to the total non-defaulting PARTICIPATING INTEREST. As to any operation approved
or commenced  during the time a PARTY is in default,  such PARTY shall be deemed
to be a NON-PARTICIPATING PARTY.

     8.8 CARVED-OUT  INTERESTS.  Subject to the  reservations set out in Article
16.1, any overriding royalty, production payment, net proceeds interest, carried
interest or any other interest  carved-out of the WORKING INTEREST in the LEASES
after the effective date of this Agreement shall be subject to the rights of the
PARTIES to this Agreement, and any PARTY whose WORKING INTEREST is so encumbered
shall be responsible therefor. If a

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PARTY  does not pay its  share of  expenses  and the  proceeds  from the sale of
production  under Section 8.5 are  insufficient  for that purpose,  the security
rights provided for therein may be applied against the carved-out interests with
which such WORKING INTEREST is burdened.  In such event, the rights of the owner
of such carved-out interest shall be subordinated to the security rights granted
by Section 8.5.

                                   ARTICLE IX

                                     NOTICES

     9.1 GIVING AND  RECEIVING  NOTICES.  All  notices  shall be in writing  and
delivered in person or by mail,  telex,  telegraph,  TWX,  telecopier  or cable;
however,  if a drilling  rig is on  location  at time of  proposal  and  standby
charges  are  accumulating,  such  notices  shall  be  given  by  telephone  and
immediately  confirmed  in  writing.  Notice  shall be  deemed  given  only when
received by the PARTY to whom such notice is directed, except that any notice by
certified mail or equivalent, telegraph or cable properly addressed, pursuant to
Section  6.1,  and with all postage and charges  prepaid  shall be deemed  given
seventy-two (72) hours after such notice is deposited in the mail or twenty-four
(24) hours after such notice is sent by facsimile (receipt  confirmed),  or when
filed with an operating, telegraph or cable company for immediate transmission.

     9.2 CONTENT OF NOTICE.  Any notice which requires a response shall indicate
the maximum  response  time  specified in Section 9.3. If a proposal  involves a
Platform or Facility,  the notice shall contain a description of same, including
location  and  the   estimated   costs  of   fabrication,   transportation   and
installation.  If a proposal involves a well operation, the notice shall include
the estimated commencement date, the proposed depth, the objective zone or zones
to be tested,  the surface and bottom-hole  locations and the estimated costs of
the operation including all necessary  expenditures  through installation of the
wellhead.

     9.3 RESPONSE TO NOTICES.  Each PARTY'S  response to a proposal  shall be in
writing to OPERATOR,  with copies to the other PARTIES. Except for those notices
in Articles X, XI, XV and XVI, the maximum response time shall be as follows:

          9.3.1 Platform Construction. When any proposal for operations involves
the  construction of a platform,  the maximum  response time shall be forty-five
(45) days.

          9.3.2 Proposal Without Platform. When any proposal for operations does
not require  construction of a platform,  maximum  response time shall be thirty
(30) days;  however,  if a drilling rig is on location  and standby  charges are
accumulating, the maximum response time shall be forty-eight (48) hours.

          9.3.3 Other  Matters.  For all other  matters  requiring  notice,  the
maximum response time shall be thirty (30) days.

     9.4 FAILURE TO RESPOND.  Failure of any PARTY to respond to a notice within
the required period shall be deemed to be a negative response.

     9.5 RESTRICTIONS ON MULTIPLE WELL PROPOSALS. Unless otherwise agreed by the
PARTIES,  no more than one well shall be drilling or completing  for the account
of the  Parties on the Lease at the same  time.  Well  proposals  made under the
terms hereof shall be limited to one well each and except as provided  below, no
PARTY shall be required to make an election under more than one well proposal at
the same time or while a well is

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drilling or completing.  This paragraph  shall not limit the right of a PARTY to
propose a well while  another is drilling or  completing,  however,  the time to
elect under such a proposal  shall be deferred  until (a) thirty (30) days after
the previous well has been completed or plugged and abandoned or (b) twenty-four
(24) hours from receipt of notification  that the drilling rig has been moved to
the new  location  and  standby  charges  are being  accumulated,  whichever  is
earlier.

                                    ARTICLE X

                                EXPLORATORY WELLS

     10.1 OPERATIONS BY ALL PARTIES.  Any PARTY may propose an EXPLORATORY  WELL
by notifying  the other  PARTIES.  If all the PARTIES  agree to  participate  in
drilling the  proposed  well,  OPERATOR  shall drill same for the benefit of all
PARTIES.

     10.2 SECOND OPPORTUNITY TO PARTICIPATE.  If fewer than all PARTIES elect to
participate,  OPERATOR shall inform all PARTIES of the elections made, whereupon
any PARTY  originally  electing not to participate may then elect to participate
by notifying the OPERATOR  within  forty-eight  (48) hours after receipt of such
information.

     10.3 OPERATIONS BY FEWER THAN ALL PARTIES. If fewer than all but one (1) or
more PARTIES owning not less than forty percent (40%) WORKING  INTEREST elect to
participate  in and  agree to bear the cost and risk of  drilling  the  proposed
well,  OPERATOR,  even if OPERATOR is a NON-PARTICIPATING  PARTY, shall have the
option of drilling such well for the PARTICIPATING PARTIES under this Agreement.
OPERATOR,  immediately after expiration of the applicable  notice period,  shall
advise  the  PARTICIPATING  PARTIES  of (a) the total  interest  of the  PARTIES
approving  such  operation,  and  (b)  its  recommendation  as  to  whether  the
PARTICIPATING  PARTIES  should  proceed with the  operation  as  proposed.  Each
PARTICIPATING  PARTY,  within  forty-eight  (48) hours  (inclusive  of Saturday,
Sunday or legal  holidays)  after  receipt  of such  notice,  shall  advise  the
proposing  PARTY  of its  desire  to (a)  limit  participation  to such  PARTY'S
interest  as shown on  Exhibit  "A",  or (b)  carry  its  proportionate  part of
NON-PARTICIPATING PARTIES' interest, or (c) participate with a lesser percentage
than its proportionate  part of the  NON-PARTICIPATING  PARTIES'  interest.  The
proposing  PARTY,  at its  election,  may  withdraw  such  proposal  if there is
insufficient  participation  and  shall  promptly  notify  all  PARTIES  of such
decision. If the well is commenced within ninety (90) days after the date of the
last applicable election date and is drilled as proposed in accordance with this
Agreement,  any  PARTY  electing  not to  participate  shall be  deemed  to have
relinquished its operating rights in such well as if it were a NON-CONSENT WELL.
However,  in the situation in which a rig is on location and standby charges are
accumulating,  thus  precipitating a forty-eight (48) hour response period,  the
well must be commenced  within  fifteen (15) days.  If no  operations  are begun
within such time  period,  the effect  shall be as if the  proposal had not been
made.  Operations shall be deemed to have commenced (a) on the date the contract
for a new platform is let, if the notice  indicated the need for such  platform;
or (b) the date rigging-up  operations on the well are commenced.  Recoupment of
costs shall be  determined by Sections  12.2 and 12.5,  if  applicable,  and the
drilling of such well shall be governed by Article XII as  applicable;  however,
percentages under Section 12.2 shall be as follows:

          12.2.1a) Eight hundred percent (800%)
          12.2.1b) Three hundred percent (300%)
          12.2.1c) One hundred percent (100%)
          12.2.1d) One hundred percent (100%)

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Provided however,  if the proposed  EXPLORATORY WELL is the initial well drilled
by the PARTIES on the LEASE, then any NON-PARTICIPATING  PARTY shall permanently
assign its entire  interest  in the LEASE to the  PARTICIPATING  PARTIES and the
recoupment  of cost  provision  of this Article and Article XII shall not apply,
but the NON-PARTICIPATING PARTY shall not be relieved of any obligation accruing
prior to such assignment.

     10.4 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH

          10.4.1  Casing  Point  Election.  After an  Exploratory  Well has been
drilled for all Parties to the objective depth,  and all authorized  logging and
testing has been  completed,  OPERATOR shall  immediately  notify the PARTIES of
OPERATOR'S proposal to either;

               (a)  further log or test the well,

               (b)  complete the well as originally planned,

               (c)  plug-back  and  complete  the  well in a  shallower  zone in
                    ascending order,

               (d)  deepen the well within a previously approved objective zone,
                    in descending order,

               (e)  deepen the well below the deepest approved objective zone or
                    zones,

               (f)  sidetrack the well to a new bottom hole location  within the
                    approved objective zone,

               (g)  other operations in the well, or

               (h)  plug and abandon the well.

Within  forty-eight (48) hours after receipt of OPERATOR'S  proposal,  the other
PARTIES   shall   respond   thereto   by  either   approving   it  or  making  a
counter-proposal.  If a  counter-proposal  is made,  the  PARTIES  shall have an
additional  forty-eight (48) hours to respond thereto.  If all PARTIES approve a
proposal  or  counter-proposal,  OPERATOR  shall  conduct the  operation  at the
PARTICIPATING  PARTIES  cost  and  risk.  A  proposal  to  complete,  rework  or
recomplete a well at a particular  depth will take  precedence  over proposal to
complete, rework or recomplete the well above such depth, with a deeper proposal
for  such  operations  always  taking  precedence  over  a  shallower  proposal.
Proposals for such  operations at any depth will take  precedence over proposals
to deepen the well below its originally proposed total depth or to sidetrack the
well once it has reached  such depth.  Proposals of the same type shall be given
precedence in the order in which they are made. No action shall be required on a
proposal while there is pending a proposal,  with  precedence  being on the same
well on  which  the  parties  have  not  acted  or on  which  work  has not been
completed.  If fewer  than all,  but one (1) or more,  Parties  having a Working
Interest  of 25% or more  approve a  proposal  or  counter-proposal  made  under
Section 10.4 and agree to bear the cost and risk thereof, Operator shall conduct
the same pursuant to Article 12.

                                   ARTICLE XI

                             DEVELOPMENT OPERATIONS

     11.1  OPERATIONS  BY ALL  PARTIES.  Any  PARTY may  propose  a  DEVELOPMENT
OPERATION,  including any platform required by such operations, by notifying the
other PARTIES.  If all PARTIES elect to  participate in the proposed  operation,
OPERATOR  shall  conduct such  operation for the benefit of the PARTIES at their
cost and risk.

     11.2 SECOND OPPORTUNITY TO PARTICIPATE.  If fewer than all PARTIES elect to
participate,  the  OPERATOR  shall  inform the  PARTIES of the  elections  made,
whereupon any PARTY  originally  electing not to  participate  may then elect to
participate  by  notifying  the  OPERATOR  within  forty-eight  (48) hours after
receipt of such  information.  Thereafter,  if fewer than all  PARTIES  elect to
participate, the PARTICIPATING PARTIES shall be afforded the alternatives as set
out under Article 10.3.

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     11.3 OPERATIONS BY FEWER THAN ALL PARTIES. Except for a DEVELOPMENT WELL(S)
under  Section  12.7,  if fewer than all  PARTIES,  but one (1) or more  PARTIES
having NOT LESS THAN forty percent (40%) WORKING INTEREST approves a DEVELOPMENT
OPERATION;  OPERATOR  shall conduct such  operation  pursuant to Article XII. If
such  operations are to be conducted from an existing  platform,  the operations
participated in by all of the PARTIES shall have  preference,  unless  otherwise
agreed to by the PARTIES hereto.

     11.4 TIMELY  OPERATIONS.  Operations  shall be commenced within ninety (90)
days following the date upon which the last applicable  election may be made. If
no operations  are begun within such time period,  the effect shall be as if the
proposal had not been made.  Operations shall be deemed to have commenced (a) on
the date the  contract for a new  platform is let, if the notice  indicated  the
need for such platform;  or (b) on the date rigging-up  operations are commenced
on an existing platform.

     11.5 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH.  After any
DEVELOPMENT WELL has reached its objective  depth, the identical  procedures and
alternatives provided under Article 10.4 shall apply.

     11.6 DEEPER DRILLING. If a well is proposed to be drilled below the deepest
producible zone penetrated by a PRODUCIBLE WELL on the LEASE any PARTY may elect
to  participate  either in the well as  proposed  or to the base of the  deepest
producible  zone. A PARTY  electing to  participate  in such well to the base of
said zone shall bear its proportionate  part of the cost and risk of drilling to
said zone including completion or abandonment. All operations below the depth to
which such PARTY agreed to participate shall be governed by Article X.

                                   ARTICLE XII

                             NON-CONSENT OPERATIONS

     12.1 NON-CONSENT OPERATIONS.  OPERATOR shall conduct NON-CONSENT OPERATIONS
at the sole risk and expense of the  PARTICIPATING  PARTIES,  in accordance with
the following provisions;

          12.1.1  Non-Interference.  NON-CONSENT  OPERATIONS shall not interfere
unreasonably with operations being conducted by all PARTIES.

          12.1.2 Multiple Completion  Limitation.  NON-CONSENT  OPERATIONS shall
not  be  conducted  in a well  having  multiple  completions  unless:  (a)  each
completion is owned by the same PARTIES in the same proportions; (b) the well is
incapable  of  producing  from  any  of its  current  completions;  or  (c)  all
PARTICIPATING PARTIES in the well consent to such operations.

          12.1.3  Metering.  In NON-CONSENT  OPERATIONS,  production need not be
separately metered but may be determined on the basis of well test.

          12.1.4  Liens.   In  the  conduct  of  NON-CONSENT   OPERATIONS,   the
PARTICIPATING  PARTIES  shall  keep  the  LEASE  free and  clear  of  liens  and
encumbrances.

          12.1.5 Non-Consent Well. Operations on a NON-CONSENT WELL shall not be
conducted  in any  producible  zone  penetrated  by a  PRODUCIBLE  WELL  without
approval of each  NON-PARTICIPATING  PARTY unless; (a) such zone shall have been
designated in the notice as a completion  zone;  (b)  completion of such well in
said  zone will not  increase  the well  density  governmentally  prescribed  or
approved for such zone; and (c) the horizontal

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distance  between the vertical  projections  of the midpoint of the zone in such
well and any existing well in the same zone will be a least one thousand (1,000)
feet if an  oil-well  completion  or two  thousand  (2,000)  feet if a  gas-well
completion.  Subject to the  foregoing  provisions  of this  Article,  until the
PARTICIPATING  PARTIES in a  NON-CONSENT  WELL have recouped the amount to which
they are entitled  hereunder,  they may conduct any reworking  operation on such
well which they may desire, including plugging back to a shallower zone but only
if such  shallower  zone is subject to  NON-CONSENT  elections  in the  original
proposal.  In this event, the cost of such reworking  operation shall be subject
to the penalty provisions of Section 12.2.1.

          12.1.6  Cost-Information.  OPERATOR  shall,  within one hundred twenty
(120) days after  completion  of a  NON-CONSENT  WELL,  furnish  the  PARTIES an
inventory  and an  itemized  statement  of the cost of such  well and  equipment
pertaining  thereto.  OPERATOR shall furnish to the PARTIES a monthly  statement
showing operating expenses and the proceeds from the sale of production from the
well for the preceding month.

          12.1.7 Completions. For the purposes of determinations hereunder, each
completion shall be considered a separate well.

     12.2   RELINQUISHMENT   OF  INTEREST.   Upon  commencement  of  NON-CONSENT
OPERATIONS,  each  NON-PARTICIPATING  PARTY'S  interest and leasehold  operating
rights in the NON-CONSENT  OPERATION and title to production there from shall be
owned  by  and  vested  in  each  PARTICIPATING   PARTY  in  proportion  to  its
PARTICIPATING  INTEREST for as long as the  operations  originally  proposed are
being  conducted  or  production  is  obtained,  subject to Sections  12.2.1 and
12.2.2.

          12.2.1 Production  Reversion  Penalties.  Except as to such operations
conducted  pursuant to Section  12.7 or for the  initial  EXPLORATORY  WELL,  or
subsequent  EXPLORATORY WELL referred to in Section 10.3, such interest,  rights
and title shall revert to each  NON-PARTICIPATING  PARTY when the  PARTICIPATING
PARTIES have  recouped out of the proceeds of production  from such  NON-CONSENT
OPERATIONS an amount equal to the sum of the following:

               (a)  Six  hundred   percent  (600%)  of  the  cost  of  drilling,
                    completing, recompleting, sidetracking, deepening, deviating
                    or plugging  back each  NON-CONSENT  WELL and  equipping  it
                    through   the   wellhead   connections,   reduced   by   any
                    contribution received under Section 21.1; plus,

               (b)  Three  hundred  percent  (300%)  of the  cost of  FACILITIES
                    necessary to carry out the operation; plus,

               (c)  One  hundred  percent  (100%)  of  the  cost  of  using  any
                    FACILITIES already installed  determined pursuant to Section
                    12.6 below; plus,

               (d)  One  hundred   percent  (100%)  of  the  cost  of  operating
                    expenses, royalties and severance, gathering, production and
                    windfall profit taxes.

Recoupment of costs shall be in the order listed above.  Upon the  recoupment of
such costs, a NON-PARTICIPATING PARTY shall become a PARTICIPATING PARTY in such
operations.

          12.2.2 Non-Production  Reversion.  If such NON-CONSENT OPERATIONS fail
to obtain  production or such operations result in production which ceases prior
to recoupment by the PARTICIPATING  PARTIES of the penalties provided for above,
such operating rights shall revert to each  NON-PARTICIPATING  PARTY except that
all  NON-CONSENT  wells,  platforms  and  FACILITIES  shall remain vested in the
PARTICIPATING PARTIES; however, any salvage in excess of the sum remaining under
Section 12.2.1 shall be credited to all PARTIES.

     12.3 DEEPENING OR SIDETRACKING OF NON-CONSENT WELL. If any PARTICIPATING

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<PAGE>

PARTY  proposes to deepen or sidetrack a NON-CONSENT  WELL, a  NON-PARTICIPATING
PARTY may  participate by notifying the OPERATOR  within fifteen (15) days after
receiving  the proposal (48 hours if a rig is on location)  that it will join in
the (deepening or sidetracking)  operations,  and by paying to the PARTICIPATING
PARTIES an amount equal to such  NON-PARTICIPATING  PARTY'S  share of the actual
costs of drilling  and casing such well to the point at which such  deepening or
sidetracking operation is commenced. The PARTICIPATING PARTIES shall continue to
be entitled to recoup the full sum specified in Section 12.2.1 applicable to the
NON-CONSENT  WELL, less the amount paid under this section,  out of the proceeds
of production from the NON-CONSENT portion of the well.

     12.4 OPERATIONS FROM  NON-CONSENT  PLATFORMS.  Subject to the following,  a
PARTY which did not originally  participate in a platform  proposed  pursuant to
the terms herein, shall be a NON-PARTICIPATING PARTY as to ownership therein and
all operations thereon until the PARTICIPATING  PARTIES as to such platform have
recouped the full sum specified in Section 12.2.1 applicable to such NON-CONSENT
PLATFORM and the  NON-CONSENT  OPERATIONS  which resulted in the setting of such
PLATFORM and other  NON-CONSENT  OPERATIONS  thereon or therefrom.  However,  an
original  NON-PARTICIPATING  PARTY may participate in additional operations from
such PLATFORM by notifying the OPERATOR  within thirty (30) days after receiving
a proposal for  operations  from such PLATFORM (48 hours if a rig is on location
and standby rig charges are being  incurred)  that it will join in such proposed
operations  by paying to the  PARTICIPATING  PARTIES in such  PLATFORM an amount
equal to 300% of such NON-PARTICIPATING PARTY'S share of the actual cost of such
PLATFORM,  less any recoupment therefor previously  obtained.  Thereafter,  such
original  NON-PARTICIPATING  PARTY in the PLATFORM  shall own its  proportionate
share thereof.  The  PARTICIPATING  PARTIES in such  NON-CONSENT  PLATFORM shall
continue  to be  entitled  to recoup the full sum  specified  in Section  12.2.1
applicable to any other NON-CONSENT OPERATIONS thereon or therefrom.

     12.5  DISCOVERY OR EXTENSION  FROM MOBILE  DRILLING  OPERATIONS.  If a NON-
CONSENT  WELL drilled from a mobile  drilling  rig or floating  drilling  vessel
results in the  discovery or extension of productive  formations  and, if within
one (1) year from the date the drilling  equipment  is  released,  a platform or
other  fixed  structure  is ordered and if its  location is within one  thousand
(1,000) feet from an oil well or three  thousand  (3,000) feet if gas,  from the
vertical projection of the bottom-hole location of any such well (unless limited
by surface  restrictions),  the  recoupment  of amounts  applicable to such well
under  Section  12.2.1 shall be out of such original  NON-PARTICIPATING  PARTY'S
SHARE of all production from such  NON-CONSENT WELL and one-half of its share of
production from all other wells on the platform or other fixed structure drilled
to develop  reserves  resulting  from the  discovery or extension of  productive
formations in said NON-CONSENT WELL in which the NON-PARTICIPATING PARTY in such
NON-CONSENT WELL has a PARTICIPATING INTEREST.

     12.6  ALLOCATION OF PLATFORM COSTS TO NON-CONSENT  OPERATIONS.  NON-CONSENT
OPERATIONS shall be subject to further conditions as follows:

          12.6.1 Charges.  If a NON-CONSENT WELL is drilled from a platform (and
is producible or the slot is otherwise  rendered  unusable),  the  PARTICIPATING
PARTIES in such well shall pay to the  OPERATOR for credit to the owners of such
platform a charge (due upon completion of operations for such NON-CONSENT  WELL)
for the right to use the platform and its FACILITIES as follows:

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<PAGE>

               (a)  Such  PARTICIPATING  PARTIES  shall  pay a sum equal to that
                    portion of the total cost of the  platform  (including,  but
                    not  by way  of  limitation,  costs  of  design,  materials,
                    fabrication,  transportation,  installation  and other costs
                    associated  therewith,  plus  any  repairs  and  maintenance
                    expense  resulting  from  the  drilling  of  such  well  not
                    provided in Section  12.6.2),  which one platform slot bears
                    to  the  total  number  of  slots  on the  platform.  If the
                    NON-CONSENT   WELL   is   abandoned,   the   right   of  the
                    PARTICIPATING  PARTIES  to  use  that  platform  slot  shall
                    terminate unless such PARTIES commence drilling a substitute
                    well  from the same  slot  within  ninety  (90)  days  after
                    abandonment.

               (b)  If  the  NON-CONSENT  WELL  production  is  handled  through
                    existing FACILITIES, the PARTICIPATING PARTIES shall pay the
                    owners of the  facilities a sum equal to that portion of the
                    total   cost  of  such   FACILITIES   which  the  number  of
                    completions  in said  NON-CONSENT  WELL  bears to the  total
                    number of completions utilizing the FACILITIES.

          12.6.2 Operating and Maintenance  Charges.  The PARTICIPATING  PARTIES
shall pay all costs  necessary to connect a NON-CONSENT  WELL to the  FACILITIES
and that  proportionate  part of the expense of operating  and  maintaining  the
platform and other FACILITIES  applicable to the NON-CONSENT WELL, including the
cost of  insurance  thereon or in  connection  therewith,  whether by  insurance
policy of  self-insurance  by each PARTY for its interest or by OPERATOR for the
joint account.  Platform  operating and maintenance  expenses shall be allocated
equally to all completions served and operating and maintenance expenses for the
other FACILITIES shall be allocated equally to producing completions.

          12.6.3 Payments.  Payments of sums pursuant to Section 12.6.1 is not a
purchase of an  additional  interest in the platform or other  FACILITIES.  Such
payments shall be included in the total amount, which the PARTICIPATING  PARTIES
are entitled to recoup out of production from the NON-CONSENT WELL.

     12.7 NON-CONSENT DRILLING TO MAINTAIN LEASE. A lease maintenance  operation
is defined for the  purposes of this  paragraph  as one required to maintain the
joint LEASE or a portion  thereof,  at its  expiration  date or otherwise.  This
shall  include,  but not be  limited  to,  a well  proposed  to be and  actually
commenced and drilled during the last year of the primary term of the LEASE,  or
subsequent  thereto,  when: (a) the LEASE, or affected portion  thereof,  is not
otherwise  being held by  operations  or  production;  (b) a PRODUCIBLE  WELL(S)
thereon has not  established  sufficient  reserves,  as determined by one (1) or
more  PARTICIPATING  PARTIES owning fifty percent (50%) working  interest in the
well, to justify a platform;  or (c) any governmental agency having jurisdiction
requires  the same to avoid  loss or  forfeiture  of all or any  portion  of the
LEASE. Any PARTY may propose and carry out a lease maintenance operation and any
PARTY(S)  electing not to  participate  in such an operation  will assign to the
PARTICIPATING  PARTIES in the proportions in which they participate therein, all
of its rights,  titles and interest in such LEASE block, or the affected portion
thereof,  free and clear of any burdens  thereon  occurring  since the effective
date of this Agreement as provided herein,  retaining,  however, its interest in
previously completed wells which are

                                       14

<PAGE>

producing,  shut-in or temporarily  abandoned.  Such assignment,  effective upon
commencement  of lease  maintenance  operations,  will be promptly signed before
witnesses,  acknowledged and delivered to the PARTICIPATING  PARTIES.  If only a
portion of the LEASE is involved,  the  PARTICIPATING  PARTIES at their election
may require an assignment of operating  rights in lieu of the  assignment of all
interest. Upon acceptance by assignees, the assigning PARTY will thereupon cease
to be a PARTY hereto as to the assigned  interest,  subject to final  accounting
between the PARTIES.  If such assignment is not accepted by the Assignees,  they
shall promptly prepare a release of such affected LEASE or portion thereof which
shall be executed by all PARTIES.  However,  nothing  herein  contained  will be
construed to permit any PARTY to refuse to pay in cash its share of the cost and
expense of any operation required on the joint LEASE block by final order of any
governmental authority or court having jurisdiction.

          12.7.1  Retention of Lease by Non-Consent  Well. If a NON-CONSENT WELL
is the only well on the  LEASE(S)  and is serving to  perpetuate  the  LEASE(S),
within  thirty (30) days after  expiration of the LEASE(S)  primary  term,  each
NON-PARTICIPATING PARTY shall elect one of the following;

               (a)  Immediately  assign its entire  interest in the  LEASE(S) to
                    the  PARTICIPATING  PARTIES in the  proportions in which the
                    NON-CONSENT OPERATION was conducted; or

               (b)  Immediately  pay to the  PARTICIPATING  PARTIES its share of
                    all costs  associated  with such well,  less any  recoupment
                    therefore previously  obtained,  such payment to be credited
                    against the total amount to be recovered out of its share of
                    production by the PARTICIPATING  PARTIES pursuant to Article
                    X or XII, whichever is applicable.

     12.8 ALLOCATION OF COSTS (SINGLE COMPLETION). For the purpose of allocating
costs on any well in which the  ownership is not the same for the entire  depth,
the cost of drilling,  completing  or equipping  such well shall be allocated on
the following basis:

          (a)  Intangible  drilling,  completion and material  costs  (including
               casing and tubing  costs) from the surface to a depth one hundred
               (100) feet below the base of the completed  zone shall be charged
               to the owners or the PARTIES participating in that zone.

          (b)  Intangible  drilling,  completion,  casing  string  and  material
               costs,  other than tubing  costs,  from a depth one hundred (100)
               feet below the base of the completed zone to total depth shall be
               charged to the owners or the PARTIES  participating  in the costs
               to total depth.

     12.9  ALLOCATION  OF  COSTS  (MULTIPLE  COMPLETIONS).  For the  purpose  of
allocating  costs on any well  completed in dual or multiple  zones in which the
ownership is not the same for the entire depth or the completions  thereof,  the
cost of drilling,  completing  and equipping such well shall be allocated on the
following basis:

          (a)  Intangible drilling,  completion  (including wellhead equipment),
               casing string and material costs,  other than tubing costs,  from
               the surface to a depth one  hundred  (100) feet below the base of
               the upper  completed  zone shall be divided  equally  between the
               completed  zones and charged to the owners thereof or the PARTIES
               participating in such zone.

                                       15

<PAGE>

          (b)  Intangible  drilling,  completion,  casing  string  and  material
               costs,  other than tubing  costs,  from a depth one hundred (100)
               feet  below the base of the upper  completed  zone to a depth one
               hundred  (100) feet below the base of the second  completed  zone
               shall be divided  equally  between  the second and any other zone
               completed  below such depth and charged to the owners  thereof or
               to the  PARTIES  participating  in  each  zone.  If the  well  is
               completed in additional  zones, the costs applicable to each such
               zone shall be determined and charged to the owners thereof in the
               same manner as prescribed by the dual zones completion.

          (c)  Intangible  drilling,  completion,  casing  string  and  material
               costs,  other than tubing  costs,  from a depth one hundred (100)
               feet below the base of the lower  completed  zone to total  depth
               shall be charged to the owners or the  PARTIES  participating  in
               the costs to total depth.

          (d)  Costs of tubing  strings  serving  each  separate  zone  shall be
               charged to the owners or the PARTIES participating in each zone.

          (e)  For the  purposes of  allocating  tangible and  intangible  costs
               between  zones  that  occur at less than one  hundred  (100) foot
               intervals,  the costs for the  distance  between  the base of the
               upper zone to the top of the next  lower zone shall be  allocated
               equally between zones.

     12.10  ALLOCATION OF COSTS (DRY HOLE).  For the purpose of allocating costs
on any well  determined to be a dry hole, in which the ownership is not the same
for the entire depth or the completion thereof,  the cost of drilling,  plugging
and abandoning such well shall be allocated on the following basis:

          (a)  Costs to drill,  plug and abandon a well proposed for  completion
               in  single,  dual,  or  multiple  zones  shall be  charged to the
               PARTICIPATING  PARTIES  in the same  manner  as if the well  were
               completed as a producing well in all zones as proposed.

          (b)  Plugging and  abandoning  of any well  following  any  deepening,
               completion  attempt or other  operation shall be at the sole risk
               and  expense  of the  PARTICIPATING  PARTIES  in such  operation,
               subject however to the provisions of Section 10.4.

     12.11 INTANGIBLE  DRILLING AND COMPLETION  ALLOCATIONS.  For the purpose of
calculations  hereunder,  intangible  drilling and completion  costs,  including
non-controllable material costs, shall be allocated between zones, including the
interval from the lower  completed zones to total depth, on a drilling day ratio
basis beginning on the day the rig arrives on location and terminating  when the
rig is released.

     12.12 OPERATED WELLS. The designated  OPERATOR  hereunder shall operate all
wells drilled pursuant to the NON-CONSENT provision of this Agreement.  However,
notwithstanding  anything  herein to the contrary,  if the  NON-CONSENT  WELL is
drilled  from  a  mobile  drilling  rig  and  if the  designated  OPERATOR  is a
NON-PARTICIPATING  PARTY  therein,  the  PARTICIPATING  PARTY owning the largest
PARTICIPATING  INTEREST  shall serve as Operator for the drilling and completion
of such well, unless the PARTICIPATING PARTIES agree otherwise.  Upon completion
of any such well as a productive  well  (completion  through the wellhead),  the
well shall be turned over to the designated OPERATOR for farther operations.

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<PAGE>

                                  ARTICLE XIII

                                   FACILITIES

     13.1  APPROVAL.  Any PARTY may propose the  installation  of  FACILITIES by
notice to the other PARTIES with  information  adequate to describe the proposed
FACILITIES  and the estimated  costs.  The  affirmative  vote of one (1) or more
PARTIES having a combined  PARTICIPATING INTEREST of forty percent (40%) or more
in the  wells to be served  shall be  required  before  such  FACILITIES  may be
installed.  If such required  approval is obtained,  the  PARTICIPATING  PARTIES
therein shall  proceed with the  installation  of such  FACILITIES at their sole
cost,  risk and expense  and the  NON-PARTICIPATING  PARTIES in such  FACILITIES
shall have no rights with respect thereto,  subject to recoupment of amounts set
forth under Article 12.2.1 from the  completions  served  thereby.  Each PARTY'S
share shall be calculated by  multiplying  the total cost of the FACILITIES by a
fraction,  the  numerator of which is that  PARTY'S  number of  PRODUCIBLE  WELL
completions  served by the FACILITIES and the  denominator of which is the total
number  of  PRODUCIBLE  WELL  completions  served  by  the  FACILITIES.  Nothing
hereunder  shall limit a PARTY'S  rights under  Section 22.1;  however,  a PARTY
acting thereunder shall not be required to pay for joint account FACILITIES that
duplicate its FACILITIES constructed pursuant to Section 22.1

                                   ARTICLE XIV

                             ABANDONMENT AND SALVAGE

     14.1 PLATFORM SALVAGE AND REMOVAL COSTS. When the PARTIES owning FACILITIES
consisting of a platform, mutually agree to dispose of such platform it shall be
disposed of by the OPERATOR as approved by such  PARTIES.  The costs,  risks and
net proceeds,  if any,  resulting from such disposition  shall be shared by such
PARTIES in proportion to their PARTICIPATING INTEREST.

     14.2 PURCHASE OF SALVAGE MATERIALS. OPERATOR shall give all PARTIES written
notice  when it is  determined  under  Section  14.1 that FACILITIES  or other
materials are not needed for further operations and may be moved from the LEASE.
Within  fifteen  (15) days after  receipt of such  notice any PARTY  desiring to
acquire such materials shall give OPERATOR  written notice of such fact. If more
than one PARTY desires to acquire such  materials,  OPERATOR  shall  designate a
time and place at which each PARTY may submit  written bids for such  materials.
If only one PARTY desires to acquire such  materials,  it may do so on the basis
of the value thereof as determined in accordance  with the provisions of Exhibit
"C", with  prefabricated  materials  being valued on the basis of cost including
but not limited to cost of  fabrication.  All  materials  removed from the LEASE
shall be removed at the expense of the PARTIES unless purchased hereunder,  then
at the expense of the acquiring PARTY. In the event no PARTY desires to purchase
said  materials,  the  materials  shall be  disposed of in  accordance  with the
provisions of Exhibit "C".

     14.3  ABANDONMENT OF PRODUCING  WELL. Any PARTY may propose the abandonment
of a well by  notifying  the other  PARTIES,  who shall have the time period set
forth in Section  9.3.2 from receipt  thereof  within which to respond.  No well
shall be abandoned without the mutual consent of the PARTICIPATING  PARTIES. The
PARTICIPATING  PARTIES  not  consenting  to the  abandonment  shall  pay to each
PARTICIPATING  PARTY  desiring to abandon its share of the current  value of the
well's salvageable material and equipment as determined

                                       17

<PAGE>

pursuant to Exhibit "C", less the estimated  current costs of salvaging same and
of plugging and abandoning the well as determined by the PARTICIPATING  PARTIES.
Provided,  however,  if such salvage value is less than such  estimated  current
costs, then each  PARTICIPATING  PARTY desiring to abandon shall pay to OPERATOR
for the benefit of the PARTICIPATING PARTIES not consenting to abandonment a sum
equal to its share of such deficiency.

     14.4 ASSIGNMENT OF INTEREST. Each PARTICIPATING PARTY desiring to abandon a
well pursuant to Section 14.3 shall assign  effective as of the last  applicable
election  date,  to  the   non-abandoning   PARTIES,   in  proportion  to  their
PARTICIPATING INTERESTS, its interest in such well and the equipment therein and
its ownership in the  production of such well.  Any PARTY so assigning  shall be
relieved from any further  liability  with respect to said well except as to any
accrued liability.

     14.5 ABANDONMENT  OPERATIONS REQUIRED BY GOVERNMENTAL  AUTHORITY.  Any well
abandonment or platform  removal  required by a governmental  authority shall be
accomplished by OPERATOR with the costs,  risks and net proceeds,  if any, to be
shared by the  PARTIES  owning  such well or  platform  in  proportion  to their
PARTICIPATING INTEREST.

                                   ARTICLE XV

                                   WITHDRAWAL

     15.1 WITHDRAWAL.  Any PARTY may withdraw from this Agreement and thereby be
relieved of all  responsibilities  with respect to the LEASE by giving notice to
the other PARTIES of such desire  together with an offer to convey at no cost by
a recordable instrument,  without warranty,  express or implied,  except for its
own acts,  all of its  interest  in and to the LEASE,  the oil and gas,  and the
property and equipment owned hereunder.  Any such conveyance or assignment shall
be free and clear of any  overriding  royalties,  production  payments  or other
burdens on production  created after the  effective  date of this  Agreement and
shall be subject to the LEASE provisions and to the rules and regulations of the
lessor.  If any  PARTY(S)  desires to acquire  such  interest  and to assume the
obligations  of the  assigning  PARTY under this  Agreement  and the LEASE,  the
withdrawing  PARTY shall deliver such  conveyance  or assignment  ratably to the
acquiring  PARTIES,  unless the acquiring  PARTIES agree otherwise.  If no PARTY
desires to acquire such interest,  the PARTY desiring to withdraw may do so only
by paying to those  PARTIES not desiring to withdraw  its pro-rata  share of the
estimated  costs of  plugging  and  abandoning  all  wells  and  removal  of all
platforms,  structures and other equipment on the LEASE,  less any salvage value
approved under the voting procedure  hereof,  and such  withdrawing  PARTY shall
remain liable for any costs,  expenses or damages theretofore accrued or arising
out of any event occurring  prior to such PARTY'S  withdrawal.  Thereafter,  the
withdrawing  PARTY shall  assign its entire  interest  ratably to the  remaining
PARTIES.  If the  remaining  PARTIES do not wish to continue  operations  on the
LEASE, all PARTIES shall proceed with abandoning and surrendering the same.

     15.2  LIMITATIONS  ON  WITHDRAWAL.  No  PARTY  shall  be  relieved  of  its
obligations hereunder during a well or platform fire, blowout or other emergency
thereon,  but  may  withdraw  from  this  Agreement  and  be  relieved  of  such
obligations  after  termination of such emergency,  provided such PARTY shall be
and remain liable for its full share of all costs arising out of said emergency,
including  without  limitation,  the drilling of a relief well,  containment and
cleanup of oil spill and pollution and all costs of platform debris removal made
necessary by the emergency.

                                       18

<PAGE>

                                   ARTICLE XVI

                      RENTALS, ROYALTIES AND OTHER PAYMENTS

     16.1 CREATION OF OVERRIDING  ROYALTY.  If after the effective  date of this
Agreement, any PARTY creates any overriding royalty, production payment or other
burden payable out of production  attributable to such PARTY'S WORKING  INTEREST
in the LEASE owned and if any other PARTY(S)  becomes  entitled to an assignment
pursuant to the provisions of this Agreement (except for Paragraph 26.2) or as a
result of  NON-CONSENT  OPERATIONS  hereunder  becomes  entitled  to receive the
WORKING  INTEREST  otherwise  belonging  to a  NON-PARTICIPATING  PARTY  in such
operations,  the PARTY  entitled to receive the  assignment  from or the WORKING
INTEREST production of such NON-PARTICIPATING  PARTY shall receive same free and
clear of such burdens,  and the  NON-PARTICIPATING  PARTY  creating such burdens
shall save the  PARTIClPATING  PARTIES  harmless  with respect to the receipt of
such assigned interest or such WORKING INTEREST production.  Notwithstanding the
provisions  herein, the Parties agree to bear their  proportionate  share of the
overriding royalty interests set out on Exhibit "A".

     16.2  PAYMENT OF RENTALS  AND  MINIMUM  ROYALTIES.  OPERATOR  shall pay all
rentals,  minimum royalties, or similar payments accruing under the terms of the
LEASE and submit  evidence of such payment to the PARTIES.  As to any production
delivered in kind by OPERATOR to any  NON-OPERATOR or to another for the account
of such NON-OPERATOR,  said NON-OPERATOR shall provide OPERATOR with information
as to the  proceeds or value of such  production  in order that the OPERATOR may
make  payment of any minimum  royalty  due. The amount of such payment for which
each PARTY is  responsible  shall be charged by the  OPERATOR  to such  PARTIES.
OPERATOR shall diligently attempt to make proper payment,  but shall not be held
liable to the PARTIES in damages  for the loss of any LEASE or interest  therein
of through  mistake or oversight  any rental or minimum  royalty  payment is not
paid for or is erroneously paid. The loss of any LEASE or interest therein which
results  from a failure  to pay or an  erroneous  payment  of rental or  minimum
royalty shall be a joint loss and there shall be no readjustment of interest.

     16.3  NON-CONCURRENCE  IN  PAYMENTS.  Should any PARTY(S) not concur in the
payment of any rental,  minimum royalty or similar payment,  such PARTY(S) shall
notify  OPERATOR  and all other owners in writing at least sixty (60) days prior
to the date on which such payment is due or accrues; and, in this event OPERATOR
shall make such payment for the benefit of all concurring PARTIES. In such event
the  non-concurring  PARTY(s)  shall,  upon request of any  concurring  PARTIES,
assign to the  concurring  PARTIES  in the ratio  that each  concurring  PARTY'S
interest  at the time bears to the total  interest  of all  concurring  PARTIES,
without warranty,  except for its own acts, such portions of its interest in and
to the LEASE or portion thereof involved as would be maintained by such payment.
That assignment shall be free and clear of any overriding royalties,  production
payments or other burdens on production created after the effective date hereof.
Thereafter,  the LEASE, or portion thereof,  involved shall no longer be subject
to this  Agreement.  The PARTIES then owning such LEASE or portion thereof agree
to operate said LEASE or portion thereof under a separate  agreement in the same
form as this Agreement.

                                       19

<PAGE>

     16.4 ROYALTY PAYMENTS. Each PARTY shall pay, deliver or cause to be paid or
delivered its pro-rata share of LEASE royalties,  overriding royalties, payments
out of production or other amounts or charges which may be or become payable out
of its share of  production  and  shall  hold the  other  PARTIES  free from any
liability therefore. Each Party, electing to pay his share of royalties pursuant
to the terms of the Lease,  shall promptly  notify Operator of said election and
shall thereafter  provide to Operator a detailed  accounting of revenue received
and value paid to the  Lessor for such  Party's  share of  production  produced,
marketed  and sold.  Monthly  reports  shall be  submitted  to  Operator  within
forty-five days of actual receipt of the previous  month's  production  revenue.
During any time in which  PARTICIPATING  PARTIES in a NON-CONSENT  OPERATION are
entitled  to  receive  a  NON-PARTICIPATING  PARTY'S  share of  production,  the
PARTICIPATING  PARTIES  shall bear the LEASE  royalty  due with  respect to such
share of production and shall hold the  NON-PARTICIPATING  PARTIES harmless from
liability in connection therewith.  Any PARTY acting under the provisions of the
Article  shall  never be liable for a standard  of  performance  in making  such
payments or  deliveries  in excess of a good faith effort to pay or deliver same
prior to the due date and no liability (other than the liability to correct such
payment)  shall be  incurred  for  failure  through  error or  omissions  of the
employees of any such PARTY to make payment or delivery  within the time, in the
manner and for the amounts due.

     16.5  FEDERAL  OFFSHORE OIL  POLLUTION  COMPENSATION  FUND FEE.  Each PARTY
agrees to pay and bear the Federal Offshore Oil Pollution  Compensation Fund Fee
payable on its share of oil produced,  such fee being required by Section 302 of
the Outer  Continental  Shelf  Lands Act  Amendment  of 1978 and any  regulation
lawfully promulgated pursuant thereto;  provided,  however, should the oil owned
by a PARTY be  reported by another  PARTY,  it shall be the  obligation  of such
reporting PARTY and such reporting PARTY is specifically authorized to an agrees
to pay the Federal Offshore Oil Pollution Compensation Fund Fee on those volumes
which it reports for the benefit of the non-reporting  PARTY, and such reporting
PARTY may charge such non-reporting PARTY for the payments so made.

                                  ARTICLE XVII

                                      TAXES

     17.1  PROPERTY  TAXES.  OPERATOR  shall  render  property  covered  by this
Agreement as may be subject to ad valorem  taxation and shall pay such  property
taxes for the benefit of each PARTY.  OPERATOR shall charge each PARTY its share
of such tax  payments.  If the OPERATOR is required  hereunder to pay ad valorem
taxes based in whole or in part upon separate  valuation of each PARTY'S WORKING
INTEREST,  then notwithstanding  anything to the contrary herein, charges to the
Joint  Account shall be made and paid by the PARTIES  hereto in accordance  with
the percentage of tax value generated by each PARTY'S WORKING INTEREST.

     17.2  CONTEST  OF  PROPERTY  TAX  VALUATION.   OPERATOR  shall  timely  and
diligently protest to a final determination any valuation it deems unreasonable.
Pending such determination,  OPERATOR may elect to pay under protest. Upon final
determination,  OPERATOR  shall pay the taxes and any interest,  penalty or cost
accrued as a result of such protest. In either event, OPERATOR shall charge each
PARTY its share.

     17.3 PRODUCTION AND SEVERANCE  TAXES.  Each PARTY shall pay, or cause to be
paid, all production,  severance and other taxes due on any production, which it
received pursuant to the terms of this Agreement.

                                       20

<PAGE>

     17.4 OTHER TAXES AND ASSESSMENTS. OPERATOR shall pay other applicable taxes
or assessments and charge each PARTY its share.

                                  ARTICLE XVIII

                                    INSURANCE

     18.1 INSURANCE. OPERATOR shall obtain the insurance provided in Exhibit "B"
and charge each PARTICIPATING  PARTY its proportionate share of the cost of such
coverage.

                                   ARTICLE XIX

                         LIABILITY, CLAIMS AND LAWSUITS

     19.1 INDIVIDUAL OBLIGATIONS. The obligations, duties and liabilities of the
PARTIES  shall be several and not joint or  collective;  and  nothing  contained
herein  shall ever be  construed as creating a  partnership  of any kind,  joint
venture,  association or other character of business entity  recognizable in law
for any purpose. Each PARTY shall hold all the other PARTIES harmless from liens
and encumbrances on the LEASE arising as a result of its acts.

     19.2 NOTICE OF CLAIM OR LAWSUIT. If a claim is made against any PARTY or if
any PARTY is sued on account of any matter  arising from  operations  hereunder,
such PARTY shall give prompt written notice to the other PARTIES.

     19.3  SETTLEMENTS.  OPERATOR  may settle any  single  damage  claim or suit
involving  operations  hereunder if the expenditure does not exceed Ten Thousand
Dollars  ($10,000.00),  if the claim is not  covered by  Exhibit  "B" and if the
payment is in complete settlement of such claim or suit.

     19.4  LEGAL  EXPENSE.  Legal  Expenses  shall be  handled  pursuant  to the
provisions of Exhibit "C".

     19.5 LIABILITY FOR LOSSES,  DAMAGES, INJURY OR DEATH. Liability for losses,
damages,  injury or death arising from operations  under this Agreement shall be
borne by the  PARTIES in  proportion  to their  PARTICIPATING  INTERESTS  in the
operations  out of which  such  liability  arises,  except  when such  liability
results from the gross  negligence or willful  misconduct of any party, in which
case such PARTY shall be liable.

     19.6  INDEMNIFICATION.  The  PARTICIPATING  PARTIES  agree to hold the NON-
PARTICIPATING  PARTIES  harmless and to  indemnify  and protect them against all
claims,  demands,  liabilities and liens for property damage or personal injury,
including death,  caused by or otherwise arising out of NON-CONSENT  OPERATIONS,
and any loss and costs  suffered by any  NON-PARTICIPATING  PARTY as an incident
thereof.

                                   ARTICLE XX

                           INTERNAL REVENUE PROVISION

     20.1 INTERNAL REVENUE PROVISION. Notwithstanding any provisions herein that
the rights and liabilities  hereunder are several and not joint or collective or
that  this  Agreement  and the  operations  hereunder  shall  not  constitute  a
partnership,  if  for  Federal  Income  Tax  purposes  this  Agreement  and  the
operations hereunder are regarded as a partnership,  then for Federal Income Tax
purposes  each  PARTY  elects to be  excluded  from the  application  of all the
provisions of  Subchapter  K, Chapter 1,  Subtitle A,  Internal  Revenue Code of
1986, as permitted and authorized by

                                       21

<PAGE>

Section 761 of said Code and the regulations promulgated thereunder. OPERATOR is
hereby  authorized and directed to execute on behalf of each PARTY such evidence
of this  election as may be required by the  Federal  Internal  Revenue  Service
including  specifically,  but  not  by way of  limitation,  all of the  returns,
statements and data required by Federal Regulations 1.761.2. Should there be any
requirement that each PARTY further evidence this election, each PARTY agrees to
execute such documents and furnish such other evidence as may be required by the
Federal  Internal  Revenue  Service.  Each PARTY further  agrees not to give any
notices or take any other action  inconsistent with the election made hereby. If
any  present or future  income  tax law of the  United  States of America or any
state contains provisions similar to those contained in Subchapter K, Chapter 1,
Subtitle A of the Internal Revenue Code of 1986, under which an election similar
to that provided by Section 761 of said  Subchapter K is  permitted,  each PARTY
makes such  election or agrees to make such election as may be permitted by such
laws. In making this  election,  each PARTY states that the income derived by it
from the operations  under this Agreement can be adequately  determined  without
the computation of partnership taxable income.

                                   ARTICLE XXI

                                  CONTRIBUTIONS

     21.1 NOTICE OF  CONTRIBUTIONS  OTHER THAN ADVANCES FOR SALE OF  PRODUCTION.
Each PARTY shall promptly notify the other PARTIES of all  contributions,  which
it may obtain,  or is attempting to obtain,  concerning the drilling of any well
on the LEASE.  Payments  received as consideration  for entering into a contract
for sale of production from the LEASE,  loans and other  financing  arrangements
shall not be considered  contributions for the purposes of the Article. No PARTY
shall  release  or  obligate  itself or  release  information  in  return  for a
contribution  from an outside  party toward the drilling of a well without prior
written consent of the other PARTICIPATING PARTIES therein.

     21.2 CASH CONTRIBUTIONS.  In the event a PARTY receives a cash contribution
toward the drilling of a well, said cash contribution  shall be paid to OPERATOR
and OPERATOR  shall credit the amount  thereof to the PARTIES in  proportion  to
their PARTICIPATING INTEREST.

     21.3  ACREAGE  CONTRIBUTIONS.  In the  event a PARTY  receives  an  acreage
contribution  toward the drilling of a well, said acreage  contribution shall be
shared  by  each   PARTICIPATING   PARTY  who  accepts  in   proportion  to  its
PARTICIPATING INTEREST in the well.

                                  ARTICLE XXII

                            DISPOSITION OF PRODUCTION

     22.1  FACILITIES  TO TAKE IN KIND.  Any PARTY shall have the right,  at its
sole  risk  and  expense,  to  construct  FACILITIES  for  taking  its  share of
production in kind, provided that such FACILITIES at the time of installation do
not interfere  with  continuing  operations  on the LEASE and adequate  space is
available therefore.

     22.2 RIGHT TO TAKE IN KIND. Each PARTY shall have the right to take in kind
or  separately  dispose of its share of the oil and gas  produced and saved from
the LEASE.

     22.3 FAILURE TO TAKE IN KIND. If any Party fails to take in kind or dispose
of its share of the gas, oil and/or condensate produced from a Prospect Area, at
the request of such Party, the Operator will market that Party's share of

                                       22

<PAGE>

production  from the Contract Area ratably with  Operator's  own production in a
manner  maintaining  as near as  practicable  a zero gas imbalance at the end of
each production month. With regard to oil and/or condensate, Operator may either
(a)  purchase  the  non-taking  Party's  share  of  the  oil  and/or  condensate
production at the Operator's, or a third party's posted price or, in the absence
of a posted price or a disagreement as to Operator's or the third party's posted
price, at the price no less than the price prevailing in the area for oil and/or
condensate of similar kind subject to adjustments for gravity, quality, and less
transportation  to market,  or, with regard to gas, oil and/or  condensate,  (b)
sell  such gas,  oil  and/or  condensate  to  others  under  the same  terms and
conditions  as Operator is selling its own share of  production  (including  any
applicable  taxes,  fees and costs  deducted by the purchaser or  transporter or
paid to third parties for marketing  arrangements  and  consultation),  provided
that if the  production is sold to an affiliate of Operator,  the price received
shall  not be less  than the  price  prevailing  in the area  for gas,  oil,  or
condensate  of the same kind,  gravity and  quality.  All  contracts  of sale by
Operator of any Party's share of gas, oil, or condensate  shall be only for such
reasonable  periods  of time as are  consistent  with the  minimum  needs of the
industry  under the  circumstances,  but in no event shall any contract be for a
period in excess of three (3)  months.  Proceeds  of all sales made by  Operator
pursuant to this Section shall be paid to the Parties entitled thereto.

     22.4  EXPENSES  OF  DELIVERY  IN KIND.  Any third  party cost  incurred  by
OPERATOR in making delivery of any PARTY'S share of gas, oil and condensate,  or
disposing of same pursuant to Section 22.3, shall be borne by such PARTY.

     22.5 GAS BALANCING PROVISIONS. Attached hereto is Exhibit "E" entitled "Gas
Balancing  Agreement",   containing  an  agreement  of  the  PARTIES,  which  is
incorporated into this Agreement as if copied at length herein.

                                  ARTICLE XXIII

                                 APPLICABLE LAW

     23.1 APPLICABLE  LAW. This Agreement shall be interpreted  according to the
laws of the State of Texas.

                                  ARTICLE XXIV

                    LAWS, REGULATIONS AND NON-DISCRIMINATION

     24.1 LAWS AND  REGULATIONS.  This  Agreement and  operations  hereunder are
subject to all applicable laws, rules, regulations and orders, and any provision
of the  Agreement  found to be  contrary to or  inconsistent  with any such law,
rule, regulation or order shall be deemed modified accordingly.

     24.2  NON-DISCRIMINATION.  In the  performance of work under the Agreement,
the  PARTIES  agree to comply,  and  OPERATOR  shall  require  each  independent
contractor to comply,  with the  governmental  requirements set forth in Exhibit
"D" and with all of the  provisions  of  Section  202(1) to (7),  inclusive,  of
Executive Order No. 11246, as amended.

                                   ARTICLE XXV

                                  FORCE MAJEURE

     25.1 NOTICE.  If any PARTY is rendered unable,  wholly or in part, by force
majeure  to carry out its  obligations  under  this  Agreement,  other  than the
obligation  to make money  payments,  that PARTY shall give to all other PARTIES
prompt  written  notice of the force majeure with  reasonably  full  particulars
concerning it; thereupon, the obligations of the PARTY giving the notice, so far
as they are affected by the force  majeure,  shall be suspended  during,  but no
longer than, the continuance of the force majeure.  The affected PARTY shall use
reasonable diligence to remove the force majeure as quickly as possible.

                                       23

<PAGE>

     25.2 STRIKES. The requirement that any force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of strikes.

     25.3 FORCE MAJEURE.  The term "force majeure" as herein employed shall mean
an act of God,  strike,  lockout,  or other industrial  disturbance,  act of the
public  enemy,  war,  blockade,  public riot,  lightning,  fire,  storm,  flood,
explosion,  governmental  restraint,  unavailability  of equipment and any other
cause, whether of the kind specifically enumerated above or otherwise,  which is
not reasonably within the control of the PARTY claiming suspension.

                                  ARTICLE XXVI

                             SUCCESSORS AND ASSIGNS

     26.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to  the  benefit  of  the  PARTIES  and  their  respective  heirs,   successors,
representatives  and assigns and shall  constitute  a covenant  running with the
LEASE.

     26.2  NOTICE OF  TRANSFER.  Should  any PARTY  desire to sell,  farmout  or
otherwise dispose all or any part of its Working Interest in the Lease, it shall
promptly give written  notice to the other PARTIES giving  complete  information
relative to the proposed disposition. The other PARTIES shall have the right for
a period of fifteen (15) days after receipt of the notice to attempt to purchase
or acquire the interest,  which the PARTY proposes to sell, farmout or otherwise
dispose.  A transfer of interest  hereunder shall not become effective as to the
PARTIES  until the first day of the month  following  delivery to OPERATOR of an
original  (or copies  thereof)  instrument  of  transfer  approved by the proper
governmental  authority and conforming to the  requirements of this Section.  No
such  transfer  shall  relieve  the  transferring  PARTY of any  obligations  or
liabilities accrued hereunder prior to such effective date.

     26.2.1 The Provisions of this Section 26.2 shall not, however, apply to and
it shall not be necessary to obtain the consent of any Party in connection with;

          (a)  Any mortgage or other pledge,  including  without  limitation the
               granting of any lien or security  interest and any  assignment of
               production  executed as further  security for the debt secured by
               any such mortgage or pledge, by a Party hereto of its interest or
               any  portion  thereof  in the  Lease,  or the  Agreement,  or any
               judicial, trustee's or other sales to foreclose the same;

          (b)  Any transfer or  disposition of the interest of a PARTY hereto by
               corporate  merger  or  consolidation  or by any  sale or sales of
               substantially all of its oil and gas properties; or

          (c)  Any sale,  merger,  consolidation  or other  transfer  by a PARTY
               hereto of any part of its interest to or with any "affiliate" (as
               such term is defined in Regulation C, issued under the Securities
               Act of 1933).

          (d)  Any  mortgage,  pledge,  transfer,  sale,  merger  or  any  other
               disposition  enumerated in subparagraphs  (a), (b) or (c) of this
               Paragraph shall be made expressly subject to this Agreement.

     26.3  RIGHT TO  TRANSFER.  Subject to the terms and  conditions  of Section
26.2,  a PARTY may sell,  transfer or assign all or any part of its  interest in
the property or this Agreement without the consent of any other PARTY

                                       24

<PAGE>

hereto, provided that:

          (a)  Any such sale,  transfer  or  assignment  shall be made only to a
               financially responsible PARTY or PARTIES.

          (b)  If the original  interest of any PARTY is at any time transferred
               to two (2) or more transferees,  OPERATOR may, at its discretion,
               require such  transferees  to appoint a single  trustee with full
               authority to receive notices and payments,  approve  expenditures
               and pay the share of costs,  which are  chargeable  against  such
               transferees.

     26.4  ASSIGNMENTS.  Each PARTY shall  incorporate  in any  assignment of an
interest  in the LEASE a  provision  that such  assignment  is  subject  to this
Agreement.  Any assignment,  vesting or  relinquishment  of interest between the
PARTIES  shall be with  special  warranty  of title  by,  through  and under the
assignor, but not otherwise, and shall be subject to the terms and conditions of
Section 16.1. Any assignment to a Third Party of a Working Interest herein shall
not be  effective as to the Parties  until the first day of the month  following
the  delivery  to Operator of a copy of the  instrument  evidencing  the sale or
assignment, approved by the proper governmental authority, and conforming to the
requirements of this Article.

                                  ARTICLE XXVII

                                      TERM

     27.1 TERM. This Agreement may be amended only in writing and only by mutual
consent of all  PARTIES.  This  Agreement  shall remain in effect so long as the
LEASE shall remain in effect and thereafter  until all claims,  liabilities  and
obligations  incurred in operations  hereunder have been settled;  however,  all
property  belonging  to the PARTIES  shall be  disposed of and final  settlement
shall be made under this Agreement.

                                 ARTICLE XXVIII

                             AREA OF MUTUAL INTEREST

     28.1 AREA OF MUTUAL  INTEREST.  The PARTIES hereby create an Area of Mutual
Interest  ("AMI")  identified on Exhibit "A-l"  attached  hereto and made a part
hereof.  This AMI shall  remain in force and effect as long as any leases  lying
within the AMI are being  maintained by the parties  hereto.  Any acquisition of
any right,  title or interest  acquired in, to and under any oil or gas lease or
any other interest in oil or gas,  including,  without  limitation,  contractual
rights,  which confer on the holder  thereof the right to share,  or acquire the
right to share,  in the  production or the proceeds of production of oil and gas
within the AMI (the  "Acquisition")  by a PARTY  herein  shall be for the mutual
benefit of the PARTIES.  Each PARTY shall have the right to  participate  in any
such  Acquisition in the same proportion as such PARTY'S WORKING INTEREST in and
to the LEASE as set forth in Exhibit "A". The PARTY making the Acquisition  (the
"Acquiring  Party")  shall  notify each of the other  PARTIES in writing  within
thirty (30) days of such  Acquisition  and shall  furnish a copy of all executed
agreements  pertaining thereto and such title information as the Acquiring PARTY
has,  stating  the cost of such  acquisition  or the  obligations  that  must be
assumed in connection  therewith.  Each of the other PARTIES shall have a period
of fifteen (15) working days (48 hours exclusive of Saturdays, Sundays and legal
holidays in the event that a well is being drilled within the AMI) after receipt
of such notice within

                                       25

<PAGE>

which to elect and  notify  the  Acquiring  PARTY  whether  or not it desires to
participate  in such  Acquisition.  Failure to timely  respond to the  Acquiring
PARTY'S notice or reimburse the Acquiring PARTY for the  proportionate  share of
the acquired  interest shall be deemed an election not to acquire such interest.
Upon  election and payment to the  Acquiring  PARTY of a  non-acquiring  PARTY'S
share  of the  cost of such  acquisition,  such  non-acquiring  PARTY  shall  be
entitled to an assignment of its proportionate share in such Acquisition.

     If fewer than all PARTIES elect to  participate in the  Acquisition  within
the AMI,  the  Acquiring  PARTY shall  inform all  PARTIES  who have  elected to
participate in the  Acquisition,  in writing,  of the elections made. Each PARTY
receiving notice,  within forty-eight (48) hours (inclusive of Saturday,  Sunday
or legal  holidays)  after  receipt of such notice,  shall advise the  Acquiring
PARTY of its desire to (a) limit  participation to its WORKING INTEREST,  or (b)
acquire  its  proportionate  share  of the  interest  of  the  non-participating
PARTY(IES),  or  (c)  participate  for a  percentage  of  the  interest  of  the
non-participating PARTY(IES).

     The  interest  of any PARTY who elects to  participate  in any  acquisition
within the AMI shall be subject to and be burdened by the  obligations set forth
on Exhibit "A" with respect to the leases.

                                  ARTICLE XXIX

                             HEADINGS AND EXECUTION

     29.1 TOPICAL HEADINGS. The topical headings used herein are for convenience
only and shall not be construed  as having any  substantive  significance  or as
indicating  that all of the provisions of this  Agreement  relating to any topic
are to be found in any particular Section.

     29.2 COUNTERPART EXECUTIONS.  This Agreement may be signed in counterparts,
and shall be binding upon the PARTIES and upon their successors, representatives
and assigns.

                                        GRYPHON EXPLORATION COMPANY

                                        BY: /s/ Charles H. Odom
                                            ------------------------------------
                                            Charles H. Odom
                                            Vice President-Land

                                        RIDGEWOOD ENERGY CORPORATION

                                        BY: /s/ [Illegible]
                                            ------------------------------------

                                       26

<PAGE>

STATE OF TEXAS

COUNTY OF HARRIS

ON THIS___day  of___________,  2004,  before me appeared  Charles H. Odom, to me
personally  known,  who,  being  by me duly  sworn,  did say that he is the Vice
President  - Land  for  Gryphon  Exploration  Company  and  that  the  foregoing
instrument was signed in behalf of said corporation by authority of its Board of
Directors,  and said Charles H. Odom  acknowledges  said instrument to be a free
act and deed of said corporation.

                                     -------------------------------------------
                                     Notary Public in and for the State of Texas

STATE OF TEXAS
COUNTY  OF
           ---------

ON THIS___day  of______,  2004, before  me_______,  to me personally known, who,
being by me duly  sworn,  did say that he is  the___________of__________________
and that the foregoing instrument was signed in behalf of said corporation,  and
said  _____________________  acknowledges  said  instrument to be a free act and
deed of said corporation.

                                     -------------------------------------------
                                     Notary Public in and for the State of Texas

Notary  page to Joint  Operating  Agreement  dated May 25,  2004  covering  West
Cameron Area, Block 103.

                                       27

<PAGE>

                                   EXHIBIT "A"

      Attached to and made a part of that certain Joint Operating Agreement
    dated effective May 25, 2004 by and between GRYPHON EXPLORATION COMPANY,
         as Operator, and RIDGEWOOD ENERGY CORPORATION, as Non-Operator

OIL AND GAS LEASE:

Oil and Gas Lease dated May 1, 2001,  from the United  States  Department of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company and
Gryphon Exploration Company, as Lessees, covering all of Block 103, West Cameron
Area,  OCS Leasing Map,  Louisiana  Map No. 1,  containing  approximately  5,000
acres, more or less, and bearing Serial Number OCS-G 22511.

PARTICIPANTS AND ADDRESSES:

Gryphon Exploration Company
1200 Smith Street, Suite 1740
Houston, TX 77002
Attn: Mr. Bob Kelsey
Phone:(713)756-2400
Fax:(713)756-2500

Ridgewood Energy Corporation
5300 Memorial Drive, Suite 1070
Houston, Texas 77007
Attn: Mr. Greg Tabor
Phone:(713)862-9856
Fax:(713)802-9734

WORKING INTEREST

                               To Casing Point*   At Casing Point*
                               ----------------   ----------------
Gryphon Exploration Company           20%                 40%
Ridgewood Energy Corporation          80%                 60%
                                     ---                 ---
                                     100%                100%

* As more specifically set forth in that certain  Participation  Agreement dated
May  25,  2004  between  Gryphon   Exploration   Company  and  Ridgewood  Energy
Corporation.

The lease above is burdened by the following overriding royalty interest:

Fairfield                     2% of 8/8ths

Gryphon Exploration Company   2% of 8/8ths

                                       28

<PAGE>

                                 EXHIBIT "A-1"

      Attached to and made a part of that certain Joint Operating Agreement
    dated effective May 25, 2004 by and between GRYPHON EXPLORATION COMPANY,
         as Operator, and RIDGEWOOD ENERGY CORPORATION, as Non-Operator

The Area of Mutual  Interest  is  comprised  of all of Blocks 103 and 104,  West
Cameron Area.

                                       29

<PAGE>

                                   EXHIBIT "B"
                                    INSURANCE

      Attached to and made a part of that certain Joint Operating Agreement
    dated effective May 25, 2004 by and between GRYPHON EXPLORATION COMPANY,
         as Operator, and RIDGEWOOD ENERGY CORPORATION, as Non-Operator

Operator  shall, at all times while  conducting  operations on the Contract Area
and/or  Assigned  Premises,  carry  or  cause to be  carried  insurance  for the
following coverage's and in at least the minimum amounts noted.

     1.   Workers' Compensation and Occupational Disease insurance in accordance
          with the  statutory  requirements  of the state in which work is to be
          performed,  the state in which the Operator,  herein "Contractor",  or
          any of Operator's contractor(s) or sub-contractor(s), employees reside
          and the  state  in  which  the  Contractor  is  domiciled;  Employer's
          Liability  insurance  with limits of not less than  $1,000,000.  These
          coverage's shall include:

          a.   Protection for liabilities under the Federal  Longshoremen's  and
               Harbor Worker's  Compensation Act and the Outer Continental Shelf
               Lands Act.

          b.   Coverage for  liability  under the  Merchant  Marine Act of 1920,
               commonly known as the Jones Act; the Admiralty Act; and the Death
               on the High Seas Act with limits of not less than  $1,000,000 per
               accident.

          c.   Protection    against    liability   of   employer   to   provide
               transportation, wages, maintenance and cure to maritime employees
               and a Voluntary Compensation Endorsement.

          d.   Coverage  amended to provide that a claim In Rem shall be treated
               as a claim against the employer.

          e.   Territorial extension shall cover all work areas.

     2.   Comprehensive  General Liability insurance,  written on any occurrence
          reported basis with limits of $1,000,000 per occurrence  Bodily Injury
          and Property Damage, combined single limits, an annual aggregate of no
          less  than  $2,000,000  (if   applicable),   including  the  following
          coverage's:

          a.   Premises and Operations coverage's.

          b.   Independent Contractor's Contingent coverage.

          c.   Contractual  Liability  covering  liabilities  assumed under this
               Contract.

          d.   Products and Completed Operations coverage.

          e.   Coverage for explosion,  collapse and  underground  resources and
               property  damage under both  Premises/Operations  and Contractual
               Liability coverage parts, where applicable.

          f.   Broad Form Property  Damage  Liability  endorsement.

          g.   Personal Injury Liability.

          h.   In Rem endorsement.

          i.   Territorial extension shall cover all work areas.

          j.   Where  applicable,  coverage  for  liability  resulting  from the
               consumption   of  food   prepared  or  served  by  contractor  or
               subcontractor.

          k.   Watercraft  exclusion deleted or Protection & Indemnity  provided
               as per 4.B.

          l.   Coverage is provided for "Action Over" suits.

          m.   Coverage is silent as respects Punitive Damages.

     3.   Automobile  Liability  insurance  covering owned,  hired and non-owned
          vehicles with limits of $1,000,000 per  occurrence  Bodily Injury and
          Property Damage combined single limits.

                                       30

<PAGE>

TRANSITION ENERGY, LLC                 3% Wl BPO   2.4% Wl APO
952 Echo Lane - Suite 420
Houston, TX 77024
Attn: Jeffrey W. Wheelock
Tax ID#
       -----------------
Telephone: 713-722-8118
Fax:
    -------------------
EMAIL: jwheelock@dwlegal.com

LOWE PARTNERS, L.P.                    5% Wl BPO   4% Wl APO
223 W. Wall Street, Suite 900
Midland, Texas 79701
Attn: Joe C. Pulido
Tax ID#
        -----------------
Telephone: 713-622-5420
Fax:
    -------------------
EMAIL: joepulido@maralo.com

EXCESS ENERGY LTD.                     5% Wl BPO   4% Wl APO
14825 St. Mary's Lane, Suite 270
Houston, TX 77079
Attn: Norman Rowlinson
Tax ID# 20-0204983
Telephone: 281-679-7601
Fax:
    -------------------
EMAIL: nrowlinson@bigcity.net

<PAGE>

     4.   Where the work  described by this Contract  involves the use of marine
          equipment.  Operator  will  require  the  contractor  to  provide  the
          following insurance:

          a.   Full Form Hull and Machinery  insurance,  with coverage  equal to
               that provided by the American  Institute  Hull Clauses  including
               collision liability,  with the sister ship clause unamended, with
               limits  of  liability  at least  equal  to the full  value of the
               vessel and with navigational  limitations adequate for Contractor
               to perform  the  contracted  work.  Where the  vessels  engage in
               towing  operations,  said  insurance  shall  include full tower's
               liability with the sister ship clause unamended.

          b.   Protection and indemnity insurance coverage in an amount at least
               equal  to the  full  value  of each  vessel  employed  under  the
               Contract.  Protection and indemnity  insurance shall include full
               coverage  for all  crew  liabilities  if  coverage  for  maritime
               employees is not provided under  Coverage B, Employers  Liability
               for Admiralty Jurisdiction.

          c.   Excess Protection and Indemnity  insurance,  including  Collision
               and Tower's  (where  applicable)  Liability in an amount at least
               equal  to the  value of each  vessel  covered  or the  difference
               between  the  full  value  of each  vessel  and  $1,000,000  per
               occurrence.

          d.   Voluntary  Removal  of Wreck  and/or  Debris  insurance  covering
               Contractor's  operations in an amount of not less than $1,000,000
               per occurrence.

     All of the marine  coverage's  cited above shall name  Operator and all its
subsidiary and affiliated  companies as additional  insured's as their interests
may appear,  to the extent of  contractor's  obligations to defend and indemnify
the Parties.

     5.   Aircraft Liability  insurance (for contracts involving use of aircraft
          or  helicopters)  with  combined  single  limit  coverage  for  public
          liability,  passenger  liability and property damage  liability of not
          less than $5,000,000 covering all owned and non-owned aircraft used by
          Contractor in connection with work to be performed.

     6.   Umbrella  Liability  insurance  written on an occurrence basis with no
          claims  made  features  with  a  minimum   combined  single  limit  of
          $15,000,000 each  occurrence/aggregate  where applicable, to be excess
          of the coverage's and limits required in 1, 2, 3, 4 and 5 above..

     7.   OPERATOR  shall carry or cause to be carried the following  coverage's
          for the benefit of and at the expense of the Joint  Account,  however,
          proportionate  coverage  may be  carried  individually  by  each  NON-
          OPERATOR,  subject to proper evidence of such  proportionate  coverage
          being  provided  to  Operator  at least  fifteen  (15)  days  prior to
          commencement of operations for the drilling of the initial EXPLORATORY
          WELL.

          a.   Operator's Extra Expense Insurance, including control of well and
               redrilling of the well (full restoration redrill), including, but
               not  limited  to,  Seepage  and  Pollution  and  Containment  and
               Evacuation Expense with a limit of liability of $30,000,000.

          b.   Physical  Damage and  Removal of Wreck  Coverage  for  facilities
               hereunder,  with  limits  not  less  than the  replacement  value
               thereof.  Notwithstanding  the  foregoing,  this  coverage  to be
               provided fifteen(15) days prior to placement of such facilities.

                                       31

<PAGE>

                                                      COPAS - 1986 - OFFSHORE
                                                      Recommended by the Council
                                                      of Petroleum Accountants
                                                      Societies

                                   EXHIBIT "C"

   Attached to and made a part of that certain Joint Operating Agreement dated
 effective May 25, 2004 by and between GRYPHON EXPLORATION COMPANY, as Operator,
               and RIDGEWOOD ENERGY CORPORATION, as Non-Operator

                              ACCOUNTING PROCEDURE

                            OFFSHORE JOINT OPERATIONS

                              I. GENERAL PROVISIONS

1.   Definitions

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

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

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

     "Operator" shall mean the party designated to conduct the Joint Operations.

     "Non-Operators"  shall mean the  Parties of this  agreement  other than the
     Operator.

     "Parties" shall mean Operator and Non-Operators.

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

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

     "Personal  Expenses"  shall mean travel and other  reasonable  reimbursable
     expenses of Operator's employees or professional consultants.

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

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

     "Shore Base Facilities"  shall mean onshore support  facilities that during
     drilling,  development,  maintenance and producing  operations provide such
     services to the Joint  Property as receiving  and  transshipment  point for
     supplies,  materials  and  equipment;  debarkation  point for  drilling and
     production   personnel  and   services;   communication,   scheduling   and
     dispatching  center;   other  associated  functions  benefiting  the  Joint
     Property.

     "Offshore  Facilities" shall mean platforms and support systems such as oil
     and gas handling  facilities,  living  quarters,  offices,  shops,  cranes,
     electrical supply equipment and systems, fuel and water storage and piping,
     heliport,   marine   docking   installations,   communication   facilities,
     navigation aids, and other similar  facilities  necessary in the conduct of
     offshore operations.

2.   Statement and Billings

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

3.   Advances and Payments by Non-Operators

     A.   Unless  otherwise  provided  for in the  agreement,  the  Operator may
          require the  Non-Operators  to advance  their share of estimated  cash
          outlays for the succeeding  month's operation within fifteen (15) days
          after  receipt  of the  billing  or by the  first day of the month for
          which the advance is  required,  whichever  is later.  Operator  shall
          adjust each  monthly  billing to reflect  advances  received  from the
          Non-Operators.

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

4.   Adjustments

     Payment of any such bills shall not prejudice the right of any Non-Operator
     to protest or question the  correctness  thereof;  provided,  however,  all
     bills and  statements  rendered to  Non-Operators  by  Operator  during any
     calendar year shall  conclusively  be presumed to be true and correct after
     twenty-four (24) months following the end of any such calendar year, unless
     within the said twenty-four (24) month period a Non-Operator  takes written
     exception thereto and makes claim on

                                        1

<PAGE>

     Operator for adjustment.  No adjustment favorable to Operator shall be made
     unless it is made within the same prescribed period. The provisions of this
     paragraph shall not prevent adjustments resulting from a physical inventory
     of Controllable Material as provided for in Section V.

5.   Audits

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

     B.   The Operator shall reply in writing to an audit report within 180 days
          after receipt of such report.

6.   Approval By Non-Operators

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

                               II. DIRECT CHARGES

Operator shall charge the Joint Account with the following items:

1.   Rentals and Royalties

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

2.   Labor

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

          (2)  Salaries and wages of Operator's  employees or contract personnel
               directly  employed  on Shore Base  Facilities  or other  Offshore
               Facilities  serving the Joint  Property if such costs are charged
               under Paragraph 7 of this Section II.

          (3)  Salaries of First Level  Supervisors  in the field.

          (4)  Salaries   and  wages  and  fees  of   Technical   Employees   or
               professional  consultants directly employed on the Joint Property
               if such charges are excluded from the overhead rates.

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

     B.   Operator's cost of holiday, vacation, sickness and disability benefits
          and other  customary  allowances  paid to employees whose salaries and
          wages are  chargeable to the Joint Account under  Paragraph 2A of this
          Section  II. Such costs  under this  Paragraph  2B may be charged on a
          "when and as paid basis" or by  "percentage  assessment" on the amount
          of salaries and wages  chargeable to the Joint Account under Paragraph
          2A of this  Section II. If  percentage  assessment  is used,  the rate
          shall be based on the Operator's cost experience.

     C.   Expenditures or contributions made pursuant to assessments  imposed by
          governmental  authority  which  are  applicable  to  Operator's  costs
          chargeable  to the Joint  Account  under  Paragraphs 2A and 2B of this
          Section II.

     D.   Personal  Expenses of those  employees  whose  salaries  and wages are
          chargeable to the Joint Account under Paragraph 2A of this Section II.

3.   Employee Benefits

     Operator's  current costs of established  plans for  employees'  group life
     insurance,  hospitalization,  pension,  retirement, stock purchase, thrift,
     bonus,  and other benefit plans of a like nature,  applicable to Operator's
     labor cost  chargeable to the Joint  Account under  Paragraphs 2A and 2B of
     this Section II shall be  Operator's  actual cost not to exceed the percent
     most recommended by the Council of Petroleum Accountants Societies.

4.   Material

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

5.   Transportation

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

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

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

                                       2

<PAGE>

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

6.   Services

     The cost of contract services,  equipment and utilities provided by outside
     sources,  except  services  excluded  by  Paragraph  9 of  Section  II  and
     Paragraph  i, ii,  and  iii,  of  Section  III.  The  cost of  professional
     consultant  services and contract services of technical  personnel directly
     engaged  on the  Joint  Property  if such  charges  are  excluded  from the
     overhead rates.  The cost of professional  consultant  services or contract
     services of technical  personnel  directly  engaged in the operation of the
     Joint  Property  shall be charged to the Joint  Account if such charges are
     excluded from the overhead rates.

7.   Equipment and Facilities Furnished By Operator

     A.   Operator  shall  charge the Joint  Account  for use of  Operator-owned
          equipment  and  facilities,   including  Shore  Base  and/or  Offshore
          Facilities,   at  rates  commensurate  with  costs  of  ownership  and
          operation. Such rates may include labor,  maintenance,  repairs, other
          operating expense,  insurance,  taxes,  depreciation,  and interest on
          gross  investment  less  accumulated  depreciation  not to exceed  Ten
          percent (10%) per annum. In addition, for platforms only, the rate may
          include an element of the  estimated  cost of platform  dismantlement.
          Such  rates  shall  not  exceed  average  commercial  rates  currently
          prevailing in the immediate area of the Joint Property.

     B.   In lieu of charges in  paragraph  7A above,  Operator may elect to use
          average commercial rates prevailing in the immediate area of the Joint
          Property.  For automotive  equipment,  Operator may elect to use rates
          published by the Petroleum Motor Transport Association.

8.   Damages and Losses to Joint Property

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

9.   Legal Expense

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

10.  Taxes

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

11.  Insurance

     Net  premiums  paid for  insurance  required  to be  carried  for the Joint
     Operations for the protection of the Parties. In the event Joint Operations
     are  conducted  at  offshore   locations  in  which  Operator  may  act  as
     self-insurer for Workers' Compensation and Employers'  Liability,  Operator
     may include the risk under its self-insurance program in providing coverage
     under State and  Federal  laws and charge the Joint  Account at  Operator's
     cost not to exceed manual rates.

12.  Communications

     Costs  of  acquiring,   leasing,  installing,   operating,   repairing  and
     maintaining communication systems, including radio and microwave facilities
     between the joint Property and the Operator's  nearest Shore Base Facility.
     In the event  communication  facilities  systems serving the Joint Property
     are Operator-owned,  charges to the Joint Account shall be made as provided
     in Paragraph 7 of this Section II.

13.  Ecological and Environmental

     Costs incurred on the Joint  Property as a result of statutory  regulations
     for archaeological  and geophysical  surveys relative to identification and
     protection of cultural  resources and/or other  environmental or ecological
     surveys  as may be  required  by the  Bureau  of Land  Management  or other
     regulatory  authority.  Also, costs to provide or have available  pollution
     containment and removal  equipment plus costs of actual control and cleanup
     and resulting responsibilities of oil spills as required by applicable laws
     and regulations.

14.  Abandonment and Reclamation

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

15.  Other Expenditures

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

                                       3

<PAGE>

                                  III. OVERHEAD

     As  compensation  for  administrative,  supervision,  office  services  and
     warehousing  costs,  Operator  shall charge the Joint Account in accordance
     with this Section III.

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

     i.   Except as  otherwise  provided in Paragraph 2 of this Section III, the
          salaries,  wages and Personal  Expenses of Technical  Employees and/or
          the cost of professional  consultant services and contract services of
          technical personnel directly employed on the Joint Property:

          |_|  shall be covered by the overhead rates.

          |X|  shall not be covered by the overhead rates.

     ii.  Except as  otherwise  provided in Paragraph 2 of this Section III, the
          salaries,  wages and Personal  Expenses of Technical  Employees and/or
          the costs of professional consultant services and contract services of
          technical personnel either temporarily or permanently  assigned to and
          directly employed in the operation of the Joint Property:

          |X| shall be covered by the overhead rates.

          |_| shall not be covered by the overhead rates.

1.   Overhead - Drilling and Producing Operations

     As  compensation  for overhead  incurred in  connection  with  drilling and
     producing properties, Operator shall charge on either:

          |X| Fixed Rate Basis, Paragraph IA, or

          |_| Percentage Basis, Paragraph IB

A.   Overhead - Fixed Rate Basis

          (1)  Operator  shall charge the Joint Account at the  following  rates
               per well per month.
               Drilling Well Rate $ 31,960 (Prorated for less than a full month)
               Producing Well Rate $ 3,196

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

               (a)  Charges  for  drilling  wells  shall  begin on the date when
                    drilling or  completion  equipment  arrives on location  and
                    terminate on the date the drilling or  completion  equipment
                    moves off  location  or rig is  released,  whichever  occurs
                    first, except that no charge shall be made during suspension
                    of drilling  operations for fifteen (15) or more consecutive
                    calendar days.

               (b)  Charges  for  wells  undergoing  any  type  of  workover  or
                    recompletion  for a period of four (4) consecutive work days
                    or more  shall  be  made at the  drilling  well  rate.  Such
                    charges  shall be applied for the period from date  workover
                    operations,  with  rig or  other  units  used  in  workover,
                    commence  through date of rig or other unit release,  except
                    that no charge shall be made during suspension of operations
                    for fifteen (15) or more consecutive calendar days.

          (3)  Application  of  Overhead - Fixed Rate Basis for  Producing  Well
               Rate shall be as follows:

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

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

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

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

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

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

                                       4

<PAGE>

B.   Overhead - Percentage Basis

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

               (a)  Development

               _______________  Percent  (______%) of the cost of Development of
               the Joint Property  exclusive of costs provided under Paragraph 9
               of Section II and all salvage credits.

               (b)  Operating

               _______________  Percent  (______%) of the cost of Operating  the
               Joint Property exclusive of costs provided under Paragraphs 1 and
               9 of  Section  II, all  salvage  credits,  the value of  injected
               substances  purchased  for  secondary  recovery and all taxes and
               assessments which are levied,  assessed and paid upon the mineral
               interest in and to the Joint Property.

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

               For the  purpose of  determining  charges on a  percentage  basis
               under Paragraph 1B of this Section III, development shall include
               all costs in connection with drilling,  redrilling,  deepening of
               any or all wells, and shall also include any remedial  operations
               requiring a period of five (5)  consecutive  work days or more on
               any or all wells;  also,  preliminary  expenditures  necessary in
               preparation for drilling and expenditures  incurred in abandoning
               when the well is not completed as a producer,  and original costs
               of construction or installation of fixed assets, the expansion of
               fixed assets and any other project clearly discernible as a fixed
               asset,  except  Major  Construction  as defined in Paragraph 2 of
               this  Section  III.  All  other  costs  shall  be  considered  as
               Operating  except  that  catastrophe   costs  shall  be  assessed
               overhead as provided in Section III, Paragraph 3.

2.   Overhead - Major Construction

     To compensate  Operator for overhead costs incurred in the construction and
     installation of fixed assets,  the expansion of fixed assets, and any other
     project  clearly  discernible as a fixed asset required for the development
     and operation of the Joint Property,  or in the dismantling for abandonment
     of  platforms  and related  production  facilities,  Operator  shall either
     negotiate a rate prior to the  beginning of  construction,  or shall charge
     the Joint Account for overhead  based on the following  rates for any Major
     Construction project in excess of $25,000.00

     A.   If the Operator  absorbs the  engineering,  design and drafting  costs
          related to the project:

          (1)  6% of total costs if such costs are more than $25,000.00 but less
               than $100,000; plus

          (2)  4% of total costs in excess of $100,000 but less than $1,000,000;
               plus

          (3)  2% of total costs in excess of $1,000,000.

     B.   If the Operator charges engineering, design and drafting costs related
          to the project directly to the Joint Account:

          (1)  3% of total costs if such costs are more than $25,000.00 but less
               than $100,000; plus

          (2)  2% of total costs in excess of $100,000 but less than $1,000,000;
               plus

          (3)  1% of total costs in excess of $1,000,000.

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

     On each project,  Operator shall advise Non-Operator(s) in advance which of
     the above  options  shall apply.  In the event of any conflict  between the
     provisions  of this  paragraph  and  those  provisions  under  Section  II,
     Paragraph 2 or Paragraph 6, the provisions of this paragraph shall govern.

3.   Catastrophe Overhead

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

          (1)  3% of total costs through $100,000; plus

          (2)  2%  of  total  costs  in  excess  of  $100,000,   but  less  than
               $1,000,000; plus

          (3)  1% of total costs in excess of $1,000,000.

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

4.   Amendment of Rates

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

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

Operator is  responsible  for Joint  Account  Material and shall make proper and
timely  charges and  credits  for all  Material  movements  affecting  the Joint
Property.  Operator  shall  provide all Material for use on the Joint  Property;
however,   at  Operator's   option,   such  Material  may  be  supplied  by  the
Non-Operator.  Operator  shall make timely  disposition  of idle and/or  surplus
Material,   such  disposal  being  made  either  through  sale  to  Operator  or
Non-Operator, division in kind, or sale to outsiders. Operator may purchase, but
shall

                                        5

<PAGE>

be under no  obligation  to  purchase,  interest  of  Non-Operators  in  surplus
condition A or B Material.  The  disposal of surplus  Controllable  Material not
purchased by the Operator shall be agreed to by the Parties.

1.   Purchases

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

2.   Transfers and Dispositions

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

     A.   New Material (Condition A)

          (1)  Tubular Goods Other than Line Pipe

               (a)  Tubular goods, sized 2-3/8 inches OD and larger, except line
                    pipe,  shall be priced at current new prices effective as of
                    date of movement plus  transportation  cost using the 80,000
                    pound carload weight basis to the railway receiving point or
                    shore based facilities  nearest the Joint Property for which
                    published rail rates for tubular goods exist.  If the 80,000
                    pound rail rate is not  offered,  the 70,000 pound or 90,000
                    pound  rail  rate  may be used.

               (b)  For grades which are special to one mill only,  prices shall
                    be   computed   at  the  mill   base  of  that   mill   plus
                    transportation  cost from that mill to the railway receiving
                    point or shore based  facilities  nearest the Joint Property
                    as provided above in Paragraph 2.A.(1)(a).

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

               (d)  Macaroni  tubing  (size  less than  2-3/8  inch OD) shall be
                    priced at the lowest  published  out-of-stock  prices f.o.b.
                    the supplier plus transportation  costs, using the Oil Field
                    Haulers  Association  interstate  truck  rate per  weight of
                    tubing transferred,  to the railway receiving point or shore
                    based facilities nearest the Joint Property.

          (2)  Line Pipe

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

               (b)  Line pipe movements  (except size 24 inch OD and larger with
                    walls 3/4 inch and over) less than  30,000  pounds  shall be
                    priced  at  current  new  prices  effective  as of  date  of
                    shipment plus 20 percent, plus transportation costs based on
                    freight rates as set forth under provisions of tubular goods
                    pricing in Paragraph  A.(1)(a) as provided  above.

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

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

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

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

     B.   Good Used Material (Condition B)

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

          (1)  Material  moved to the Joint  Property

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

          (2)  Material used on and moved from the Joint Property

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

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

          (3)  Material  not  used on and  moved  from  the  Joint  Property

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

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

     C.   Other Used Material

          (1)  Condition C

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

                                        6

<PAGE>

          (2)  Condition D

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

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

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

          (3)  Condition E

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

     D.   Obsolete Material

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

     E.   Pricing Conditions

          (1)  Loading or unloading costs may be charged to the Joint Account at
               the rate of  twenty-five  (25  CENTS) per  hundred  weight on all
               tubular goods  movements,  in lieu of actual loading or unloading
               costs  sustained at the stocking  point.  The above rate shall be
               adjusted as of the first day of April each year following January
               1,  1985 by the same  percentage  increase  or  decrease  used to
               adjust  overhead rates in Section III,  Paragraph  1.A.(4).  Each
               year,  the rate  calculated  shall be rounded to the nearest cent
               and shall be the rate in effect until the first day of April next
               year.  Such rate shall be  published  each year by the Council of
               Petroleum Accountants Societies.

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

3.   Premium Prices

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

4.   Warranty of Material Furnished By Operator

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

                                 V. INVENTORIES

The Operator shall maintain detailed reports of Controllable Material.

1.   Periodic Inventories, Notice and Representation

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

2.   Reconciliation and Adjustment of Inventories

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

3.   Special Inventories

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

4.   Expense of Conducting Inventories

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

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

                                        7

<PAGE>

                                   EXHIBIT "D"

      Attached to and made a part of that certain Joint Operating Agreement
    dated effective May 25, 2004 by and between GRYPHON EXPLORATION COMPANY,
         as Operator, and RIDGEWOOD ENERGY CORPORATION, as Non-Operator

                    CERTIFICATION OF NONSEGREGATED FACILITIES

Contractor  certifies that it does not maintain or provide for its employees any
segregated  facilities at any of its  establishments and that it does not permit
its  employees to perform  their  services at any  location,  under its control,
where segregated facilities are maintained. Contractor certifies further that it
will not maintain or provide for its employees any segregated  facilities at any
of its establishments and that it will not permit its employees to perform their
services at any location,  under its control,  where  segregated  facilities are
maintained. Contractor agrees that a breach of this certification is a violation
of the Equal Opportunity  Clause in any Government  contract between  Contractor
and Corporation. As used in this certification, the term "segregated facilities"
means any waiting rooms, work areas, rest rooms and wash rooms,  restaurants and
other  eating  areas,  time clocks,  locker rooms and other  storage or dressing
areas,  parking lots,  drinking  fountains,  recreation or entertainment  areas,
transportation,   and  housing  facilities  provided  for  employees  which  are
segregated by explicit directive or are in fact segregated on the basis of race,
color,  religion,  or  national  origin,  because  of habit,  local  customs  or
otherwise.  Contractor further agrees that (except where it has obtain identical
certifications  from proposed  subcontractors for specific time periods) it will
obtain identical  certifications from proposed subcontractors prior to the award
of  subcontracts  exceeding  $10,000 which are not exempt from the provisions of
the Equal  Opportunity  Clause;  that it will retain such  certifications in its
files;  and  that  it  will  forward  the  following  notice  to  such  proposed
subcontractors   (except  where  the  proposed   subcontractors  have  submitted
identical certifications for specific time periods):

NOTICE TO  PROSPECTIVE  SUBCONTRACTORS  OF  REQUIREMENT  FOR  CERTIFICATIONS  OF
NONSEGREGATED  FACILITIES.  A Certification  of  Non-segregated  Facilities,  as
required by the May 9, 1967, order on Elimination of Segregated  Facilities,  by
the Secretary of Labor (32 Fed.  Reg.  7439,  May 19,  1967),  must be submitted
prior to the award of a subcontract exceeding  $10,000, which is not exempt from
the  provisions  of the  Equal  Opportunity  Clause.  The  certification  may be
submitted either for each  subcontract or for all  subcontracts  during a period
(i.e., quarterly, semi-annually or annually). (1968 MAR.) (Note: The penalty for
making false statements in offers is prescribed in 18 U.S.C. 1001.)

Whenever used in the foregoing  Section,  the term  "contractor"  refers to each
party to this agreement.

                                       32

<PAGE>

                                   Exhibit "E"

                             GAS BALANCING AGREEMENT

      Attached to and made a part of that certain Joint Operating Agreement
    dated effective May 25, 2004 by and between GRYPHON EXPLORATION COMPANY,
         as Operator, and RIDGEWOOD ENERGY CORPORATION, as Non-Operator

I.   Definitions

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

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

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

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

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

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

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

II.  Application of this Agreement

     The  parties  to the  Operating  Agreement  own the  working  or  operating
     interests in the Gas  underlying the Contract Area covered by the Operating
     Agreement and are entitled to share in the  percentages  therein  stated in
     the Operating Agreement.

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

     The Operator is responsible  for  administering  the provisions of this Gas
     Balancing Agreement and as such shall have the sole option of administering
     all  reporting  of the same for the Parties or  retaining  the  services of
     third party  professionals  for this  specific  purpose.  The costs of such
     third party  services by Operator  shall be  considered  as included in the
     overhead rates.  The Operator shall cause  deliveries to be made to the Gas
     purchasers  at such rates as may be  required  to give effect to the extent
     practicable, to be or become Balanced.

     The  provisions of this  agreement  shall be applied to the Contract  Area,
     regardless of the number of wells.

III. Storing and Making Up Gas Production

     A.   Right to Take and Market Gas

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

                                       33

<PAGE>

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

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

     B.   Making Up Underproduction

          Any Underproduced Party shall endeavor to bring its taking of Gas into
          a Balanced  condition.  Upon thirty (30) days prior written  notice to
          the Operator,  any Underproduced  Party may thereafter begin taking or
          delivering  to its purchaser its full share of the Gas produced from a
          Well (less any used in operations,  vented or lost).  To allow for the
          recovery  of Gas in  storage  and to  balance  the Gas  account of the
          parties in accordance with their respective  interests,  Underproduced
          Party shall be  entitled  to take or deliver to a  purchaser  its full
          share of Gas  produced  from such Well  (less any used in  operations,
          vented or lost) plus, (i) for the months of March,  April,  May, June,
          July,  August,  September and October only of any calendar year during
          which this  agreement  may be in place,  an amount up to an additional
          fifty percent (50%) of the monthly quantity of Gas attributable to the
          Overproduced  Party or  Parties,  or (ii) for the months of  November,
          December,  January and  February  only of any  calendar  year or years
          during  which  this  agreement  may be in  place,  an  amount up to an
          additional  twenty-five  percent (25%) of the monthly  quantity of Gas
          attributable to the  Overproduced  Party or Parties.  If more than one
          Underproduced  Party is entitled to take  additional  Gas,  they shall
          divide  the   additional   Gas  in  proportion  to  their   respective
          Underproduced  accounts.  The first Gas made up shall be assumed to be
          the first Gas Underproduced.

     C.   Gas Balance Reporting

          Each party  taking  will  promptly  provide to the  Operator  any data
          required by the Operator for  preparation of the  statements  required
          hereunder. Operator shall not be required to adjust its Gas accounting
          statements reflecting a different Gas purchaser until the first day of
          the month  following the month in which such notice is received by the
          Operator.  The Operator  will  maintain  appropriate  accounting  on a
          monthly and  cumulative  basis of the  quantities of Gas each party is
          entitled to take and/or market and the  quantities of Gas taken and/or
          marketed by each of the parties to their  respective  Gas  purchasers.
          Within  ninety  (90)  days  after the end of each  producing  calendar
          month,  the Operator shall furnish each party a statement  showing the
          status of the Overproduced and Underproduced accounts of all parties.

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

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

     D.   Royalty and Production Tax

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

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

IV.  Cash Settlement

     A.   Volume/Value

          If, at the  permanent  termination  of  production  of Gas from a Well
          located on the Contract Area, an imbalance exists between the parties,
          a cash  settlement  of the imbalance  between the parties  relative to
          such Well  shall be made.  The amount of the cash  settlement  will be
          limited to the proceeds actually received by the Overproduced Party or
          Parties  at  the  time  of  overproduction,  less  transportation  and
          applicable treating charges and production and severance taxes paid on
          such overproduction. Royalty shall only be deducted from such proceeds
          attributable to the  overproduction if actually paid to royalty owners
          by the  Overproduced  Party or Parties.  No interest shall be added to
          any cash settlement hereunder.  If there is more than one Overproduced
          Party, the cash settlement shall be based on a weighted average of the
          proceeds  actually  received as above  described  by all  Overproduced
          Parties.

                                       34

<PAGE>

     B.   Collection and Distribution

          Operator shall provide to all parties hereto within sixty (60) days of
          permanent  determination  of Gas production a final  accounting of the
          Gas balance.  Overproduced Parties, within thirty (30) days of receipt
          of the final accounting of the Gas balance, shall pay their respective
          shares of the above  described  cash  settlement to the  Underproduced
          Parties in that proportion that each such Underproduced Party's volume
          of gas in  storage  bears to the total of all  Underproduced  Parties'
          volumes of gas in storage.

V.   Miscellaneous

     A.   Term

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

     B.   Expenses

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

     C.   Well Tests

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

     D.   Monitoring of Takes of Production

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

     E.   Liquefiable Hydrocarbons Not Covered Under Agreement

          The  parties  shall  share  proportionately  in  and  own  all  liquid
          hydrocarbons  recovered with the gas by lease  equipment in accordance
          with their respective interests.

                                       35

<PAGE>

                             Gryphon Exploration Co.
                             1200 Smith, Suite 1740
                              Houston, Texas 77002
                                 (713) 756-2400

<TABLE>
<S>                                 <C>                         <C>
                                                                                                      -----------------------
                                                                                                         INITIALS - DATE
                                                                                                         ---------------

                                                                                                      LAND DEPT.  [Illegible]
                                                                                                                  -----------

                                                                                                      FIN. DEPT.  [Illegible]
                                                                                                                  -----------

                                                                                                      LEGAL DEPT.
                                                                                                                    ---------

                                                                                                      EXPL. DEPT. [Illegible]
                                                                                                                  -----------
                EXHIBIT "C"
Attached to and made a part of that certain                                                           ENGR. DEPT. [Illegible]
 Participation Agreement dated May 25, 2004                                                                       -----------
    by and between Gryphon Exploration
 Company and Ridgewood Energy Corporation                                                             EXEC. DEPT. [Illegible]
                                                                                                                  -----------
                                                                                                      -----------------------

-----------------------------------------------------------------------------------------------------------------------------
Operator: Gryphon Exploration Co.               AFE No.: D04003                      Property Number: WC10300001
-----------------------------------------------------------------------------------------------------------------------------
Lease: OCS-G 22511                              Well No.: 1                          Blk/Prospect: West Cameron Block 103
-----------------------------------------------------------------------------------------------------------------------------
PTD: 17,500' TVD/MD                             Field: Wildcat                       Formation Objective: Marg A
-----------------------------------------------------------------------------------------------------------------------------
State: Louisiana                                CO / PH: Federal Offshore            Contractor: TODCO 203
-----------------------------------------------------------------------------------------------------------------------------
Location: PSL: 4,500' FNL & 566' FEL of WC Blk 103 (X= 1,449,918 & Y= 330,258) [Illegible]
-----------------------------------------------------------------------------------------------------------------------------
Remarks:
-----------------------------------------------------------------------------------------------------------------------------

This request for AFE will serve to document the turnkey  costs  required by ADTI to drill a straight hole to 17,500' TVD/ MD.
It is anticipated a 7-5/8" drilling liner will be run before reaching turnkey depth. Completion costs will be presented under
a seperate AFE after final evaluation.

-----------------------------------------------------------------------------------------------------------------------------
                                                   Intangible Drilling Cost
-----------------------------------------------------------------------------------------------------------------------------
Acct   Line                                                                           Drilling    Pre-Completion   Total Well
Code   Item                                                     Rate   Days   Days      Cost           Cost           Cost
-----------------------------------------------------------------------------------------------------------------------------
215     101   Location Permit & Surveys                                              $   10,000                    $   10,000
-----------------------------------------------------------------------------------------------------------------------------
215     103   Cuttings Disposal, Boat, Cleaning                                                                    $        0
-----------------------------------------------------------------------------------------------------------------------------
215     201   Rig Move (Demobilization only)                                         $  150,000                    $  150,000
-----------------------------------------------------------------------------------------------------------------------------
215     301   Drilling Rig (Daywork, Labor, Meals, etc)                  0                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
215     304   Primary Turnkey to 17,500' TVD/MD                                      $6,934,000                    $6,934,000
-----------------------------------------------------------------------------------------------------------------------------
215     304   Run 7-5/8" drilling liner before reaching PTD                          $  985,000                    $  985,000
-----------------------------------------------------------------------------------------------------------------------------
215     401   Fuel, Lubes and Water                                      0                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
215     404   Cementing (Materials, Equip & Personnel)                                                             $        0
-----------------------------------------------------------------------------------------------------------------------------
        404   P&A Cement (Materials, Equip & Personnel)                              $  303,000                    $  303,000
-----------------------------------------------------------------------------------------------------------------------------
215     405   Open Hole Cement Plugs                                                                               $        0
-----------------------------------------------------------------------------------------------------------------------------
215     406   Bits, Stabilizers, Reamers                                                                           $        0
-----------------------------------------------------------------------------------------------------------------------------
215     407   Misc. Materials & Supplies                                                                           $        0
-----------------------------------------------------------------------------------------------------------------------------
215     501   Marine Transportation (Crew & Supply Boats)                0                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
215     502   Air Transportation                                                                                   $        0
-----------------------------------------------------------------------------------------------------------------------------
215     503   Land Transportation                                        0                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
215     504   Diving Services                                                                                      $        0
-----------------------------------------------------------------------------------------------------------------------------
215     507   Optional Open Hole Logging Services                                                                  $        0
-----------------------------------------------------------------------------------------------------------------------------
        507   LWD Formation Evaluation                                                                             $        0
-----------------------------------------------------------------------------------------------------------------------------
215     508   Mud Logging Services                                       0                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
215     509   Correction Runs @ $152,000                                             $  152,000                    $  152,000
-----------------------------------------------------------------------------------------------------------------------------
215     510   Fishing Tools & Pipe Recovery                                                                        $        0
-----------------------------------------------------------------------------------------------------------------------------
        510   Coil Tbg & Nitrogen Services                                                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
        510   Pipe Cutting for P&A                                                                                 $        0
-----------------------------------------------------------------------------------------------------------------------------
215     511   Rental Equipment                                           0                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
215     512   Surface Well Test Equipment & Personnel                                                              $        0
-----------------------------------------------------------------------------------------------------------------------------
        512   Sub-Surface Well Test Equipment & Personnel                                                          $        0
-----------------------------------------------------------------------------------------------------------------------------
215     513   Pipe Inspection (Casing, Drill Pipe, BHA's)                                                          $        0
-----------------------------------------------------------------------------------------------------------------------------
215     514   Casing Tools & Hammer Services                                                                       $        0
-----------------------------------------------------------------------------------------------------------------------------
215     515   Contract Labor                                                                                       $        0
-----------------------------------------------------------------------------------------------------------------------------
215     516   Shorebase & Dock Facilities                                0                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
215     517   Communications                                                         $   23,000                    $   23,000
-----------------------------------------------------------------------------------------------------------------------------
215     518   Well Control Insurance @ $20.40 /ft @ 50%                              $  179,000                    $  179,000
-----------------------------------------------------------------------------------------------------------------------------
215     602   Engineering / On Site Logging                                                                        $        0
-----------------------------------------------------------------------------------------------------------------------------
215     603   Well Site Supervision Services                    $900    75           $   67,500                    $   67,500
-----------------------------------------------------------------------------------------------------------------------------
        603   Dispatching Services                                       0                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
215     701   Overhead (COPAS)                                                       $   75,000                    $   75,000
-----------------------------------------------------------------------------------------------------------------------------
215                                                                                                                $        0
-----------------------------------------------------------------------------------------------------------------------------
215     999   Contingency (10.00% of IDC's)                                          $  888,000                    $  888,000
-----------------------------------------------------------------------------------------------------------------------------
       Subtotal - Intangible Drilling Cost                                           $9,766,500         $0         $9,766,500
-----------------------------------------------------------------------------------------------------------------------------
                                                    Tangible Drilling Cost
-----------------------------------------------------------------------------------------------------------------------------
                                                                Footage   Csg Cost
                                                                           ($/ft)
-----------------------------------------------------------------------------------------------------------------------------
225     801   Drive Pipe: 30" x 1"                                  340     $0.00                                  $        0
-----------------------------------------------------------------------------------------------------------------------------
225     802   Conductor Casing: 18-5/8"                             800     $0.00                                  $        0
-----------------------------------------------------------------------------------------------------------------------------
225     803   Surface Casing: 13-3/8"                             4,500     $0.00                                  $        0
-----------------------------------------------------------------------------------------------------------------------------
225     804   Intermediate Casing: 9-5/8"                        13,800     $0.00                                  $        0
-----------------------------------------------------------------------------------------------------------------------------
225     805   Drilling Liner: 7-5/8"                             16,000     $0.00                                  $        0
-----------------------------------------------------------------------------------------------------------------------------
225     805   Drilling Liner:                                                                                      $        0
-----------------------------------------------------------------------------------------------------------------------------
225     808   Liner Hanger & Liner Top Packers                                                                     $        0
-----------------------------------------------------------------------------------------------------------------------------
225     901   Casing Head, Hanger & Valves                                                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
        901   Casing Spool(s), Hanger(s) & Valves(s)                                                               $        0
-----------------------------------------------------------------------------------------------------------------------------
225     902   Mudline Suspension Equipment                                                                         $        0
-----------------------------------------------------------------------------------------------------------------------------
225     904   Access Equip (Nav-Aids, Boat Landing, etc)                                                           $        0
-----------------------------------------------------------------------------------------------------------------------------
225           P/F Conductor Guide for 30"                                                                          $        0
-----------------------------------------------------------------------------------------------------------------------------
225     999   Contingency (15% of TDC's)                                                                           $        0
-----------------------------------------------------------------------------------------------------------------------------
       Subtotal - Tangible Drilling Cost                                             $        0         $0         $        0
-----------------------------------------------------------------------------------------------------------------------------
       Total Dry Hole Cost (Tangible & Intangible)                                   $9,766,500         $0         $9,766,500
-----------------------------------------------------------------------------------------------------------------------------
                                                   Working Interest                       Working Interest Owner Share
                                              -------------------------------------------------------------------------------
Working Interest Owner                        Dry Hole (BCP)   Completion (ACP)     Dry Hole      Completion   Total Producer
-----------------------------------------------------------------------------------------------------------------------------
Gryphon Exploration                              20.00000%        40.00000%       $1,953,300.00      $0.00      $1,953,300.00
-----------------------------------------------------------------------------------------------------------------------------
Ridgewood Energy Corporation                     80.00000%        60.00000%       $7,813,200.00      $0.00      $7,813,200.00
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                                $        0.00
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                                $        0.00
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                                $        0.00
-----------------------------------------------------------------------------------------------------------------------------
Prepared                             Jack D. Shelledy                                 Joint Interest Approval

   By  /s/ Jack D. Shelledy            Date: 6/7/2004   Company:
       ---------------------------
-----------------------------------------------------------------------------------------------------------------------------
Approved                                                Approved

   By  /s/ [Illegible]                 Date: 6/7/2004      By
       ---------------------------
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Note: It is recognized that the amounts herein are estimated only and approval
     of the authorization shall extend to the actual costs incurred in
     conducting the operations specified, whether more or less than that herein
     set out.Exhibit "B"

  Attached to and made a part of that certain Participation Agreement covering
  South Timbalier Block 77 Prospect, dated September 13, 2004, by and between
       Millennium Offshore Group, Inc., and Ridgewood Energy Corporation.

                          OFFSHORE OPERATING AGREEMENT
                        South Timbalier Block 77 Prospect

Section                                                                     Page
-------                                                                     ----
                                TABLE OF CONTENTS

Table of Contents                                                            1-4

                                    ARTICLE 1
                                  APPLICATIONS

Preliminary Recitals                                                         5
1.1     Application to Each Lease                                            5

                                    ARTICLE 2
                                  DEFINITIONS

2.0A    AFE                                                                  5
2.0B    Casing Point Election                                                5
2.1     Development Operations                                               5
2.2     Development Well                                                     5
2.3     Exploratory Operations                                               5
2.4     Exploratory Well                                                     5
2.5     Facilities                                                           5
2.6     Lease                                                                5
2.7     Non-Consent Operations                                               5
2.8     Non-Consent Platform                                                 5
2.9     Non-Consent Well                                                     5
2.10    Non-Operator                                                         5
2.11    Non-Participating Party                                              6
2.12    Non-Participating Party's Share                                      6
2.13    Operator                                                             6
2.14    Participating Interest                                               6
2.15    Participating Party                                                  6
2.16    Producible Well                                                      6
2.18    Working Interest                                                     6
2.18    Affiliate                                                            6
2.19    Sidetrack or Sidetracking                                            6
2.20    Platform                                                             6
2.21    Reservoir                                                            6

                                      ARTICLE 3
                                      EXHIBITS

3.1     Exhibits                                                             6
        3.1.1  Exhibit "A" Leases, Parties, Working Interests, Addresses &
                  Representatives                                            6
        3.1.2  Exhibit "B" Insurance Provisions                              6
        3.1.3  Exhibit "C" Accounting Procedure                              6
        3.1.4  Exhibit "D" Non-Discrimination                                6
        3.1.5  Exhibit "E" Gas Balancing Agreement                           6
        3.1.6  Exhibit "F" Memorandum of Operating Agreement & Financing
                  Statement                                                  6

                                      ARTICLE 4
                                      OPERATOR

4.1     Operator                                                             6
4.2     Resignation                                                          7
4.3     Removal of Operator                                                  7
4.4     Selection of Successor                                               7
4.5     Delivery of Property                                                 7

                                      ARTICLE 5
                          AUTHORITY AND DUTIES OF OPERATOR

5.1     Exclusive Right to Operate                                           7
5.2     Workmanlike Conduct                                                  7
5.3     Liens and Encumbrances                                               7
5.4     Employees                                                            7
5.5     Records                                                              7
5.6     Compliance                                                           7
5.7     Drilling                                                             7
5.8     Reports                                                              8
5.9     Permits and Licenses                                                 8

                                        1

<PAGE>

Section                                                                     Page
-------                                                                     ----
5.10    Information to Participating Parties                                 8
5.11    Information to Non-Participating Parties                             8

                                      ARTICLE 6
                            VOTING AND VOTING PROCEDURES

6.1     Designation of Representatives                                       8
6.2     Voting Procedures                                                    8
        6.2.1  Voting Interest                                               8
        6.2.2  Vote Required                                                 8
        6.2.3  Votes                                                         8
        6.2.4  Meetings                                                      8

                                      ARTICLE 7
                                       ACCESS

7.1     Access to Lease                                                      9
7.2     Reports                                                              9
7.3     Confidentiality                                                      9
7.4     Limited Disclosure                                                   9
7.5     Press Releases                                                       9
7.6     Media Releases                                                       9

                                      ARTICLE 8
                                    EXPENDITURES

8.1     Basis of Charge to the Parties                                       10
8.2     Authorization                                                        10
8.3     Advance Billings                                                     10
8.4     Failure to Commence Operations Timely                                10
8.5     Refund of Excess Funds                                               10
8.6     Commingling Funds                                                    10
8.7     Security Rights                                                      10
8.8     Default                                                              15
8.9     Unpaid Charges                                                       15
8.10    Carved-Out Interests                                                 16

                                      ARTICLE 9
                                      NOTICES

9.1     Giving and Receiving Notices                                         16
9.2     Content of Notice                                                    16
9.3     Response of Notices                                                  17
        9.3.1  Platform Construction                                         17
        9.3.2  Proposal Without Platform                                     17
        9.3.3  Other Matters                                                 17
9.4     Failure to Respond                                                   17
9.5     Timely Operations                                                    17
9.6     Restrictions on Multiple Well Proposals                              17

                                     ARTICLE 10
                                  EXPLORATORY WELLS

10.1    Operations by All Parties                                            17
10.2    Second Opportunity to Participate                                    17
10.3    Operations by Fewer Than All Parties                                 18
        10.3.1   Subsequent Exploratory Wells                                18
        10.3.2   Subsequent Exploratory Wells/Non-Production Reversion       19
10.4    Course of Action After Drilling to the Initial Objective Depth       19

                                     ARTICLE 11
                               DEVELOPMENT OPERATIONS

11.1    Operations By All Parties                                            20
11.2    Second Opportunity to Participate                                    20
11.3    Operations By Fewer Than All Parties                                 20
11.4    Timely Operations                                                    20
11.5    Course of Action After Drilling to Initial Objective Depth           21
11.6    Deeper Drilling                                                      21

                                     ARTICLE 12
                               NON-CONSENT OPERATIONS

12.1    Non-Consent Operations                                               21
        12.1.1 Non-interference                                              21
        12.1.2 Multiple Completion Limitation                                21
        12.1.3 Liens                                                         21
        12.1.4 Metering                                                      21
        12.1.5 Platform Salvage                                              21
        12.1.6 Non-Consent Well                                              21
        12.1.7 Cost Information                                              22

12.2    Penalties                                                            22

                                        2

<PAGE>

Section                                                                     Page
-------                                                                     ----
12.3    Recoupment and Salvage                                               22
12.4    Deepening of Non-Consent Wells                                       22
12.5    Operations from Non-Consent Platform                                 23
12.6    Discovery of Extension from Mobile Drilling Operations               23
12.7    Allocation of Platform Costs to Non-Consent Operations               23
        12.7.1 Charges                                                       23
        12.7.2 Operating and Maintenance Charges                             24
        12.7.3 Payments                                                      24
12.8    Retention of Lease by Non-Consent Well                               24
12.9    Non-Consent Drilling to Maintain Lease                               24
12.10   Allocation of Costs (Single Completion)                              24
12.11   Allocation of Costs Between Zones (Multiple Completions)             25
12.12   Allocation of Costs Between Zones (Dry Hole)                         25
12.13   Intangible Drilling and Completion Allocations                       25

                                     ARTICLE 13
                                     FACILITIES

13.1    Approval                                                             25
13.2    Ownership                                                            26
13.3    Contracts                                                            26
13.2    Other Facilities                                                     26

                                     ARTICLE 14
                               ABANDONMENT AND SALVAGE

14.1    Platform Salvage and Removal Costs                                   26
14.2    Abandonment of Producible Well                                       26
14.3    Assignment of Interest                                               26
14.4    Abandonment Operations Required by Governmental Authority            26
14.5    Operator Purchase of Salvage Materials                               27
14.6    Non-Operator Purchase of Salvage Materials                           27

                                     ARTICLE 15
                                     WITHDRAWAL

15.1    Withdrawal                                                           27
15.2    Limitations of Withdrawal                                            27

                                     ARTICLE 16
                       RENTALS, ROYALTIES, AND OTHER PAYMENTS

16.1    Creation of Overriding Royalty                                       28
16.2    Payment of Rentals and Minimum Royalties                             28
16.3    Non-Participation in Payments                                        28
16.4    Royalty Payments                                                     28

                                     ARTICLE 17
                                       TAXES

17.1    Property Taxes                                                       28
17.2    Contest of Property Tax Valuation                                    28
17.3    Production and Severance Taxes                                       28
17.4    Other Taxes and Assessments                                          28

                                     ARTICLE 18
                                      INSURANCE

18.1    Insurance                                                            29

                                     ARTICLE 19
                           LIABILITY, CLAIMS AND LAWSUITS

19.1    Individual Obligations                                               29
19.2    Notice of Claim or Lawsuit                                           29
19.3    Settlements                                                          29
19.4    Legal Expense                                                        29
19.5    Liability for Losses, Damages, Injury or Death                       29
19.6    Indemnification                                                      29

                                     ARTICLE 20
                             INTERNAL REVENUE PROVISIONS

20.1    Election of Partnership Provisions                                   29

                                        3

<PAGE>

 Section                                                                    Page
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                                   ARTICLE 21
                                  CONTRIBUTIONS

21.1 Notice of Contributions Other Than Advances for Sale of Production       30
21.2 Cash Contributions                                                       30
21.3 Acreage Contributions                                                    30

                                   ARTICLE 22
                             DISPOSAL OF PRODUCTION

22.1 Facilities to Take In Kind                                               30
22.2 Duty to Take In Kind                                                     30
22.3 Failure to Take In Kind                                                  30
22.4 Expenses of Delivery In Kind                                             31
22.5 Gas Balancing Agreement                                                  31

                                   ARTICLE 23
                                 APPLICABLE LAW

23.1 Applicable Law                                                           31

                                   ARTICLE 24
                    LAWS, REGULATIONS AND NON-DISCRIMINATION

24.1 Laws and Regulations                                                     31
24.2 Non-Discrimination                                                       31

                                   ARTICLE 25
                                 FORCE MAJEURE

25.1 Force Majeure                                                            31
25.2 Notice                                                                   31

                                   ARTICLE 26
             SUCCESSORS, ASSIGNS AND PREFERENTIAL RIGHT TO PURCHASE

26.1 Successors and Assigns                                                   31
26.2 Preferential Right to Purchase                                           31
26.3 Transfer of Interest                                                     32
26.4 Assignments                                                              32

                                   ARTICLE 27
                                      TERM

27.1 Term                                                                     32

                                   ARTICLE 28
                                   EXECUTION

28.1 Counterpart Execution                                                    33

     Signatures                                                               33

                                       4

<PAGE>

                          OFFSHORE OPERATING AGREEMENT

     THIS  AGREEMENT,  made  effective the 13th day of  September,  2004, by the
signatories   hereof,   herein   referred  to   collectively  as  "Parties"  and
individually as "Party".

                                   WITNESSETH:

     WHEREAS,  the  Parties  are  owners  of the one or more oil and gas  leases
identified in Exhibit "A", and desire to explore,  develop,  produce and operate
said leases.

     NOW  THEREFORE,  in  consideration  of  the  premises  and  of  the  mutual
agreements herein, it is agreed as follows:

                                    ARTICLE 1
                                  APPLICATIONS

     1.1  Application  to Each  Lease.  If more  than  one oil and gas  lease is
identified in Exhibit "A", this  Agreement  shall apply  separately to each such
lease.

                                    ARTICLE 2
                                   DEFINITIONS

     2.0.A AFE. An  Authorization  for  Expenditure  prepared by a Party for the
purpose of  estimating  the costs to be  incurred  in  conducting  an  operation
hereunder

     2.0.B Casing Point. The point in time when the well, Substitute Well or any
Exploratory  and/or  Development Well has been drilled to its proposed Objective
Depth,  or  mutually  agreed to lesser  depth,  and all  tests  included  in the
approved Authority of Expenditure ("AFE"),  have been performed unless waived by
mutual agreement of the Parties and a recommendation is made by Operator to: (i)
set casing and complete the well (ii) plug and abandon the well or (iii) conduct
other operations as provided for in Articles 10.5.

     2.1  Development  Operations.  Drilling  Operations  (a well to be drilled,
recompleted,  deepened, or plugged back) on the Lease scheduled for an objective
zone,  horizon or formation  which, as a result of previous  drilling,  has been
established as producible under 2.16 below.

     2.2 Development Well. Any well proposed as a Development Operation.

     2.3 Exploratory Operations. Drilling Operations on the Lease which are:

          a) Scheduled for an objective zone, horizon or formation which has not
     been established as producible on the Lease under 2.16 below; or

          b) Scheduled  for an  objective  zone,  horizon or  formation  already
     established  as producible on the Lease under 2.16 below,  but the vertical
     projection  of the  midpoint  of such  objective  will be  penetrated  at a
     location  which is more than 3,000'  from the  vertical  projection  of the
     midpoint of the same  objective  in the nearest well on the Lease which has
     been proven to be producible, or such objective is agreed by all Parties to
     be in a separate  reservoir not in  communication  with a well proven to be
     producible.

     2.4 Exploratory Well. Any well proposed as an Exploration Operation.

     2.5  Facilities.  All  lease  equipment  beyond  the  wellhead  connections
including  but not  limited  to  equipment  for  gathering,  storage,  treating,
compression,  and production  handling.  Facilities shall not include  Pipelines
used for transporting and marketing oil and/or gas produced from the Lease.

     2.6 Lease.  Each oil and gas lease  identified in Exhibit "A" and the lands
affected thereby.

     2.7 Non-Consent Operations. Exploratory or Development Operations conducted
by fewer than all Parties.

     2.8 Non-Consent  Platform. A drilling or production Platform owned by fewer
than all Parties.

     2.9  Non-Consent  Well. An Exploratory  or Development  Well owned by fewer
than all Parties.

                                       5

<PAGE>

     2.10 Non-Operator. Any Party to this Agreement other than the Operator.

     2.11 Non-Participating Party. Any Party other than a Participating Party.

     2.12   Non-Participating   Party's  Share.  The  Participating  Interest  a
Non-Participating  Party would have had if all Parties had  participated  in the
operation.

     2.13  Operator.  The Party  designated  under  this  Agreement  to  conduct
Exploratory and Development Operations.

     2.14  Participating   Interest.  A  Participating   Party's  percentage  of
participation in an operation conducted pursuant to this Agreement.

     2.15  Participating  Party.  A Party  who joins in an  operation  conducted
pursuant to this Agreement.

     2.16 Producible Well. A well producing oil or gas, or, if not producing oil
or gas,  a well  determined  to be  capable of  producing  in paying  quantities
pursuant to any applicable order issued by appropriate governmental authority.

     2.17 Working  Interest.  The ownership of each Party in and to the Lease as
set forth in Exhibit "A".

     2.18 Affiliate.  In relation to any of the Parties,  shall mean any company
which is a subsidiary  of such Party or of which such Party is a  subsidiary  or
which is a subsidiary of a company of which such Party is a subsidiary.  For the
purpose  of  this  definition,  the  term  "subsidiary"  shall  mean  a  company
controlled  directly or  indirectly  by another  company which holds or controls
sufficient  voting  shares of the former to elect the  majority  of its board of
directors.

     2.19 Sidetrack or Sidetracking.  Any proposal to  directionally  control or
intentionally  deviate a well so as to change the bottom hole location from that
as  originally  proposed  and  shall  not  refer  to  operations  undertaken  to
straighten  the hole or to drill  around  junk in the hole or  because  of other
mechanical difficulties.

     2.20  Platform.  A  structure  to be  installed  offshore  for  drilling or
production  operations  on the Lease.  Including,  but not  limited to  jackets,
caissons and subsea templates.

     2.21  Reservoir.  An underground  accumulation  of hydrocarbon and minerals
comprising a single,  separate,  naturally  contained system  characterized by a
single pressure.

                                    ARTICLE 3
                                    EXHIBITS

     3.1  Exhibits.  Attached  hereto  are the  following  exhibits,  which  are
incorporated herein by reference:

          3.1.1  Exhibit "A".  Description  of Leases,  Working  Interest of the
Parties in each Lease, the Parties' addresses and Designated Representatives.

          3.1.2 Exhibit "B". Insurance Provisions.

          3.1.3 Exhibit "C". Accounting Procedure.

          3.1.4 Exhibit "D". Non-Discrimination Provisions.

          3.1.5 Exhibit "E". Gas Balancing Agreement.

          3.1.6  Exhibit "F".  Memorandum  of Operating  Agreement and Financing
Statement

                                    ARTICLE 4
                                    OPERATOR

     4.1  Operator.  Millennium  Offshore  Group,  Inc. is hereby  designated as
Operator.  Operator  shall not have the right to assign or transfer  any rights,
duties or obligations of Operator to another Party.

                                       6

<PAGE>

     4.2  Resignation.  Operator may resign at any time by giving written notice
to the Parties.  Such  resignation  shall  become  effective at 7:00 a.m. on the
first day of the month  following a period of ninety (90) days after the date of
said  notice,  unless a  successor  Operator  has assumed the duties of Operator
prior to such date.

     4.3  Removal  of  Operator.  Should  Operator  or  any  successor  Operator
hereunder (1) dissolve,  liquidate or terminate  its  corporate  existence,  (2)
become insolvent, bankrupt or subject to receivership,  (3) be unable to pay its
bills as they come due, it shall  thereupon cease to be Operator  hereunder,  or
should it commit a substantial  breach of a material provision of this agreement
and fail to cure  within 90 days after  notice of  breach,  or should it fail to
perform its duties  hereunder,  it may be removed as Operator by an  affirmative
vote of two (2) or more Parties having a combined  Working Interest of fifty-one
percent (51%) or more after excluding the Working Interest of Operator.

     4.4  Selection of Successor.  Upon  resignation  or removal of Operator,  a
successor  Operator shall be selected by an affirmative  vote of two (2) or more
Parties  having a combined  Working  Interest of  fifty-one  (51%) or more after
excluding the Working Interest of the removed or resigned Operator.

     4.5 Delivery of Property.  Prior to the effective  date of  resignation  or
removal, Operator shall deliver promptly to successor Operator the possession of
everything owned by the Parties pursuant to this Agreement.

                                   ARTICLE 5
                        AUTHORITY AND DUTIES OF OPERATOR

     5.1 Exclusive Right to Operate.  Unless otherwise provided,  Operator shall
have the  exclusive  right and duty to conduct all  operations  pursuant to this
Agreement.  Operator  shall  not be deemed  or hold  itself  out as the agent or
fiduciary of the non-operators.

     5.2  Workmanlike  Conduct.  Operator shall conduct all operations in a good
and workmanlike  manner,  as would a prudent  operator under the same or similar
circumstances.  Operator shall not be liable to the Parties for losses sustained
or liabilities  incurred except such as may result from its gross  negligence or
willful misconduct.  Unless otherwise provided,  Operator shall consult with the
Parties and keep them informed of all important matters.

     5.3 Liens and  Encumbrances.  Operator shall endeavor to keep the Lease and
equipment  free  from  all  liens  and  encumbrances  occasioned  by  operations
hereunder,  except those  provided for in Section 8.5.

     5.4 Employees.  Operator shall select employees and determine their number,
hours of labor and compensation. Such employees shall be employees of Operator.

     5.5 Records.  Operator shall keep accurate  books,  accounts and records of
operations  hereunder which,  unless  otherwise  provided for in this Agreement,
shall  be  available  at  reasonable  times  to  each  Party  or its  authorized
representatives.

     5.6  Compliance.  Operator  shall  comply  with and  require all agents and
contractors to comply with all applicable laws, rules, regulations and orders of
any governmental agency having jurisdiction.

     5.7  Drilling.  Operator  shall  have  all  drilling  operations  including
mobilization  and   demobilization,   conducted  by  qualified  and  responsible
independent  contractors under competitive  contracts then prevailing.  However,
Operator  may employ its own  equipment  and  personnel  in the  conduct of such
operations,  but  such  work  shall  be  performed  by  Operator  acting  as  an
independent  contractor  under a  written  contract  containing  the  terms  and
conditions  and at rates as are  customary and then  prevailing  in  competitive
contracts of independent  contractors who are doing work of a similar nature and
pursuant to a written agreement among the Participating Parties.

                                        7

<PAGE>

     5.8 Reports.  Operator shall make reports to governmental  authorities that
it has a duty to make as Operator  and shall  furnish  copies of such reports to
Participating Parties.  Operator shall give timely written notice to the Parties
of all litigation and hearings affecting the Lease or operations hereunder.

     5.9 Permits and Licenses.  Operator shall secure any and all permits and/or
licenses  required by all applicable laws,  rules,  regulations or orders of any
governmental agency that it has a duty to secure, as Operator, and shall furnish
copies of same to each Participating Party.

     5.10  Information  to  Participating  Parties.  Operator shall furnish each
Participating  Party the  following  information  pertaining  to each well being
drilled:

          a)   copy of  application  for  permit  to  drill  and all  amendments
               thereto, along with a copy of permit issued;

          b)   copy of plat of well location;

          c)   daily  drilling   reports,   workover  and  daily  production  by
               telephone,  telecopy,  or  facsimile  followed by weekly  written
               reports;

          d)   complete report of all core analysis;

          e)   copies of any logs or surveys as run;

          f)   copies of any well test results,  bottom-hole  pressure  surveys,
               gas and condensate analysis or similar information;

          g)   copies of reports made to regulatory agencies; and

          h)   (1) twenty-four  [24] hour notice of logging,  coring and testing
               operations;  and (2) samples of cuttings  and cores  marked as to
               depth,  to  be  packaged  and  shipped  at  the  expense  of  the
               requesting Party;

          Each  Participating  Party shall  furnish  Operator,  in writing,  the
     names, addresses, telephone and/or telecopy numbers of persons to whom such
     information and notices shall be given.

     5.11 Information to  Non-Participating  Parties.  Operator shall furnish to
each  Non-Participating  Party  copies of all  non-confidential  reports made to
regulatory agencies, with concurrence of participating parties.

                                   ARTICLE 6
                          VOTING AND VOTING PROCEDURES

     6.1  Designation  of  Representatives.  The  names  and  addresses  of  the
representative  and  alternate,  who are  authorized  to represent and bind each
Party with respect to  operations  hereunder,  are set forth in Exhibit "A". The
designated  representative  or alternate may be changed by written notice to the
other Parties.

     6.2 Voting  Procedures.  Unless  otherwise  provided,  any matter requiring
approval of the Parties shall be determined as follows:

          6.2.1 Voting  Interest.  Each Party shall have a voting interest equal
to its Working Interest or its Participating Interest, as applicable.

          6.2.2 Vote Required. Proposals requiring approval of the parties shall
be decided by an  affirmative  vote of one (1) or more Parties having a combined
voting interest of fifty percent (50%) or more.

          6.2.3 Votes. The Parties may vote at meetings; by telephone,  promptly
confirmed in writing to Operator; or by letter,  telegram,  telex or telecopier.
Operator shall give prompt notice of the results of such voting to each Party.

          6.2.4 Meetings. Meetings of the Parties may be called by Operator upon
its own motion or at the  request of one (1) or more  Parties  having a combined
voting interest of not less than ten percent (10%). Except in

                                        8

<PAGE>

the case of an emergency,  no meeting shall be called on less than ten (10) days
advance notice,  with meeting agenda attached.  The  representative  of Operator
shall be chairman of each meeting.

                                    ARTICLE 7
                                     ACCESS

     7.1 Access to Lease.  Each Party shall have access to the Lease at its sole
risk and  expense at all  reasonable  times to inspect  operations  and wells in
which it participates and records and data pertaining thereto.

     7.2 Reports.  Except as is otherwise  provided in this Agreement,  Operator
shall furnish to a Party,  upon written  request,  any information to which such
Party is entitled hereunder.  The costs of gathering and furnishing  information
not  otherwise  furnished  under  Article 5 shall be charged  to the  requesting
Party.

     7.3  Confidentiality.  Except as  provided  in  Section  7.4 and except for
necessary  disclosures  to  governmental  agencies,  no Party shall  release any
geological,  geophysical,  reservoir, engineering, production costs or technical
information or any logs or other information pertaining to the progress,  tests,
or results of any well unless agreed to by the Participating Parties.

     7.4 Limited  Disclosure.  Any Party may make confidential data available to
reputable  engineering  firms and gas  transmission  companies  for  hydrocarbon
reserve and other technical evaluations, and to reputable financial institutions
for study prior to  commitment  of funds and to third parties with which a Party
is  engaged  in a bona  fide  effort  to sell its  interest  in the  Lease.  The
confidential  data made  available  shall not be  removed  from the  custody  or
premises of the party making such data available. Any third party permitted such
access  shall  first  agree,  in  writing,  to be bound  by the  confidentiality
provisions of this Agreement.  Provided, however, in no event shall confidential
data be made available to any third party or an Affiliate thereof who is also an
interest owner in an offsetting block without the consent of all Parties to this
Agreement being first obtained.

     7.5  Press   Releases.   The   foregoing   provisions  of  this  Article  7
notwithstanding,  any releases to the news media  concerning  operations  on the
Lease shall be made in  accordance  with the  provisions of this Section 7.5 and
7.6.  Any  Participating  Party may  originate  such  releases,  subject  to the
Parties' rights set forth below. Only the following  information may be included
in any such release:

          a)   name of the well;

          b)   location of the well, specifying block, area and adjacent state;

          c)   date the Lease was acquired and bonus paid;

          d)   intervals tested;

          e)   test results;

          f)   development or confirmation plans; and

          g)   Participating Parties and their Participating Interests.

Any proposed release shall be delivered to all Participating Parties forty-eight
(48) hours  before  being  issued to the news  media.  Any  Participating  Party
desiring  its name to be  excluded  from such new  release  shall so advise  the
originating Party within said forty-eight (48) hour period.  Notwithstanding the
foregoing,  no news release  shall be issued  without the approval of one (1) or
more  Participating   Parties  owning  at  least  fifty  percent  (50%)  of  the
Participating Interests in the subject well unless such Party is required by law
to release such information.

     7.6  Media  Releases.  Except as agreed  by all  Participating  Parties  or
otherwise  permitted  by this  Article,  no  party  shall  issue a news or media
release  about  operations  on the Lease.  In an emergency  involving  extensive
property or environmental  damage,  operations  failure,  loss of human life, or
other  clear  emergency,  and for which there is  sufficient  time to obtain the
prior  approval of the  Parties,  Operator  may furnish  the  minimum,  strictly
factual,  information necessary to satisfy the legitimate public interest of the
media, the rules

                                        9

<PAGE>

of a stock  exchange  on which a  Party's  or it's  Affiliate's  shares or other
securities are traded and governmental authorities having jurisdiction. Operator
shall then  promptly  advise the other Parties of the  information  furnished in
response to the  emergency.  Any Party shall always have the right to remove its
name from any proposed press release.

                                    ARTICLE 8
                                  EXPENDITURES

     8.1 Basis of Charge to the Parties.  Operator  shall pay all costs incurred
hereunder  and each Party shall  reimburse  Operator on a timely  basis for such
costs in  proportion to its  Participating  Interest.  All charges,  credits and
accounting for expenditures  shall be pursuant to Exhibit "C". The provisions of
this Agreement shall prevail in the event of conflict with Exhibit "C".

     8.2  Authorization.  Operator shall neither make any single expenditure nor
undertake  any  project  costing  in excess  of  Seventy-five  Thousand  Dollars
($75,000.00) without prior approval of the Participating Parties. Operator shall
furnish written information to all the Participating  Parties on any expenditure
in excess of Twenty-five Thousand Dollars ($25,000.00).  Subject to any election
provided in  Articles 10 and 11,  approval  of a well  operation  shall  include
approval of all necessary  expenditures  through  installation  of the wellhead.
Notwithstanding  the  provisions of this Section,  in the event of an emergency,
Operator may immediately  make such  expenditures as in its opinion are required
to safeguard  life and property in dealing with the  emergency.  Operator  shall
report to the Parties, as promptly as possible,  the nature of the emergency and
action taken.

     8.3 Advance  Billings.  Operator shall have the right to require each Party
to advance its respective  share of estimated  expenditures  pursuant to Exhibit
"C"; provided,  however, that if the operations during the next succeeding month
involves  a  major  operation,   such  as  spudding,   drilling,   sidetracking,
completing,  major  workover,  etc.,  Operator  shall be  required to demand and
receive  payment no later than five (5) days prior to  commencing  operations of
each  Party's  proportionate  share of the AFE amount (dry hole and plugging and
abandonment  in the case of a well  proposal)  for  such  major  operation;  and
provided  further,  if any Party fails to timely pay its share of such estimated
costs,  Operator shall give notice referring to this provision to said Party via
certified  mail,  and if said Party does not pay its share of such costs  within
five (5) days of receipt of said notice,  said Party shall, at the option of the
Consenting Parties, be deemed a Non-Consenting Party as to such operation.

     8.4  Failure  to  Commence  Operations  Timely.  In the  event  a  proposed
operation for which funds are advanced to the Operator is not  commenced  timely
in accordance  with the terms of this  Agreement,  Operator shall, no later than
ten (10) days after the last date provided  herein for the  commencement of such
operation, remit to each Non-Operator an amount of money equal to the amount, if
any, each  Non-Operator  had  theretofore  advanced to Operator for the proposed
operation.

     8.5  Refund of Excess  Funds.  Not later  than  ninety  (90) days after the
completion  of an operation  proposed  hereunder,  Operator  shall remit to each
Non-Operator  participating  in such operation,  an amount of money equal to the
amount of cash  theretofore  advanced to Operator by each  Non-Operator  for the
operation  that was not  used,  if any,  by  Operator  in  connection  with such
completed operation.

     8.6 Commingling  Funds. Funds received by Operator under this Agreement may
be commingled with its own funds.

     8.7 Security Rights.  In addition to any other security rights and remedies
provided by law with  respect to services  rendered or materials  and  equipment
furnished under this Agreement,  for and in  consideration  of the covenants and
mutual  undertakings of the Operator and the Non-Operators  herein,  the Parties
shall have the following security rights:

                                       10

<PAGE>

          8.7.1  Mortgage in Favor of the  Operator.  Each  Non-Operator  hereby
          grants to the Operator a mortgage, hypothecate, and pledge of and over
          all of its rights,  titles, and interests in and to (a) the Lease, (b)
          the  hydrocarbons  in, on,  under,  and that may be produced  from the
          lands  within  the  Lease,  and  (c)  all  other  immovable   property
          susceptible of mortgage  situated  within the Lease.  This mortgage is
          given to secure the complete and timely  performance of and payment by
          each  Non-Operator of all  obligations and  indebtedness of every kind
          and  nature,  whether  now  owed by  such  Non-Operator  or  hereafter
          arising,  pursuant to this Agreement.  To the extent susceptible under
          applicable  law, this mortgage and the security  interests  granted in
          favor of the Operator herein shall secure the payment of all costs and
          other  expenses  properly  charged to such  Party,  together  with (A)
          interest on such  indebtedness,  costs, and other expenses at the rate
          set forth in Exhibit "C" attached hereto (the "Accounting  Procedure")
          or the maximum  rate  allowed by law,  whichever  is the  lesser,  (B)
          reasonable  attorneys'  fees, (C) court costs,  and (D) other directly
          related  collection costs. If any Non-Operator does not pay such costs
          and other  expenses or perform its  obligations  under this  Agreement
          when due, the Operator shall have the  additional  right to notify the
          purchaser or purchasers of the defaulting  Non-Operator's  Hydrocarbon
          production  and  collect  such  costs  and other  expenses  out of the
          proceeds  from  the  sale of the  defaulting  Non-Operator's  share of
          Hydrocarbon  production  until  the  amount  owed has been  paid.  The
          Operator  shall have the right to offset the amount  owed  against the
          proceeds  from the  sale of such  defaulting  Non-Operator's  share of
          Hydrocarbon   production  from  the  Lease.   Any  purchaser  of  such
          production  shall  be  entitled  to rely on the  Operator's  statement
          concerning  the  amount  of  costs  and  other  expenses  owed  by the
          defaulting  Non-Operator  and  payment  made  to the  Operator  by any
          purchaser  shall be binding and  conclusive as between such  purchaser
          and such  defaulting  Non-Operator.  The maximum  amount for which the
          mortgage herein granted by each Non-Operator shall be deemed to secure
          the obligations and indebtedness of such  Non-Operator to the Operator
          as   stipulated   herein  is  hereby  fixed  in  an  amount  equal  to
          $25,000,000.00  (the "Limit of the  Mortgage  of each  Non-Operator").
          Notwithstanding   the   foregoing   Limit  of  the  Mortgage  of  each
          Non-Operator,  the liability of each Non-Operator under this Agreement
          and the mortgage and security interest granted hereby shall be limited
          to (and the Operator shall not be entitled to enforce the same against
          such Non-Operator for, an amount exceeding) the actual obligations and
          indebtedness  [including all interest charges, costs, attorneys' fees,
          and other charges  provided for in this Agreement or in the Memorandum
          of  Operating  Agreement  and  Financing  Statement,  as such  term is
          defined in Article 8.7.5 (Recordation)  hereof] outstanding and unpaid
          and that are  attributable  to or charged against the interest of such
          Non-Operator pursuant to this Agreement.

          8.7.2  Security  Interest  in Favor of the  Operator.  To  secure  the
          complete and timely performance of and payment by each Non-Operator of
          all obligations and indebtedness of every kind and nature, whether now
          owed by such  Non-Operator  or  hereafter  arising,  pursuant  to this
          Agreement,   each  Non-Operator   hereby  grants  to  the  Operator  a
          continuing  security  interest  in and to all of its  rights,  titles,
          interests,   claims,  general  intangibles,   proceeds,  and  products
          thereof, whether now existing or hereafter acquired, in and to (a) all
          hydrocarbons produced from the lands or offshore blocks covered by the
          Lease or  attributable  to the Lease when  produced,  (b) all accounts
          receivable  accruing  or  arising  as a  result  of the  sale  of such
          hydrocarbons (including, without limitation, accounts arising from gas
          imbalances or from the sale

                                       11

<PAGE>

          of hydrocarbons at the wellhead),  (c) all cash or other proceeds from
          the sale of such hydrocarbons once produced, and (d) all Platforms and
          Development  Facilities,  wells,  fixtures,  other corporeal property,
          whether movable or immovable,  whether now or hereafter  placed on the
          lands or offshore blocks covered by the Lease or maintained or used in
          connection with the ownership,  use or exploitation of the Lease,  and
          other  surface  and  sub-surface  equipment  of any kind or  character
          located on or attributable to the Lease and the cash or other proceeds
          realized from the sale,  transfer,  disposition or conversion thereof.
          The interest of the  Non-Operators  in and to the oil and gas produced
          from or  attributable  to the Lease when  extracted  and the  accounts
          receivable accruing or arising as the result of the sale thereof shall
          be financed at the wellhead of the well or wells located on the Lease.
          To the extent  susceptible under applicable law, the security interest
          granted by each Non-Operator  hereunder covers: (A) all substitutions,
          replacements,  and  accessions  to the  property of such  Non-Operator
          described  herein and is intended  to cover all of the rights,  titles
          and  interests  of such  Non-Operator  in all movable  property now or
          hereafter  located upon or used in connection with the Lease,  whether
          corporeal  or  incorporeal;  (B) all  rights  under any gas  balancing
          agreement,  farmout rights,  option farmout  rights,  acreage and cash
          contributions,   and  conversion   rights  of  such   Non-Operator  in
          connection  with  the  Lease,  or the  hydrocarbons  produced  from or
          attributable to the Lease, whether now owned and existing or hereafter
          acquired or arising,  including,  without limitation, all interests of
          each  Non-Operator  in  any  partnership,  tax  partnership,   limited
          partnership, association, joint venture, or other entity or enterprise
          that holds,  owns, or controls any interest in the Lease;  and (C) all
          rights,  claims,  general  intangibles,   and  proceeds,  whether  now
          existing or hereafter  acquired,  of each  Non-Operator  in and to the
          contracts,  agreements, permits, licenses,  rights-of-way, and similar
          rights and privileges  that relate to or are appurtenant to the Lease,
          including the following:

               (1) all of its rights,  titles, and interests,  whether now owned
               and existing or hereafter acquired or arising,  in, to, and under
               or  derived  from  any  present  or  future  operating,  farmout,
               bidding, pooling,  unitization,  and communitization  agreements,
               assignments,  and subleases,  whether or not described in Exhibit
               "A," to the extent, and only to the extent, that such agreements,
               assignments,  and  subleases  cover or include any of its rights,
               titles,  and  interests,   whether  now  owned  and  existing  or
               hereafter  acquired or  arising,  in and to all or any portion of
               the  Lease,   and  all  units   created  by  any  such   pooling,
               unitization,  and communitization agreements and all units formed
               under orders,  regulations,  rules, or other official acts of any
               governmental  authority  having  jurisdiction,  to the extent and
               only to the extent  that such units  cover or include  all or any
               portion of the Lease;

               (2) all of its rights,  titles, and interests,  whether now owned
               and existing or hereafter acquired or arising,  in, to, and under
               or derived from all presently existing and future advance payment
               agreements, and oil, casinghead gas, and gas sales, exchange, and
               processing   contracts   and   agreements,   including,   without
               limitation,  those contracts and agreements that are described on
               Exhibit  "A,"  to the  extent,  and  only  to the  extent,  those
               contracts and  agreements  cover or include all or any portion of
               the Lease; and

               (3) all of its rights,  titles, and interests,  whether now owned
               and existing or hereafter acquired or arising,  in, to, and under
               or  derived  from all  existing  and  future  permits,  licenses,
               rights-of-way,  and similar rights and privileges  that relate to
               or are appurtenant

                                 12

<PAGE>

               to the Lease.

          8.7.3  Mortgage in Favor of the  Non-Operators.  The  Operator  hereby
          grants to each Non-Operator a mortgage, hypothecate, and pledge of and
          over all of its rights, titles, and interests in and to (a) the Lease;
          (b) the  hydrocarbons  in, on, under, and that my be produced from the
          lands within the Lease; and (c) all other immovable  property or other
          property  susceptible  of  mortgage  situated  within the Lease.  This
          mortgage is given to secure the complete and timely performance of and
          payment by the Operator of all obligations  and  indebtedness of every
          kind  and  nature,  whether  now  owed by the  Operator  or  hereafter
          arising,  pursuant to this Agreement.  To the extent susceptible under
          applicable  law, this mortgage and the security  interests  granted in
          favor of each  Non-Operator  herein  shall  secure the  payment of all
          costs and other expenses  properly  charged to the Operator,  together
          with (A) interest on such  indebtedness,  costs, and other expenses at
          the rate set forth in Exhibit "C" or the maximum  rate allowed by law,
          whichever is the lesser,  (B)  reasonable  attorneys'  fees, (C) court
          costs,  and  (D)  other  directly  related  collection  costs.  If the
          Operator  does not pay such costs and other  expenses  or perform  its
          obligations  under this  Agreement when due, the  Non-Operators  shall
          have the additional right to notify the purchaser or purchasers of the
          Operator's  Hydrocarbon  production  and collect  such costs and other
          expenses out of the proceeds from the sale of the Operator's  share of
          Hydrocarbon  production  until  the  amount  owed has been  paid.  The
          Non-Operators  shall have the right to offset the amount owed  against
          the  proceeds  from the sale of the  Operator's  share of  Hydrocarbon
          production from the Lease.  Any purchaser of such production  shall be
          entitled to rely on the Non-Operators' statement concerning the amount
          of costs and other  expenses  owed by the Operator and payment made to
          the  Non-Operators by any purchaser shall be binding and conclusive as
          between such purchaser and the Operator.  The maximum amount for which
          the mortgage  herein granted by the Operator shall be deemed to secure
          the obligations and indebtedness of the Operator to all  Non-Operators
          as   stipulated   herein  is  hereby  fixed  in  an  amount  equal  to
          $25,000,000.00  in the  aggregate  (the "Limit of the  Mortgage of the
          Operator"). Notwithstanding the foregoing Limit of the Mortgage of the
          Operator,  the liability of the Operator  under this Agreement and the
          mortgage and security interest granted hereby shall be limited to (and
          the  Non-Operators  shall not be entitled to enforce the same  against
          the Operator  for, an amount  exceeding)  the actual  obligations  and
          indebtedness  [including all interest charges, costs, attorneys' fees,
          and other charges  provided for in this Agreement or in the Memorandum
          of  Operating  Agreement  and  Financing  Statement,  as such  term is
          defined in Article 8.7.5 (Recordation)  hereof] outstanding and unpaid
          and that are  attributable  to or charged  against the interest of the
          Operator pursuant to this Agreement.

          8.7.4 Security Interest in Favor of the  Non-Operators.  To secure the
          complete and timely  performance of and payment by the Operator of all
          obligations  and  indebtedness  of every kind and nature,  whether now
          owed by the Operator or hereafter arising, pursuant to this Agreement,
          the Operator hereby grants to each Non-Operator a continuing  security
          interest  in and to all of  its  rights,  titles,  interests,  claims,
          general  intangibles,  proceeds,  and  products  thereof,  whether now
          existing  or  hereafter  acquired,  in  and to  (a)  all  hydrocarbons
          produced  from the lands or  offshore  blocks  covered by the Lease or
          included  within the Lease or attributable to the Lease when produced,
          (b) all  accounts  receivable  accruing  or arising as a result of the
          sale of such

                                       13

<PAGE>

          hydrocarbons (including, without limitation, accounts arising from gas
          imbalances or from the sale of hydrocarbons at the wellhead),  (c) all
          cash or  other  proceeds  from  the  sale of  such  hydrocarbons  once
          produced,  and (d) all Platforms and  Development  Facilities,  wells,
          fixtures,  other  corporeal  property  whether  movable or  immovable,
          whether now or hereafter  placed on the offshore blocks covered by the
          Lease or maintained or used in connection  with the ownership,  use or
          exploitation of the Lease, and other surface and sub-surface equipment
          of any kind or character  located on or  attributable to the Lease and
          the  cash  or  other  proceeds  realized  from  the  sale,   transfer,
          disposition or conversion thereof. The interest of the Operator in and
          to the  hydrocarbons  produced from or  attributable to the Lease when
          extracted  and the  accounts  receivable  accruing  or  arising as the
          result of the sale  thereof  shall be financed at the  wellhead of the
          well or wells located on the Lease.  To the extent  susceptible  under
          applicable  law,  the  security   interest  granted  by  the  Operator
          hereunder covers: (A) all substitutions,  replacements, and accessions
          to the  property of the Operator  described  herein and is intended to
          cover all of the rights,  titles and  interests of the Operator in all
          movable  property now or hereafter  located upon or used in connection
          with the Lease, whether corporeal or incorporeal; (B) all rights under
          any gas balancing  agreement,  farmout rights,  option farmout rights,
          acreage and cash contributions,  and conversion rights of the Operator
          in  connection  with the  Lease,  the  hydrocarbons  produced  from or
          attributable to the Lease, whether now owned and existing or hereafter
          acquired or arising,  including,  without limitation, all interests of
          the Operator in any partnership, tax partnership, limited partnership,
          association,  joint venture, or other entity or enterprise that holds,
          owns,  or  controls  any  interest  in the Lease;  and (C) all rights,
          claims,  general  intangibles,  and proceeds,  whether now existing or
          hereafter  acquired,   of  the  Operator  in  and  to  the  contracts,
          agreements, permits, licenses,  rights-of-way,  and similar rights and
          privileges that relate to or are  appurtenant to the Lease,  including
          the following:

               (1) all of its rights,  titles, and interests,  whether now owned
               and existing or thereafter acquired or arising, in, to, and under
               or  derived  from  any  present  or  future  operating,  farmout,
               bidding, pooling,  unitization,  and communitization  agreements,
               assignments,  and subleases,  whether or not described in Exhibit
               "A," to the extent, and only to the extent, that such agreements,
               assignments,  and  subleases  cover or include any of its rights,
               titles,  and  interests,   whether  now  owned  and  existing  or
               hereafter  acquired or  arising,  in and to all or any portion of
               the  Lease,   and  all  units   created  by  any  such   pooling,
               unitization,  and communitization agreements and all units formed
               under orders,  regulations,  rules, or other official acts of any
               governmental  authority  having  jurisdiction,  to the extent and
               only to the extent  that such units  cover or include  all or any
               portion of the Lease;

               (2) all of its rights,  titles, and interests,  whether now owned
               and existing or hereafter acquired or arising,  in, to, and under
               or derived from all presently existing and future advance payment
               agreements, and oil, casinghead gas, and gas sales, exchange, and
               Development   contracts  and   agreements,   including,   without
               limitation,  those contracts and agreements that are described on
               Exhibit  "A,"  to the  extent,  and  only  to the  extent,  those
               contracts and  agreements  cover or include all or any portion of
               the Lease; and

               (3) all of its rights,  titles, and interests,  whether now owned
               and existing or hereafter acquired or arising,  in, to, and under
               or derived from all existing and future permits,

                                       14

<PAGE>

               licenses,  rights-of-way,  and similar rights and privileges that
               relate  to  or  are  appurtenant  to  any  of  the  Lease.

          8.7.5 Recordation.  To provide evidence of, and to further perfect the
          Parties' security rights created hereunder,  upon request,  each Party
          shall execute and  acknowledge  the Memorandum of Operating  Agreement
          and Financing  Statement  attached as Exhibit "F" (the  "Memorandum of
          Operating Agreement and Financing  Statement in multiple  counterparts
          as  appropriate.  The  Parties  authorize  the  Operator  to file  the
          Memorandum  of  Operating  Agreement  and  Financing  Statement in the
          public  records set forth below to serve as notice of the existence of
          this  Agreement  as a  burden  on the  title of the  Operator  and the
          Non-Operators  to their  interests  in the Lease and for  purposes  of
          satisfying  otherwise  relevant  recording and filing  requirements of
          applicable  law  and  to  attach  an  original  of the  Memorandum  of
          Operating  Agreement  and Financing  Statement to a standard  UCC-1 in
          mutually agreeable forms for filing in the UCC records set forth below
          to perfect  the  security  interests  created  by the  Parties in this
          Agreement.  Upon the acquisition of a leasehold interest in the Lease,
          the Parties shall,  within five business days following request by one
          of the Parties hereto, execute and furnish to the requesting Party for
          recordation  such a Memorandum  of Operating  Agreement  and Financing
          Statement  describing  such  leasehold  interest.  Such  Memorandum of
          Operating Agreement and Financing Statement shall be amended from time
          to time upon  acquisition  of  additional  leasehold  interests in the
          Lease,  and the Parties  shall,  within five business  days  following
          request  by one of the  Parties  hereto,  execute  and  furnish to the
          requesting Party for recordation any such amendment. The Memorandum of
          Operating  Agreement  and  Financing  Statement  is  to  be  filed  or
          recorded,  as the case may in (a) the conveyance records of the county
          or counties  adjacent to the lands or offshore  blocks  covered by the
          Lease or contained  within the Lease, (b) the mortgage records of such
          county or counties,  and (c) the appropriate  Uniform  Commercial Code
          records.

          8.7.6 Millennium  Platform and Facilities.  With respect to Millennium
          Offshore  Group,  Inc.  ("Millennium"),  the mortgage and the security
          interest  will  not  apply to the  existing  platform  and  production
          facilities owned by Millennium on the Lease.

8.8 Default. If any Party does not pay its share of the charges authorized under
this Agreement when due, the Operator may give the defaulting  Party notice that
unless payment is made within thirty (30) days from delivery of the notice,  the
non-paying  Party shall be in default.  A Party in default shall have no further
access to the rig, Platform or Development Facilities,  any Confidential Data or
other maps, records,  data,  interpretations,  or other information  obtained in
connection with activities or operations  hereunder or be allowed to participate
in  meetings.  A Party in default  shall not be  entitled  to vote or to make an
election  until such time as the defaulting  Party is no longer in default.  The
voting interest of each non-defaulting  Party shall be counted in the proportion
its Participating Interest share bears to the total non-defaulting Participating
Interest  shares.  As to any  operation  approved  during the time a Party is in
default, such defaulting Party shall be deemed to be a Non-participating  Party,
except where such approval is binding on all Parties or  Participating  Parties,
as  applicable.  In the event a Party believes that such statement of charges is
incorrect,  the Party shall nevertheless pay the amounts due as provided herein,
and the Operator shall attempt to resolve the issue as soon as practicable,  but
said attempt shall be made no later than sixty (60) days after receiving  notice
from the Party of such disputed charges.

8.9 Unpaid  Charges.  If any  Participating  Party fails to pay its share of the
costs and other expenses

                                       15

<PAGE>

authorized  under this Agreement in accordance  with Exhibit "C" or to otherwise
perform any of its obligations  under this Agreement when due, the Party to whom
such  payment  is due,  in order to take  advantage  of the  provisions  of this
Article 8, shall  notify the other Party by certified or  registered  U.S.  Mail
that it is in default  and has thirty  (30) days from the receipt of such notice
to pay.  If such  payment is not made timely by the  non-paying  Party after the
issuance  of such  notice to pay,  the Party  requesting  such  payment may take
immediate  steps to diligently  pursue  collection of the unpaid costs and other
expenses  owed by such  Participating  Party and to exercise  the  mortgage  and
security  rights  granted  by this  Agreement.  The  bringing  of a suit and the
obtaining of a judgment by any Party for the secured  indebtedness  shall not be
deemed an election of remedies or otherwise  affect the security  rights granted
herein.  In addition to any other remedy afforded bylaw,  each Party shall have,
and is hereby given and vested with,  the power and  authority to foreclose  the
lien, mortgage, pledge, and security interest established hereby in its favor in
the manner  provided by law, to exercise the Power of Sale  provided for herein,
if  applicable,  and to exercise all rights of a secured party under the Uniform
Commercial  Code as  adopted  by the state in which the Lease is located or such
other  states as such Party may deem  appropriate.  The  Operator  shall keep an
accurate account of amounts owed by the  nonperforming  Party (plus interest and
collection  costs) and any amounts collected with respect to amounts owed by the
nonperforming  Party.  In the event there  become  three or more Parties to this
Agreement,  then if any nonperforming  Party's share of costs remains delinquent
for a period of sixty (60) days, each other  Participating Party shall, upon the
Operator's  request,  pay the unpaid amount of costs in the proportion  that its
Working  Interest  bears to the total  non-defaulting  Working  Interests.  Each
Participating  Party paying its share of the unpaid  amounts of a  nonperforming
Party shall be subrogated to the Operator's  mortgage and security rights to the
extent of the payment made by such Participating Party.

8.10 Carved-out Interests. Any agreements subsequent to the date hereof creating
any overriding royalty,  production payment, net proceeds interest,  net profits
interest,  carried  interest  or any  other  interest  carved  out of a  Working
Interest in the Lease shall  specifically  make such  interests  inferior to the
rights of the Parties to this Agreement.  If any Party whose Working Interest is
so  encumbered  does not pay its share of costs and  other  expenses  authorized
under  this  Agreement,  and the  proceeds  from  the  sale  of its  Hydrocarbon
production  pursuant to this  Article 8 are  insufficient  to pay such costs and
expenses,  the  security  rights  provided  for in this Article 8 may be applied
against the carved-out  interests  with which the  defaulting or  non-performing
Party's  interest in the Lease is  burdened.  In such  event,  the rights of the
owner of such  carved-out  interest shall be subordinated to the security rights
granted by this Article 8.

                                    ARTICLE 9
                                     NOTICES

     9.1 Giving and Receiving Notices. Except as specifically provided otherwise
herein,  all  notices  shall be in writing and  delivered  in person or by mail,
telegram,  telegraph,  telecopier or cable, postage or charges prepaid; however,
if a drilling  rig is on location  and standby  charges are  accumulating,  such
notices shall be given by telephone and immediately confirmed in writing. Notice
shall be deemed  given only when  received  by the Party to whom such  notice is
directed, except that any notice by certified mail or equivalent,  telegraph, or
cable  properly  addressed,  pursuant to Section  6.1,  and with all postage and
charges prepaid shall be deemed given  seventy-two  (72) hours after such notice
is  deposited in the mail or  twenty-four  (24) hours after such notice is filed
with an operating telegraph or cable company for immediate transmission.

     9.2 Content of Notice.  Any notice which requires a response shall indicate
the maximum  response  time  specified in Section 9.3. If a proposal  involves a
Platform, Pipeline, or Facility, the notice shall contain a

                                       16

<PAGE>

description of same,  including location and the estimated costs of fabrication,
transportation  and installation.  If a proposal involves a well operation,  the
notice  shall  include the proposed  depth,  the  objective  zone or zones to be
tested,  the surface,  objective and bottom-hole  locations,  applicable details
regarding  directional  drilling,  the type of  equipment  to be used (such as a
mobile drilling unit, floating drilling vessel, or platform),  and the estimated
costs of the operation including all necessary expenditures through installation
of the wellhead.

     9.3 Response to Notices.  Each Party's  response to a proposal  shall be in
writing to all other  Parties.  Except for those notices in Articles 10, 11, 15,
and 16, the maximum response time shall be as follows:

          9.3.1  Platform  Construction.  When a  proposal  for well  operations
involves the  construction  of a Platform,  the maximum  response  time shall be
ninety (90) days.

          9.3.2 Proposal Without Platform. When any proposal for well operations
does not require  construction  of a Platform,  maximum  response  time shall be
thirty (30) days;  however, if a drilling rig is on location and standby charges
are accumulating, the maximum response time shall be forty-eight (48) hours.

          9.3.3 Other  Matters.  For all other  matters  requiring  notice,  the
maximum response time shall be thirty (30) days.

     9.4 Failure to Respond.  Failure of any Party to respond to a notice within
the required period shall be deemed to be a negative response.

     9.5 Timely Operations.  All operations conducted pursuant to this Agreement
shall be commenced  within one hundred eighty (180) days following the date upon
which the last  applicable  election  may be made.  If no  operations  are begun
within such time  period,  the effect  shall be as if the  proposal had not been
made.  Operations  shall be deemed to have  commenced  (a) on the date design or
material procurement  commences or the contract for a Platform and/or Facilities
is let, if the notice involved construction of a Platform or Facilities;  or (b)
on the date that charges begin  accruing  according to the terms of the drilling
contract.

     9.6 Restrictions on Multiple Well Proposals.  Unless otherwise agreed to by
the Parties hereto, no more than one well shall be drilling or completing at the
same time.  Well  proposals  made under the terms hereof shall be limited to one
well each and except as  provided  below,  no Party shall be required to make an
election  under more than one well  proposal at the same time or while a well is
drilling or completing.  This paragraph  shall not limit the right of a Party to
propose a well while  another is drilling or  completing,  however,  the time to
elect under such proposal shall be deferred until (a) thirty (30) days after the
previous  well has been  completed  or plugged and  abandoned or (b) twenty four
(24) hours from receipt and notification that the drilling rig has been moved to
the new  location  and  standby  charges  are being  accumulated,  whichever  is
earlier.

                                   ARTICLE 10
                                EXPLORATORY WELLS

     10.1  Operations  by All Parties.  Any Party may propose the drilling of an
Exploratory Well by notifying the other Parties.  If all of the Parties agree to
participate  in the drilling of the proposed  well,  Operator  shall  proceed to
drill such well for the account of all Parties.

     10.2 Second  Opportunity to  Participate.  If fewer than all but one (1) or
more Parties having a combined  Working  Interest of fifty percent (50%) or more
elect to participate,  the proposing Party shall immediately  notify each of the
Parties of the elections made,  whereupon any such Party originally electing not
to  participate  may elect to  participate  as if it had  originally  elected to
participate by so notifying the proposing  Party within  forty-eight  (48) hours
after receipt of such second notice.  If, after said second notice,  all Parties
agree to  participate  in the  drilling of the  proposed  well,  Operator  shall
proceed to drill such well for the account of all Parties.

                                       17

<PAGE>

     10.3  Operations  by Fewer Than All Parties.  If,  after the second  notice
provided for in Section  10.2 above,  fewer than all but one (1) or more Parties
having a combined Working Interest of fifty percent (50%) or more still elect to
participate  in the drilling of the proposed  well,  the  proposing  Party shall
immediately  notify each of the Parties electing to participate of the elections
made and such Parties  shall,  within five (5) days after receipt of such notice
(twenty-four  [24] hours if a rig is on location),  notify the  proposing  Party
what  portion,  if any,  of the total  non-participating  interest  it wishes to
acquire;  each such  Party  being  entitled  to  acquire  the  non-participating
interest  in the  ratio  that  such  Party's  Working  Interest  at the time the
original  proposal was made bears to the total  Working  Interest of all Parties
electing to participate. If the Parties electing to participate subscribe to all
of the  non-participating  interest  so as to  permit  payment  for one  hundred
percent (100%) of the cost of the well, Operator,  or the largest interest owner
participating in such operations if Operator is not a Participating Party, shall
proceed  to drill  such well for the  account  of the  Participating  Parties in
accordance  with the procedure  including the  recoupment of cost  provisions of
Article 10.3.1 set forth below; provided, if operations are being conducted from
a Platform, then Operator shall conduct such operations.  If one hundred percent
(100%) of the cost of the well is not subscribed to, then such well shall not be
drilled and it shall be as if no proposal had been made.

          Operations by the Participating  Parties shall be commenced within one
hundred  eighty  (180)  days  following  the date on which  the last  applicable
election must be made under Section 10.2 above.  If no operations  are commenced
within such time period,  it shall be as if the  proposal had not been made.  If
the proposed well is commenced within such one hundred eighty (180) days period,
then the following provisions shall apply:

          10.3.1  Subsequent  Exploratory  Wells.  If the  proposed  well is the
second  or  subsequent  Exploratory  Well  to be  drilled  on  the  Lease,  each
Non-Participating  Party  shall be deemed  to have  relinquished  its  operating
rights,  along with its interest in production,  in and to such Exploratory Well
in the  manner  provided  for in  Section  12.2.  Recoupment  of costs  shall be
determined  by Section  12.2 and the  drilling of such well shall be governed by
the provisions of Article 12; however,  percentages  under Section 12.2 shall be
as follows:

          12.2a) Eight Hundred Percent (800%)

          12.2b) Three Hundred Percent (300%)

          12.2c) Three Hundred Percent (300%)

          12.2d) Two Hundred Percent (200%)

Further, with respect to Exploratory Operations which result in a well completed
as a producer or which otherwise qualifies as producible under the provisions of
Section  2.16  hereof,  the  above  amounts  shall  be  recoverable  out  of the
Non-Participating Party's share of production as follows:

     i) If the said well is  completed  as a  producer,  then the above  amounts
     shall  be  recoverable,  with  respect  to said  well,  not only out of the
     Non-Participating  Party's share of production  therefrom,  but also out of
     fifty percent (50%) of such  Non-Participating  Party's share of production
     attributable to the productive reservoir(s) encountered in said well in any
     and all wells  subsequently  drilled  on the Lease  and  completed  in such
     reservoir(s);

     ii) If the  said  well  is  not  completed  as a  producer,  but  otherwise
     qualifies as producible  under the provisions of Section 2.16 hereof,  then
     the above  amounts  shall be  recoverable  with respect to said well out of
     fifty  percent (50%) of the  Non-Participating  Party's share of production
     attributable to the productive reservoir(s) encountered in said well in any
     and all wells  subsequently  drilled  on the lease  and  completed  in such
     reservoir(s);  and the above-stated  provisions for the  relinquishment and
     reverting of  Non-Participating  Party's  operating  rights and  production
     shall also apply with respect to such fifty percent (50%) interest, to said
     subsequently drilled well or wells.

                                       18

<PAGE>

          10.3.2 Subsequent Exploratory Wells - Non-Participating  Reversion. If
such  Non-Consent  Operations  under  Section  10.3.2  do not  result  in a well
determined to be capable of producing in paying  quantities  pursuant to Section
2.16 and said well is plugged and  abandoned;  and provided  that such well does
not result in a decision, within sixty (60) days from rig release date, to set a
Platform or drill another well within 3,000 feet from the vertical projection of
the bottom-hole  location of such well, such operating rights in the Lease shall
revert  to each  Non-Participating  Party  except  that all  Non-Consent  Wells,
equipment,  Platforms and  Facilities  shall remain vested in the  Participating
Parties.

     10.4 Course of Action After Drilling to the Initial Objective Depth:

          10.4.1 Casing Point Election.

     a) At such time as an Exploratory  Well been drilled to the objective depth
     asset forth in the notice, and has been logged and tested and copies of the
     logs and results  furnished  to each  Participating  Party,  but before any
     production  pipe has been set,  Operator  shall  notify  the  Participating
     Parties by telephone or telecopy,  setting forth Operator's  recommendation
     with respect to further operations.  Each Participating Party shall, within
     forty-eight  (48) hours after receipt of such notice,  notify  Operator and
     the  other  Participating  Parties  by  telephone  (promptly  confirmed  in
     writing) or telecopy whether it accepts  Operator's  recommendation or make
     additional  recommendations  as to further  operations with respect to such
     well. If additional  recommendations  are made, the  Participating  Parties
     shall have an additional  twenty-four (24) hours to respond.  Any party may
     request  additional time beyond the herein specified time, in order to make
     an election;  however,  all costs associated to such standby rig time shall
     be at the expense of the Party or Parties  requesting such additional time.
     The extension of additional time shall not exceed a forty-eight  (48) hours
     period.

     b) Any recommendation concurred to by a majority of Participating Interests
     shall  take  precedence   over  any  other   proposal.   In  the  event  no
     recommendation  receives such majority support,  then the recommendation to
     be followed shall be determined as follows:

          1)   proposals to do additional testing, coring or logging.

          2)   proposals to attempt completions at the initial objective depth.

          3)   proposals  to plug  back and  attempt  completions  in  ascending
               order.

          4)   proposals to deepen the well.

          5)   proposals to sidetrack  the well to another  bottom hole location
               no  deeper  than  the  stratigraphic  equivalent  of the  initial
               objective depth.

          6)   proposals to perform other operations.

          7)   proposals to temporarily abandon the well.

          8)   proposals to plug and abandon the well.

          In the event a  recommendation  to plug and abandon the well  receives
     majority  support,   any   Participating   Party  not  concurring  in  said
     recommendation  shall  have the  right to have the  Operator  perform  such
     additional  operation  with  respect  to such well as it  desires  and such
     operations  shall be performed in accordance with the provisions of Section
     10.4.c) below.

          If the decision as to the further  operation is other than to plug and
     abandon the well, any Party  electing not to  participate  therein shall be
     relieved of any further  obligations  and liabilities as to such operation,
     but shall pay to Operator its proportionate  part of the cost, as estimated
     by Operator,  of plugging and abandoning the well at the initial  objective
     depth.  The  Parties  participating  in such  further  operations  shall be
     entitled to recover from any Parties not participating therein, the amounts
     set forth in Section 10.3.2

                                       19

<PAGE>

     as to costs incurred  subsequent to the initial objective depth having been
     reached and after the decision  respecting such further operations is made.
     Furthermore,  the amounts to be recouped  by the Parties  participating  in
     such   further   operations   shall   also   be   recoverable   out   of  a
     Non-Participating   Party's  share  of  production   attributable   to  the
     productive  reservoir(s)  encountered in such further operations in any and
     all  wells  subsequently  drilled  on  the  Lease  and  completed  in  such
     reservoir(s)  or qualifying as  producible  under Section  10.3.2i) and ii)
     above.

     c) Operator  shall  conduct  such further  operations  at the sole risk and
     expense   of   the   Parties   participating   therein,   subject   to  the
     Non-Participating  Parties' reversionary rights as provided in Section 12.2
     below,  and such  Parties  shall  acquire  the  interest of the Parties not
     participating  in such  further  operations  and all  production  resulting
     therefrom in the proportion  that the interest of each Party  participating
     therein bears to the total interest of all Parties  participating  therein.
     If the well is not completed as a Producible Well,  Operator shall plug and
     abandon such well at the cost of the Parties  participating in such further
     operation,  less those  estimated  costs  paid  previously  by Parties  not
     participating in such further  operation for plugging and abandoning at the
     initial objective depth.

                                   ARTICLE 11
                             DEVELOPMENT OPERATIONS

     11.1  Operations  by All  Parties.  Any  Party may  propose  that a well be
drilled,  recompleted,  deepened,  or plugged back as a Development Operation by
notifying the other Parties. If all Parties elect to participate in the proposed
operation, Operator shall conduct such operation for the account of all Parties.

     11.2 Second  Opportunity to Participate.  If fewer than all, but one (1) or
more Parties having a combined  Working Interest of twenty five percent (25%) or
more elect to participate,  the proposing Party shall immediately notify each of
the Parties of the elections made,  whereupon any such Party originally electing
not to participate  may elect to participate as if it had originally  elected to
participate by so notifying the proposing  Party within  forty-eight  (48) hours
after the receipt of such second  notice.  If,  after said  second  notice,  all
Parties agree to  participate,  Operator shall proceed with such  operations for
the account of all Parties.

     11.3  Operations  by Fewer Than All Parties.  If,  after the second  notice
provided for in Section  11.2 above,  fewer than all but one (1) or more Parties
owning  twenty five percent  (25%) or more  interest in the Lease still elect to
participate  in  the  proposed  operation,  each  of  the  Parties  electing  to
participate shall notify the other Parties so electing what portion,  if any, of
the total non-participating interest it wishes to acquire; each such Party being
entitled  to  acquire  the  non-participating  interest  in the ratio  that such
Party's Working Interest at the time the original proposal was made bears to the
total Working  Interest of all Parties  electing to participate.  If the Parties
electing to participate subscribe to all of the non-participating interest so as
to permit payment for one hundred  percent (100%) of the cost of such operation,
then Operator or the largest  interest owner  participating in such operation if
Operator is not a Participating  Party,  shall proceed to conduct such operation
in accordance with Article 12 below; provided,  however, if operations are being
conducted from a Platform,  then Operator shall conduct such  operation.  If one
hundred  percent (100%) of the cost of such operation is not subscribed to, then
such operation shall not be conducted and it shall be as if no proposal had been
made.

     11.4  Timely  Operations.  Operations  by  Participating  Parties  shall be
commenced  within one hundred  eighty (180) days following the date on which the
last  applicable  election must be made. If no operations  are begun within such
time period,  it shall be as if the proposal had not been made. If a Platform is
necessary  for  Non-Consent  Operations,   and  the  notice  so  indicated  that
necessity, operations shall be deemed to have

                                       20

<PAGE>

commenced  on the date the contract for design of the Platform is let, or on the
date rigging-up operations are commenced on an existing Platform.

     11.5 Course of Action After Drilling to Initial Objective Depth.  After any
Development  Well  has  reached  Casing  Point,  the  identical  procedures  and
alternatives provided under Article 10.4 shall apply.

     11.6 Deeper Drilling. If a well is proposed to be drilled below the deepest
producible  zone  penetrated  by a Producible  Well,  any Party hereto may elect
either;  a) to participate in the well as proposed,  or b) to participate in the
well to the base of the deepest producible zone penetrated by a Producible Well.
If a Party elects to participate in the proposed well to the base of the deepest
producible  zone  penetrated  by a  Producible  Well,  such Party shall bear its
proportionate  part of the  cost of such  operations,  including  completion  or
abandonment, only to the depth to which such Party agreed to participate. In the
event  the well is  completed  below  the depth to which  such  Party  agreed to
participate,  all costs  incurred in the operations for that portion of the well
below the agreed depth shall be governed by the provisions of Section 10.3.2.

                                   ARTICLE 12
                             NON-CONSENT OPERATIONS

     12.1 Non-Consent Operations.  Operator shall conduct Non-Consent Operations
at the sole risk and expense of the  Participating  Parties,  in accordance with
the following provisions:

          12.1.1  Non-Interference.  Non-Consent  Operations shall not interfere
unreasonably with operations being conducted by all Parties.

          12.1.2 Multiple Completion  Limitation.  Non-Consent  Operations shall
not  be  conducted  in a well  having  multiple  completions  unless:  (a)  each
completion is owned by the same Parties in the same proportions; (b) the well is
incapable of producing  from any of its  completions;  or (c) all  Participating
Parties in the well consent to such operations.

          12.1.3  Liens.   In  the  conduct  of  Non-Consent   Operations,   the
Participating  Parties  shall  keep  the  Lease  free and  clear  of  liens  and
encumbrances.

          12.1.4 Metering. In Non-Consent Operations,  separate metering devices
shall  not  be  required  to  measure  production  but  such  production  may be
determined on a well test basis.

          12.1.5  Platform  Salvage.   Provided  that  no  further  drilling  or
production is proposed from a Non-Consent  Platform,  the Participating  Parties
shall be responsible  for  dismantling and clearing away said Platform and shall
be entitled to all the salvage realized therefrom.

          12.1.6  Non-Consent  Well. A Non-Consent  Well shall not be completed,
recompleted, reworked, deepened, or plugged back in any zone(s) then productive,
or then known to be capable of  production  (as  determined  pursuant to Section
2.16  above) of oil or gas from any other well on the Lease  without the written
approval of the  Non-Participating  Party(ies),  unless:  (a) said zone(s) shall
have been  designated in the notice as an objective zone or one of the objective
zones for the  completion  of such  well;  (b)  completion  of such well in said
zone(s) will not increase the well density  theretofore  mutually agreed upon by
the Parties for said zone(s) or the density pattern with respect to said zone(s)
as  theretofore   prescribed  by  the  State  or  Federal   authorities   having
jurisdiction  of the premises,  whichever is applicable;  and (c) the horizontal
distance  between the vertical  projections of the midpoint of the zone within a
reservoir that is in communication with the completion zone in such well and any
existing well in the same zone of the non-consent well will not be less than one
thousand three hundred and twenty (1,320) feet if an oil-well  completion or two
thousand six hundred and forty (2,640) feet if a gas-well completion.  The terms
"oil well  completion"  and "gas well  completion" as used in this Article shall
have the same  meaning as those terms are  defined in 30 CFR 250.170  Gulf Coast
approved by the Chief, Conservation

                                       21

<PAGE>

Division, Geological Survey, United States Department of the Interior, effective
July 1, 1993, as same may from time to time be amended. Subject to the foregoing
provisions of this Article, until the Party(ies)  participating in a Non-Consent
Well has recouped  out of the  production  therefrom  the amounts to which it is
entitled  hereunder,  the Participating  Party(ies) shall be entitled to conduct
any  reworking  operations in the well which it may desire,  including  plugging
back the hole to a shallower  reservoir.  The cost of such reworking  operations
shall not be subject  to the  penalty  provisions  provided  in Section  12.2 or
Section 10.3, as the case may be.

          12.1.7 Cost  Information.  Operator  shall,  within one hundred twenty
(120) days after  completion  of a Non-Consent  Well,  furnish all other Parties
with a statement of well costs prepared in accordance with Exhibit "C" or with a
copy of the monthly billing furnished to the Participating  Parties. The Parties
shall keep such cost  information  confidential.  Operator  shall furnish to all
Parties a monthly statement showing operating expenses and the proceeds from the
sale of production from the well for the preceding month.

     12.2  Penalties.   Upon  commencement  of  Non-Consent   Operations,   each
Non-Participating  Party's  operating  rights  in the well and its  interest  in
production  therefrom  shall  be  relinquished  (without  the  execution  of any
instrument   evidencing  a  transfer)  to  the  Participating   Parties  in  the
proportions that each  Participating  Party's Interest bears to the total of the
Participating  Parties'  Interest  for  as  long  as the  operations  originally
proposed are being conducted or production in paying  quantities is obtained (or
is capable of being obtained);  provided that such operating rights and interest
in   production   shall  revert  to  each   Non-Participating   Party  when  the
Participating  Parties have received out of the proceeds of the production  from
such Operations an amount equal to the sum of the following:

     a) Six hundred percent (600%) of the Non-Participating Party's Share of the
     cost  of  drilling,  completing,  recompleting,   deepening,  sidetracking,
     reworking or plugging  back the well,  as the case may be, and equipping it
     through the wellhead connection; plus

     b) Four hundred  percent (400%) of the  Non-Participating  Party's Share of
     the cost of any Facilities necessary to carry out the operations; plus

     c) Four hundred  percent (400%) of the  Non-Participating  Party's Share of
     the cost of any  Non-Consent  Platform which must be installed to carry out
     the operations; plus

     d) Two hundred percent (200%) of the Non-Participating Party's Share of the
     cost of using any Platform already installed; plus

     e) Two hundred percent (200%) of the Non-Participating Party's share of the
     cost of Pipelines utilized to transport production from the Lease; plus

     f) Non-Participating  Party's Share of operating expenses,  royalties,  and
     gathering, windfall profit, severance,  production, and other taxes imposed
     on production,  other than income and ad valorem taxes. Upon the recoupment
     of such costs, a Non-Participating Party shall become a Participating Party
     in such operations.

     12.3 Recoupment and Salvage. If a Non-Consent Well results in a dry hole or
ceases to produce in paying quantities  before the Participating  Parties recoup
the amount to which they are  entitled,  and  provided a proposal  to deepen the
Non-Consent  Well is not made in accordance with Section 12.4, the well shall be
abandoned and plugged at the sole risk and expense of the Participating Parties.
Any sum realized  from salvage in excess of the amounts to be recouped  from the
well shall be credited to all Parties.

     12.4 Deepening of Non-Consent Wells. If any Participating Party proposes to
deepen a Non-Consent  Well,  except for a Non-Consent Well drilled under Section
12.9 or the  first  Exploratory  Well  as  contemplated  in  Section  10.3.1,  a
Non-Participating  Party may participate in the proposed deepening  operation by
notifying the

                                       22

<PAGE>

Operator  within  thirty  (30)  days (48  hours if a rig is on  location)  after
receiving  the  proposal  that it will join in the  deepening  operation  and by
paying to the  Participating  Parties an amount equal to such  Non-Participating
Party's  share of the actual  costs  incurred in the drilling and casing of such
well  to  the  point  at  which  such  deepening  operation  is  commenced.  The
Participating  Parties  shall  continue  to be  entitled  to recoup the full sum
provided for in Section  10.3.2 or Section 12.2  applicable  to the  non-consent
portion of the well, less the amount paid under this Section. Provided, however,
in the event the payment  specified  in this  Section  12.4 would then cause the
amount of money  recouped  by the  Participating  Parties to exceed the full sum
provided for in Section 10.3.2 or Section 12.2,  whichever is  applicable,  then
such payment  shall be reduced by an amount so that such full sum shall not then
be exceeded.

     12.5  Operations  from  Non-Consent   Platforms.  A  Party  which  did  not
originally  participate in a Platform shall be a  Non-Participating  Party as to
all  operations  from such  Platform and shall be subject to the  provisions  of
Section 12.2 above.  Reversion shall occur only after the original Participating
Parties  have  recouped  the sum set forth in said Section 12.2 for the Platform
and  the  Non-Consent   Operations  thereon;   provided,   however,   that  such
Non-Participating  Party  shall  have  the  right  at  any  time  to  pay to the
Participating  Parties  in such  Platform  an  amount,  in  cash,  equal to said
Non-Participating  Party's share of the  unrecovered  balance of the  recoupment
account  attributable  to such Platform  under Section 12.2 and thereby become a
Participating  Party with  regard to such  Platform  and  subsequent  operations
therefrom.

     12.6  Discovery  or  Extension  from  Mobile  Drilling  Operations.   If  a
Non-Consent  Well (other than a  subsequent  Exploratory  Well)  drilled  from a
mobile  drilling rig or floating  drilling  vessel  results in the  discovery or
extension of a  productive  formation  with a Producible  Well and if within one
year from the date the drilling equipment is released from such Well, a Platform
is ordered or constructed  and if the horizontal  distance  between the Platform
location and the vertical  projection  of the  midpoint of any  producible  zone
penetrated by such well is three  thousand  (3,000) feet or less, the recoupment
of amounts  applicable  to any such Well shall be recovered  out of the proceeds
from production as follows:

     a) If the  Non-Consent  Well is completed  and produced  from the Platform,
     recoupment  shall  be  out of all  the  proceeds  of  production  from  the
     Non-Consent  Well and one-half of  Non-Participating  Party's  share of the
     proceeds from production from all  subsequently  drilled wells completed on
     the Platform and  attributable to such newly discovered or extended portion
     of the productive formation.

     b) If the  Non-Consent  Well  is  abandoned  after  having  qualified  as a
     Producible Well, recoupment shall be out of the proceeds from production of
     one-half of  Non-Participating  Party's share from all subsequently drilled
     wells completed on the Platform and  attributable to such newly  discovered
     or extended portion of the productive formation.

     12.7  Allocation of Platform Costs to Non-Consent  Operations.  Non-Consent
Operations shall also be subject to the following conditions:

          12.7.1 Charges. If a Non-Consent Well is drilled from a Platform,  the
Participating  Parties in such well shall pay to the  Operator for credit to the
owners  of the  Platform  a charge  for the  right to use the  Platform  and its
Facilities as follows:

     a) Such Participating  Parties shall pay a sum equal to that portion of the
     total  cost of the  Platform,  which one  Platform  slot bears to the total
     number  of  utilized  slots on the  Platform.  If the  Non-Consent  Well is
     abandoned,  the right of  Participating  Parties to use that  Platform slot
     shall terminate,  unless such Parties  commence  drilling a substitute well
     from the same slot within ninety (90) days after abandonment.

                                       23

<PAGE>

     b) If the Non-Consent  Well production is handled from the Facilities,  the
     Participating  parties  shall pay a sum equal to that  portion of the total
     cost of such  Facilities  which one well bears to the total number of wells
     utilizing the Facilities.

          12.7.2 Operating and Maintenance  Charges.  The Participating  Parties
shall pay all costs necessary to connect the Non-Consent  Well to the Facilities
and that  proportionate  part of the expense of operating  and  maintaining  the
Platform and Facilities  applicable to the Non-Consent Well.  Platform operating
and  maintenance  expenses shall be allocated  equally to all wells served,  and
operating and maintenance expenses for the Facilities shall be allocated equally
to all producing wells.

          12.7.3  Payments.  Payment of sums pursuant to Section 12.7.1 is not a
purchase of any additional interest in the Platform or Facilities. Such payments
shall be  included  in the total  amount  which the  Participating  Parties  are
entitled to recoup out of production from the Non-Consent Well.

     12.8 Retention of Lease by  Non-Consent  Well. If, at the expiration of the
primary term of the Lease, a Non-Consent  Well is the only well on the Lease and
is  serving  to  perpetuate  the  Lease,  then  within  thirty  (30) days  after
expiration of the primary term, each Non-Participating  Party shall elect one of
the following:

     a) immediately assign its entire interest in the Lease to the Participating
     Parties  in  the  proportions  in  which  the  Non-Consent   Operation  was
     conducted; or

     b)  immediately  pay  to  the  Participating   Parties  its  share  of  the
     unrecovered balance of the recoupment account under Section 10.3.2 or 12.2,
     whichever may be applicable.

     12.9  Non-Consent  Drilling to Maintain Lease.  If it becomes  necessary to
drill a well (whether an Exploratory Well or a Development Well) on the Lease in
order to maintain the Lease or a portion thereof in full force and effect, or if
at any time  after  commencement  of the last  year of the  primary  term of the
Lease,  the drilling of a well  (whether an  Exploratory  Well or a  Development
Well) is proposed or is required and said well is thereafter drilled pursuant to
this  Agreement  and  there is no  other  operation  or  condition  which  would
perpetuate  the Lease beyond the end of the primary term, as to all or a portion
of the leased premises on which such well is proposed or required to be drilled,
then any Party or Parties  electing to participate in the drilling thereof shall
have the right to do so regardless of their number or combined Working Interests
and  any  Non-Participating  Party  as  to  such  well  shall  assign  unto  the
Participating  Parties all of its right, title and interest in and to such Lease
or such affected portion thereof.  Any Party so assigning shall be relieved from
any future  liability or  obligation  with respect to said well,  but such Party
shall remain liable for any  liabilities  or  obligations  which have arisen (or
which arise) out of operations  occurring  prior to the  effective  date of such
assignment.  If more than one well should be  proposed  and  drilled,  either of
which  would  maintain  the  Lease  or  such  jeopardized  portion  thereof,  an
assignment shall not be required from any Party participating in any one of such
wells, but as to those wells in which it fails to participate such failure shall
be governed  by the  non-consent  provisions  of Section  10.3 or Section  12.2,
whichever may be applicable.

     12.10  Allocation  of  Costs  (Single  Completion).   For  the  purpose  of
allocating  costs on any well  completed in only one zone in which the ownership
is not the same for the  entire  depth or the  completion  thereof,  the cost of
drilling, completing and equipping such well shall be allocated on the following
basis:

     a) Intangible drilling, completion and material costs from the surface to a
     depth one hundred (100) feet below the base of the completed  zone shall be
     charged to the owners or the Parties participating in that zone.

     b) Intangible drilling, completion, casing string and material costs, other
     than tubing costs, from a depth of one hundred (100) feet below the base of
     the  completed  zone to total  depth  shall be charged to the owners or the
     Parties participating in the costs to total depth.

                                       24

<PAGE>

     12.11  Allocation of Costs Between Zones  (Multiple  Completions).  For the
purpose of allocating  costs on any well  completed in dual or multiple zones in
which  the  ownership  is not the same for the  entire  depth or the  completion
thereof,  the costs of drilling,  completing  and  equipping  such well shall be
allocated on the following basis:

     a) Intangible  drilling,  completion  and material  costs other than tubing
     costs, from the surface to a depth one hundred (100) feet below the base of
     the upper  completed  zone shall be divided  equally  between the completed
     zones and charged to the owners thereof or to the Parties  participating in
     such zone.

     b) Intangible drilling, completion, casing string and material costs, other
     than tubing,  from a depth of one hundred  (100) feet below the base of the
     upper  completed  zone to a depth one hundred  (100) feet below the base of
     the second  completed zone shall be divided  equally between the second and
     any other zone completed below such depth and charged to the owners thereof
     or to the Parties participating in each such zone. If the well is completed
     in  additional  zones,  the costs  applicable  to each  such zone  shall be
     determined  and  charged  to the  owners  thereof  in the  same  manner  as
     prescribed by the dual zones completion.

     c) Intangible drilling, completion, casing string and material costs, other
     than tubing  costs,  from a depth one hundred  (100) feet below the base of
     the lower  completed  zone to total depth shall be charged to the owners or
     to the Parties participating in the costs to total depth.

     d) Costs of tubing  strings  serving each separate zone shall be charged to
     the owners or to the Parties participating in each zone.

     e) For the purposes of  allocating  tangible and  intangible  costs between
     zones  that  occur at less  than one  hundred  (100)  foot  intervals,  the
     distance  between  the base of the upper  zone to the top of the next lower
     zone shall be allocated  equally between zones.

     12.12  Allocation  of Costs  Between  Zones (Dry Hole).  For the purpose of
allocating costs on any well determined to be a dry hole, in which the ownership
is not the same for the  entire  depth or the  completion  thereof,  the cost of
drilling,  plugging and abandoning such well shall be allocated on the following
basis:

     a) Costs to drill,  plug and  abandon a well  proposed  for  completion  in
     single,  dual or  multiple  zones  shall be  charged  to the  Participating
     Parties in the same  manner as if the well were  completed  as a  producing
     well in all zones as proposed.

     b) Plugging and abandoning of any well following any deepening,  completion
     attempt  or other  operation  shall be at the sole risk and  expense of the
     Participating Parties in such operation,  subject however to the provisions
     of Section 11.5.

     12.13 Intangible  Drilling and Completion  Allocations.  For the purpose of
calculations  under  Section  12.10,  12.11 and 12.12,  intangible  drilling and
completion costs, including  non-controllable material costs, shall be allocated
between  zones,  including the interval from the lowest  completed zone to total
depth,  on a  drilling  day  ratio  basis  where  the  factor  for each  zone is
determined  by a fraction for which the  numerator is the number of drilling and
completion  days applicable to that zone and the denominator is the total number
of days spent on the well,  beginning on the day the rig arrives on location and
terminating when the rig is released.

                                   ARTICLE 13
                                   FACILITIES

     13.1  Approval.  Any Party may propose the  installation  of  Facilities by
notice to the other Parties with  information  adequate to describe the proposed
Facilities and the estimated costs. Facilities shall require approval of two (2)
or more Parties owning sixty-five percent (65%) or more interest in the wells to
be served; provided,

                                       25

<PAGE>

however,  if such required approval is not obtained,  then any party may install
its own Facilities subject to the provisions of Section 22.1 below.

     13.2  Ownership.  Facilities  constructed  shall be owned in  proportionate
shares or other sharing arrangement as agreed to in writing by the Participating
Parties.  All cost, risk and expense  incurred with respect to these  Facilities
shall be charged to the Participating  Parties. Any Party not voting in favor of
a Facility so  authorized  for the Lease shall  relinquish,  in writing,  to the
Parties participating in such Facility, all of its operating rights and interest
in all  production  from wells  shared by this  Facility  until such time as the
penalties  provided for in Section 12.2b) have been recovered.  Unless otherwise
agreed to by the Participating  Parties,  each Participating Party shall acquire
the interest of the  Non-Participating  Party in the ratio that a  Participating
Party's interest bears to the total interest of all Participating Parties.

     13.3 Contracts.  Subject to the other provisions hereof, the Operator shall
install or construct  Facilities which may be required for the operations agreed
upon.  Operator may enter into contracts with  independent  contractors  for the
Facilities and,  insofar as is reasonable,  shall utilize  competitive  bidding.
Further,  Operator may employ its own equipment and personnel for the selection,
installation and/or  construction of the Facilities,  but if so, such work shall
be performed by Operator or its Affiliate  acting as an  independent  contractor
under a written contract  containing terms and conditions and at rates which are
customary and prevailing in competitive contracts of independent contractors who
are doing work of a similar  nature and who have as a primary source of business
the  construction  of Facilities and pursuant to a written  agreement  among the
Participating Parties.

     13.4 Other Facilities. Without prior written consent of all Parties to this
Agreement,  no  Facilities  shall be  constructed  on the Lease other than those
installed solely for operations on such Lease.

                                   ARTICLE 14
                            ABANDONMENT AND SALVAGE

     14.1 Platform Salvage and Removal Costs. When the Parties owning a Platform
mutually  agree to  dispose of such  Platform,  it shall be  disposed  of by the
Operator as approved by such Parties. The costs, risks and net proceeds, if any,
resulting from such disposition shall be shared by such Parties in proportion to
their Participating Interests. Any Party owning an interest in the Platform will
have the right to match the purchase price resulting in disposal of the Platform
and take over the salvage and removal costs at its own risk and expense.

     14.2  Abandonment of Producible Well. Any Party may propose the abandonment
of a well or zone by  notifying  the other  Parties.  No well shall be abandoned
without  the mutual  consent of the  Participating  Parties.  The  Participating
Parties not consenting to the abandonment shall pay to each Participating  Party
desiring  to abandon its share of the  current  value of the well's  salvageable
material and equipment as determined pursuant to Exhibit "C", less the estimated
costs of salvaging same and of plugging and abandoning the well as determined by
the Participating Parties.

     14.3 Assignment of Interest. Each Participating Party desiring to abandon a
well  pursuant to Section 14.2 shall  assign,  effective as of the date on which
the last applicable  election must be made, to the non-abandoning  Participating
Parties,  in proportion to their Participating  Interests,  its interest in such
well and the  equipment  therein and its ownership in the  production  from such
well.  Any Party so  assigning  shall be relieved  from any future  liability or
obligation with respect to said well, but such Party shall remain liable for any
liabilities or obligations  which have arisen (or which arise) out of operations
occurring prior to the effective date of such assignment.

     14.4 Abandonment  Operations Required by Governmental  Authority.  Any well
abandonment or Platform  removal  required by a governmental  authority shall be
accomplished by Operator with the costs, risks and

                                       26

<PAGE>

net proceeds,  if any, to be shared by the Parties  owning such well or Platform
in proportion to their Participating Interests.

     14.5  Operator  Purchase  of  Salvage  Materials.  Operator  shall have the
preferred  right and option to  purchase  all  materials  not needed for further
operations  and which  have been  removed  from the Lease at the  expense of the
Parties so long as the price paid is equal to or greater than highest price that
could have been otherwise obtained.  Such option shall be exercised within sixty
(60) days after such removal or, as the case may be,  after final  determination
that such Platform or Facilities  will not be used in further  operations on the
Lease.  Said  materials  shall be paid for on the basis of the value  thereof as
determined  in  accordance  with the  provisions  of Exhibit "C",  Prefabricated
material  shall be valued on the basis of cost  including,  but not  limited to,
cost of fabrication.

     14.6 Non-Operator  Purchase of Salvage  Materials.  Should Operator fail to
exercise the purchase option described in Section 14.5 above, such materials may
be purchased by a Non-Operator on the same basis as provided in such Section. If
more than one Non-Operator  desires to exercise the purchase option,  the matter
shall be  decided  among  them by  drawing  of lots.  If  neither  Operator  nor
Non-Operators desire to purchase said materials, the materials shall be disposed
of in accordance with the provisions of Exhibit "C".

                                   ARTICLE 15
                                   WITHDRAWAL

     15.1 Withdrawal.  A Party may withdraw from this Agreement as to a Lease by
assigning,  to the other Parties who do not desire to withdraw, all its interest
in such Lease and the wells, Platforms and Facilities used in operations on such
Lease;  provided  that such  assignment  shall not  relieve  such Party from any
obligation  or liability  which has arisen (or which  arises) out of  operations
occurring  prior to the first  day of the month  following  the  receipt  of the
assignment by Operator. The assigned interest shall be owned by the assignees in
proportion  to their  respective  Participating  Interests.  The  assignees,  in
proportion to the respective  interests so acquired,  shall pay the assignor for
its interest in the wells,  Platforms and Facilities  the current  salvage value
thereof less its share of the estimated current cost of salvaging same, plugging
and  abandoning  of wells,  and  removal of all  Platforms  and  Facilities,  as
determined by the Parties.  In the event such  withdrawing  Party's  interest in
such salvage value is less than such Party's share of the estimated  costs,  the
withdrawing  Party shall pay the  Operator,  for benefit of the  non-withdrawing
Parties,  a sum equal to the deficiency.  Within sixty (60) days after receiving
notice  of the  assignment,  Operator  shall  render  a final  statement  to the
withdrawing  Party for its share of all expenses  incurred through the first day
of the month  following the date of receipt of the assignment by Operator,  plus
any  deficiency in salvage  value.  Providing all such  expenses,  including any
deficiency  hereunder,  due from the  withdrawing  Party  have been paid  within
thirty (30) days after the  rendering of such final  statement,  the  assignment
shall be  effective  as of the first day of the month  following  its receipt by
Operator,  and the  withdrawing  Party shall  thereafter  be  relieved  from all
further  obligations  and liabilities  with respect to such Lease,  except those
obligations and liabilities which have arisen (or which arise) out of operations
occurring prior to such effective date.

     15.2  Limitations  on  Withdrawal.  No  party  shall  be  relieved  of  its
obligations  hereunder  during a  blowout,  a fire or other  emergency,  but may
withdraw from this Agreement after termination of such emergency,  provided such
Party  shall  remain  liable  for its  share  of all  costs  arising  from  said
emergency,  including,  but not  limited  to,  the  drilling  of  relief  wells,
containment  and cleanup of oil spill and  pollution,  and all costs of Platform
debris removal made necessary by the emergency.

                                       27

<PAGE>

                                   ARTICLE 16
                      RENTALS, ROYALTIES AND OTHER PAYMENTS

     16.1 Creation of Overriding Royalty. If any Party has heretofore created or
hereafter creates any overriding  royalty,  production  payment, or other burden
payable  out of  production  which is not  jointly  borne and if any other Party
becomes  entitled to an assignment of such Party's  Working  Interest  under the
provisions of this agreement or, as a result of Non-Consent Operations,  becomes
entitled to receive the Working Interest belonging to a Non-Participating  Party
in such  operations,  the Party entitled to receive the  assignment  from or the
Working  Interest of such  Non-Participating  Party shall  receive same free and
clear of such burdens,  and the  Non-Participating  Party  creating such burdens
shall save the Participating Parties harmless from such burdens.

     16.2  Payment of Rentals and  Minimum  Royalties.  Operator  shall pay in a
timely manner all rentals, minimum royalties, or similar payments accruing under
the terms of the Lease and submit  evidence of each such payment to the Parties.
Operator  shall not be held liable to the other  Parties in damages for the loss
of the Lease or interest  therein if, through mistake or oversight,  any rental,
minimum  royalty,  or other payment is not paid or is erroneously  paid,  unless
such error results from gross negligence or willful misconduct.

     16.3  Non-Participation in Payments.  Should any Party elect not to pay its
share of any  rental,  minimum  royalty,  or similar  payment,  such Party shall
notify the other Parties, in writing, at least sixty (60) days prior to the date
on which such  payment is due;  and,  in this  event,  Operator  shall make such
payment for the benefit of all the  Participating  Parties.  In such event,  the
Non-Participating  Party shall, upon the request of the  Participating  Parties,
assign to them such portions of its interest in the Lease as would be maintained
by such payment.  Unless otherwise agreed, such assigned interest shall be owned
by each Participating  Party in proportion to its Participating  Interest.  Such
assignment  shall be free  and  clear of any  overriding  royalties,  production
payment or other burdens on production  which is not jointly borne.  Thereafter,
the  Lease or  portion  thereof  involved  shall no longer  be  subject  to this
agreement.  The Parties  then  owning the Lease,  or portion  thereof,  agree to
operate said Lease, or portion thereof,  under a separate  agreement in the same
form as this agreement.

     16.4 Royalty Payments. Each Party shall pay or cause to be paid all royalty
and other  amounts  payable out of its share of  production.  During any time in
which the  Participating  Parties in a  Non-Consent  Operation  are  entitled to
receive a  Non-Participating  Party's  share of  production,  the  Participating
Parties  shall bear the Lease  royalty and other  jointly  borne burdens on such
production.

                                   ARTICLE 17
                                      TAXES

     17.1  Property  Taxes.  Operator  shall  render  property  covered  by this
agreement as may be subject to ad valorem taxation,  and shall pay such property
taxes for the benefit of each Party.  Operator shall charge each Party its share
of such tax payments.

     17.2  Contest  of  Property  Tax  Valuation.   Operator  shall  timely  and
diligently protest to a final determination any valuation it deems unreasonable.
Pending such determination,  Operator may elect to pay under protest. Upon final
determination,  Operator shall pay the taxes and any interest,  penalty, or cost
accrued as a result of such protest. In either event, Operator shall charge each
Party its share.

     17.3 Production and Severance  Taxes.  Each Party shall pay, or cause to be
paid, all production and severance taxes due on any production which it receives
pursuant  to the terms of this  Agreement.

     17.4 Other Taxes and Assessments. Operator shall pay other applicable taxes
(other than income taxes) or assessments and charge each Party its proportionate
share.

                                       28

<PAGE>

                                   ARTICLE 18
                                    INSURANCE

     18.1 Insurance. Each Party shall comply with the provisions of Exhibit "B".

                                   ARTICLE 19
                         LIABILITY, CLAIMS, AND LAWSUITS

     19.1 Individual Obligations. The obligations, duties and liabilities of the
Parties  shall be several and not joint or  collective;  and  nothing  contained
herein  shall ever be  construed as creating a  partnership  of any kind,  joint
venture,  association, or other character of business entity recognizable in law
for any purpose. Each Party shall hold all the other Parties harmless from liens
and encumbrances on the Lease arising as a result of its acts.

     19.2 Notice of Claim or Lawsuit. If a claim is made against any Party or if
any Party is sued on account of any matter  arising from  operations  hereunder,
such Party shall give prompt written notice to the other Parties.

     19.3  Settlements.  Operator  may settle any  single  damage  claim or suit
involving  operations  hereunder  if the  expenditure  does  not  exceed  Twenty
Thousand  and no/100  Dollars  ($20,000.00)  and if the  payment is in  complete
settlement of such claim or suit. If the amount required for settlement  exceeds
such amount,  the Parties shall  determine the further  handling of the claim or
suit.

     19.4 Legal Expense.  Legal  expenses  shall be handled  pursuant to Exhibit
"C".

     19.5 Liability for Losses,  Damages, Injury or Death. To the extent allowed
by law, liability for losses, damages,  injury, or death arising from operations
under this  Agreement  and to the extent such  liability  exceeds the  insurance
carried  by  Operator  under  Section  18.1  shall be borne  by the  Parties  in
proportion to their Participating  Interests in the operations out of which such
liability  arises,  except when such liability results from the gross negligence
or willful misconduct of a Party, in which case such Party shall be liable.

     19.6  Indemnification.  To the  extent  allowed by law,  the  Participating
Parties agree to hold the  Non-Participating  Parties  harmless and to indemnify
and  protect  them  against  all  claims,  demands,  liabilities,  and liens for
property  damage or personal  injury,  including  death,  caused by or otherwise
arising out of  Non-Consent  Operations,  and any loss and cost  suffered by any
Non-Participating Party as an incident thereof.

                                   ARTICLE 20
                           INTERNAL REVENUE PROVISIONS

     20.1 Election of  Partnership  Provisions.  Notwithstanding  any provisions
herein that the rights and  liabilities  hereunder  are several and not joint or
collective  or that  this  Agreement  and the  operations  hereunder  shall  not
constitute a partnership,  if for Federal Income Tax purposes this Agreement and
the operations hereunder are regarded as a partnership,  then for Federal Income
Tax purposes  each Party elects to be excluded from the  application  of all the
provisions of Subchapter K, Chapter 1, Subtitle A, Internal Revenue Code of 1986
as amended,  as  permitted  and  authorized  by Section 761 of said Code and the
regulations promulgated  thereunder;  Operator is hereby authorized and directed
to  execute on behalf of each Party such  evidence  of this  election  as may be
required by the Federal Internal Revenue Service including specifically, but not
by way of  limitation,  all of the  returns,  statements,  and data  required by
Federal  Regulation  1.761.1.  Should there be any  requirement  that each Party
further evidence this election,  each Party agrees to execute such documents and
furnish such other evidence as may be required by the Federal  Internal  Revenue
Service.  Each Party  further  agrees not to give any  notices or take any other
action  inconsistent  with the election  made  hereby.  If any present or future
income  tax law of the  United  States of America or any state in which the area
covered by the Lease is located contains  provisions  similar to those contained
in Subchapter  K, Chapter 1, Subtitle A of the Internal  Revenue Code of 1986 as
amended, under which an election similar to that provided by Section 761 of said
Subchapter K is permitted, each Party makes such

                                       29

<PAGE>

election or agrees to make such  election as may be permitted  by such laws.  In
making this  election,  each Party states that the income derived by it from the
operations  under  this  Agreement  can be  adequately  determined  without  the
computation of partnership taxable income.

                                   ARTICLE 21
                                  CONTRIBUTIONS

     21.1 Notice of  Contributions  Other Than Advances for Sale of  Production.
Each Party shall promptly notify the other Parties of all contributions  that it
may obtain,  or is attempting to obtain,  concerning the drilling of any well on
the Lease.  Payments  received as consideration for entering into a contract for
sale of production from the Lease, loans and other financing  arrangements shall
not be considered  contributions for the purpose of this Article. No Party shall
release  information in return for a  contribution  from an outside party toward
the  drilling  of a well  without the prior  written  consent of all the Parties
hereto.

     21.2 Cash Contributions.  In the event a Party receives a cash contribution
toward the drilling of a well, said cash contribution  shall be paid to Operator
and Operator  shall credit the amount  thereof to the Parties in  proportion  to
their  Participating  Interest in such well. If such well is a Non-Consent Well,
the amount of the  contribution  shall be deducted  from the cost  specified  in
Section 12.2.a.

     21.3  Acreage  Contributions.  In the  event a Party  receives  an  acreage
contribution  toward the drilling of a well, said acreage  contribution shall be
shared  by  each   Participating   Party  who  accepts  in   proportion  to  its
Participating  Interest in the well and said acreage shall become subject to the
terms and  conditions of this  Agreement.  If such well is a  Non-Consent  Well,
there shall be no deduction  from the costs to be recouped by the  Participating
Parties under Section 10.3.2 or Section 12.2.a, whichever is applicable, because
of such acreage contribution.

                                   ARTICLE 22
                            DISPOSITION OF PRODUCTION

     22.1  Facilities  to Take in Kind.  Any Party shall have the right,  at its
sole  risk  and  expense,  to  construct  Facilities  for  taking  its  share of
production in kind, provided that such Facilities at the time of installation do
not interfere with continuing operations on the Lease.

     22.2 Duty to Take in Kind.  Each  Party  shall  take in kind or  separately
dispose of its share of the oil and gas produced and saved from the Lease.

     22.3 Failure to Take in Kind. If any Party fails to take in kind or dispose
of its share of the oil and gas,  Operator may sell such oil or gas to others at
the best reasonable price obtainable by Operator,  subject to revocation at will
by the  non-taking  Party upon  thirty (30) days  advance  written  notice.  All
contracts  of sale by Operator of any Party's  share of oil or gas shall be only
for such reasonable  periods of time as are consistent with the minimum needs of
the industry under the circumstances,  but in no event shall any contract be for
a period in excess of one (1) year.  Operator will collect all proceeds from the
sales of Owner's Gas made each month  hereunder and will pay to the Parties such
proceeds,  net of  deductions  for or payments on account of (i) all  severance,
gross  production  and other similar  taxes;  (ii) all royalties and  overriding
royalties, (iii) Operator's marketing fee of $.04 per mmbtu and $.50 per bbl for
crude,  condensate and retrograde,  (iv) all  post-production  costs,  including
without limitation, gathering, processing,  compression,  dehydration, treating,
blending  and  transportation  costs and (v)  pipeline  or  gathering  imbalance
penalties.  The  undersigned  agrees to hold Operator  harmless from any and all
claims made by

                                       30

<PAGE>

governmental   authorities  in  connection   with  taxes   attributable  to  the
undersigned's  share of  production,  and all claims  made by owners of royalty,
overriding royalty,  and other  non-participating  interest  attributable to the
undersigned's  share of  production.  Proceeds  of all  sales  made by  Operator
pursuant to this Section shall be paid to the Parties entitled thereto.

     22.4 Expenses of Delivery in Kind. Notwithstanding anything to the contrary
in Section 22.3 above,  any cost incurred by Operator in making  delivery of any
Party's  share of oil and gas, or  disposing of same  pursuant to Section  22.3,
shall be borne by such Party.

     22.5 Gas Balancing  Agreement.  Notwithstanding  Section 22.3,  the Parties
agree that gas balancing shall be handled in accordance with Exhibit "E".

                                   ARTICLE 23
                                 APPLICABLE LAW

     23.1 Applicable  Law. This Agreement shall be interpreted  according to the
laws of the State of Louisiana.

                                   ARTICLE 24
                    LAWS, REGULATIONS AND NON-DISCRIMINATION

     24.1 Laws and  Regulations.  This  Agreement and  operations  hereunder are
subject  to all  applicable  laws,  rules,  regulations,  and  orders,  and  any
provisions of this Agreement  found to be contrary to or  inconsistent  with any
such law, rule, regulation, or order shall be deemed modified accordingly.

     24.2  Non-Discrimination.  In the performance of work under this Agreement,
the  Parties  agree to comply,  and  Operator  shall  require  each  independent
contractor to comply with the governmental requirements set forth in Exhibit "D"
and with all of the provisions of Section 202(1) to (7), inclusive, of Executive
Order No. 11246, as amended.

                                   ARTICLE 25
                                 FORCE MAJEURE

     25.1 Force  Majeure.  All  obligations  imposed by this  Agreement  on each
Party,  except for the payment of money,  shall be suspended while compliance is
prevented,  in whole or in part, by a labor  dispute,  fire,  flood,  war, civil
disturbance,  or act of God; by laws; by  governmental  rules,  regulations,  or
orders; by inability to secure materials; or by any other cause, whether similar
or  dissimilar,  beyond  the  reasonable  control of the said  Party;  provided,
however,  that performance  shall be resumed within a reasonable time after such
cause has been  removed;  and  provided  further that no Party shall be required
against its will to settle any labor dispute.

     25.2 Notice.  Whenever a Party's  obligations  are suspended  under Section
25.1, such Party shall  immediately  notify the other Parties,  in writing,  and
give full particulars of the reason for such suspension.

                                   ARTICLE 26
      SUCCESSORS AND ASSIGNS, PREFERENTIAL RIGHT TO PURCHASE AND TRANSFERS

     26.1 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Parties and their respective successors,  representatives,
and assigns and shall constitute a covenant  running with the Lease.  Each Party
shall incorporate in any assignment of an interest in the Lease a provision that
such assignment is subject to this Agreement.

     26.2  Preferential  Right to  Purchase.  If any Party  hereto  (hereinafter
called  "transferor")  desires  to sell,  farmout  or  otherwise  dispose of its
interest  in the Lease in whole or in part to a  bonafide  transferee,  it shall
promptly  give written  notice to all the other Parties  hereto giving  complete
information  relative to the  proposed  transfer,  including  the price or value
fixed for this Lease and the name and address of the prospective transferee,

                                       31

<PAGE>

which must be ready,  willing and able to purchase  the interest at the proposed
sales price,  or accept such farmout or other  disposition.  If said purchase is
part of an  acquisition  involving  other property such notice shall include all
details as to the  production,  reserves,  computations,  assumptions  and other
factors used by transferee in arriving at such price or value  (including if any
exchange of  properties  is  involved,  such  information  as to the  properties
proposed to be exchanged  for this Lease).  Each  recipient of said notice shall
have the  preferential  right and option for a period of fifteen (15) days after
receipt of said notice to exercise or waive its right and option to  participate
in the  purchase,  farmout  or  other  disposition  pursuant  to the  terms  and
provisions  stipulated in said notice.  If two (2) or more Parties exercise said
right  and  option,  they  shall  share the  interest  in the  proportion  their
respective  interests hereunder bear to the aggregate interests of such Parties.
Failure to reply or waiver of said right and option shall afford  transferor the
right, if exercised within one hundred twenty (120) days  thereafter,  to effect
the sale, farmout or other disposition to the prospective transferee pursuant to
the  stipulations  in said notice.  A transfer of interest  hereunder  shall not
become  effective as to the Parties  until the first day of the month  following
delivery to Operator of an original (or copies  thereof)  instrument of transfer
approved by the proper governmental authority and conforming to the requirements
of this Article.  No such transfer shall relieve the  transferring  Party of any
obligations or liabilities  accrued hereunder prior to such effective date. This
Section  26.2 shall not apply when a Party wishes to mortgage its interest or to
dispose of its interest by merger, reorganization,  consolidation, assignment of
production payment,  sale of all or substantially all of its assets, in the Gulf
of Mexico or sale or transfer of its interest to an affiliate.

     26.3  Transfer of Interest.  No sale or transfer of interest  shall be made
unless  the  transfer  is  expressly  made  subject to this  Agreement,  and the
transferee  is  financially  responsible  and  agrees in  writing  to assume all
obligations  hereunder  as to the  interest  assigned.  A transfer  of  interest
hereunder  shall not become  effective as to the Parties  until the first day of
the month  following  delivery to Operator  of an original  (or copies  thereof)
instrument  of  transfer  approved  by the  proper  governmental  authority  and
conforming to the  requirements of this Section.  No such sale or transfer shall
relieve the  transferring  Party of any  obligations or  liabilities  which have
arisen (or which  arise) out of  operations  occurring  prior to such  effective
date.

     26.4 Assignments.  Any assignment,  vesting,  or relinquishment of interest
between  the  Parties  shall be without  warranty  of title  express or implied,
except for the claims  arising from  Assignor's  own  actions,  or the claims of
those holding by, through, or under Assignor, but not otherwise".

                                   ARTICLE 27
                                      TERM

     27.1 Term. This Agreement shall remain in effect so long as the Lease shall
remain in effect;  however,  all  property  belonging  to the  Parties  shall be
disposed  of and final  settlement  shall be made  under  this  Agreement.  This
Agreement  shall remain in effect from the effective date and for so long as the
Lease  shall  remain in effect as to any  acreage  covered  thereby,  whether by
production or  otherwise,  or until all assets and  Operations  have been turned
over to a single Working Interest owner. Termination of this Agreement shall not
relieve any Party from any costs or liability  accrued or incurred  prior to the
termination  of this  Agreement,  and the  provisions  of this  Agreement  shall
continue in force for such additional time as necessary until:

     (a) all wells have been plugged and abandoned;

     (b) all property and  equipment on and for the Lease area  belonging to the
Parties are  disposed of by the  Operator  and all claims or lawsuits  have been
settled or otherwise disposed of; and,

     (c) a final  accounting  and  settlement has been made under this Agreement
(including settlement of any gas imbalances pursuant to Exhibit "E").

                                       32

<PAGE>

     The Operator shall have a reasonable period of time after the occurrence of
an  event  of  termination  in which to  conclude  the  administration  of joint
Operations and to make a distribution of assets. During this period of time, the
Operator  shall  continue to have and shall exercise all powers granted and meet
all duties imposed by this Agreement  until all provisions of this Agreement are
fully executed.

                                   ARTICLE 28
                                    EXECUTION

     28.1 Counterpart  Execution.  This Agreement may be executed by signing the
original  or  a  counterpart   thereof.   If  this   Agreement  is  executed  in
counterparts,  all counterparts  taken together shall have the same effect as if
all the Parties had signed the same instrument.

WITNESSES:                      OPERATOR:
                                Millennium Offshore Group, Inc.

/s/ [Illegible]
-----------------------------   By: /s/ D. Kent Singleton
/s/ [Illegible]                     --------------------------------------------
-----------------------------   Its: D. Kent Singleton, Executive Vice President

WITNESSES:                      NON-OPERATORS:
                                Ridgewood Energy Corporation

/s/ [Illegible]
-----------------------------   By: /s/ W. Greg Tabor
                                    --------------------------------------------
                                Its: EXECUTIVE VICE PRESIDENT

/s/ [Illegible]
-----------------------------

STATE OF TEXAS

COUNTY OF HARRIS

     On this 13th day of October, 2004, before me, appeared D. Kent Singleton to
me  personally  known,  who,  being  by me duly  sworn,  did say  that he is the
Executive V.P. of Millennium Offshore Group, Inc., a Texas corporation, and that
the foregoing instrument was signed on behalf of the corporation by authority of
its Board of Directors,  and that he acknowledged  the instrument to be the free
act and deed of the corporation.

               [SEAL]

         JERRY D. NIEKAMP
    NOTARY PUBLIC, STATE OF TEXAS
        MY COMMISSION EXPIRES
            FEB. 20, 2005

                                        /s/ Jerry D. Niekamp
                                        ----------------------------------------
                                        Notary Public, State of Texas
                                        My Commission Expires:
                                                               -----------------

STATE OF TEXAS

COUNTY OF HARRIS

On this 21 day of  October,  2004,  before  me,  appeared,  W. Greg  Tabor to me
personally  known, who, being by me duly sworn, did say that he is the Executive
VP of  Ridgewood  Energy  Corporation,  a  Delaware  corporation,  and  that the
foregoing instrument was signed on behalf of the corporation by authority of its
Board of Directors,  and that he acknowledged  the instrument to be the free act
and deed of the corporation.

               [SEAL]

         JERRY D. NIEKAMP
    NOTARY PUBLIC, STATE OF TEXAS
        MY COMMISSION EXPIRES
            FEB. 20, 2005

                                     /s/ Jerry D. Niekamp
                                     -------------------------------------------
                                     Notary Public in and for the State of TEXAS
                                     My Commission expires:
                                                            --------------------

                                       33

<PAGE>

                                  EXHIBIT "A"

    Attached to and made a part of that certain Offshore Operating Agreement
 covering South Timbalier 77 Prospect, dated September 13, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
                                as Non-Operator.

I.   CONTRACT AREA: The lands and waterbottoms  within the South Timbalier Block
     77, insofar as same covers the SE/4 of the SE/4 of the NE/4 and the SW/4 of
     the  SE/4 of the NE/4 and the E/2 of the SE/4 and the E/2 of the W/2 of the
     SE/4, (SE/4 SE/4 NE/4; SW/4 SE/4 NE/4; E/2 SE/4; E/2 W/2 SE/4),  limited in
     depth from the surface of the earth down to the stratigraphic equivalent of
     the base of the deepest productive reservoir found in the Test Well as same
     is defined in the Participation  Agreement dated September 13, 2004, by and
     between Millennium Offshore Group, Inc. and Ridgewood Energy Corporation.

II.  RESTRICTIONS AS TO DEPTH, FORMATIONS or STRUCTURE:  Rights from the surface
     of the  earth  down  to the  stratigraphic  equivalent  of the  base of the
     deepest productive reservoir found in the Test Well.

III. PARTIES & OWNERSHIP INTERESTS:

     Test Well After Completion and Subsequent Wells
     -----------------------------------------------
     Ridgewood Energy Corporation       50.00000%
     Millennium Offshore Group, Inc.    50.00000%
                                       ---------
                                       100.00000%

IV.  OIL, GAS & MINERAL LEASES SUBJECT TO THIS  AGREEMENT:  Oil and Gas Lease of
     Submerged Lands bearing Serial No. OCS-G 04827 dated  effective  August 31,
     1981, by and between the United States of America,  as Lessor, and Anadarko
     Petroleum Corporation,  et al, as Lessees,  covering all of Block 77, South
     Timbalier Area, as shown an OCS Louisiana Leasing Map, LA6.

V.   ADDRESSES OF THE PARTIES FOR NOTICES: For the purposes hereof,  notices may
     be delivered by the U.S. Mail service,  overnight  delivery  service and/or
     telecopier as provided below:

     OPERATOR:

     Millennium Offshore Group, Inc.
     5300 Memorial, Ste. 1070
     Houston, TX 77007
     Attn: Mr. Kent Singleton
     Telephone: (713) 652-0137
     Fax: (713)652-0482

     NON-OPERATORS:

     Ridgewood Energy Corporation      Ridgewood Energy Corporation
     947 Linwood Avenue                5300 Memorial, Ste. 1070
     Ridgewood, New Jersey 07450       Houston, TX 77007
     Attn: Mr. Robert Swanson          Attn: Mr. W. Greg Tabor
     Telephone: (201) 447-9000         Telephone: (713) 862-9856
     Fax: (201) 447-0474               Fax: (713) 802-9734

VI.  BURDENS ON PRODUCTION:

     The total  burdens on  production  affecting  the  interests of the Parties
     consist of the following  burdens:  16.66667%  Royalty,  0.71375% of 6/6ths
     Overriding Royalty in favor of Casey Jones.

                                       34

<PAGE>

                                  EXHIBIT "B"

    Attached to and made a part of that certain Offshore Operating Agreement
 covering South Timbalier 77 Prospect, dated September 13, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
                                as Non-Operator.

                                   INSURANCE

Each party, for its own account shall carry, pay for and maintain throughout the
term of this Offshore Operating  Agreement policies of insurance,  providing the
following coverages relative to Operator's activities hereunder.

     (a)  General Public  Liability and Property  Damage  Insurance  endorsed to
          include offshore  operations,  covering operations conducted hereunder
          by  Operator  for  the  Parties  with a  combined  single  limit  each
          occurrence of $1,000,000 for bodily injury and property damage.  It is
          understood that Operator will not provide pollution coverage.

     (b)  Automobile  Public  Liability and Property Damage  Insurance  covering
          operations  conducted  hereunder  by  Operator  for the  Participating
          Interest  Account  with a combined  single  limit each  occurrence  of
          $1,000,000 for bodily injury and property damage.

     (c)  Aviation  Liability   Insurance  with  a  limit  of  $10,000,000  each
          occurrence to provide coverage on non-owned aircraft.

     (d)  Charterer's  Legal  Liability  Insurance  provided  with  a  limit  of
          $1,000,000 any one claim to provide coverage arising out of the use of
          any chartered barges or vessels.

     (e)  Excess  General  Public  Liability  Insurance  with a minimum limit of
          $10,000,000 to include coverage for pollution liability.

     (f)  Energy  Exploration  and  Development  Insurance  /  Operator's  Extra
          Expense   Insurance  which  shall  cover  well  control,   redrilling,
          pollution and contamination with a minimum limit of $35,000,000 in the
          aggregate for one well.

Each Party shall  provide the other  Parties  with a  certificate  of  insurance
evidencing the coverages set forth above.  Said  certificate of insurance  shall
specifically  provide  that the insurer  shall  waive all rights of  subrogation
against the other Parties to the extent of the liabilities  assumed hereunder by
such Party.

Operator  shall  use  every  reasonable  effort  to  have  its  contractors  and
subcontractors  comply with applicable  Workers  Compensation  laws and to carry
such insurance in such amounts as Operator deems necessary.

<PAGE>

                                                             COPAS-1986-OFFSHORE
                                                              Recommended by the
                                                            Council of Petroleum
                                                           Accountants Societies

                                                                    [COPAS LOGO]

                                  EXHIBIT "C"

    Attached to and made a part of that certain Offshore Operating Agreement
 covering South Timbalier 77 Prospect, dated September 13, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
                                as Non-Operator.

                              ACCOUNTING PROCEDURE
                            OFFSHORE JOINT OPERATIONS

                              I. GENERAL PROVISIONS

1. Definitions:

"Joint  Property"  shall  mean the real and  personal  property  subject  to the
Agreement to which this Accounting Procedure is attached.

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

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

"Operator" shall mean the party designated to conduct the Joint Operations.

"Non-Operators"  shall  mean  the  Parties  of this  Agreement  other  than  the
Operator. "Parties" shall mean Operator and Non-Operators.

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

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

"Personal Expenses" shall mean travel and other reasonable reimbursable expenses
of Operator's employees.

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

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

"Shore  Base  Facilities"  shall mean  onshore  support  facilities  that during
drilling,  development,   maintenance  and  producing  operations  provide  such
services  to the  Joint  Property  as  receiving  and  transshipment  point  for
supplies, materials and equipment; debarkation point for drilling and production
personnel and services; communication,  scheduling and dispatching center; other
associated functions benefiting the Joint Property.

"Offshore  Facilities"  shall mean platforms and support systems such as oil and
gas handling facilities,  living quarters,  offices,  shops, cranes,  electrical
supply  equipment  and  systems,  fuel and water  storage and piping,  heliport,
marine docking  installations,  communication  facilities,  navigation aids, and
other similar facilities necessary in the conduct of offshore operations.

2. Statements and Billings

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

3. Advances and Payments by Non-Operators

     A.   Unless  otherwise  provided  for in the  Agreement,  the  Operator may
          require the  Non-Operators  to advance  their share of estimated  cash
          outlay for the succeeding  month's  operation within fifteen (15) days
          after  receipt  of the  billing  or by the  first day of the month for
          which the advance is  required,  whichever  is later.  Operator  shall
          adjust each  monthly  billing to reflect  advances  received  from the
          Non-Operators.

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

4.   Adjustments

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

<PAGE>

                                                             COPAS-1986-OFFSHORE
                                                              Recommended by the
                                                            Council of Petroleum
                                                           Accountants Societies

5.   Audits

     A.   A  Non-Operator,  upon  notice in  writing to  Operator  and all other
          Non-Operators,  shall have the right to audit Operator's  accounts and
          records relating to the Joint Account for any calendar year within the
          twenty-four (24) month period following the end of such calendar year;
          provided,  however,  the making of an audit  shall not extend the time
          for the taking of written exception to and the adjustments of accounts
          as provided  for in Paragraph 4 of this Section 1. Where there are two
          or more  Non-Operators,  the Non-Operators shall make every reasonable
          effort to conduct a joint  audit in a manner  which  will  result in a
          minimum  of  inconvenience  to the  Operator.  Operator  shall bear no
          portion of the Non-Operators' audit cost incurred under this paragraph
          unless  agreed to by the  Operator.  The audits shall not be conducted
          more than once each year without  prior  approval of Operator,  except
          upon the resignation or removal of the Operator,  and shall be made at
          the expense of those Non-Operators approving such audit.

     B.   The Operator shall reply in writing to an audit report within 180 days
          after receipt of such report.

6.   Approval by Non-Operators

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

                               II. DIRECT CHARGES

Operator shall charge the Joint Account with the following items:

1.   Rentals and Royalties

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

2.   Labor

     A.   (1)  Salaries and wages of Operator's field employees directly
               employed on the Joint Property in the conduct of Joint
               Operations.
          (2)  Salaries and wages of Operator's  employees  directly employed on
               Shore Base  Facilities or other Offshore  Facilities  serving the
               Joint Property if such costs are not charged under Paragraph 7 of
               this Section II.
          (3)  Salaries of First Level Supervisors in the field.
          (4)  Salaries and wages of Technical  Employees  directly  employed on
               the Joint Property if such charges are excluded from the Overhead
               rates.
          (5)  Salaries and wages of Technical  Employees either  temporarily or
               permanently assigned to and directly employed in the operation of
               the Joint Property if such charges are excluded from the overhead
               rates.

     B.   Operator's cost of holiday, vacation, sickness and disability benefits
          and other  customary  allowances  paid to employees whose salaries and
          wages are  chargeable to the Joint Account under  Paragraph 2A of this
          Section  II. Such costs  under this  Paragraph  2B may be charged on a
          "when and as paid basis" or by  "percentage  assessment" on the amount
          of salaries and wages  chargeable to the Joint Account under Paragraph
          2A of this  Section II. If  percentage  assessment  is used,  the rate
          shall be based on the Operator's cost experience.

     C.   Expenditures or contributions made pursuant to assessments  imposed by
          governmental  authority  which  are  applicable  to  Operator's  costs
          chargeable  to the Joint  Account  under  Paragraphs 2A and 2B of this
          Section II.

     D.   Personal  Expenses of those  employees  whose  salaries  and wages are
          chargeable to the Joint Account under Paragraph 2A of this Section II.

3.   Employee Benefits

Operator's  current  costs  of  established  plans  for  employees'  group  life
insurance, hospitalization,  pension, retirement, stock purchase, thrift, bonus,
and other  benefit plans of a like nature,  applicable to Operator's  labor cost
chargeable to the Joint  Account  under  Paragraphs 2A and 2B of this Section II
shall be  Operator's  actual  cost  not to  exceed  the  percent  most  recently
recommended by the Council of Petroleum Accountants Societies.

4.   Material

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

5.   Transportation

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

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

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

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

<PAGE>

                                                             COPAS-1986-OFFSHORE
                                                              Recommended by the
                                                            Council of Petroleum
                                                           Accountants Societies

6.   Services

The cost of  contract  services,  equipment  and  utilities  provided by outside
sources,  except services excluded by Paragraph 9 of Section II and Paragraphs i
and ii of Section III. The cost of professional consultant services and contract
services of technical  personnel  directly engaged on the Joint Property if such
charges  are  excluded  from  the  overhead  rates.  The  cost  of  professional
consultant services or contract services of technical personnel directly engaged
in the operation of the Joint  Property shall be charged to the Joint Account if
such charges are excluded from the overhead rates.

7.   Equipment and Facilities Furnished by Operator

     A.   Operator  shall  charge the Joint  Account  for use of  Operator-owned
          equipment  and  facilities,  including  Shore  Base  and/ or  Offshore
          Facilities,   at  rates  commensurate  with  costs  of  ownership  and
          operation. Such rates may include labor,  maintenance,  repairs, other
          operating  expense,  insurance,  taxes,  depreciation  and interest on
          gross  investment  less  accumulated  depreciation  not to exceed  ten
          percent (10%) per annum. In addition, for platforms only, the rate may
          include an element of the  estimated  cost of platform  dismantlement.
          Such  rates  shall  not  exceed  average  commercial  rates  currently
          prevailing in the immediate area of the Joint Property.

     B.   In lieu of charges in  Paragraph  7A above,  Operator may elect to use
          average commercial rates prevailing in the immediate area of the Joint
          Property less twenty percent (20%). For automotive equipment, Operator
          may elect to use rates  published  by the  Petroleum  Motor  Transport
          Association.

8.   Damages and Losses to Joint Property

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

9.   Legal Expense

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

10.  Taxes

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

11.  Insurance

Net premiums paid for insurance  required to be carried for the Joint Operations
for the protection of the Parties.  In the event Joint  Operations are conducted
at offshore  locations in which  Operator may act as  self-insurer  for Workers'
Compensation and Employers'  Liability,  Operator may include the risk under its
self-insurance  program in providing  coverage  under State and Federal laws and
charge the Joint Account at Operator's cost not to exceed manual rates.

12.  Communications

Costs of acquiring,  leasing, installing,  operating,  repairing and maintaining
communication systems including radio and microwave facilities between the Joint
Property  and  the  Operator's  nearest  Shore  Base  Facility.   In  the  event
communication  facilities systems serving the Joint Property are Operator-owned,
charges to the Joint  Account  shall be made as provided in  Paragraph 7 of this
Section II.

13.  Ecological and Environmental

Costs  incurred on the Joint Property as a result of statutory  regulations  for
archaeological and geophysical surveys relative to identification and protection
of cultural resources and/or other environmental or ecological surveys as may be
required by the Bureau of Land Management or other regulatory  authority.  Also,
costs to provide or have available  pollution  containment and removal equipment
plus costs of actual control and cleanup and resulting  responsibilities  of oil
spills as required by applicable laws and regulations.

14.  Abandonment and Reclamation

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

15.  Other Expenditures

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

<PAGE>

                                                             COPAS-1986-OFFSHORE
                                                              Recommended by the
                                                            Council of Petroleum
                                                           Accountants Societies

                                  III. OVERHEAD

As compensation for administrative, supervision, office services and warehousing
costs,  Operator shall charge the Joint Account in accordance  with this Section
III.

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

i.   Except as  otherwise  provided in  Paragraph  2 of this  Section  III,  the
     salaries,  wages and Personal  Expenses of Technical  Employees  and/or the
     cost of professional consultant services and contract services of technical
     personnel directly employed on the Joint Property:

     | | shall be covered by the overhead rates.
     |X| shall not be covered by the overhead rates.

ii.  Except as  otherwise  provided in  Paragraph  2 of this  Section  III,  the
     salaries,  wages and Personal Expenses of Technical  Employees and/or costs
     of  professional  consultant  services and  contract  services of technical
     personnel  either  temporarily  or  permanently  assigned  to and  directly
     employed in the  operation of the Joint  Property:

     |X| shall be covered by the overhead rates.
     | | shall not be covered by the overhead rates.

1.   Overhead - Drilling and Producing Operations

     As  compensation  for overhead  incurred in  connection  with  drilling and
     producing operations, Operator shall charge on either:

     |X| Fixed Rate Basis, Paragraph 1A, or
     | | Percentage Basis, Paragraph 1B

     A.   Overhead - Fixed Rate Basis

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

               Drilling  Well Rate $29,000.00  (Prorated  for less than a full
               month)
               Producing Well Rate $2,900.00

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

               (a)  Charges  for  drilling  wells  shall  begin on the date when
                    drilling or  completion  equipment  arrives on location  and
                    terminates on the date the drilling or completion  equipment
                    moves off  location  or rig is  released,  whichever  occurs
                    first, except that no charge shall be made during suspension
                    of drilling  operations for fifteen (15) or more consecutive
                    calendar days,

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

          (3)  Application  of  Overhead - Fixed Rate Basis for  Producing  Well
               Rate shall be as follows:

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

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

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

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

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

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

     B.   Overhead - Percentage Basis

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

               (a)  Development

                    _________  Percent (%) of cost of  Development  of the Joint
                    Property  exclusive of costs provided  under  Paragraph 9 of
                    Section  II  and  all   salvage   credits.

               (b)  Operating

                    _________  Percent  (%) of the cost of  Operating  the Joint
                    Property  exclusive of costs provided under Paragraphs 1 and
                    9 of Section II, all salvage credits,  the value of injected
                    substances  purchased for  secondary  recovery and all taxes
                    and assessments which are levied, assessed and paid upon the
                    mineral interest in and to the Joint Property

<PAGE>

                                                             COPAS-1986-OFFSHORE
                                                              Recommended by the
                                                            Council of Petroleum
                                                           Accountants Societies

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

               For the  purpose of  determining  charges on a  percentage  basis
               under Paragraph 1B of this Section III, development shall include
               all costs in connection with drilling,  redrilling,  or deepening
               of any  or  all  wells,  and  shall  also  include  any  remedial
               operations  requiring a period of five (5) consecutive  work days
               or  more  on any or all  wells;  also,  preliminary  expenditures
               necessary in preparation for drilling and  expenditures  incurred
               in abandoning  when the well is not completed as a producer,  and
               original cost of  construction  or  installation of fixed assets,
               the  expansion  of fixed  assets  and any other  project  clearly
               discernible  as a  fixed  asset,  except  Major  Construction  as
               defined in Paragraph 2 of this Section III. All other costs shall
               be considered as Operating except that catastrophe costs shall be
               assessed overhead as provided in Section III, Paragraph 3.

2.   Overhead - Major Construction

To  compensate  Operator for overhead  costs  incurred in the  construction  and
installation  of fixed  assets,  the  expansion of fixed  assets,  and any other
project  clearly  discernible as a fixed asset required for the  development and
operation  of the Joint  Property,  or in the  dismantling  for  abandonment  of
platforms and related production  facilities,  Operator shall either negotiate a
rate prior to the beginning of  construction,  or shall charge the Joint Account
for Overhead based on the following rates for any Major Construction  project in
excess of $ 25,000.00.

     A.   If the Operator  absorbs the  engineering,  design and drafting  costs
          related to the project:

     (1)  5% of total  costs if such  costs are more than $  10,000,00  but less
          than $100,000; plus

     (2)  3% of total costs in excess of $100,000 but less than $1,000,000; plus

     (3)  1% of total costs in excess of $1,000,000.

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

     B.   If the Operator charges engineering, design and drafting costs related
          to the project  directly to the Joint Account:

     (1)  3% of total  costs if such  costs are more than $  10,000.00  but less
          than $100,000; plus

     (2)  2% of total costs in excess of $100,000 but less than $1,000,000; plus

     (3)  1% of total costs in excess of $1,000,000.

     Total cost shall mean the gross cost of any one project. For the purpose of
     this  paragraph,  the  component  parts of a single  project  shall  not be
     treated  separately  and the  cost  of  drilling  and  workover  wells  and
     artificial  lift  equipment  shall be excluded.  On each project,  Operator
     shall advise  Non-Operator(s)  in advance  which of the above options shall
     apply.  In the  event  of any  conflict  between  the  provisions  of  this
     paragraph and those  provisions  under Section II, Paragraph 2 or Paragraph
     6, the provisions of this paragraph shall govern.

3.   Overhead - Catastrophe

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

     (1)  3% of total costs through $100,000; plus

     (2)  2% of total costs in excess of $100,000 but less than $1,000,000; plus

     (3)  1% of total costs in excess of $1,000,000.

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

4.   Amendment of Rates

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

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

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

1.   Purchases

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

2.   Transfers and Dispositions

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

     A.   New Material (Condition A)

          (1)  Tubular Goods Other than Line Pipe

<PAGE>

                                                             COPAS-1986-OFFSHORE
                                                              Recommended by the
                                                            Council of Petroleum
                                                           Accountants Societies

               (a)  Tubular goods,  sized 2-3/8 inches OD and larger except line
                    pipe, shall be priced at Eastern mill published carload base
                    prices effective as of date of movement plus  transportation
                    cost  using the 80,000  pound  carload  weight  basis to the
                    railway receiving point nearest the Joint Property for which
                    published rail rates for tubular goods exist.  If the 80,000
                    pound rail rate is not  offered,  the 70,000 pound or 90,000
                    pound rail rate may be used. Freight charges for tubing will
                    be calculated from Lorain,  Ohio and casing from Youngstown,
                    Ohio.

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

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

               (d)  Macaroni  tubing  (size  less  than  23/8  inch OD) shall be
                    priced at the lowest  published  out-of-stock  prices f.o.b.
                    the supplier plus transportation  costs, using the Oil Field
                    Haulers  Association  interstate  truck  rate per  weight of
                    tubing  transferred,  to the railway receiving point nearest
                    the Joint Property.

          (2)  Line Pipe

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

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

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

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

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

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

     B.   Good Used Material (Condition B)

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

          (1)  Material moved to the Joint Property

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

          (2)  Material used on and moved from the Joint Property

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

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

          (3)  Material not used on and moved from the Joint Property

               At seventy-five  percent (75%) of current new price as determined
               by  Paragraph  A. The cost of  reconditioning,  if any,  shall be
               absorbed by the transferring property.

     C.   Other Used Material

          (1)  Condition C

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

          (2)  Condition D

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

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

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

          (3)  Condition E

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

<PAGE>

                                                             COPAS-1986-OFFSHORE
                                                              Recommended by the
                                                            Council of Petroleum
                                                           Accountants Societies

     D.   Obsolete Material

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

          (1)  Loading or unloading costs may be charged to the Joint Account at
               the rate of twenty-five cents (25CENTS) per hundred weight on all
               tubular goods  movements,  in lieu of actual loading or unloading
               costs  sustained at the stocking  point.  The above rate shall be
               adjusted as of the first day of April each year following January
               1,  1985 by the same  percentage  increase  or  decrease  used to
               adjust  overhead  rates in Section III,  Paragraph  l.A(4).  Each
               year,  the rate  calculated  shall be rounded to the nearest cent
               and shall be the rate in effect until the first day of April next
               year.  Such rate shall be  published  each year by the Council of
               Petroleum Accountants Societies.

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

3.   Premium Prices

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

4.   Warranty of Material Furnished By Operator

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

                                 V. INVENTORIES

The Operator shall maintain detailed records of Controllable Material.

1.   Periodic Inventories, Notice and Representation

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

2.   Reconciliation and Adjustment of Inventories

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

3.   Special Inventories

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

4.   Expense of Conducting Inventories

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

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

<PAGE>

                                   EXHIBIT "D"

         Attached to and made a part of that certain Offshore Operating
                               Agreement covering
      South Timbalier 77 Prospect, dated September 13, 2004, by and between
                  Millennium Offshore Group, Inc., as Operator,
               and Ridgewood Energy Corporation, as Non-Operator.

                          EQUAL EMPLOYMENT OPPORTUNITY

While  performing  under  this  Agreement,  Operator  agrees  to  the  following
additional terms and conditions to the extent they may be applicable to the work
to be performed  under such Farmout  Agreement in accordance with the provisions
of the following described Executive Orders:

A.   E. O. 11246, as amended by E.O. 11375 (Race, Color, Religion, Sex and
     National Origin):

     1.   If the  contract  is in excess of $10,000,  Operator  agrees to comply
          with  the  provisions  of  Section  202  of  such  Order  (the  "Equal
          Opportunity Clause"), which Clause is incorporated herein by reference
          pursuant to the  regulations  promulgated  under such Order [41 C.F.R.
          Sec. 60-1.4(d)].

     2.   If the contract is in excess of $10,000,  the  certifies  that it does
          not  maintain  or provide  nor will it  maintain  or  provide  for its
          employees any segregated facilities at any of its establishments,  and
          that it does not permit nor will it permit  its  employees  to perform
          their services at any location,  under its control,  where  segregated
          facilities  are  maintained.*  OPERATOR  agrees  that a breach of this
          certification  is a  violation  of the  Equal  Opportunity  Clause  of
          Executive Order 11246.  Operator  further agrees that (except where it
          has obtained identical certifications from proposed subcontractors for
          specific time periods) it will obtain  identical  certifications  from
          proposed  subcontractors prior to the award of subcontracts  exceeding
          $10,000  which  are  not  exempt  from  the  provisions  of the  Equal
          Opportunity  Clause;  that it will retain such  certifications  in its
          files; and that it will forward the prescribed notice to such proposed
          subcontractors   (except  where  the  proposed   subcontractors   have
          submitted identical certifications for specific time periods).**

     3.   If the  contract is in excess of $50,000 and Operator has more than 50
          employees, Operator agrees (a) to file annually, on or before March 31
          of each year,  (or within 30 days after the award of such  contract if
          not filed within 12 months preceding the date of the award),  complete
          and accurate reports on Standard Form 100 (EEO-1) with the appropriate
          governmental  agency, in accordance with the regulations issued by the
          Secretary  of Labor (41  C.F.R.  Sec.  60-1.7),  and (b) to  develop a
          written   affirmative  action  compliance  program  for  each  of  its
          establishments  in  accordance  with  the  regulations  issued  by the
          Secretary of Labor (41 C.F.R. Sec. 60-1.40).

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

**   The form of the  prescribed  notice is as  follows:  NOTICE TO  PROSPECTIVE
     SUBCONTRACTORS   OF  REQUIREMENT  FOR   CERTIFICATIONS   OF   NONSEGREGATED
     FACILITIES.  A Certificate of  Nonsegregated  Facilities as required by the
     May  9,  1967,  order  on  Elimination  of  Segregated  Facilities,  by the
     Secretary of Labor (32 Fed. Reg.  7439,  May 19,  1967),  must be submitted
     prior to the award of a subcontract  exceeding  S10,000 which is not exempt
     from the provisions of the Equal Opportunity  Clause. The certification may
     be submitted either for each  subcontract or for all subcontracts  during a
     period (i.e., quarterly,  semiannually, or annually). Note: The penalty for
     making false statements in offers is prescribed in 18 U.S.C. 1001.

B.   E. O. 11701 (Employment of Veterans)

     If the contract is in excess of $10,000, Operator agrees to comply with the
     affirmative action clause and regulations  promulgated under such Order (41
     C.F.R.  Part  60-250)  which  clause is  incorporated  herein by  reference
     pursuant to Section 60-250.22 of such regulations.

C.   E. O. 11625 (Minority Business Enterprises)

     1.   If the contract is in excess of $ 10,000,  Operator  agrees to use its
          best efforts to provide minority business enterprises with the maximum
          practicable  opportunity  to  participate  in the  performance of such
          contract  to  the  fullest  extent   consistent   with  the  efficient
          performance thereof [41 C.F.R. Sec. l-1.1310-2(a)].

     2.   If the  contract is in excess of $500,000,  Operator  agrees to comply
          with the Minority Business Enterprises  Subcontracting  Program Clause
          promulgated  under such Order [41 C.F.R.  Sec.  l-1.1310-2(b)],  which
          clause is incorporated herein by reference.

D.   E. 0. 11758 (Employment of Handicapped Persons)

     If the contract is in excess of $2,500,  Operator agrees to comply with the
     affirmative action clause and the regulations  promulgated under such Order
     (41 C.F.R. Part 60-741),  which clause is incorporated  herein by reference
     pursuant to Section 60-741.22 of such regulations.

<PAGE>

                                   EXHIBIT "E"

         Attached to and made a part of that certain Offshore Operating
                               Agreement covering
          South Timbalier 77 Prospect, dated September 13, 2004, by and
              between Millennium Offshore Group, Inc., as Operator,
               and Ridgewood Energy Corporation, as Non-Operator.

                       GAS BALANCING AND STORAGE AGREEMENT

          The  Parties  hereto own and are  entitled to share in the oil and gas
production from the Lease in accordance with their  respective  interests as set
forth in the  Operating  Agreement  to which  this gas  balancing  Agreement  is
attached by and between the signatories hereof ("Party or Parties").  Each Party
has made or will  make  arrangements  to sell or  utilize  its  share of the gas
production  however,  it is  recognized  that one or more of the  Parties may be
unable from time to time to take in kind or otherwise dispose of its interest in
the gas production.  In order to permit each party to produce and dispose of its
interest in the gas production with as much flexibility as possible, the Parties
hereto agree as follows:

     1. From and  after  the date of  initial  delivery  of gas from the  Lease,
     during  any period  when a Party is taking  less than its full share of the
     gas  production,  any other  Party may  produce  from the Lease and take or
     deliver to a  purchaser,  each month,  all or a part of that portion of the
     allowable gas production  which is not produced by a Party taking less than
     its full  share.  The  Parties  hereto  shall  share in and own the  liquid
     hydrocarbons  recovered from such gas in accordance  with their  respective
     interests in the Lease as set forth in said Operating Agreement, whether or
     not such Parties are taking their full share of gas.

     2. On a  cumulative  basis,  a Party taking less than its full share of the
     gas produced  shall be credited with gas in storage equal to its full share
     of the  total gas  produced,  less  such  Party's  share of the gas used in
     operations on the Lease or vented or lost, and less that portion of the gas
     such Party took or delivered to its  purchaser.  Operator  will maintain an
     account of the gas balance between the Parties hereto and will furnish each
     Party monthly  statements  showing the total quantity of gas produced,  the
     portion thereof used in operations on the Lease,  vented or lost, the total
     quantity  of gas  taken  by each  Party,  and the  monthly  and  cumulative
     over-and-under delivery of each Party, within sixty (60) days of the end of
     each month of production.

     3. After written notice to the Operator,  a Party may begin taking its full
     share  of the gas  produced  (less  such  Party's  share of the gas used in
     operations on the Lease,  vented or lost).  To allow the recovery of gas in
     storage and to balance the gas account of the Parties,  a Party with gas in
     storage  shall be entitled to take its  current  share of the gas  produced
     (less such Party's share of the gas used in operations on the Lease, vented
     or lost),  plus a share of gas not to exceed its gas in storage  determined
     by multiplying (i) fifty percent (50%) by (ii) the interest of the Party or
     Parties  having taken more than their share of  cumulative  gas  production
     from the Lease by (iii) a fraction,  the numerator of which is the interest
     in the Lease of such Party with gas in storage and the denominator of which
     is the total  percentage  interest  in the Lease of all  Parties  currently
     recovering gas in storage.  Makeup volumes of gas produced shall be applied
     against  the gas  balance  account of the  Parties on a  first-in-first-out
     basis.  It is  specifically  agreed  that no  underproduced  Party  will be
     allowed  to take  make-up  gas during  the  months of  November,  December,
     January or February ("The Winter Period").

     4. Upon written notice to Operator,  any Party may deliver to its purchaser
     its full share of the allowable gas  production to meet the  deliverability
     tests required by its purchaser;  provided that such tests shall not exceed
     seventy-two (72) hours duration.

     5. Each Party shall pay all  production or severance  taxes,  excise taxes,
     royalties,   overriding  royalties,  production  payments  and  other  such
     payments  for  which it is  obligated  by law or by  lease  or by  contract
     (including  other provisions of said Operating  Agreement),  and nothing in
     these  gas  balancing  provisions  shall be  construed  as  affecting  such
     obligations.  Each Party hereto shall indemnify and hold harmless the other
     Parties hereto against all claims, losses or liabilities arising out of its
     failure to fulfill such obligations.

     6.  Should  production  of gas from the Lease be  permanently  discontinued
     before the gas account is balanced or if  sufficient  reserves do not exist
     to  physically  balance  the gas  account  of the  Parties  or if no gas is
     produced from the Lease for six (6) consecutive  months,  a cash settlement
     (without  interest) will be made between the underproduced and overproduced
     Parties.  Such settlement  shall be coordinated by Operator.  Underproduced
     and  overproduced  Parties are those Parties who have received credit for a
     lesser  and a  greater  quantity,  respectively,  than  their  share of the
     cumulative unit gas production  (less such Party's share of the gas used in
     operations  on the  Lease,  vented or lost) at such time as  production  is
     permanently  discontinued  or  at  such  time  as  it  is  determined  that
     sufficient  reserves do not exist to physically  balance the gas account of
     the Parties. In making such settlement,  the underproduced Party or Parties
     will  be  paid  a sum  of  money  by  the  overproduced  Party  or  Parties
     attributable to the overproduction which said overproduced Party or Parties
     received,  at  ninety-nine  percent  (99%) of the weighted  average  price,
     subject to the further  provisions  of this  Paragraph  6,  received by the
     overproduced  Party or  Parties  at the time and from time to time when the
     overproduced  Party or  Parties  delivered  and sold  that  portion  of gas
     production  from the Lease that was  attributable  to the  interest  of the
     underproduced  Party or Parties,  minus  payments made by the  overproduced
     Party or  Parties  for  Lessor's  royalties  and  production  taxes on such
     overproduction.   In  determining  the   overproduced   volumes  for  which
     settlement is due, the following rule shall be used:  When an  overproduced
     party takes less gas than its current share of production,  only the volume
     less  than  its   current   share   shall  be  applied   to  reduce   prior
     overproduction,  in the order of  accrual  of such  overproduction.  In the
     event the  overproduced  Party or Parties  took such gas in kind or sold or
     transferred  such  gas  to an  affiliate,  the  price  basis  shall  be the
     prevailing  wellhead  price  in  the  field  of  the  gas  utilized  by the
     overproduced Party or Parties at the time when gas was so utilized, sold or
     transferred. As used herein,

<PAGE>

     "affiliate"  means an entity which  controls,  is controlled by or is under
     common  control with the Party selling or  transferring  gas to it. For gas
     sold subject to a contingent refund obligation, the price shall be the rate
     collected,  from time to time,  which is not subject to possible  refund as
     provided by the FERC (or its successor) or any other governmental authority
     pursuant to final order or  settlement  applicable to the gas produced from
     the Lease and sold by the overproduced Party, plus any additional collected
     amount which is not ultimately required to be refunded by order of the FERC
     (or its successor) or any other governmental  authority having jurisdiction
     in the premises,  such additional  collected  amount to be accounted for at
     such time as final determination is made with respect thereto.

          Notwithstanding the foregoing, should the underproduced Party elect to
     receive  such  additional  collected  amount  which is subject to  possible
     refund pending the issuance of such final order, such  underproduced  Party
     shall be entitled to the payment of such additional  collected  amount from
     the  overproduced  Party upon the  underproduced  Party  delivering to such
     overproduced  Party a bond or  irrevocable  letter of credit (or such other
     assurances  as may be  required  by such  overproduced  Party) in which the
     underproduced  Party agrees to repay the  overproduced  Party the amount so
     paid that is  required by said final order to be  refunded,  plus  interest
     thereon  as  specified  by order of the  FERC (or its  successor)  or other
     governmental authority having jurisdiction.

     7.  This  Agreement  shall  remain  in full  force  and  effect  for a term
     concurrent with the term of the Operating Agreement to which this Agreement
     is attached and as long  thereafter  as is necessary to carry out the final
     settlement of the gas account of the Parties hereto.

     8. Nothing herein shall change or affect each Party's obligation to pay its
     proportionate share of all costs and liabilities  incurred in operations on
     the Lease, as its share thereof is set forth in the Operating  Agreement to
     which this Agreement is attached.

<PAGE>

                                   EXHIBIT "F"

    Attached to and made a part of that certain Offshore Operating Agreement
         covering South Timbalier 77 Prospect, dated September 13, 2004,
        by and between Millennium Offshore Group, Inc., as Operator, and
                 Ridgewood Energy Corporation, as Non-Operator.

                        MEMORANDUM OF OPERATING AGREEMENT
                             AND FINANCING STATEMENT
                                   (LOUISIANA)

        To be filed in the conveyance records and in the mortgage records
          and as a non-standard financing statement in accordance with
                              Paragraph 6.0 herein.

1.0 This Memorandum of Operating Agreement and Financing  Statement  (Louisiana)
(this  "Memorandum")  is effective  as of the  effective  date of the  Operating
Agreement  referred to in Paragraph  2.0 below and is executed by the  following
undersigned duly authorized representative of Millennium Offshore Group, Inc., a
Texas corporation, whose taxpayer identification number is ___________ and whose
address  is  5300  Memorial  Drive,  Suite  1070,  Houston,   Texas  77007  (the
"Operator");  and the undersigned  duly authorized  representative  of Ridgewood
Energy Corporation, a Delaware corporation, whose taxpayer identification number
is _________  and whose  address is 947 Linwood  Avenue,  Ridgewood,  New Jersey
07450,  (individually  "Non-Operator"  and  collectively  "Non-Operators").  The
Operator  and the  Non-Operators  may be  referred to herein  individually  as a
"Party" and collectively as the "Parties".

2.0 The  Parties  have  entered  into that  certain  Operating  Agreement  dated
September  13,  2004  (the  "Operating   Agreement")   which  provides  for  the
exploration, development and production of crude oil, natural gas and associated
substances from the OCS blocks, or portions thereof, described in Exhibit "A" of
the Operating Agreement and in Attachment "1" to this Memorandum,  or covered by
the  Lease  (hereinafter  called  the  "Contract  Area")  and  which  designates
Millennium Offshore Group, Inc., as the Operator of certain wells located in OCS
blocks, or portions thereof, described in Exhibit "A" of the Operating Agreement
and in  Attachment  "1" hereof,  to conduct such  operations  for itself and the
Non-Operators  as permitted or required by and within the terms of the Operating
Agreement. All OCS federal oil and gas leases (or portions thereof) described in
Exhibit "A" of the Operating  Agreement and in Attachment "1" to this Memorandum
are  hereinafter  called the  "Lease." The  liability  of the Parties  under the
Operating  Agreement  shall be several and not joint or  collective.  Each Party
shall only be responsible  for its  obligations and shall only be liable for its
proportionate share of costs and expenses.

As used in this Memorandum, the following terms have the following meanings:

     a.   "Costs"  shall  mean  the  monetary  amount  of all  expenditures  (or
          indebtedness)  incurred by the Operator and the  Non-Operators for (or
          on  account  of) any  and all  operations  conducted  pursuant  to the
          Operating   Agreement  and   determined   pursuant  to  the  Operating
          Agreement, including the Accounting Procedure.

     b.   "Development Systems" means:

          (i)  systems  to  develop  and  produce  Hydrocarbons,  including  (1)
          offshore surface structures, whether fixed, compliant or floating, (2)
          offshore   subsea   structures  or  templates,   whether   capable  of
          accommodating  one or multiple  wells,  (3) any combination of (1) and
          (2),  (4) any other type of system  designed  to develop  and  produce
          Hydrocarbons,  and (5) all associated  components of any of the above;
          and

          (ii) associated  production  equipment beyond the wellhead connections
          that is  installed  on or outside the  Contract  Area  pursuant to the
          Operating   Agreement  in  order  to  handle  or  process  Hydrocarbon
          production,  including, but not limited to, injection and disposal and
          disposal  wells and the flowlines and gathering  lines that  transport
          Hydrocarbons from the wellhead.

     c.   "Hydrocarbon(s)"  means oil and gas and associated  liquid and gaseous
          by-products  (except  helium) from a wellbore  located on the Contract
          Area.

          Unless otherwise  defined herein,  all other  capitalized  terms shall
          have the meaning ascribed to them in the Operating Agreement.

<PAGE>

3.0 Among other  provisions,  the  Operating  Agreement (a) provides for certain
liens,  mortgages,   pledges  and  security  interests  (collectively  "Security
Rights") to secure payment by the parties of their respective share of costs and
performance of other obligations under the Operating Agreement,  (b) contains an
"Accounting  Procedure",  which establishes,  among other things, interest to be
charged on  indebtedness,  certain costs, and other expenses under the Operating
Agreement at the rate set forth therein,  (c) includes non-consent clauses which
establish that parties who elect not to participate in certain  operations shall
(i) be  deemed to have  relinquished  their  interest  in  production  until the
consenting  parties  recover  their  costs of such  operations  plus a specified
amount or (ii)  forfeit  their  interest in certain  Lease or  portions  thereof
involved in such  operations,  (d) grants each party to the Operating  Agreement
the right to take in kind its  proportionate  share of all oil and gas  produced
from the Contract Area,  and (e) includes a volumetric  Gas Balancing  Agreement
which is attached as Exhibit "D" to the Operating Agreement.

4.0 The Operator hereby  certifies that a true and correct copy of the Operating
Agreement is on file and is available  for  inspection  by third  parties at the
offices of the Operator at the address set forth in paragraph 1.0 and Attachment
"1" of this Memorandum.

5.0 In addition to any other  security  rights and remedies  provided for by law
with respect to services rendered or materials and equipment furnished under the
Operating Agreement and/or this Memorandum, for good and valuable consideration,
the  receipt  and  sufficiency  of  which  are  hereby   acknowledged,   and  in
consideration  of the covenants and mutual  undertakings of the Operator and the
Non-Operators herein, the Parties hereby agree as follows:

5.1 Mortgage and Pledge:  Each Non-Operator  mortgages,  pledges,  affects,  and
hypothecates  to  Operator,  and  Operator  mortgages,   pledges,  affects,  and
hypothecates to each  Non-Operator,  all of its respective  rights,  title,  and
interest in and to the following:

     (a)  the Lease and any interest  therein,  and all accounts,  gas imbalance
          accounts, contract rights, inventory, and general intangibles relating
          thereto or arising therefrom;

     (b)  all  property  and  fixtures,  moveable  or  immovable,  corporeal  or
          incorporeal, attached to or located on or off the Contract Area, which
          are acquired by the Parties pursuant to the Operating Agreement and/or
          this Memorandum;

     (c)  all of the oil,  gas and  associated  substances  in, on, or under the
          Lease  and  that  may be  produced  from the  Lease  and the  proceeds
          attributable  to the sale of such oil, gas and associated  substances;
          and

     (d)  all property, moveable or immovable, corporeal or incorporeal, that is
          used,  obtained or  constructed  (or under  construction)  for use, in
          connection  with the  Lease and  operations  thereon  pursuant  to the
          Operating Agreement and/or this Memorandum.

5.2 Security Interests. Each Non-Operator hereby grants to the Operator, and the
Operator hereby grants to each Non-Operator,  a continuing  security interest in
and  to all  of  its  respective  rights,  titles,  interests,  claims,  general
intangibles,  proceeds, and products thereof,  whether now existing or hereafter
acquired,  in and to (a) all  oil and gas  produced  from  the  offshore  blocks
covered by the Lease or the Contract  Area or  attributable  to the Lease or the
Contract Area when produced,  (b) all accounts receivable accruing or arising as
a  result  of the  sale of such  oil and  gas  (including,  without  limitation,
accounts  arising  from  gas  imbalances  or from the sale of oil and gas at the
wellhead), (c) all cash or other proceeds from the sale of such oil and gas once
produced,  and  (d)  all  Development  Systems,  platforms,  wells,  facilities,
fixtures, tools, tubular goods and other corporeal property,  whether movable or
immovable, whether now or hereafter placed on the offshore blocks covered by the
Lease  or the  Contract  Area  or  maintained  or used in  connection  with  the
ownership,  use, or  exploitation  of the Lease or the Contract  Area, and other
surface  and  sub-surface  equipment  of any  kind or  character  located  on or
attributable  to the Lease or the Contract  Area, and the cash or other proceeds
realized  from the  sale,  transfer,  disposition  or  conversion  thereof.  The
interest of the Parties in and to the oil and gas produced from or  attributable
to the Lease or the Contract  Area when  extracted  and the accounts  receivable
accruing or arising as the result of the sale  thereof  shall be financed at the
wellhead of the well or wells located on the Lease or the Contract  Area. To the
extent  susceptible  under applicable law, the security interest granted by each
Party hereunder covers (i) all  substitutions,  replacements,  and accessions to
the property of such Party described  herein and is intended to cover all of the
rights,  titles,  and  interests  of such Party in all movable  property  now or
hereafter  located upon or used in connection  with the Contract  Area,  whether
corporeal or  incorporeal,  (ii) all rights under any gas  balancing  agreement,
farmout  rights,  option farmout  rights,  acreage and cash  contributions,  and
conversion  rights of such Party in  connection  with the Lease or the  Contract
Area,  or the  Hydrocarbons  produced from or  attributable  to the Lease or the
Contract Area, whether now owned and existing or hereafter

<PAGE>

acquired or arising, including,  without limitation, all interests of each Party
in any partnership,  tax partnership,  limited partnership,  association,  joint
venture,  or other  entity or  enterprise  that holds,  owns,  or  controls  any
interest  in  the  Contract  Area,  and  (iii)  all  rights,   claims,   general
intangibles,  and proceeds,  whether now existing or hereafter acquired, of each
Party in and to the contracts,  agreements,  permits,  licenses,  rights-of-way,
servitudes and similar rights and privileges  that relate to or are  appurtenant
to the Lease and/or the Contract Area, including the following:

     (a)  all of its  rights,  titles,  and  interests,  whether  now  owned and
          existing  or  hereafter  acquired  or  arising,  in,  to, and under or
          derived  from any  present  or  future  operating,  farmout,  bidding,
          pooling, unitization, and communitization agreements, assignments, and
          subleases,  whether or not described in Attachment "1," to the extent,
          and  only  to the  extent,  that  such  agreements,  assignments,  and
          subleases cover or include any of its rights,  titles,  and interests,
          whether now owned and  existing or hereafter  acquired or arising,  in
          and to all or any portion of the Lease or the Contract  Area,  and all
          units created by any such pooling,  unitization,  and  communitization
          agreements, and all units formed under orders, regulations,  rules, or
          other official acts of any governmental authority having jurisdiction,
          to the extent and only to the extent  that such units cover or include
          all or any portion of the Lease and/or the Contract  Area;

     (b)  all of its  rights,  titles,  and  interests,  whether  now  owned and
          existing  or  hereafter  acquired  or  arising,  in,  to, and under or
          derived  from  all  presently  existing  and  future  advance  payment
          agreements,  and oil,  casinghead  gas, and gas sales,  exchange,  and
          processing  contracts and agreements,  including,  without limitation,
          those  contracts and agreements  that are described on Attachment "1,"
          to the extent, and only to the extent,  those contracts and agreements
          cover or include all or any portion of the Lease  and/or the  Contract
          Area; and

     (c)  all of its  rights,  titles,  and  interests,  whether  now  owned and
          existing  or  hereafter  acquired  or  arising,  in,  to, and under or
          derived from all existing and future permits, licenses, rights-of-way,
          servitudes  and similar  rights and  privileges  that relate to or are
          appurtenant to any of the Lease and/or the Contract Area.

5.3 The  Security  Rights  granted  herein are given to secure the  complete and
timely  performance of and payment by each Party of all of its  obligations  and
indebtedness  of  every  kind and  nature,  whether  now  owed by such  Party or
hereafter  arising pursuant to the Operating  Agreement and this Memorandum.  To
the extent  susceptible  under  applicable  law,  the  mortgage and the security
interest  granted  herein shall  secure the payment of Costs and other  expenses
properly charged to such Party together with (a) interest on such  indebtedness,
Costs,  and other expenses at the rate set forth in the Accounting  Procedure or
the  maximum  rate  allowed by law,  whichever  is the  lesser,  (b)  reasonable
attorneys'  fees,  (c) court costs,  and (d) other directly  related  collection
costs.

5.4  The  maximum  amount  for  which  the  mortgage   herein  granted  by  each
Non-Operator  shall be deemed to secure the obligations and indebtedness of such
Non-Operator  to the Operator as stipulated  herein is hereby fixed in an amount
equal to $25,000,000.00 (the "Limit of the Mortgage of each Non-Operator"),  and
the maximum  amount for which the mortgage  herein granted by the Operator shall
be deemed to secure the  obligations  and  indebtedness  of the  Operator to all
Non-Operators  as  stipulated  herein  is  hereby  fixed in an  amount  equal to
$25,000,000.00  in the aggregate (the "Limit of the Mortgage of the Operator").
Except as provided in the  preceding  sentence (and then only to the extent such
limitations  are  required  by  law),  the  entire  amount  of  obligations  and
indebtedness of each Party is secured hereby without limitation. Notwithstanding
the  foregoing  Limit of the  Mortgage  of each  Non-Operator  and  Limit of the
Mortgage of the  Operator,  the  liability  of each Party and the  mortgage  and
security  interest  granted  hereby  shall be limited to (and no Party  shall be
entitled to enforce the same against another Party for an amount  exceeding) the
actual  obligations and  indebtedness  (including all interest  charges,  Costs,
attorneys'  fees,  and other charges  provided for in this  Memorandum or in the
Operating  Agreement)  outstanding  and unpaid and that are  attributable  to or
charged  against the interest of such Party pursuant to the Operating  Agreement
and/or this Memorandum.

5.5 If Operator  seeks to enforce the mortgage  granted it  hereunder  against a
Non-Operator,  Operator  shall  have the  right  to  appoint  a  keeper  of such
Non-Operator's  property,  or  any  part  thereof,  pursuant  to the  terms  and
provisions  of La. R.S.  9:5131 et seq.  and 9:5136 et seq. If any  Non-Operator
seeks to enforce  the  mortgage  granted it  hereunder  against  Operator,  such
Non-Operator shall have the right to appoint a keeper of Operator's  property or
any part thereof,  pursuant to the terms and  provisions  of La. R.S.  9:5131 et
seq. and 9:5136 et seq.

5.6 Each Party  represents  and  warrants to the other  Parties  hereto that the
mortgage,  pledge  and  security  interests  granted  by such Party to the other
Parties  in this  Agreement  shall be a first and  prior  mortgage,  pledge  and
security interest, and each Party hereby agrees to maintain the priority of said
mortgage, pledge and security interest against all persons acquiring an interest
in the Lease or the Contract Area by,  through or under such Party.  All Parties
acquiring an interest in the Lease or the Contract Area,  whether by assignment,
merger, mortgage,  operation of law, or otherwise, shall be deemed to have taken
subject to the mortgages,  pledge rights and security interests  hereunder as to
all  obligations  attributable  to such interest  hereunder  whether or not such
obligations arise before or after such interest is acquired.

<PAGE>

5.7 If performance of any obligation under the Operating Agreement or payment of
any indebtedness created thereunder does not occur or is not made when due under
the  Operating  Agreement  or upon  default of any  covenant or condition of the
Operating Agreement, in addition to any other remedy afforded by law, each Party
to the  Operating  Agreement  and any  successor  to such  party by  assignment,
operation of law, or otherwise, shall have, and is hereby given and vested with,
the power and authority to foreclose the mortgage, pledge, and security interest
established  in its favor  herein and in the  Operating  Agreement in the manner
provided by law and to exercise all rights of a secured  party under the Uniform
Commercial  Code.  If any Party  does not pay such Costs and other  expenses  or
perform its obligations under the Operating Agreement when due, the Operator (or
the  Non-Operators  if the  defaulting  Party is the  Operator)  shall  have the
additional right to notify the purchaser or purchasers of the defaulting Party's
Hydrocarbon(s)  production  and collect such Costs and other expenses out of the
proceeds  from  the  sale of the  defaulting  Party's  share  of  Hydrocarbon(s)
production.  Any purchaser of such  production  shall be entitled to rely on the
Operator's  (or the  Non-Operators  if the  defaulting  Party  is the  Operator)
statement  concerning  the  amount  of  Costs  and  other  expenses  owed by the
defaulting  Party and payment made to the Operator (or the  Non-Operators if the
defaulting  Party  is the  Operator)  by any  purchaser  shall  be  binding  and
conclusive as between such purchaser and such defaulting Party.

5.8 If any Party does not  perform  all of its  obligations  hereunder,  and the
failure to perform  subjects such Party to foreclosure or execution  proceedings
pursuant to the provisions  herein,  to the extent allowed by governing law, the
defaulting  Party waives any available  right of  redemption  from and after the
date of judgment, any required valuation or appraisement of the property covered
by the mortgage,  pledge and security  interest created hereunder prior to sale,
any available right to stay execution or to require a marshalling of assets, and
any required bond in the event a receiver is appointed.

5.9 Each Party  agrees that the other  Parties  shall be entitled to utilize the
provisions  of oil and gas lien law or  privilege or other lien law or privilege
of any state adjacent to the Contract Area, or that is otherwise applicable,  to
enforce the rights and remedies of each Party  hereunder.  Without  limiting the
generality  of the  foregoing,  to the extent  allowed by  applicable  law,  the
Operator may invoke and use the mechanics' and materialmens'  lien law to secure
the payment to the Operator of any sum due hereunder  for services  performed or
materials supplied by the Operator.

5.10 To the extent  permitted by applicable law, each Party hereby grants to the
other Parties a power of sale as to any property that is subject to the Security
Rights granted  hereunder,  such power to be exercised in the manner provided by
applicable  law or  otherwise  in a  commercially  reasonable  manner  and  upon
reasonable notice.

6.0 Recording/Filing.  To provide notice of, and to further perfect the Parties'
Security  Rights  created  hereunder,   this  Memorandum  (including  a  carbon,
photographic,  or other  reproduction  thereof and hereof)  shall  constitute  a
non-standard  form of  financing  statement  under the terms of Chapter 9 of the
Louisiana  Commercial Laws, La. R.S.  10:9-101 et seq. (the "Uniform  Commercial
Code," as adopted in the State of Louisiana)  and, as such,  may be filed by any
Party for  record in the office of the Clerk of Court of any parish in the State
of  Louisiana,  with the  filing  Party  being the  secured  Party and the other
Parties  being the debtors with  respect to such filing.  Each Party filing this
Memorandum may attach thereto,  or file  separately,  any standard UCC financing
statement necessary to effectuate perfection of the security interests described
herein. Upon request,  each debtor Party hereunder agrees to execute and deliver
to each secured Party a UCC-1 or other UCC form  reflecting the Security  Rights
granted herein.

7.0 Upon  expiration of the  Operating  Agreement  and the  satisfaction  of all
obligations and  indebtedness  arising  thereunder,  the Party(ies)  filing this
Memorandum  shall file of record an appropriate  release and  termination of all
security  and other  rights  created  under  the  Operating  Agreement  and this
Memorandum executed by all parties to the Operating  Agreement.  Upon the filing
of such release and termination  instrument,  all benefits and obligations under
this Memorandum  shall terminate as to all parties who have executed or ratified
this  Memorandum.  In addition,  at any time prior to the filing of such release
and termination  instrument,  each of the Operator and the  Non-Operators  shall
have the right to (i) file a  continuation  statement  pursuant  to the  Uniform
Commercial  Code with respect to any  financing  statement  filed in their favor
under  the  terms  of  this  Memorandum  and  (ii)  reinscribe  this  act in the
appropriate mortgage records.

8.0 It is understood and agreed by the Parties hereto that if any part, term, or
provision of this  Memorandum is held by the courts to be illegal or in conflict
with any law of the state where made, the validity of the remaining  portions or
provisions shall not be affected,  and the rights and obligations of the Parties
shall be  construed  and  enforced  as if the  Memorandum  did not  contain  the
particular part, term, or provision held to be invalid.

9.0 This Memorandum  shall be binding upon and shall inure to the benefit of the
Parties  hereto  and their  respective  legal  representatives,  successors  and
permitted assigns.  The failure of one or more persons owning an interest in the
Contract  Area to execute  this  Memorandum  shall not in any manner  affect the
validity of the Memorandum as to those persons who execute this Memorandum.

<PAGE>

10.0 A party having an interest in the Contract Area may ratify this  Memorandum
by  execution  and  delivery of an  instrument  of  ratification,  adopting  and
entering into this Memorandum,  and such ratification shall have the same effect
as if the ratifying party had executed this Memorandum or a counterpart thereof.
By execution or ratification of this  Memorandum,  such Party hereby consents to
its  ratification  and  adoption  by any party who  acquires  or may acquire any
interest in the Contract Area.

11.0 This Memorandum may be executed or ratified in one or more counterparts and
all of the  executed or ratified  counterparts  shall  together  constitute  one
instrument.  The respective addresses of the Operator, as both secured Party and
debtor,  and the  Non-Operators,  as both debtors and secured Parties,  at which
information  with respect to the  security  interests  created in the  Operating
Agreement and this  Memorandum  may be obtained,  are set forth in Paragraph 1.0
and Attachment "1" of this Memorandum.

12.0 The Operator and the Non-Operators hereby agree to execute, acknowledge and
deliver or cause to be executed,  acknowledged and delivered,  any instrument or
take  any  action  necessary  or  appropriate  to  effectuate  the  terms of the
Operating Agreement, this Memorandum, and any Exhibit,  instrument,  certificate
or other document pursuant thereto.

13.0 Whenever the context  requires,  reference herein made to the single number
shall be  understood  to include the plural,  and the plural  shall  likewise be
understood to include the singular,  and specific  enumeration shall not exclude
the general, but shall be construed as cumulative.

EXECUTED on the dates set forth below each  signature  but  effective  as of the
13th day of September, 2004.

                                           OPERATOR:
                                           Millennium Offshore Group, Inc.

WITNESSES:

[Illegible]                                By:
----------------------------------------       --------------------------------
(Printed Name of Witness)
                                           Printed Name:
                                                         -----------------------
[Illegible]                                Title:
----------------------------------------          ------------------------------
(Printed Name of Witness)
                                           Date:
                                                 -------------------------------

                           ACKNOWLEDGMENT - OPERATOR:

STATE OF TEXAS

COUNTY OF HARRIS

     On this_________day of______,______ before me, appeared ___________________
to me  personally  known,  who,  being  by me duly  sworn,  did  say  that he is
the_______________________________________________of  Millennium Offshore Group,
Inc.,  a Texas  corporation,  and that the  foregoing  instrument  was signed on
behalf  of  the   corporation  by  authority  of  its  Board  of  Directors  and
that_________________________acknowledged  the instrument to be the free act and
deed of the corporation.

                                           -------------------------------------
                                           NOTARY PUBLIC in and for the State of
                                           Texas My Commission expires:

                                           NON-OPERATOR:
                                           Ridgewood Energy Corporation

WITNESSES:

                                           By:
----------------------------------------       ---------------------------------
(Printed Name of Witness)
                                           Printed Name:
                                                         -----------------------
                                           Title:
----------------------------------------          ------------------------------
(Printed Name of Witness)
                                           Date:
                                                 -------------------------------

<PAGE>

                         ACKNOWLEDGMENT - NON-OPERATOR:

STATE OF __________

COUNTY OF __________

     On this_________day of____________ before me, appeared ____________________
to me  personally  known,  who,  being  by me duly  sworn,  did  say  that he is
the_____________________________________________,     of    Ridgewood     Energy
Corporation,  a Delaware  corporation,  and that the  foregoing  instrument  was
signed on behalf of the  corporation  by authority of its Board of Directors and
that  _____________________  acknowledged  the instrument to be the free act and
deed of the corporation.

                                           -------------------------------------
                                           NOTARY PUBLIC in and for the State of
                                           _____________________________________
                                           My Commission expires:

<PAGE>

                          ATTACHMENT "1" TO EXHIBIT "F"

    Attached to and made a part of the Memorandum of Operating Agreement and
      Financing Statement (Louisiana), dated effective September 13, 2004,
        by and between Millennium Offshore Group, Inc., as Operator, and
                 Ridgewood Energy Corporation, as Non-Operator.

I.   DESCRIPTION OF LANDS AND LEASES WITHIN THE CONTRACT AREA:

     That  certain  Oil and Gas Lease  from the  United  States of  America,  as
     Lessor, to Anadarko Petroleum Corporation,  et al, as Lessee,  effective as
     of August 31, 1981,  identified  in the office of The  Minerals  Management
     Service, Gulf of Mexico OCS Region, as Oil and Gas Lease of Submerged Lands
     under the Outer  Continental  Shelf Lands Act bearing  Serial  Number OCS-G
     04827,  describing Block 77, South Timbalier Area, as shown on OCS Official
     Leasing Map,  Louisiana Map No. LA6,  covering 5,000.0 acres, more or less,
     INSOFAR as same covers the SE/4 of the SE/4 of the NE/4 and the SW/4 of the
     SE/4 of the  NE/4  and the  E/2 of the  SE/4  and the E/2 of the W/2 of the
     SE/4, (SE/4 SE/4 NE/4; SW/4 SE/4 NE/4; E/2 SE/4; E/2 W/2 SE/4),  limited in
     depth from the surface of the earth down to the stratigraphic equivalent of
     the base of the deepest productive reservoir found in the Test Well as same
     is defined in the Participation  Agreement dated September 13, 2004, by and
     between Millennium Offshore Group, Inc. and Ridgewood Energy Corporation.

     The mortgage, pledge and security rights created in the Operating Agreement
     and this Memorandum do not apply to the Parties' interest and rights in the
     existing  platform  and  production  facilities  on  the  Lease  as of  the
     effective date of the Operating Agreement. Subsequent to the effective date
     of the Operating Agreement, such mortgage, pledge and security rights shall
     apply to the Parties'  interests and rights in such  existing  platform and
     production facilities only to the extent such interest and rights arise out
     of the Operating Agreement.

II.  OPERATOR:

     Millennium Offshore Group, Inc.

III. PARTIES, REPRESENTATIVES, ADDRESSES, AND INTERESTS CONTRIBUTED:

     Millennium Offshore Group, Inc.
     5300 Memorial, Ste. 1070
     Houston, TX 77007
     Attn: Mr. Kent Singleton
     Telephone: (713) 652-0137
     Fax:(713)652-0482
     50.00000% WI, 41.30979% NRI

     Ridgewood Energy Corporation   Ridgewood Energy Corporation
     947 Linwood Avenue             5300 Memorial, Suite 1070
     Ridgewood, New Jersey 07450    Houston, Texas 77007
     Attn: Mr. Robert Swanson       Attn: Mr. W. Greg Tabor
     Telephone: (201) 447-9000      Telephone: (713) 862-9856
     Fax: (201)447-0474             Fax:(713)802-9734
     50.00000% WI, 41.30979% NRI

<PAGE>

                                   Exhibit "C"

  Attached to and made a part of that certain Participation Agreement covering
   South Timbalier Block 77 Prospect, dated September 13, 2004, by and between
        Millennium Offshore Group, Inc. and Ridgewood Energy Corporation

                         ASSIGNMENT OF OPERATING RIGHTS

OFFSHORE LOUISIANA         }
                           }
OUTER CONTINENTAL SHELF    }   KNOW BY ALL THESE PRESENTS:
                           }
UNITED STATES OF AMERICA   }

     THAT,  Millennium Offshore Group, Inc., 5300 Memorial,  Ste. 1070, Houston,
Texas 77007, hereinafter called "Assignor",  for and in consideration of the sum
of Ten Dollars ($10.00) and other good and valuable  consideration to it paid by
Ridgewood Energy  Corporation,  whose address is 947 Linwood Avenue,  Ridgewood,
New  Jersey  07450,   hereinafter  called  "Assignee",   the  receipt  and  full
sufficiency of which is hereby acknowledged, does hereby grant, convey, transfer
and assign unto  Assignee,  its heirs,  successors  and  assigns,  an  undivided
50.00000%  operating  rights  interest in and to the oil and gas  mineral  lease
identified below (hereafter called "Subject Lease"), to wit:

     That certain Oil and Gas Lease of Submerged  Lands bearing Serial No. OCS-G
     04827 dated effective  August 31, 1981, by and between the United States of
     America, as Lessor, and Anadarko Petroleum Corporation,  et al, as Lessees,
     covering all of Block 77, South  Timbalier  Area, as shown an OCS Louisiana
     Leasing Map,  LA6,  INSOFAR AND ONLY INSOFAR as said OCS-G 04827 covers the
     SE/4 of the  SE/4 of the  NE/4 and the SW/4 of the SE/4 of the NE/4 and the
     E/2 of the SE/4 and the E/2 of the W/2 of the SE/4,  (SE/4 SE/4 NE/4;  Sw/4
     SE/4 NE/4;  E/2 SE/4;  E/2 W/2 SE/4),  limited in depth from the surface of
     the earth  down to the  stratigraphic  equivalent  of the base of the Rob E
     sand as seen at _________ feet on the _____ Electric Log in the OCS-G 04827
     Well Number _____.

     This  assignment is made subject to all of the terms of express and implied
covenants  and  conditions of the Subject  Lease,  the Lessor's  royalties  and,
further,  shall  bear  and  assume  its  proportionate  share  of  that  certain
overriding  royalties  interest affecting the Subject Lease as set forth in that
certain  Participation  Agreement,  dated  September  13,  2004,  by and between
Millennium   Offshore  Group,   Inc.  and  Ridgewood  Energy   Corporation  (the
"Participation Agreement").

     This  assignment  is also made  subject  to and shall  bear and  assume its
proportionate  share  of any  and  all  burdens,  obligations,  limitations  and
responsibilities created by the following listed agreements, of which all terms,
conditions  and  reservations  of said  agreements  are  incorporated  herein by
reference:

     (a)  The  Participation  Agreement dated  September 13, 2004,  between
          Millennium Offshore Group, Inc. and Ridgewood Energy Corporation.

     THIS  ASSIGNMENT  OF  OPERATING  RIGHTS IS  EXECUTED  BY  ASSIGNOR  WITHOUT
WARRANTY OF TITLE,  EITHER  EXPRESSED OR IMPLIED,  EXCEPT AS TO ACTS BY, THROUGH
AND UNDER ASSIGNOR.

<PAGE>

IN WITNESS WHEREOF,  this assignment is executed effective as of August 1, 2004,
subject to approval by the Minerals Management Service.

WITNESSES:                                ASSIGNOR:
                                          Millennium Offshore Group, Inc. (2383)

[Illegible]
---------------------------------------

[Illegible]                               By:
---------------------------------------       ----------------------------------

WITNESSES:                                ASSIGNEE:
                                          Ridgewood Energy Corporation (1308)

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

STATE OF TEXAS

COUNTY OF HARRIS

     On this __ day of _____,  2004,  before me,  appeared,  D. Kent  Singleton,
personally  known,  who,  being  by me duly  sworn,  did say that he is the Vice
President of Millennium Offshore Group, Inc., a Texas corporation,  and that the
foregoing instrument was signed on behalf of the corporation by authority of its
Board of Directors,  and that he acknowledged  the instrument to be the free act
and deed of the corporation.

                                          --------------------------------------
                                          Notary Public, State of Texas

                                          My Commission Expires:
                                                                 -----------

STATE OF
         ---------
COUNTY OF
                   ---------

     On this _____ day of _______, 2004, before me, appeared, _____, personally
known,  who,  being by me duly sworn,  did say that he is the _____ of Ridgewood
Energy Corporation,  a Delaware  corporation,  and that the foregoing instrument
was signed on behalf of the  corporation by authority of its Board of Directors,
and  that he  acknowledged  the  instrument  to be the  free act and deed of the
corporation.

                                          --------------------------------------
                                          Notary Public, State of
                                                                  ---------
                                          My Commission Expires:
                                                                 ----------

<PAGE>

                                  Exhibit "D"

  Attached to and made a part of that certain Participation Agreement covering
      South Timbalier 77 Prospect dated September 13, 2004, by and between
                           Millennium Offshore Group,
                     Inc. and Ridgewood Energy Corporation.

                         PRODUCTION HANDLING AGREEMENT

     This Production  Handling  Agreement (the  "Agreement") is made and entered
into effective as of this 13th day of September, 2004 (the "Effective Date"), by
and between  Millennium  Offshore  Group,  Inc., (in its capacity as an owner of
production  from  the  Earning  Wells  as  defined  below)  ("Millennium"),  and
Ridgewood Energy Corporation  ("Ridgewood"),  (the  aforementioned  collectively
referred to as the  "Producers")  and Millennium  Offshore  Group,  Inc. (in its
capacity as owner of the Facilities as defined below,  and hereinafter  referred
to as "Company"),  herein referred to individually as a "Party" and collectively
as the  "Parties".  Company  is the  Operator  and Lessee of  portions  of South
Timbalier Block 77 (OCS-G 04827) herein referred to as "Lease".

     WHEREAS,  Company  owns  and  operates  the  South  Timbalier  Block 77 "C"
production  platform  located  on  South  Timbalier  Block  77 (the  "Production
Platform")  together  with  all  equipment,  production  facilities,  wells  and
materials  affixed or  appurtenant  thereto,  or  associated  therewith,  herein
referred to collectively as the "Facilities";

     WHEREAS,  the Parties  have  entered into  "Participation  Agreement"  with
Millennium and the "Offshore Operating Agreement", or "OOA", dated September 13,
2004,  whereby the Farmout  Parties (as defined  below) will  undertake  certain
activities  in order for the Farmout  Parties to earn certain  operating  rights
interest in the Lease and establish  production on behalf of the Producers  (the
"Earned Interest").

     WHEREAS,  Producers  desire to  deliver  full  wellstream  production  from
jointly owned wells and  associated  with the Earned  Interest from time to time
(the "Earning Wells") to Facilities for separation,  dehydration and measurement
(collectively  referred  to as  "Handling"  or some other  tense  thereof,  i.e.
"Handle", "Handles" or "Handled"); and

     NOW  THEREFORE,  in  consideration  of the mutual  covenants and agreements
herein contained, the Parties hereto agree as follows:

                                   ARTICLE I.
                                   DEFINITIONS

1.1  For the purposes of this  Agreement,  the  following  definitions  shall be
     applicable:

     "Gas"  shall  include   natural  gas  from  gas  wells  (as  classified  by
     governmental   authority  having  jurisdiction  thereof)  and  residue  gas
     resulting from processing both casinghead gas and gas well gas.

     "Day" shall begin at 7:00 AM. local time on each calendar day and ending at
     7:00 A.M local time on the next following  calendar day; "Month" shall mean
     that period of time  beginning at 7:00 AM. local time on the first Day of a
     calendar  month and  ending at 7:00 AM.  local time on the first Day of the
     following  calendar  month;  "Year"  shall mean the  period of twelve  (12)
     consecutive  Months  beginning  on the first Day of the Month  during which
     initial  deliveries of Gas commence  hereunder and each  succeeding  twelve
     (12) Month period; provided, however, the last Year of this Agreement shall
     end at the termination hereof as provided in Article X of this Agreement.

     "Farmout Parties" shall mean the Producers excluding Millennium.

     "Hydrocarbons" shall mean Oil, Gas and/or Liquid Hydrocarbons.

<PAGE>

     "Liquid  Hydrocarbons"  shall mean a mixture of  hydrocarbons  produced  in
     liquid form after passing through surface  separation  facilities and shall
     include condensate from gas wells (as classified by governmental  authority
     having jurisdiction thereof).

     "MCF" shall mean one thousand  (1,000) cubic feet and "MMCF" shall mean one
     million (1,000,000) cubic feet, each measured at a pressure of fourteen and
     seventy-three   hundredths   (14.73)  psia  and  a  temperature   of  sixty
     (60(degree)) degrees Fahrenheit.

     "Oil"  shall  mean  oil from  oil  wells  (as  classified  by  governmental
     authority having jurisdiction thereof).

     "Point of Delivery"  shall mean the point,  as described in Section 3.2, at
     which the  Producer  will deliver or cause to be  delivered  production  to
     Company for Handling as provided hereunder.

     "Point(s) of  Redelivery"  shall mean the point or points,  as described in
     Section  3.2,  at which  Company  will  deliver  or  cause to be  delivered
     production for the account of the Producer for further transportation.

     "Total Throughput" shall mean the total volume of Gas, Liquid  Hydrocarbons
     and Water delivered into the Facilities.

     "Water" shall mean  produced  water (i.e.,  water  produced from the Earned
     Interest  and/or  other  wells  whose  production  is being  handled at the
     Facilities).

1.2 In the event of a conflict  between the provisions of this Agreement and the
Offshore Operating Agreement,  the terms of this Agreement shall prevail. In the
event  of  a  conflict   between  the  provisions  of  this  Agreement  and  the
Participation  Agreements,  the  terms  of the  Participation  Agreements  shall
prevail.

                                   ARTICLE II.
          CONSTRUCTION, INSTALLATION, LEASE OPERATION AND CONSIDERATION

2.1  Construction and Installation of Required Facilities.

     A. Full wellstream  production from the Earning Wells (the "Earned Interest
     Production") will be delivered to the Production Platform for Handling. The
     tie-in of the Earning  Wells to the Point of Delivery on the  Facilities as
     well as any repairs,  modifications,  replacements  or  enhancements to the
     Facilities downstream of the Point of Delivery and upstream of the Point of
     Redelivery   undertaken   specifically   to  accommodate   Earned  Interest
     Production shall be undertaken by the Parties  consistent with the terms of
     the Participation Agreement and the OOA.

     B. Any  modifications  required  to the  Facilities  to Handle  the  Earned
     Interest Production, except for compression (and related equipment) will be
     undertaken  by Company.  Any equipment  installed to modify the  Facilities
     under the terms and conditions of this  Agreement,  except for  compression
     (and  related)  equipment,  that are  located  downstream  of the  Point of
     Delivery  and  upstream  of the Point of  Redelivery  shall be owned by the
     Company after  installation  is complete (the "Company  Equipment").  Lease
     operating expenses (to include maintenance and repair) of Company Equipment
     shall  be  allocated  to  the   participating   parties   responsible   for
     installation of such Company  Equipment  consistent  with the OOA.  Company
     shall be solely responsible for abandonment of Company Equipment.

     C. Company shall be responsible for the maintenance,  repair, operation and
     abandonment of the  Facilities,  including  without  limitation all Company
     Equipment  located  on the  Facilities.  The  participating  parties in the
     Earning Wells shall be financially responsible for the maintenance, repair,
     operation and abandonment of Facilities  installed upstream of the Point of
     Delivery according to the Participation Agreement and OOA.

     D. Producer's  well(s) and all equipment  upstream of the Point of Delivery
     shall be owned by Producers (the "Producer Equipment").

                                       2

<PAGE>

2.2  Throughput Fees.

     A.  Producer  shall be charged a Monthly  throughput  fee (the  "Throughput
     Fee(s)") on Liquid  Hydrocarbons,  metered sales Gas and Water based on the
     volumes allocated to the Earning Wells as determined under Article 4.1. The
     Throughput Fee for each such substance is as follows:

               $0.12 per MCF of metered sales Gas for processing;
               $1.00 per barrel of Liquid Hydrocarbons for processing;
               $0.75 per barrel of Water for processing.

     B. It is agreed and  understood  that should  governmental  regulations  be
     promulgated  that affect the  requirements of treated Water discharged into
     the Gulf of Mexico,  any increased costs associated with such  regulations,
     to the  extent  that  such  additional  costs  are  attributable  to Earned
     Interest  Production,  shall be determined by the Company and allocated and
     paid in  accordance  with  the  OOA.  Company  shall  submit  to  Producers
     documentation  of the basis for any such increase in the Throughput Fee for
     Water. Parties agree, in principle,  to share increased costs of compliance
     and work together in good faith to remedy such situations.

                                  ARTICLE III.
                   GENERAL DESCRIPTION OF WORK TO BE PERFORMED

3.1 Treatment and  Compression.  The  Facilities  shall receive full  wellstream
production from the Earning Wells.  Production from the Earning Wells shall have
exclusive  use of the  Facilities  utilized  hereunder  which  (i)  are  located
upstream of that point of the Production  Platform where said production will be
commingled with other  production from the Lease and processed  through the test
separator  on the  Production  Platform or (ii) are located  downstream  of such
commingling  point  but  are  designated  for  Producer's  sole  use by  written
agreement between Producers and Company,  and including in any event any Company
Equipment  installed  or modified at the  expense of the  Producers  pursuant to
Article  2.1(B) above.  The Water will be treated for legal  discharge;  the Gas
will be commingled with other  production on the Facilities and dehydrated prior
to  Redelivery.  Liquid  hydrocarbons  will be reinjected  downstream of the gas
sales meter. If and when compression is required, Producers shall have the right
to install a compressor within such surplus space aboard the Production Platform
as Company, in its good-faith judgment, may determine then exists. In such case,
Producers  shall  pay for all of the  actual  out-of-pocket  costs  incurred  in
connection with such installation,  such as, without  limitation,  modifications
required for the Facilities to serve such compression operations,  but Producers
shall not be charged any additional  rental,  throughput fee or similar charges.
However,  Producers shall  contribute and bear its  proportionate  share of fuel
gas. Any other mutually  acceptable,  specific terms of any compression  project
will be handled as an amendment to this  Agreement,  at such time as compression
becomes necessary.

3.2 Points of Delivery and Points of Redelivery. Full wellstream production from
the Earned Interest Production shall be delivered for Handling to the production
header on the Facilities  (the "Point of  Delivery").  The "Point of Redelivery"
for Gas shall be downstream of the Gas sales measurement point (at the measuring
station) at the terminus of Operator's  flowline into  Trunkline's  gas pipeline
departing  the  Production   Platform.   The  Point  of  Redelivery  for  Liquid
Hydrocarbons  shall be downstream of the transporting  pipeline's sales pipeline
after the Liquid  Hydrocarbons have been removed,  measured and reinjected.  The
Point  of  Redelivery  for  Liquid  Hydrocarbons  is at or near  the  Production
Platform.

3.3 Possession  and Title.  Each Party shall retain full title to its respective
Gas and Liquid Hydrocarbons while in the Facilities.  Company shall be deemed to
be in possession  of the Gas and Liquid  Hydrocarbons  following  receipt at the
Point of Delivery until it has been redelivered at the Points of Redelivery.

                                        3

<PAGE>

3.4 Risk of Loss of Production.  RISK OF LOSS OF  PRODUCTION,  AND ANY RESULTANT
LIABILITY IN THE ABSENCE OF GROSS NEGLIGENCE AND WILLFUL  MISCONDUCT BY A PARTY,
SHALL AT ALL TIMES REMAIN WITH THE OWNER OF THAT  PRODUCTION.  RISK OF LOSS, AND
ANY  RESULTANT  LIABILITY  OF  COMMINGLED  PRODUCTION,  IN THE  ABSENCE OF GROSS
NEGLIGENCE OR WILLFUL  MISCONDUCT BY A PARTY,  SHALL BE SHARED BY THE PARTIES ON
THE BASIS OF THEIR  ALLOCATED  PERCENTAGE OF THE  PRODUCERSHIP OF THE COMMINGLED
PRODUCTION.

3.5  Performance  of Work.  All  modifications  to the  Facilities to Handle the
Earned  Interest  Production,  which  work  shall be  performed  or caused to be
performed by Company and shall be at the sole cost and expense of the Producers.
Company agrees to use its best efforts to keep shut-in time associated with such
modifications to a minimum.  All equipment used or installed by the Producers in
accordance  with  Section 2.1 shall be  first-quality  and shall  conform to all
applicable regulatory requirements. Company shall provide Producers with minimum
design criteria for working and test pressures,  pressure relief systems, safety
systems and hydrocarbon measurement equipment.

3.6 Production  Specifications.  The Gas and Liquid Hydrocarbons  redelivered by
the Facilities shall conform to the specifications of the Gas sales pipeline.

3.7 Equipment Maintenance.  Company shall operate and maintain the Facilities at
its sole cost, risk and expense.

3.8  Facilities  Boarding.  Company  shall,  from  time to time,  on  reasonable
request,  grant the Producers  permission to board the  Facilities,  unless,  in
Company's  opinion,  Company's  operations or other conditions on the Facilities
render such boarding impossible or impractical.  Permission may be requested and
granted either in writing or orally.

3.9 Operations.  Company shall have exclusive charge, control and supervision of
the  operation of the  Facilities  and, as to production  operations,  and shall
perform such  operations  as it may deem (in the best  interests of the Parties)
advisable  and  expedient  with respect  thereto  consistent  with the terms and
conditions of the OOA.

3.10  Shut-In  Provision.  Company  reserves  the right to  shut-in  the  Earned
Interest  Production as necessary for safety,  operational or regulatory  needs,
and agrees to provide notice to Producers  prior to, if possible,  or as soon as
practical  after such  shut-in.  Company will endeavor to minimize the length of
time during which the Earned Interest Production is shut-in ("Shut-In Time"). In
the absence of gross negligence or willful misconduct by Company,  Company shall
not be responsible or liable for loss of Earned  Interest  Production or revenue
attributable thereto due to such shut-ins.

                                   ARTICLE IV.
              MEASUREMENT, REPORTING, ALLOCATION AND TRANSPORTATION

4.1 Testing,  Metering and Allocation.  Producer's  production  shall be handled
through the Facilities which shall be operated in a manner to reasonably measure
the flow rate of the Earned Interest Production,  the liquid content of the Gas,
the Btu content of the Gas, and the barrels of Water per Day.  Allocations shall
be based on periodic well tests  performed by Company.  Such well tests shall be
performed  a  minimum  of four  times per  month  per  well.  Producer  shall be
allocated a fraction of the metered sales Gas,  which fraction shall have as its
numerator the volume of gas delivered to the Facilities by Producer (as adjusted
for Btu content) as  determined  by the most recent well tests and shall have as
its  denominator  the total volume of Gas delivered to the  Facilities  from all
wells (as adjusted for Btu

                                        4

<PAGE>

content).   Producer   shall  be  allocated  a  fraction  of  Water  and  Liquid
Hydrocarbons, as determined at the place of measurement on the Facilities, which
fraction  shall  have as its  numerator  the  Water or Liquid  Hydrocarbons,  as
applicable,  delivered to the  Facilities  by Producer as determined by the most
recent  well tests and shall have as its  denominator  the total Water or Liquid
Hydrocarbons,  as applicable,  delivered to the Facilities  from all wells.  All
production shall bear its pro rata share of fuel,  flare and allocation  losses.
Fuel gas for  compressors,  dehydrators and line heaters shall only be allocated
to those wells that utilize said pieces of  equipment.  Producer  shall have the
right to audit Company's allocation records,  which shall otherwise become final
twenty-four  (24)  months  after  the end of the  calendar  year of the Month of
production.  Company shall provide Producer with a Monthly allocation  statement
within 20 days after the Production Month.

4.2  Meter  Calibration  /  Gas  Sampling.  Company  shall  be  responsible  for
scheduling third party meter  calibrations,  on a monthly or quarterly basis, in
accordance with the  requirements of 30 C.F.R.  Section  250.180(e) - Allocation
Meter  Facilities  Requirements  and 30 C.F.R.  Section  250.181(c)  - Gas Meter
Requirements  of any meters used on the Facilities for production,  fuel,  flare
and sales allocations. Producer(s), or any third party representing Producer(s),
may witness calibrations, if desired. Should any Producer(s) desire to calibrate
said meters more often,  Company agrees to do so at such Producer's expense. The
Producers  shall have access to all meters in order to inspect and monitor them,
subject to the notice provisions of this Agreement.

     A. If at any time, Gas measuring equipment is found to be out of service or
     registering inaccurately,  it shall be adjusted to read accurately,  within
     the limits  prescribed  by the  manufacturer.  If such  equipment is out of
     service or inaccurate by the amount exceeding two percent (2%) at a reading
     corresponding  to the  average  rate of flow for the period  since the last
     preceding test, the readings of such equipment shall be disregarded for any
     period  definitely  known  or  agreed  upon  or if the  period  can  not be
     determined  or agreed upon,  for a period of one-half  (1/2) of the elapsed
     time since the last test or 21 days  whichever  is less.  The volume of Gas
     measured  during  such  period  shall be  estimated  by (a)  using the data
     recorded by any check  measuring  equipment if  installed,  calibrated  and
     registering  accurately;  or (b)  correcting the error if the percentage of
     error is ascertainable by calibration,  test, or mathematical  calculation;
     or if neither method is feasible,  (c) using the quantities delivered under
     similar  conditions  during a period  when the  equipment  was  registering
     accurately.  No corrections shall be made for recorded  inaccuracies of two
     percent (2%) or less.  Adjustments of production for any inaccuracy greater
     than two percent (2%) shall be as follows:

          (i)  In the event there are sufficient remaining reserves for Handling
               hereunder in order to make such adjustment, such adjustment shall
               be  made  by  a  volume   correction  in  the  following  Month's
               production allocation; or

          (ii) In the  event  there  are  insufficient  remaining  reserves  for
               Handling  hereunder  in  order  to  make  such  adjustment,  such
               adjustment  shall be made by the over  allocated  Party paying to
               the  under  allocated  Party  an  amount  equal to the sum of the
               numbers of MMBtu's so  misallocated  multiplied  by the price per
               MMBtu that such under  allocated  Party would have  received  for
               such production had it not been misallocated.

          (iii)Allocation  meters with a factor  change of seven percent (7%) or
               greater shall be repaired and reproved prior to being placed back
               into service.

     B. No accounting adjustments will be made for liquid hydrocarbon allocation
     meters  on the  dedicated  separation  train  with a factor  change  of two
     percent (2%) or less.  Accounting  adjustments  will be made for allocation
     meters  with a  factor  change  of  greater  than two  percent  (2%) by the
     following  method:  The average of the previous and current factor shall be
     applied to the volume measured for up to one half the time period since the
     previous test, not to exceed twenty-one (21) Days

                                        5

<PAGE>

     C. Gas  sampling  will be  conducted  not less  frequently  than monthly to
     determine  the  BTU  content  of  the  individual  gas  streams  for  MMBTU
     calculations in the allocation process.

4.3 Reports.  Company shall provide  Producers with the necessary and sufficient
information  to monitor daily  production,  Monthly  allocation and sales of the
Earned Interest Production.

     A. Daily  Information.  Company shall provide  Producers with the following
     information on a daily basis:

          1.   Total Gas sales for the Facilities;

          2.   Sales line pressure for the Facilities;

          3.   Production  rates  for the  Earning  Wells  (including  Water and
               Liquid Hydrocarbons);

          4.   Hours  produced for the Earning Wells  (including  reason for any
               Shut-In Time);

          5.   Flowline  pressure  for the  Earning  Wells  and  flowing  tubing
               pressures (to be obtained  three (3) times per week during Earned
               Interest Well visit(s);

          6.   Choke size; and

          7.   Last recorded Shut-In Tubing Pressure.

     B. Well Tests.  Company shall  provide  Producer with copies of reports for
     the Earning  Wells tests to be performed at least once weekly.

     C. Filings.  Company, as Operator, will be responsible for all governmental
     and regulatory  agency  reporting and filing  requirements  for the Earning
     Wells and the  Earned  Interest  Production,  and shall  provide  copies to
     Producers.

4.4 Transportation and Disposition of Gas and Liquid Hydrocarbons.

     A. Each Producer shall take in kind and remain individually responsible for
     the  sale  and  disposition  of  its  allocated  share  of Gas  and  Liquid
     Hydrocarbons production.

     B. Each  Producer is  responsible  for making or causing to be made all Gas
     nominations to the Gas  transporter.  Company shall not be responsible for,
     or subject  to, any  transporter  pipeline  scheduling  problems or Monthly
     balancing  provisions imposed on the Gas  transportation  contracts for the
     Earning Wells by the Gas transporter  pursuant to its tariff,  being caused
     by  nominations,  or  lack  of  nominations,  for  which  the  Producer  is
     responsible.  In addition,  any  penalties  incurred by Company  and/or its
     shippers  under its  transportation  contracts  as a result of Gas Pipeline
     Imbalances with the transporter, and which are caused by, and can be solely
     attributed to the  Producer's  Gas  nominations  or lack thereof,  shall be
     borne  by the  Parties  in the  proportion  that  each  individual  Party's
     over/under  deliveries  may have  caused  such  penalty  to be  imposed  on
     Company. For the purposes of this Article,  "Gas Pipeline Imbalances" shall
     be defined as the difference  between Monthly Gas nominations  confirmed by
     the Gas  transporter  and  the  actual  Monthly  volumes  allocated  by the
     transporter  and recognized as a pipeline  receipt for each Party's account
     in accordance with the pipeline's  predetermined allocation methods.

     C. The Parties  recognize that Gas sales attributed to the Earning Wells by
     the provisions of Section 4.1 of this Agreement may differ from the volumes
     recognized  as the  Earning  Wells  receipts by the Gas  transporter.  Such
     difference  between Gas sales in MMBtu  allocated  to the Earning  Wells by
     Company pursuant to this Agreement and the Gas sales in MMBtu recognized by
     the  transporter as receipts for each Party's  account shall be referred to
     as  a  "Field  Imbalance".   Additionally,  the  Producers  recognize  that
     production  from wells other than  Earning  Wells may be  processed  at the
     Facilities  from  time to  time,  and as a  result  thereof,  it is  likely
     operational  imbalances between the Earning Wells and such other wells will
     occur due to the transporter's nomination/allocation requirements. In order
     to resolve a Field  Imbalance,  the Parties  agree to cash settle any Field
     Imbalance  existing as of April 1st of each calendar  year,  beginning with
     the first Day of April after the  Effective  Date of this  Agreement.  Such
     settlement shall consist of a cash payment to the Net Under-Delivered Party
     (the   "Net   Under-Delivered   Party"  is  the  Party  who  is  in  a  net
     under-delivered   position   for  the  period  being   settled;   the  "Net
     Over-Delivered Party" is the Party who is in a net over-delivered  position
     for the period being settled) based on

                                        6

<PAGE>

     valuation  by the  following  method:  Each  month,  Company,  on behalf of
     Company and Producer, shall convert the monthly Field Imbalance to a dollar
     value by  multiplying  the Field  Imbalance  by 100% of the index price for
     Natural Gas  Pipeline  Company for  Louisiana  (Zone 1) as set forth in the
     first issue of Inside F.E.R.C.'s Gas Market Report,  published during each
     month in which an  imbalance  occurred,  less  appropriate  deductions  for
     transportation  costs  and  other  applicable  costs;  severance  and other
     production  taxes paid. For purposes of this  Agreement,  Company agrees to
     maintain an MMBtu  accounting  of the Field  Imbalance  and will provide or
     have  provided  to Producer a quarterly  statement  reflecting  the current
     status of the imbalance.  The Parties agree to maintain appropriate records
     sufficient to document the value of the yearly settlement. Payment shall be
     made by the  over-delivered  party  within  thirty (30) days of  Producer's
     receipt of  Company's  statement.  Producer  shall  have the right,  during
     regular business hours, to examine Company's records to verify the accuracy
     in such data or computation,  and any necessary  settlement.  However,  the
     data and records  shall  conclusively  be presumed to be true and  accurate
     after  twenty-four  (24) months  following  the end of the calendar year in
     which the production  occurred,  unless within said  twenty-four (24) month
     period,  either  Producer or Company makes a written  exception  hereto and
     makes claim for adjustment.

     D. The Producer is  responsible  for  arranging  its own Gas and/or  Liquid
     Hydrocarbons  transportation  from the  Facilities  to  shore.  Any and all
     transportation  costs and/or  processing costs for, or attributable to, the
     Earned  Interest  Production  downstream of the Point(s) of Redelivery  and
     upstream of the Point of Delivery are the  responsibility of Producer.  The
     Producer  shall be  responsible  for entering into their own agreements for
     such transportation and/or processing.

     E. Company and the  Producer  agree that the purpose of this Section is not
     and should not be construed or used to bank gas due to market conditions.

                                   ARTICLE V.
                              INVOICING AND AUDITS

5.1  Invoicing  Procedures.  Company  shall  invoice  Producers  for all charges
hereunder for the preceding Month and Producers shall pay the invoices  promptly
within  thirty (30) days after the date such invoice is received.  Invoices will
clearly show all throughput fee  calculations in order to expedite  verification
and will explain additional  service charges.  Any charges for which Company has
not received payment within thirty (30) days of the date the invoice is received
by Producer shall bear interest as provided in Exhibit C to the OOA.

5.2 Auditing.  Producers  shall have the right to audit  Company's  accounts and
records relating to this Agreement as provided in Exhibit C to the OOA.

                                   ARTICLE VI.
                                   INDEMNITY

6.1 Definitions.  For the purposes of this Agreement,  the following definitions
shall be  applicable:

          "Claims,  Losses and Expenses"  shall mean any and all claims,  losses
     and expenses,  including,  without limitation, all costs, demands, damages,
     suits, judgments,  fines, penalties,  liabilities,  debts, attorneys' fees,
     and causes of action of whatsoever  nature or  character,  whether known or
     unknown.

          "Company  Group" shall mean,  whether  individually  or  collectively,
     Company (as the owner and  operator of the  Facilities  and the provider of
     services  as  herein  provided),  its  parent,  subsidiary  and  affiliated
     companies.

          "Producers  Group" shall mean,  whether  individually or collectively,
     the  Producers  together  with  their  parent,  subsidiary  and  affiliated
     companies.

6.2 Producers  Indemnification.  The Producers hereby agrees to RELEASE, DEFEND,
INDEMNIFY and HOLD HARMLESS  Company Group from and against  Claims,  Losses and
Expenses for damage to

                                        7

<PAGE>

the  Producer  Equipment  and/or for  bodily  injury  to,  illness,  or death of
Producer Group's  personnel  arising out of the Parties'  performance under this
Agreement.

6.3 Company Indemnification. Company hereby agrees to RELEASE, DEFEND, INDEMNIFY
and HOLD  HARMLESS  the  Producer  Group  from and  against  Claims,  Losses and
Expenses for damage to the  Facilities and Company  Equipment  and/or for bodily
injury to, illness, or death of the Company Group's personnel arising out of the
Parties' performance under this Agreement.

                                  ARTICLE VII.
                                   POLLUTION

7. 1 Earning  Wells.  The  Producers  shall  assume all  responsibility  for and
RELEASE,  DEFEND,  INDEMNIFY and HOLD HARMLESS  Company from and against Claims,
Losses and  Expenses  arising  from  pollution  or  contamination  at any of the
Producer Equipment.

7.2 The Facilities.  Except as otherwise described in Section 7.1 above, Company
shall  assume all  responsibility  for,  including  control  and removal of, the
Facilities,  and hereby agrees to RELEASE,  DEFEND,  INDEMNIFY and HOLD HARMLESS
the  Producers  from and  against  claims,  losses  and  expenses  arising  from
pollution or contamination emanating from the Facilities.

                                  ARTICLE VIII.
                                    INSURANCE

8.1 Insurance Requirements. During the term of this Agreement, and to the extent
of its indemnity  obligation  hereunder,  each of Company and Producer (at their
own expense) shall carry and maintain insurance coverages of the type and in not
less than the amounts set forth in Exhibit B to the OOA.

8.2  Limitation.  Except as otherwise  mandated by applicable  law,  neither the
providing of insurance by Producers in accordance with the requirements  hereof,
nor  the  insolvency,  bankruptcy,  nor the  failure  of any  insurance  company
carrying  insurance for Company or  Producers,  nor the failure of any insurance
company to pay any claim  accruing  shall be held to waive any of the provisions
of this  Agreement  with respect to the  liability of the Company,  Producers or
otherwise.  Except as otherwise  mandated by applicable law, the obligations and
liabilities  of the Company and the Producers  (and their  respective  insurers)
under this Agreement  shall not be limited by the insurance  required under this
Agreement.

                                  ARTICLE IX.
                              REGULATORY APPROVALS

9.1 Producer.  Producers  shall  provide  necessary  data and assist  Company as
necessary to obtain all regulatory  approvals  necessary for the  performance of
its services hereunder.

9.2 Company.  Company shall request all regulatory  approvals  necessary (at the
cost of Producers) for Handling and  commingling of production from the Point of
Delivery to the Point of Redelivery.

9.3 Evidence.  Each Party shall  furnish to the other  evidence of any necessary
regulatory approval.

                                   ARTICLE X.
                                  TERMINATION

10.1 Procedure. This Agreement shall terminate when the Facilities are abandoned
pursuant to Section 10.2, or by mutual  written  agreement of the Parties.

10.2  Abandonment.  The Parties  acknowledge  the Earning Wells  constitute  the
majority of the Total  Throughput on the  Facilities  and further that continued
operation  of the  Facilities  for the  benefit of the  Producers  constitute  a
substantial  benefit to the Farmout  Parties,  without which the Farmout Parties
would not have entered into the Participation  Agreement. As such, the timing of
the abandonment of the

                                       8

<PAGE>

Facilities  shall be  deferred  until such time as the  Earning  Wells have been
plugged and abandoned and the Lease (as defined in the OOA) has expired.

                                   ARTICLE XI.
                                 FORCE MAJEURE

11.1 Force  Majeure.  The  provisions  of Article 25 of the OOA are  adopted and
incorporated by reference herein.

11.2  Reduction in Capacity Due to Force  Majeure.  Should Force Majeure cause a
partial or temporary  reduction in the  capacity of the  Facilities,  production
from  non-Earning  Wells  located on South  Timbalier  Block 77 shall have first
priority with regard to the capacity of the Facilities.  Any remaining  capacity
shall be allocated amongst the Producers pro-rata.

                                  ARTICLE XII.
                         INTERNAL REVENUE CODE ELECTION

12.1  It  is  not  the  intention  of  the  Parties  to  create  a  partnership,
association,  trust or other  semblance  of  business  entity.  The  rights  and
obligations of the Parties are intended and declared to be several and not joint
or collective,  and nothing contained in this Agreement or in any agreement made
pursuant  hereto shall ever be construed to create a  partnership,  association,
trust or other business entity recognizable in law for any purpose, or to impose
a partnership right or obligation with respect to the Parties.  Each Party shall
be  individually  responsible  only for its own  obligations  as set out in this
Agreement and shall be liable only for its own proportionate  share of the costs
and expenses as herein stipulated.

12.2 For Federal Income Tax purposes,  each Party elects to be excluded from the
application  of  Subchapter K of Chapter I,  Subtitle A of the Internal  Revenue
Code of 1986,  as amended,  as  authorized  by Section  761 (a) of the  Internal
Revenue Code of 1986, as amended,  and the regulations issued  thereunder.  Each
Party agrees to execute such further  documents to evidence or  effectuate  this
election under the above and any other  provisions of a similar nature as may be
requested.

                                 ARTICLE XIII.
                    TRANSMISSION PIPELINE CAPACITY REDUCTION

13.1 It is recognized by the Parties that open access  pipeline  capacity may be
limited  in the Gas  sales  pipeline  to  which  the  Facilities  is  connected.
Notwithstanding  anything  contained  herein to the contrary,  in the event that
Total  Throughput  exceeds the  availability of open access  pipeline  capacity,
production from non-Earning Wells located on South Timbalier Block 77 shall have
first priority with regard to the capacity of the Gas Sales Pipeline.

                                  ARTICLE XIV.
                                 MISCELLANEOUS

14.1 Independent  Contractor  Status.  Company shall perform the work to be done
hereunder  as an  independent  contractor,  and  in  its  capacity  as  operator
hereunder,  as a reasonable and prudent operator,  and shall not be deemed to be
an agent or  employee  of the other  Parties.  They shall have no  direction  or
control of the method or manner in which the work is performed by Company  under
the  provisions  of this  Agreement,  but shall be  interested  solely  that the
desired results are secured and that such  performance is in compliance with the
provisions hereof.

14.2  Production  from Other Blocks.  Subject to the rights  granted to Producer
herein,  nothing in this Agreement shall be construed as precluding Company from
agreeing  after  September  30,  2004 with other  parties  for the  Handling  of
production  in  the  future  ("Future  Handling  Arrangements").  If  the  Total
Throughput exceeds the capacity of the Facilities,  the production  attributable
to Future  Handling  Arrangements  shall be  curtailed  before  production  from
non-Earning  Wells located on South  Timbalier  Block 77 and the Earned Interest
Production is curtailed. Producer understands and acknowledges that

                                        9

<PAGE>

there may be  existing  Production  Handling  Agreements  and that the  existing
agreements shall have priority over this agreement.

14.3 Choice of Law.  This  Agreement and the legal  relations  among the Parties
hereto  shall  be  interpreted  in  accordance  with  the  laws of the  State of
Louisiana.

14.4  Consequential  Damages.  THE PRODUCERS  SHALL NOT BE LIABLE TO COMPANY FOR
CLAIMS,  LOSSES AND EXPENSES  RELATING TO SPECIAL,  INDIRECT,  OR  CONSEQUENTIAL
DAMAGES,  INCLUDING,  BUT NOT  LIMITED TO,  DAMAGE FOR LOSS OF PRODUCT,  LOSS OF
REVENUE,  AND LOSS OF  PROFITS,  SUFFERED BY COMPANY  GROUP AND  COMPANY  HEREBY
RELEASES THE PRODUCERS IN THIS REGARD. LIKELIWISE COMPANY SHALL NOT BE LIABLE TO
THE PRODUCERS FOR CLAIMS, LOSSES AND EXPENSES RELATING TO SPECIAL,  INDIRECT, OR
CONSEQUENTIAL  DAMAGES,  INCLUDING,  BUT NOT  LIMITED  TO,  DAMAGE  FOR  LOSS OF
PRODUCT,  LOSS OF REVENUE,  AND LOSS OF PROFITS,  SUFFERED BY PRODUCERS  AND THE
PRODUCERS HEREBY RELEASE THE COMPANY IN THIS REGARD.

14.6 Indemnities - General

THE PARTIES  INTEND AND AGREE THAT THE RELEASE AND INDEMNITY  PROVISIONS OF THIS
AGREEMENT  CONTAINED  IN  PARAGRAPHS  SHALL  APPLY  TO ALL  CLAIMS,  LOSSES  AND
EXPENSES,  OF ANY KIND OR  CHARACTER,  WITHOUT  LIMIT AND WITHOUT  REGARD TO THE
CAUSE OR CAUSES THEREOF,  INCLUDING  CAUSES OF ACTION ARISING OUT OF INGRESS AND
EGRESS TO WELL  LOCATIONS  AND THE  FACILITIES,  AND  LOADING AND  UNLOADING  OF
PERSONNEL AND CARGO, AND ALSO INCLUDING PREEXISTING  CONDITIONS,  DEFECT OR RUIN
OF PREMISES (WHETHER SUCH CONDITIONS,  DEFECT OR RUIN BE PATENT OR LATENT),  THE
UNSEAWORTHINESS OF ANY VESSEL,  BREACH OF REPRESENTATION OR WARRANTY (EXPRESS OR
IMPLIED), BREACH OF DUTY (WHETHER STATUTORY,  CONTRACTUAL OR OTHERWISE),  STRICT
LIABILITY,  ANY  THEORY  OF TORT,  BREACH  OF  CONTRACT,  FAULT,  REGULATORY  OR
STATUTORYLIABILITY,  THE  NEGLIGENCE  OF ANY DEGREE OR CHARACTER  (WHETHER  SUCH
NEGLIGENCE BE SOLE,  JOINT OR CONCURRENT,  ACTIVE,  OR PASSIVE) OF ANY PERSON OR
PERSONS,  INCLUDING  SUCH  NEGLIGENCE  OF THE PARTY  SEEKING  THE  BENEFIT  OF A
RELEASE,  INDEMNITY OR  ASSUMPTION  OF  LIABILITY,  OR ANY OTHER THEORY OF LEGAL
LIABILITY;  EXCLUDING HOWEVER THE GROSS NEGLIGENCE AND WILLFUL MISCONDUCT OF THE
PARTY SEEKING THE BENEFIT OF A RELEASE, INDEMNITY OR ASSUMPTION OF LIABILITY.

14.7 Notices.  For the purpose of giving any notice that may be necessary in the
performance of this Agreement, the addresses of the Parties hereto shall be:

Millennium Offshore Group, Inc.   Ridgewood Energy Corporation
5300 Memorial Drive, Suite 1070   947 Linwood Avenue
Houston, Texas 77007              Ridgewood, New Jersey 07450
Attn: Kent Singleton              Attn: Bob Swanson
Tel: (713) 652-0137               Tel: (201) 447-9000
Fax: (713) 652-0482               Fax: (201) 447-0474

Ridgewood Energy Corporation
5300 Memorial, Suite 1070
Houston, Texas 77007
Attn: Greg Tabor
Tel: (713) 862-9856

                                       10

<PAGE>

Fax: (713) 802-9734

The addresses  given herein may be changed by either party advising the other in
writing of its new address. All notices shall be deemed given when received.

14.8 Headings and  Subheadings.  The headings and subheadings  contained in this
Agreement are used solely for  convenience  and do not  constitute a part of the
Agreement  between  the  parties  hereto nor  should  they be used to aid in any
manner in construing this Agreement.

14.9  Succession.  This  Agreement  shall inure to the benefit of and be binding
upon the Parties  hereto and their  heirs,  successors  and  assigns.  Any sale,
assignment or other transfer of any interest of any Party hereto in its lease or
leases  covered  hereby shall be made  expressly  subject to this  Agreement and
shall not be binding on any of the  Parties  hereto  unless and until a document
acceptable to Company or an MMS-approved  copy of the instrument or transfer has
been  delivered to the Company.  Such sale,  assignment or other  transfer shall
expressly provide that the party or parties acquiring such interest shall assume
and agree to share its or their proportionate  share of all costs,  expenses and
other  obligations  under the terms and provisions of this  Agreement.  Any such
sale,  assignment or other transfer shall not relieve the assignor or grantor of
any liability for which it may be responsible  under the terms and provisions of
this Agreement.

14.10  Entireties.  This document sets forth the entire agreement of the Parties
and supersedes all prior negotiations, representations or agreements, written or
oral,   relating  thereto.   Unless  otherwise   provided  herein,  no  changes,
alterations or modifications to this document shall be effective unless they are
in writing and signed by the Parties hereto.

14.11  Execution.  This  Agreement  may be executed by signing the original or a
counterpart  thereof.  If  this  Agreement  is  executed  in  counterparts,  all
counterparts  taken  together  shall have the same  effect as if all Parties had
signed the same instrument.

     IN WITNESS  WHEREOF,  the Parties hereto have executed this Agreement to be
effective as of the Effective Date.

WITNESSES:                                   MILLENNIUM OFFSHORE GROUP, INC.

/s/ [Illegible]                              -----------------------------------
--------------------------------             By:

/s/ [Illegible]
--------------------------------

                                             RIDGEWOOD ENERGY CORPORATION

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

                                       11

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