Document:

SETTLEMENT AGREEMENT

     THIS AGREEMENT is entered into as of this 30th day of March, 2000 by and
between International Gold Corporation, a Nevada corporation (the "Company") and
Amerocan Marketing, Inc. ("Amerocan").

                                    RECITALS:

     WHEREAS, Amerocan has either performed certain financial, administrative
and managerial services pursuant to respective contractual arrangements, and/or
provided advances provided to the Corporation, and/or is owed accrued interest
thereto whereby the Company is indebted to Amerocan in the aggregate amount of
$87,870.00 for certain financial, administrative and managerial services
performed by Amerocan, and/or advances provided by Amerocan, and/or accrued
interest on unpaid amounts due to Ameroca thereunder; and

     WHEREAS, the Company is indebted to Amerocan for repayment of such
aggregate amount of $87,870.00; and

     WHEREAS, the Company and Amerocan acknowledge that the aggregate amount of
$87,870.00 is due and owing Amerocan (the "Debt"); and

     WHEREAS, Intergold Corporation, the Company's parent company agrees to
issue to Amerocan 2,929,000 Shares of its restricted common stock at $0.03 per
share (the "Shares") as full and complete satisfaction of the Debt pursuant to
Intergold Corporation Board of Directors authorized resolutions dated February
16, 2000.

                                    AGREEMENT

     1. The Company's parent company, Intergold Corporation shall issue to
Amerocan 2,929,000 restricted common shares in the capital of Intergold
Corporation in full and complete satisfaction of the Debt.

     2. Amerocan agrees to accept the issuance and delivery of 2,929,000 Shares
in full settlement and satisfaction of the Debt, and further agrees to release
and forever discharge the Company from any and all causes of action, debts, sums
of money, claims and demands whatsoever, in law or in equity, related to the
Debt, which Amerocan now or hereafter can, shall or may have.

     3. Amerocan is aware that the Shares are not being registered under the
Securities Act of 1933, as amended (the "Securities Act"). Amerocan understands
that the Shares are being issued in reliance on the exemption from registration
provided by Section 4(2) thereunder. Amerocan understands that it may be
required to bear the economic risk of this investment for an indefinite period
of time because there is currently no trading market for the Shares and the
Shares cannot be resold or otherwise transferred unless applicable federal and
state securities laws are complied with or exemptions therefrom are available.

<PAGE>

     4. Amerocan represents and warrants that the Shares are being acquired
solely for Amerocan's own account, for investment purposes only, and not with a
view to or in connection with, any resale or distribution. Amerocan understands
that the Shares are nontransferable unless the Shares are registered under the
Securities Act and under any applicable state securities law or an opinion of
counsel satisfactory to the Company is delivered to the Company to the effect
that any proposed disposition of the Shares will not violate the registration
requirements of the Securities Act and any applicable state securities laws.
Amerocan further understands that the Company has no obligations to register the
Shares under the Securities Act or to register or qualify the Shares for sale
under any state securities laws, or to take any other action, through the
establishment of exemption(s) or otherwise, to permit the transfer thereof.

     5. Amerocan has had an opportunity to ask questions of and received answers
from the officers, directors and employees of the Company or a person or persons
acting on its or their behalf, concerning the financial position of the Company.

     6. This Settlement Agreement shall be effective as of March 30, 2000, and
shall be binding upon and inure to the benefit of the parties hereto and their
respective assigns and successors.

                                            INTERNATIONAL GOLD CORPORATION,
                                            a Nevada Corporation

                                            By: /s/ Gary Powers
                                            -------------------
                                            Gary Powers, President

                                            AMEROCAN MARKETING, INC.

                                            By: /s/ Marcus Johnson
                                            ----------------------
                                            Marcus Johnson, PresidentEXHIBIT 10.5

                            ALGERIA FARM IN AGREEMENT

<PAGE>

                         SANTA CATALINA (BERMUDA) I LTD.
                                   Suite 1320
                             885 West Georgia Street
                           Vancouver, British Columbia
                                     Canada

                                                                October 27, 1999

Essex Resource (Barbados) Corporation
Suite 1220, 800 West Pender Street
Vancouver, B.C.
V6C 2V6

Attention:      Mr. Ian Rozier

CVL Resources (Barbados) Ltd.
Suite 1220, 800 West Pender Street
Vancouver, B.C.
V6C 2V6

Attention:      Mr. Ian Rozier

Drucker Petroleum (Algeria) Inc.
Suite 830, 789 West Pender Street
Vancouver, B.C.
V6C 1H2

Attention:      Mr. Ernest Cheung

Dear Sirs:

                      The Hassi Bir Rekaiz Block in Algeria
                      -------------------------------------

We provide  this  letter to  confirm  that it is our  intention  to enter into a
formal agreement (the "Formal  Agreement") with you whereby we will grant to you
the right to earn an  interest  in the Hassi Bir Rekaiz  block in  Algeria  (the
"Transaction").  We acknowledge  that this letter (the "Letter  Agreement") will
constitute a binding  agreement among,  the parties.  Any party may request that
the Formal Agreement including the terms of this Letter Agreement and such other
representations,  warranties,  terms and conditions as are generally accepted in
the industry be entered into, in which event our solicitors  will draft the same
for review,  consideration  and comments by all  parties,  but until such Formal
Agreement is executed and delivered by all parties,  this Letter  Agreement will
prevail.

1. For the  purposes  of this Letter  Agreement,  the  following  terms shall be
defined as follows:

         (a)    "Arco" means Arco Ghadames Inc.;

         (b) "Essex" means Essex Resource  (Barbados)  Corporation,  having,  an
             office at the  address appearing  in the upper left  hand corner of
             the first page of this Letter Agreement;

         (c) "Contract" means the "Contrat pour la Recherche et I'Exploitation
             d'Hydrocarbures (Perimetre: Hassi Bir Rekaiz)"  dated May 10, 1992,
             as amended, between Sonatrach and Arco Alceria Inc., which
             subsequently assigned 100% of its interest to Arco;

<PAGE>

         (d) "CVL" means CVL Resources (Barbados) Ltd., having  an office at the
             address appearing in the upper  left hand  corner of the first page
             of this Letter Agreement;

         (e) "Drucker" means Drucker Petroleum (Algeria) Industries Inc., having
             an office at the address appearing in the upper left hand corner of
             the first page of this Letter Agreement;

         (f) "Farminees" means Essex, CVL and Drucker collectively;

         (g) "Santa  Catalina" means Santa Catalina (Bermuda) I Ltd.,  having an
             office at the  address  appearing  at the top  of the first page of
             this Letter Agreement;

         (h) "SLM Algeria" means Santa Catalina  (Algeria) Ltd., a company
             incorporated under the laws of Bermuda;

         (i) "SLM Lundin"  means  Santa Catalina  L.H.  Lundin (Algeria) Ltd., a
             company incorporated under the laws of Bermuda; and

         (j) "Sonatrach" means National Enterprise Sonatrach.

2.  Essex  represents  and  warrants  to  Santa  Catalina  that it has  good and
sufficient  right and authority to enter into this Letter  Agreement and, if the
Formal  Agreement  is  entered  into,  the Formal  Agreement,  and carry out its
intentions  under this Letter  Agreement and, if the Formal Agreement is entered
into, its obligations under the Formal Agreement.

3. CVL represents and warrants to Santa Catalina that it has good and sufficient
right and  authority  to enter into this  Letter  Agreement  and,  if the Formal
Agreement is entered into,  the Formal  Agreement,  and carry out its intentions
under this Letter  Agreement  and, if the Formal  Agreement is entered into, its
obligations under the Formal Agreement.

4.  Drucker  represents  and  warrants  to Santa  Catalina  that it has good and
sufficient  right and authority to enter into this Letter  Agreement and, if the
Formal  Agreement  is  entered  into,  the Formal  Agreement,  and carry out its
intentions  under this Letter  Agreement and, if the Formal Agreement is entered
into, its obligations under the Formal Agreement.

5. Santa Catalina represents and warrants to each of Essex, CVL and Drucker that
Santa  Catalina has good and  sufficient  right and authority to enter into this
Letter  Agreement  and,  if the Formal  Agreement  is entered  into,  the Formal
Agreement,  and carry out its intentions under this Letter Agreement and, if the
Formal Agreement is entered into, its obligations under the Formal Agreement.

6. The parties acknowledge the following facts:

         (a)    The subject of the Transaction is the Contract.

         (b)    Arco presently holds a 75% interest in the Contract.

         (c)    SLM Algeria is  currently  a wholly  owned  subsidiary  of Santa
                Catalina, with 12,000 common shares issued and outstanding.

         (d)    SLM Lundin is a wholly owned subsidiary of SLM Algeria, with
                12,000 common shares issued and outstanding.

         (e)    Arco has agreed (the "Farm-Out  Agreement"),  a copy of which is
                attached as Schedule "A", subject  to, among other  things,  the
                consent of  Sonatrach and the Government of Algeria, to grant to
                SLM Lundin the right to acquire a 25% participating  interest in
                the Contract on substantially the following terms:

<PAGE>

         (i)    SLM Lundin will pay to  Arco 50% of  the first  US$8,000,000  of
                drilling costs  associated with the drilling  and testing of the
                first well (the "First Well") under the.  Contract;

         (ii)   SLM  Lundin will pay to Arco 25% of the drilling costs in excess
                of US$8,000,000 associated with the drilling  and testing of the
                First Well and after SLM Lundin has made the payments  described
                in items 6(d)(i) and 6(d)(ii) above, SLM Lundin will have earned
                its 25% participating interest in the Contract;

         (iii)  SLM Lundin will also pay to Arco 50% of the  first  US$8,000,000
                of drilling costs  associated  with  the drilling and testing of
                the second well (the "Second Well") under the Contract;

         (iv)   SLM Lundin will also pay to  Arco 25% of the  drilling  costs in
                excess of US$8,000,000  associated with the drilling and testing
                of the Second Well;

         (v)    SLM Lundin will provide to Arco a  US$5,000,000  bank  guarantee
                from a bank acceptable to Arco to ensure that it is able to meet
                its obligations;

         (vi)   Within 10 days after the receipt by SLM Lundin of the final well
                logs relating to the First Well or prior to the  spudding of the
                Second Well, whichever is later,  SLM Lundin will have the right
                to withdraw from the Farmout Agreement by written notice to
                Arco.

7. Subject to SLM Lundin earning its 25% participating interest in the Contract,
SLM Algeria  hereby  grants to Essex,  CVL and Drucker the right to earn up to a
12.5% collective indirect interest in the Contract to be effected by SLM Algeria
issuing  shares of SLM Algeria at the rate of 960 shares of SLM Algeria for each
US$250,000  (equivalent to one share of SLM Algeria for each  US$260.42) paid to
SLM Algeria such that upon the receipt by SLM Algeria of the  following  amounts
from each of the Farminees, the respective interests held in SLM Algeria and the
Contract will be as follows:

<TABLE>
<CAPTION>

         Name              Amount Paid to        No. of Shares of          % interest in SLM        % interest in
                             SLM Algeria              SLM Algeria                    Algeria             Contract
<S>                        <C>                             <C>                           <C>                 <C>
  Santa Catalina                N/A                        12,000                        50%                  10%

  Essex                    US $1,250,000                    4,800                        20%                   5%

  CVL                      US $1,250,000                    4,800                        20%                   5%

  Drucker                    US $625,000                    2,400                        10%                 2.5%

</TABLE>

Each of the  Farminees  will pay to SLM Algeria the amounts set  opposite  their
names in the table above on the execution of this Letter Agreement.

8. The Farminees  would be carried by SLM Algeria for the first  US$5,000,000 of
SLM Lundin's  portion of the  drilling  costs  associated  with the drilling and
testing of the First Well.  Thereafter,  the Farminees  would pay to SLM Algeria
their pro-rata share (determined in accordance with their percentage interest in
SLM  Algeria)  of SLM  Lundin's  portion of the  drilling  costs and general and
administrative costs in excess of US$5,000,000  associated with the drilling and
testing of the First Well.  The  Farminees  will have the right to withdraw from
the Formal  Agreement  within 10 days  after the  receipt by SLM Lundin of final
well logs  relating  to the First  Well or prior to the  spudding  of the Second
Well, whichever is later.

9. In order to participate  in the Second Well,  the Farminees  must first make
the following payments to SLM Algeria:

<PAGE>

           Name               Amount Paid to SLM Algeria

<PAGE>

  Santa Catalina                           N/A
  Essex                              US $1,200,000
  CVL                                US $1,200,000
  Drucker                              US$600,000

Subject to the receipt by SLM Algeria from each of the  Farminees of the amounts
set opposite their names in the table above,  the Farminees  would be carried by
SLM Algeria for the first  US$5,000,000 of SLM Lundin's  portion of the drilling
costs  associated with the drilling and testing of the Second Well.  Thereafter,
the  Farminees  would pay to SLM Algeria their  pro-rata  share  (determined  in
accordance  with their  percentage  interest  in SLM  Algeria)  of SLM  Lundin's
portion of the drilling costs and general and administrative  costs in excess of
US$5,000,000 associated with the drilling and testing of the Second Well.

10. None of the Farminees will be the operator under the Contract.

11.  Concurrently with the execution of this Letter  Agreement,  Santa Catalina,
Essex,  CVL and Drucker will enter into a shareholders'  agreement in respect of
their shares of SLM  Algeria,  which  agreement  will  include  restrictions  on
transfer, rights of first refusal and anti-dilution provisions, in substantially
the form attached as Schedule "B".

12. Except as may be required by a stock  exchange or other trading  facility or
by any rule,  regulation or law of any kind whatsoever  which is applicable to a
party,  while this  Letter  Agreement  is in effect and for a period of one year
thereafter,   each  party   shall  keep   confidential   all   discussions   and
communications  between them  including,  without  limitation,  all  information
communicated  therein  and  all  written  and  printed  materials  of  any  kind
whatsoever  exchanged  between  them and, if  requested by a party to do so, the
other party shall arrange for its  directors,  officers,  employees,  authorized
agents and representatives that are or that may become aware of the relationship
between the parties  created by this  Letter  Agreement  to provide to the first
party a  letter  confirming  their  agreement  to be  personally  bound by these
non-disclosure provisions.

13.  Immediately  upon signing this Letter  Agreement,  the parties  shall be in
negotiations  with a view to settling the form of Formal Agreement to suit their
ongoing   relationship.   All  parties  will  proceed  with  these  negotiations
expeditiously  and in good faith.  While the actual terms and  conditions of the
Formal  Agreement will be determined at that time, the parties  acknowledge  and
agree that they will follow the principles set forth herein.

14. Any notice or other  communication  of any kind whatsoever to be given under
this Letter  Agreement shall be in writing and shall be delivered by hand, email
or by fax to the parties at:

SANTA CATALINA (BERMUDA) I LTD.                   CVL RESOURCES (BARBADOS) LTD.
Suite 1320                                        Suite 1220
885 West Georgia Street                           800 West Pender Street
Vancouver, British Columbia                       Vancouver, British Columbia
Canada V6C 3E6                                    Canada V6C 2V6

Attention: Mr. Lukas H. Lundin                   Attention:       Mr. Ian Rozier

Fax:       (604) 689-4250                         Fax:         (604) 685-6493
Email:     slrnalgeria@namdo.com                  Email:    ir@chaseresource.com

<PAGE>

SANTA CATALINA (ALGERIA) LTD.                    DRUCKER PETROLEUM (ALGERIA) LTD
Suite 1320                                       Suite 830
885 West Georgia Street                          789 West Pender Street
Vancouver, British Columbia                      Vancouver, British Columbia
Canada V6C 3E8                                   Canada V6C 1H2

Attention:     Mr. Lukas H. Lundin               Attention:  Mr. Ernest Cheung

Fax:       (604) 689-4250                        Fax:  (604) 698-7654
Email:     slmalgeria@namdo.com                  Email:  echeung@portal.ca

ESSEX RESOURCE (BARBADOS) CORPORATION
Suite 1220
800 West Pender Street
Vancouver, British Columbia
Canada V6C 2V6

Attention:        Mr. Ian Rozier

Fax:       (604) 685-6493
Email:     ir@chaseresource.com

or to such other  addresses as may be given in writing by the parties  hereto in
the manner provided for in this paragraph.

15. This Letter  Agreement  may not be assigned by any party hereto  without the
prior written consent of all of the parties hereto.

16. This Letter Agreement shall be governed by the laws of British  Columbia and
the federal laws of Canada applicable  therein,  and the parties hereby attom to
the jurisdiction of the Courts of British Columbia.

17. This Letter Agreement may be signed by fax and in counterpart.

IN WITNESS WHEREOF the parties have hereunto set their hands and seals effective
as of the date first above written.

SIGNED, SEALED AND DELIVERED BY
SANTA CATALINA (BERMUDA) I LTD. per:

----------------------------
Authorized Signatory

Name of Signatory: LUKAS H. LUNDIN

Title of Signatory: Director

<PAGE>

SIGNED, SEALED AND DELIVERED BY

SANTA CATALINA (ALGERIA) LTD. per:

-----------------------------
Authorized Signatory

Name of Signatory: LUKAS H. LUNDIN

Title of Signatory: Director

SIGNED, SEALED AND DELIVERED BY
ESSEX RESOURSE (BARBADOS)
CORPORATION per:

-------------------------------
Authorized Signatory

Name of Signatory:  IAN J. ROZIER

Title of Signatory:  Director

SIGNED, SEALED AND DELIVERED BY
CVL RESOURSES (BARBADOS) LTD. per:

---------------------------------------
Authorized Signatory

Name of Signatory: IAN J. ROZIER

Title of Signatory: Director

SIGNED, SEALED AND DELIVERED BY
DRUCKER PETROLEUM (ALGERIA) LTD. per:

----------------------------------------
Authorized Signatory

Name of Signatory:  GERALD WILLIAM RUNOLFSON

Title of Signatory:  Director

<PAGE>

                SCHEDULE "A" TO THE LETTER AGREEMENT MADE BETWEEN
         SANTA CATALINA (BERMUDA) I LTD., SANTA CATALINA (ALGERIA) LTD.,
      ESSEX RESOURCE (BARBADOS) CORPORATION, CVL RESOURCES (BARBADOS) LTD.
                      and DRUCKER PETROLEUM (ALGERIA) INC.

                               FARMOUT AGREEMENT
                               -----------------

<PAGE>

                               FARMOUT AGREEMENT

                                    BETWEEN

                               ARCO GHADAMES INC.

                                       AND

                  SANTA CATALINA L.H. LUNDIN (ALGERIA) LIMITED

                                   CONCERNING

                             HASSI BIR REKAIZ BLOCK
                                 ONSHORE ALGERIA

<PAGE>

                               TABLE OF CONTENTS
                               -----------------

1    DEFINITIONS.......................................................       1

2    REPRESENTATIONS...................................................       5

3    FARMOUT TERMS.....................................................       7

4    ASSIGNMENT AND GOVERNMENT APPROVAL................................      10

5    WORK PROGRAM AND EXPLORATION PHASE................................      12

6    INFORMATION AND CONFIDENTIALITY...................................      14

7    GOVERNING LAW AND ARBITRATION.....................................      15

8    NOTICES...........................................................      15

9    MISCELLANEOUS.....................................................      16

Attachment "A" Form of Assignment

Attachment "B" Form of Avenant

Attachment "C" Form of Parent Company Guarantee

Attachment "D" Form of Novation

Attachment "E" Contract Area

Attachment "F" Estimate of Drilling Costs

Attachment "G" Bank Guarantee

Attachment "H" Data Room Index

<PAGE>

                               FARMOUT AGREEMENT

THIS AGREEMENT,  made and entered into as of this _______ day of October 1999 by
and between:

ARCO GHADAMES INC, a company  organized and existing under the laws of the State
of Delaware, U.S.A. ("ARCO"); and

SANTA CATALINA L.H. LUNDIN  (ALGERIA)  LIMITED a company  organized and existing
under the laws of Bermuda ("Santa Catalina").

                                   WITNESSETH

WHEREAS, the National Enterprise  SONATRACH  ("Sonatrach") and ARCO Algeria Inc.
entered into the "Contrat  pour la Recherche et  I'Exploitation  d'Hydrocarbures
(Perimetre : Hassi Bir Rekaiz)" dated May 10, 1992, as amended (the "Contract");
and

WHEREAS,  ARCO Algeria Inc.  assigned an undivided  one hundred  percent  (100%)
Participating Interest in the Contract to ARCO; and

WHEREAS, ARCO assigned an undivided twenty-five (25%) Participating  Interest in
the Contract to Turkiye Petrolleri Anonim Ortakligi ("TPAO"); and

WHEREAS,  ARCO  desires  to  transfer  and  assign to Santa  Catalina  and Santa
Catalina desires to acquire a twenty-five percent (25%)  Participating  Interest
in the Contract in accordance with the terms and conditions of this Agreement.

NOW THEREFORE,  in  consideration of the covenants and premises set forth below,
it is hereby mutually agreed as follows:

1.   DEFINITIONS

For  purposes of this  Agreement,  the  following  terms shall have the meanings
given to them below:

"Agreement"                  Means this Farmout Agreement;

<PAGE>

"Affiliate"                  Means a company,  partnership or other legal entity
                             which controls, or is controlled by an entity which
                             controls a Party.  "Control" in this context  means
                             the  legal  or  beneficial  ownership  directly  or
                             indirectly of fifty percent (50.00%) or more of the
                             shares conferring upon the holder the right to vote
                             for or appoint  the  directors  or officers of such
                             company, partnership or legal entity;

"Agreed Interest
Rate"                        Means the rate of LIBOR as set out on page  3750 of
                             the  Telerate  Screen  for  3 months  LIBOR for  US
                             dollars  from  time to  time,  calculated  for  the
                             relevant period;

"Approval Date"              Means the date on which the Assignment Approval
                             has been obtained;

"Assigned                    Means an undivided twenty-five percent (25.00%)

Interest"                    Participating Interest in and under the Contract
                             and the Operating Agreement;

"Assignment"                 Means the transfer by ARCO in favour of Santa
                             Catalina and in accordance with the terms of this
                             Agreement, substantially in the form as attached
                             hereto as Attachment "A", whereby ARCO shall assign
                             and Santa Catlina shall accept the Assigned
                             Interest;

"Assignment                  Means any and all formal authorizations to be given
Approval"                    by Sonatrach and/or the Government and any such
                             other authorisations  which by the Contract or by
                             operation of applicable  law must be obtained in
                             order for the Assignment to be legally valid and
                             enforceable or but for which  ARCO  would be in
                             breach of any  contractual  or other  authorization
                             should  the  Assignment  be effected  without  such
                             authorization; and shall specifically include,
                             without limitation, the approval  of an  "Avenant",
                             substantially in the form  as  attached  hereto  as
                             Attachment  "B" and the publication in the official
                             Gazette of Algeria of an approval of the
                             Assignment;

<PAGE>

"Conditions                  Means the conditions specified in Article 4.3below;
Precedent"                   below;

"Contract"                   Means the "Contrat pour la Recherche et
                             I'Exploitation d'Hydrocarbures (Perimetre: Hassi
                             Bir  Rekaiz)"  dated May 10,  1992  between
                             SONATRACH  and ARCO  Algeria  Inc.,  as amended by
                             amendments  1 and 2 dated 2nd October 1995 and 16th
                             November 1996 respectively, and extended by
                             amendment 3 dated 9th March 1999;

"Contract Area"              Means the geographical area covered by the Contract
                             as at the Effective Date and known as the Hassi Bir
                             Rekaiz  Block as  the same  may be or may have been
                             modified from time to time, including the extension
                             relating thereto dated 9th March 1999, as set out
                             in Attachment "E" to this Agreement;

"Drilling Costs"             Means all costs for which the parties to the
                             Operating  Agreement   would  be  liable  that  are
                             incurred  in connection  with the  drilling  and
                             testing operations of a well under  the   Contract,
                             including without limitation: the cost  of
                             permitting,  site preparation, mobilization and
                             demobilization of the drilling rig and ancillary
                             equipment, drilling, sidetracking, fishing,
                             suspending, testing, logging, coring and completing
                             or plugging and abandoning, data study and analysis
                             and General and  Administrative Costs;

"Exclusive                   Has the meaning ascribed thereto in the Operating
Operation"                   Agreement;

"Exploration                 Means the exploration phase as determined pursuant
Phase"                       to Article 5.1 of the Contract and terminated
                             pursuant to Article 5.4 of this Agreement;

"Effective Date"             Means the date first written above;

<PAGE>

"Estimate"                   Means the estimate of Drilling Costs attached as
                             Attachment F to this Agreement;

"Final Well Logs"            Means the full set of log data available upon
                             completion of logging operations for electric,
                             nuclear, and seismic logs, and cores (if
                             collected);

"First Well"                 Means the well in the Contract Area anticipated to
                             spud in November, 1999;

"General and                 Means all costs of Operator and its Affiliates
Administrative               which facilitate the ongoing operations of the
Costs"                       Contract Area. These costs include, but are not
                             limited to, employee salaries,  rent, office
                             supplies,  travel and similar costs, as well as a
                             charge for Operator's overhead as permitted under
                             the Operating Agreement;

"Government"                 Means the governnent of the Democratic  and Popular
                             Republic  of  Algeria  and  any  instrumentality or
                             subdivision thereof;

"Information"                Means  Jointly Owned  Information as defined in the
                             Operating  Agreement  identified below;

"Joint Operation"            Has the meaning ascribed thereto in the Operating
                             Agreement;

"Minimum Work                Means any Work Program  required to be performed by
Program"                     the Partner  pursuant to the Contract and any Work
                             Program  required to be performed by the Partner
                             pursuant to any subsequent amendment to the
                             Contract;

"Operating                   Means the Joint Operating Agreement signed by ARCO
Agreement"                   on 14th May 1997 and TPAO on 5th June 1997;

<PAGE>

"Participating               Means an undivided  interest in the rights and
Interest"                    obligations of the Partner in and under each of the
                             Contract and the Contract Area and the rights and
                             obligations of a party to the Operating Agreement
                             thereunder, expressed as a percentage of a whole,
                             including  without  limitation all rights to
                             participate pro rata in the unrecovered  balance of
                             costs previously incurred in  operating  under  the
                             Contract, such unrecovered costs estimated but not
                             warranted as of the Effective Date to be
                             approximately $75 million;

"Partner"                    Has the meaning ascribed thereto in the Contract;

"Party"                      Means a party to this Agreement;

"Second Well"                Means the well which at the date  hereof is to be
                             drilled in the  Contract Area after the drilling of
                             the First Well;

"Work Program"               Has the meaning ascribed thereto in the Contract.

All terms and  expressions  which are used in this  Agreement and which are also
defined in the  Contract or Operating  Agreement  shall have the same meaning as
expressed  in the  Contract or  Operating  Agreement  unless  otherwise  defined
herein.

REPRESENTATIONS

2.1      ARCO hereby represents to Santa Catalina that:

         (a)    It  is a  corporate  entity  which  has  been  duly  formed  and
                currently  exists with the full power and  authority  to execute
                and deliver this Agreement and the Assignment; and

         (b)    The transactions contemplated by this Agreement will not violate
                or be in  conflict  with:  (i)  any  provision  of its  charter,
                articles  of incorporation,  or other  organizational  agreement
                (as the case may be), as the  same may be  amended  from time to
                time; (ii) any  present law, agreement or instrument by which it
                is  bound;  or  (iii)  any  present  judgment,  order  or decree
                applicable to it; and

<PAGE>

         (c)    ARCO's  Participating  interest  and   the  hydrocarbons  to  be
                derived therefrom are not subject to any contractual obligations
                to third parties, liens,  pledges, burdens or encumbrances other
                than such as are contained in,  referred to in  or revealed  by,
                the  Contract,  the Operating  Agreement, this Agreement or  any
                document  referred  to therein; and

         (d)    To the  best of  ARCO's knowledge  and belief,  the Contract and
                Operating Agreement  are valid and in full force and  effect, as
                amended  to  date  and  all  the  obligations  contained in  the
                Contract and the Operating Agreement requiring performance on or
                before the Effective Date have been performed; and

         (e)    ARCO's Participating Interest at the Effective  Date is seventy-
                five percent (75.00%), and the Participating Interest of ARCO at
                the time application is made for the Assignmnent  Approval shall
                be no less than that stated above; and

         (f)    To the best of its  knowledge  and belief,  there is  no pending
                litigation, arbitration, or administrative proceedings connected
                with the conduct of operations  pursuant to the Contract and the
                Operating  Agreement; and there is no claim, judgment  or  award
                given  or made by any  court, tribunal,  or governmental agency
                which relates  to  ARCO's Participating  Interest,  or connected
                with the conduct of operations and which would materially affect
                the  interest  which may be assigned  by ARCO  to Santa Catalina
                pursuant to this Agreement.

2.2      Santa Catalina hereby represents to ARCO that:

         (a)      It is a  corporate  entity  which  has been  duly  formed  and
                  currently  exists with the full power and authority to execute
                  and deliver this Agreement and the Assignmnent; and

         (b)      The transactions  contemplated by this Agreement will not
                  violate or be in  conflict  with:  (i) any  provision  of its
                  charter,  articles  of incorporation,  or other organizational
                  agreement (as the case may be), as the same may be amended
                  from time to time;  (ii) any  present  law, agreement  or
                  instrument  by which it is bound,  or (iii) any  present
                  judgment, order or decree applicable to it; and

<PAGE>

         (c)      It is, by virtue of its  management,  a  sophisticated  and
                  experienced investor  in the international exploration for and
                  production  of hydrocarbons and it has substantial  resources
                  available to assist it in evaluating investments of the type
                  contemplated by this Agreement; it is capable  of  evaluating
                  the  merits  and risks of investments in international oil and
                  gas properties in Algeria; it is able to bear the economic
                  risk of any oil and gas investment it might decide to make
                  with respect to this  Agreement and the Contract;  and, it has
                  consulted with its own or independent technical, financial and
                  commercial experts and legal counsel.

3.  FARMOUT TERMS

3.1     Upon the fulfillment of the Conditions  Precedent and the fulfillment of
        the  obligations  in Article 3.2 below,  ARCO shall  assign the Assigned
        Interest to Santa  Catalina  with effect from the Effective  Date.  Upon
        fulfillment of the Conditions Precedent,  Santa Catalina shall be deemed
        to have been a party to the  Operating  Agreement as from the  Effective
        Date.

3.2     Santa Catalina shall bear and pay to ARCO, in accordance with Article
        3.4, an amount equal to:

(a)     fifty percent  (50.00%) of the first Eight Million United States Dollars
        (U.S.$8,000,000)  of Drilling  Costs  associated  with the  drilling and
        testing of the First Well; and

(b)     twenty-five  percent  (25.00%) of the Drilling  Costs in excess of Eight
        Million United States Dollars (U.S.$8,000,000) associated with the
        drilling and testing of the First Well.

3.3     Subject to the right of  withdrawal  in Article 3.5 and  obligation  for
        repayment  pursuant to Article 4.6, Santa Catalina shall bear and pay to
        ARCO, in accordance with Article 3.4, an amount equal to:

        (a)      fifty percent (50.00%) of the first Eight Million United States
                 Dollars (U.S.$8,000,000) of Drilling Costs associated  with the
                 drilling and testing of the Second Well; and

<PAGE>

        (b)      twenty-five  percent(25.00%) of the Drilling Costs in excess of
                 Eight Million United States Dollars (U.S.$8,000,000) associated
                 with the drilling and testing of the Second Well.

3.4     (a)     From the Effective Date ARCO shall issue monthly cash calls to
                Santa Catalina  for the amounts to be paid by Santa  Catalina
                under Articles  3.2 and 3.3 above in  accordance  with the cash
                call procedure  established  in the  Operating  Agreement and
                Santa Catalina shall pay each cash call in the manner and within
                the time period specified  in the Operating  Agreement as though
                Santa  Catalina had been named as a party thereto. The cash call
                procedure, the manner and time period for payment of cash calls,
                and the allocation of Drilling Costs  specified in the Operating
                Agreement are hereby incorporated into this Agreement by
                reference.  The first of such cash calls  shall include Santa
                Catalina's  share of all costs and expenses incurred in relation
                to the Drilling Costs prior to the Effective Date. Santa
                Catalina shall have no liability for any costs other than
                Drilling Costs accruing prior to the Effective Date.

        (b)     ARCO has provided an estimate of the Drilling  Costs  incurred
                prior to the  Effective  Date and a forecast of likely  Drilling
                Costs after the Effective Date (the  Estimate),  as set out in
                Attachment F. The Parties acknowledge that the Estimate is an
                estimate only, and that ARCO make no representation or warranty
                as to the accuracy of the Estimate.

        (c)     Santa Catalina shall provide a bank guarantee from a bank
                acceptable to ARCO for its obligations relating to the First
                Well, which shall be five million United States dollars
                $5,000,000),  in the form provided in Attachment G to this
                Agreement or as otherwise agreed by ARCO.

        (d)     Santa  Catalina  shall have the right to audit  Drilling Costs
                under the procedures  set out in Article 1.8 of the  accounting
                procedure  of the Operating  Agreement,  provided, however, that
                the notice required to commence an audit must be issued by Santa
                Catalina within six (6) months of the date upon which ARCO
                provides Final Well Logs to Santa  Catalina, and if Santa
                Catalina  fails to issue a notice of audit within this six (6)
                month period, Santa Catalina shall have no further right to
                audit Drilling Costs relating to the First Well

<PAGE>

3.5     (a)     Prior to:

<PAGE>

                  1.   that date which is ten days after the receipt by Santa
                       Catalina of the Final Well Logs relating to the First
                       Well; or

                  2.   the spudding of the Second Well whichever is the later,
                       Santa  Catalina  shall have the right to withdraw  from
                       this  Agreement by written  notice to ARCO in accordance
                       with the provisions of this Article 3.5.  ARCO shall use
                       reasonable endeavours to provide Final Well Logs relating
                       to the First Well in a timely manner.

        (b)     If upon the occurrence of the later of the two events  specified
                in Article  1.5(a) ARCO receives  written  notice of  withdrawal
                from this Agreement from Santa Catalina, then neither Party
                shall have any further obligation to the other, other than
                obligations  arising under Article 6 below or any obligation
                arising under this Agreement prior to the date of service of the
                said  notice on ARCO.  Furthermore,  following  Santa Catalina's
                withdrawal  from this Agreement in accordance with the terms
                thereof, ARCO agrees to indemnify Santa Catalina from any
                further obligations or liabilities arising under the Operating
                Agreement or from future work. obligations under the Contract.

        (c)     If Santa Catalin's notice of withdrawal has not been received in
                accordance with this Article 3.5 above then Santa Catalina shall
                have no right to withdraw from this Agreement.

        (d)     If, upon the occurrence of the later of the two events specified
                in Article 3.5(a), Santa Catalina has not provided a notice of
                withdrawal, then the Parties agree that,  subject to Article 9.6
                of this Agreement, the terms of the  Operating  Agreement  shall
                be  deemed to govern  the relationship  between them.  For the
                avoidance of doubt,  should Santa Catalina become a  "Defaulting
                Party" (as that term is defined in the Operating Agreement)
                prior to Assignment  Approval,  then the remedies for default
                specified in the Operating Agreement,  including forfeiture of
                Santa Catalina's Participating Interest, shall apply between the

<PAGE>

                Parties and any forfeiture of Santa Catalina's interest shall be
                to ARCO and not to any other person.

4.   ASSIGNMENT AND GOVERNMENT APPROVAL

4.1     In the event that Santa Catalina  fulfills its obligations under Article
        3.2 above,  ARCO agrees to transfer  and assign to Santa  Catalina,  and
        Santa  Catalina  agrees to accept,  subject to the  satisfaction  of the
        conditions  in Article 4.2 below and to Article 4.3 below,  the Assigned
        Interest,  such that the  Participating  Interests  in the  Contract and
        Operating Agreement shall be:

               PARTY                      INTEREST

               ARCO                       50.00%
               TPAO                       25.00%
               Santa Catalina             25.00%

4.2     As soon as reasonably  practicable (but in no event later than seven (7)
        days) following the date hereof ARCO shall notify  Sonatrach and TPAO of
        its intention to assign the Assigned  Interest to Santa  Catalina on the
        terms of this Agreement thereby  triggering the preemption period under,
        the  Contract and the  Operating  Agreement.  The Parties  shall use all
        reasonable efforts and perform all economically reasonable and necessary
        acts to obtain the Assignment Approvals and procure the  performance of
        the Conditions  Precedent. ARCO and Santa Catalina shall execute the
        Novation and Assignment within fourteen (14) days of the date hereof.

4.3     The  assignment of the Assigned  Interest in Article 4.1 above  shall be
        subject  to the  following conditions:

        (a)      the prior written consent and approval of Sonatrach and the
                 Government to the Assignmnent; and

        (b)      the written notification by Sonatrach to ARCO of the waiver  or
                 nonexercise of its right of preemption  under the Contract in
                 respect of the Assigned Interest to be assigned to Santa
                 Catalina or the effluxion of the period of time specified in
                 the Contract during which Sonatrach's right of preemption
                 thereunder must be exercised; and

<PAGE>

        (c)      the written notification by TPAO to ARCO of the waiver or
                 nonexercise of its right of  preemption  under the  Operating
                 Agreement  and under the Contract in respect of the  Assigned
                 Interest  to be assigned to Santa Catalina or the effluxion  of
                 the period of time specified in the Operating Agreement and the
                 Contract  during  which  TPAO's  right of preemption must be
                 exercised; and

        (d)      any other  Assignment  Approvals and such further  consents or
                 approvals required under the Contract, the Operating  Agreement
                 or any applicable laws;

        (e)      the  publication  in the Official  Gazette of Algeria of the
                 transfer of the Assigned Interest to Santa Catalina;

        (f)      if required by Sonatrach,  the provision, by the parent company
                 of Santa Catalina,  of a  guarantee  in  favour  of  Sonatrach,
                 and  in a form acceptable to Sonatrach (see Attachment "C"), of
                 the proper  performance of the obligations of Santa Catalina or
                 its nominee under the Contract; and

        (g)      the execution by the Parties and TPAO of a  Novation Agreement,
                 substantially in the form attached hereto as Attachment "D", in
                 respect of the Operating Agreement.

4.4     In the event the  Conditions  Precedent are not satisfied  within twelve
        (12)  months  of the  spudding  of the  Second  Well or the  Government
        formally  rejects the Assignmnent to be made hereunder to Santa Catalina
        in writing, this Agreement shall have no further force or effect and the
        Parties  shall have no further  obligations  to each other other than in
        respect of Articles 4.5 (if  applicable)  and 6 below or any  obligation
        arising under this Agreement  prior to such  aforementioned  dates.  The
        Parties shall agree to extend the time limit set out in this Article 4.4
        for up to six  (6)  months  should  the  Parties  be  making  reasonable
        progress toward satisfaction of the Conditions Precedent.

4.5     If (1) the  Conditions  Precedent  are not  fulfilled  within  the  time
        periods  specified in clause 4.4 and the delay in  obtaining  Assignment
        approvals  was not the  direct  result  of  Santa  Catalina's  fault  or

<PAGE>

        neglect, or (2) TPAO and/or Sonatrach  exercise their preemption  rights
        under the Contract or the Operating Agreement,  then ARCO shall repay
        within thirty days of written  demand by Santa Catalina all cash calls
        paid by Santa  Catalina and received by ARCO pursuant to this Agreement
        with interest  thereon at the Agreed  Interest Rate from the date such
        cash calls were  actually  received  by ARCO to the date they are repaid
        to Santa Catalina. For the avoidance of doubt, the "fault or neglect" of
        Santa Catalina  under this  Article  4.5 shall not  include a failure to
        fulfill  the Conditions  Precedent based on the financial capability of
        Santa Catalina or (in relation to Article 4.1(f) above) its parent
        company,  provided  that Santa Catalina  has not altered  its  financial
        capability  in a manner likely to adversely affect Assignment  Approval.
        Further, the "fault or neglect" of Santa Catalina under this Article 4.5
        shall not include a failure to fulfill the Condition Precedent set out
        in Article 4.3(f) based on the financial capability of the parent
        company of Santa Catalina, provided that the financial capability of the
        parent company has not been  altered in a matter  intended to  adversely
        affect fulfillment of the Condition  Precedent set out in Article
        4.3(f).  The entire time limit created by Article 4.4 shall be extended
        to the extent necessary if a delay in fulfillment of Conditions
        Precedent is a direct result of some fault or negligence of ARCO.

5.  WORK PROGRAMME DURING EXPLORATION PHASE

5.1     Effective from the earlier of (1)  Assignmnent  Approval or (2) the time
        when,  pursuant to Article 3.5(d), the terms of the Operating  Agreement
        are deemed to apply between Santa  Catalina and ARCO,  the Parties shall
        adopt the  measures  set out in this  Article 5 to  procure  that  Santa
        Catalina shall for the duration of the Exploration Phase have the option
        to  participate or not  participate in operations  that are in excess of
        the Minimum Work Program.

5.2     If ARCO wishes to propose any operations relating to the Contract during
        the  Exploration  Phase in excess of those  required by the Minimum Work
        Program with a gross cost greater than One Million United States Dollars
        ($1,000,000)  ("Excess Work"),  ARCO shall provide a written description
        of the Excess Work to Santa Catalina.

        (a)     If Santa Catalina wishes to participate in the Excess Work, ARCO
                shall propose the Excess Work as Joint Operations pursuant to
                Article 5 and 7.1 (B) of the Operating Agreement.

<PAGE>

        (b)     If Santa Catalina does not wish to participate in the Excess
                Work, ARCO shall  propose the Excess Work as an  Exclusive
                Operation  pursuant to Article 7.2 of the Operating Agreement.

Santa  Catalina  shall provide its written  response to ARCO's  notification  of
proposed Excess Work stating its desire to participate or not participate within
ten (10) days of receipt of the notification.

5.3     If Santa Catalina chooses not to participate in the Excess Work pursuant
        to Article 5.2, then:

        (a)      Santa  Catalina shall not elect to participate in the Exclusive
                 Operation  proposed by ARCO pursuant to Article 5.2(b);

        (b)      Santa Catalina  shall have no right and shall be deemed to have
                 waived any right arising under the Operating  Agreement to
                 reinstate its right to participate in the Exclusive Operation;

        (c)     Santa Catalina shall waive any right to receive  Production  for
                the Reimbursement  arising under the Contract and resulting from
                the Excess Work, and such Production for the Reimbursement shall
                be allocated to participants  in the Contract  other than Santa
                Catalina in  conformity with the procedures  set out in Article
                7.4 of the Operating  Agreement; and

        (d)     if the Excess Work relates to or results in the  development  of
                G&G Data,  then Santa  Catalina shall  have no right to such G&G
                Data and shall have no right to participate in any Development
                relating to such G&G Data.

5.4      The  procedure  set out in this  Article 5 shall  apply only during the
         Exploration  Phase. The Exploration Phase shall be deemed to have ended
         for the Contract Area, or for any part of the Contract  Area,  upon the
         earlier  of (1)  the  Operator  submitting  a  final  discovery  report
         pursuant to Article 13.4 of the Contract for the Contract  Area or some
         part  of the  Contract  Area,  or  (2)  the  Partner  making  a  formal
         notification of relinquishment of the entirety of the Contract Area.

<PAGE>

6.   INFORMATION AND CONFIDENTIALITY

6.1     Santa Catalina has, through an associated company,  reviewed information
        provided  by  ARCO  in a data  room  relating  to the  Contract  and the
        Operating  Agreement.  An index to the  information  in the data room is
        attached  as  Attachment  H. ARCO  represents  that,  to the best of its
        knowledge and belief,  the  information in the data room is a materially
        complete and accurate description of the Contract Area.

6.2     ARCO represent that Final Well Logs provided to Santa Catalina  pursuant
        to  Article  3.5(a)  shall be  materially  identical  to Final Well Logs
        presented to Partners pursuant to the Contract.

6.3     Subject to applicable law and third party restrictions, the Contract and
        other  agreements  relating to the  Contract,  ARCO shall  provide Santa
        Catalina with copies of technical information acquired in respect of the
        Contract Area and which relates solely to the Contract Area.  ARCO shall
        have no obligation to provide any technical  information relating to the
        Contract  Area which also relates to areas  outside the  Contract  Area.
        Such technical information shall include all non-proprietary geological,
        geophysical,  engineering  and other  information,  save and  except the
        internal reserve evaluations of ARCO. Except as provided in Articles 6.1
        and 6.2 above, ARCO makes no  representations or warranties with respect
        to the accuracy or completeness of the information  provided pursuant to
        the provisions of this Article.  Any reliance on this  information,  or
        any other  information  furnished  by ARCO or  contained in the files of
        ARCO,  shall be at the sole risk and  expense of Santa  Catalina.  Santa
        Catalina  will have sole  responsibility  for any  actions  taken by it,
        based on the  information or any action taken by others relying on Santa
        Catalina's advice or relying on information provided by Santa Catalina.

6.4     All data and information disclosed to Santa Catalina pursuant to Article
        6.2 above and all  Information  shall be subject to the  confidentiality
        provisions  contained in Article 15 of the Operating Agreement which are
        incorporated herein by reference. Such confidentiality  provisions shall
        survive the termination of this Agreement.

<PAGE>

6.5     Pending Assignment  Approval,  ARCO shall use all reasonable  endeavors,
        subject to applicable law, the Contract and other contracts,  to provide
        Santa Catalina  access to available  technical  information  acquired in
        respect of the Contract  Area.  Disclosure of such  information to Santa
        Catalina   shall  be  subject  to  the  terms  and   provisions  of  the
        Confidentiality  Agreement  dated 20th October 1999, by and between ARCO
        and Santa Catalina,  which Confidentiality  Agreement shall continue and
        remain in full force and effect.

7.   GOVERNING LAW AND ARBITRATION

7.1      This  Agreement  shall be governed by and construed in accordance  with
         the laws of England without regard to any of such jurisdiction's  rules
         regarding   conflict   of  laws   which   would   apply   the  laws  of
         another jurisdiction.

7.2     Any and all disputes,  controversies,  claims or differences between the
        Parties  in  connection  with  this  Agreement,   or  relating  to  this
        Agreement, or the existence,  construction,  validity, interpretation or
        meaning, performance,  nonperformance,  enforcement,  operation, breach,
        continuance or  termination  of this Agreement  which cannot be resolved
        amicably by the Parties through prompt good faith negotiations, shall be
        submitted to and finally resolved  through an arbitration  proceeding in
        accordance with the arbitration provision of Article 18 of the Operating
        Agreement, which shall be deemed to be incorporated by reference.

8.   NOTICES

8.1     Notices  given under this  Agreement  shall be given in writing,  in the
        English language,  and shall be deemed to have been  sufficiently  given
        when received,  whether  delivered  personally,  mailed postage paid, or
        sent by electronically or facsimile, addressed to a Party at its address
        as set  forth  below  or such  other  address  as such  Party  may  have
        designated by notice given in accordance with this Article 8.

ARCO:                               ARCO GHADAMES INC.
                                    2300 West Plano Parkway
                                    Plano, Texas 75075, USA

                                    Attention:       Vice-President, Exploration
                                    Telephone:       972-509-3701
                                    Facsimile:       972-509-6292
                                    E-mail:        jrobert8@mail.arco.com

<PAGE>

SANTA CATALINA:               Santa Catalina L H Lundin (Algeria) Limited
                                    Suite 1320, 885 West Georgia Street
                                    Vancouver, BC V6C 3E8
                                    Canada

                                    Attention:       Mr Lukas H Lundin
                                    Telephone:     (1 604) 689-7842

                                    Facsimile:     (1 604) 689-4250

                                    E-mail:       slmalgeria@namdo.com

with copy to:

Lundin Oil AB
29 Rue de la Rotisserie
1204 Geneva
Switzerland

Attention:        Mr Keith Hill
Telephone:        (41 22) 817-1200
Facsimile:        (41 22) 817-1201
E-mail:           hill@lundin.ch

9.  MISCELLANEOUS

9.1     The captions and  headings for the Articles of this  Agreement  are made
        for convenience  only and shall not be interpreted or construed so as to
        limit or in any way change  the  substantive  provisions  of any part of
        this Agreement.

9.2     None of the rights,  requirements  or provisions of this Agreement shall
        be  deemed to have  been  waived by any Party by reason of such  Party's
        failure to enforce any right or remedy  granted it  hereunder or to take
        advantage  of any default,  and each Party shall at all times  hereunder
        have the right to require  the strict  compliance  of the other  Parties
        with the provisions of this Agreement.

9.3     It is understood  that time is of the essence in this Agreement and that
        upon execution of this  Agreement no provisions of this Agreement  shall
        be modified,  altered or waived except by prior  written  consent of the
        Parties. Subject to the provisions of Article 9.4 herein, this Agreement
        shall be binding upon the successors and assigns of the Parties hereto.

<PAGE>

9.4     Santa  Catalina  may  at  any  time  assign  its  rights  to  receive  a
        Participating  Interest in the Contract to Lundin Oil AB. Santa Catalina
        shall not assign  any  rights or  interests  conveyed  hereunder  to any
        Affiliate  or third  party  until  after all  obligations  specified  in
        Article 3 above have been  fulfilled or the  Government has approved the
        Assignment,  whichever is later. Any such assignment shall be subject to
        this Agreement and to the Operating Agreement.

9.5      This Agreement (together with the Confidentiality  Agreement dated 20th
         October 1999) constitutes the entire  understanding of the Parties with
         respect  to  the  subject   matter  hereof  and  supersedes  all  prior
         negotiations  and  agreements  pertaining to the subject matter hereof,
         whether oral or written, of the Parties.

9.6      As between the Parties, in the case of a conflict,  express or implied,
         between the provisions of this Agreement,  and those of the Contract or
         the Operating Agreement, this Agreement shall control.

9.7     Santa Catalina shall be responsible  for, and shall bear and pay for any
        and all  reasonable  costs,  expenses,  fees,  duties and taxes or other
        governmental  changes of whatsoever  nature  incurred in connection with
        the Assignment and the Assignment Approval. Such costs, fees, duties and
        taxes shall include, without limitation, registration fees, stamp duties
        and assignment  fees, but shall not include taxes levied on or measured
        by ARCO's profit or income. Any such costs,  expenses,  fees, duties and
        taxes shall be in addition to Drilling  Costs  charged  pursuant to this
        Agreement, and shall not be reimbursable pursuant to Article 4.6 of this
        Agreement

9.8      For United States federal income tax purposes, each Party hereto elects
         to be  excluded  from  the  application  of all of  the  provisions  of
         Subchapter  "K",  Chapter 1, Subtitle "A" of the United States Internal
         Revenue  Code  of  1986,  as  amended  (the  Code),  as  permitted  and
         authorized  by  Code  Section  761(a)  and  the  Treasury   Regulations
         promulgated thereunder.

9.9      The rights,  duties,  obligations and liabilities  under this Agreement
         shall be individual,  not joint or collective.  It is not the intention
         of the  Parties  to  create,  nor  shall  this  Agreement  be deemed or
         construed  to create,  a mining or other  partnership,  joint  venture,
         association or trust.

<PAGE>

9.10     This Agreement may be executed in counterpart and shall be effective as
         though both Parties had signed the same document.

IN WITNESS WHEREOF,  the duly authorized  representatives  of the Parties hereto
have  executed  this  Agreement in  duplicate  on the day,  month and year first
written above.

ARCO GHADAMES INC.                              SANTA CATALINA L.H. LUNDIN
                                                (ALGERIA) LIMITED

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

Name: Scot W. Anderson                          Name:  Keith C. Hill

Title:  Attorney-in-fact                        Title:  New Ventures Manager

<PAGE>

                                 ATTACHMENT "A"
                              (FORM OF ASSIGNMENT)

                               DEED OF ASSIGNMENT

THIS AGREEMENT is made and entered into on the ___ day of ______, 1999, by and
between

ARCO  Ghadames  Inc, a company  established  and existing  under the laws of the
State of Delaware, U.S.A. (hereinafter called "ASSIGNOR"), and

Santa Catalina L.H. Lundin (Algeria) Limited, a company established and existing
under the laws of Bermuda (hereinafter called "ASSIGNEE").

WHEREAS,  Assignor holds seventy five percent (75.00%) of PARTNER's  interest in
that certain Production SHaring COntract (hereinafter the "Contract") dated 10th
May, 1992, by and between The National Enterprise SONATRACH  (hereinafter called
"SONATRACH") and ASSIGNOR covering the Hassi Bir Rekaiz area (hereinafter called
the "Field"), and

WHEREAS,  ASSIGNOR  and  ASSIGNEE  have agreed that  ASSIGNEE  shall  acquire an
undivided  twenty five percent  (25.00%) of PARTNER's  interest in the Contract,
subject to certain conditions.

NOW, THEREFORE:

1. ASSIGNOR hereby assigns to ASSIGNEE an undivided twenty five percent (25.00%)
of PARTNER's  interest in the COntract,  thereby vesting in ASSIGNEE twenty five
percent  (25.00%)  of  PARTNER's  interest  in  the  Contract,  subject  to  the
Conditions  Precedent  defined in the Farmout Agreement between the ASSIGNOR and
ASSIGNEE  executed  contemporaneously  with or immediately prior to this Deed of
<PAGE>

Assignment,  and ASSIGNOR  warrants to ASSIGNEE the title to the above described
interest against any person or entity claiming by through, or under ASSIGNOR.

2. ASSIGNEE  hereby  assumes  twenty five percent  (25.00%) of the  obligations,
liabilities, duties and rights of PARTNER under the Contract.

3. The  assignment  shall be effective  as between  Assignor and Assignee as of
(******).

IN WITNESS  WHEREOF,  the Parties have caused this Assignment to be executed by
their respective duly authorized representatives.

"ASSIGNOR"
ARCO Ghadames Inc

BY:_________________________
NAME:_______________________
TITLE:______________________

"ASSIGNEE"
Santa Catalina L.H. Lundin (Algeria) Limited

BY:_________________________
NAME:_______________________
TITLE:______________________
<PAGE>
<TABLE>
<CAPTION>
                                 ATTACHMENT "B"
                               (FORM OF AVENANT)

                                FORM OF AVENANT

<S>                                                         <C>

AMENDMENT NO. 4 TO THE "HASSI                               AVENANT NO. 4 AU
BIR REKAIZ" PRODUCTION                                      CONTRAT DE PARTAGE DE
SHARING CONTRACT DATED 10TH                                 PRODUCTION "HASSI BIR
MAY 1992                                                    REKAIZ" CONCLU LE 10 MAI 1992

Between:                                                    Entre:

The National Company SONATRACH                              L'Enterprise Nationale SONATRACH
with its headquarters in Algiers, 10 Rue du                 dont le siege social est a Alger, 10, Rue du
Sahara, Hydra, hereinafter called                           Sahara, Hydra, ci-apres designee
"SONATRACH", represented by Mr.                             "SONATRACH" representee  par
_____________, (name)                                       ____________________
_____________, (title) acting with                          ____________________ agissant en
powers bestowed upon him regarding the                      vertu des pouvoirs qui lui sont conferes a
present document,                                           l'effet des presentes,
                    On one hand,                                                d'une part,

And                                                         Et

ARCO Ghadames Inc with its headquarters                     La Societe ARCO Ghadames Inc, dont le
at 2300 West Plano Parkway, Plano, Texas                    siege social est a 2300 West Plano
75075, USA, hereinafter called "ARCO",                      Parkway, Plano, Texas 75075, USA ci-
represented by                                              apres designee "ARCO", representee par
__________________ (name),                                  ____________________,
__________________ (title), acting with                     ____________________ agissant en vertu
powers bestowed upon him regarding the                      des pouvoirs qui lui sout conferes a l'effet
present document,                                           des presentes,

And                                                         Et

__________________ with its                                 La Societe __________________, dont
headquarters at _____________________,                      le siege social est au
_________________, represented by                           representee par ____________ agissant
<PAGE>

________________,                                           en vertu des pouvoirs qui lui sont conferes
_______________, acting with                                a l'effet des presentes.
powers bestowed upon him regarding the
present document.

                    on the other hand,                                          d'aure part,

And                                                         Et

_____________, with its                                     La Societe __________________, dont
headquarters at _________________,                          la siege social est au
_____________, represented by                               representee par ___________ agissant
_______________,                                            en vertu des pouvoirs qui lui sont conferes
_____________, acting with                                  a l'effet des presentes,
powers bestowed upon him regarding the
present document,

                                                            d'autre part,

                    on the other hand,

the following is agreed upon:                               Il est convenue et arrete ce qui suit:

Considering the Production Sharing                          Considerant le Contrat de Partage de
Contract "Hassi Bir Rekaiz" executed in                     Production "Hassi Bir Rekaiz" conclu a
Algiers on 10th May 1992, between the                       Alger le 10 mai 1992 entre l'Enterprise
National Enterprise SONTRACH and                            Nationale SONATRACH et la societe
ARCO Algeria Inc., approved by executive                    ARCO Algeria Inc approuve par decret
Decree No. (****) dated (******);                           executif no (**********) du (********);

Considering the request of _____________                    Considerant la demande du ___________
1999 by ARCO requesting approval to                         _____________ 1999 par laquelle ARCO a
transfer to ______________ an undivided                     demande l'autorisation de ceder a
25.00% of its rights and obligations under                  _________ 25.00% de ses droits et
the subject Contract;                                       obligations dans le Contrat sas-vise;

Considering the decision by SONATRACH                       Considerant la renonciation par
<PAGE>

not to exercise its right of preemption, and                SONATRACH a l'exercice de son droit
its approval of this assignment;                            de preemption, et son accord pour cette
                                                            cession.

Considering the letter of the Minister of                   Considerant la lettre no _____ datee du
Energy and Mines No. ______ dated                           ___________ 1999 portant accord de
______________ 1999 approving this                          Monsieur le Ministre de l'Energie et des
assignment.                                                 Mines a la dite cession.

Article 1:  Subject of the Amendment                        Article 1:  Objet de l'avenant

The subject of this Amendment is the                        Le present avenant a pour objet le cession
transfer by ARCO to _______ of twenty                       par ARCO a __________, de vingt cinq
five percent (25.00%) of its right and                      pour cent (25.00%) de ses droits et
obligations resulting from the Hassi Bir                    obligations decoulant du Contrat de
Rekaiz Production Sharing Contract dated                    Partage de Prodcution "Hassi Bir Rekaiz"
10th May 1992, hereafter called the                         conclu le 10 mai 1992, ci-apres denomme
"Contract".                                                 "le Contrat".

Article 2:  Participating Interests                         Article 2:  Taux de Participation:

As from the effective date of this                          A compter de la date d'entree en vigueur
Amendment, the participation of the                         du present avenant, le taux de
companies in the Contract is divided as                     participation des associes dans le Contrat
follows:                                                    est reparti comme suit:

          50%:      for ARCO                                50%:      for ARCO
          25%:      for TPAO                                25%:      for TPAO
          25%:      for ___________                         25%:      for ____________

Article 3:  Notification                                    Article 3: Notification

To be valid any notification sent by one of                 Toute notification faite par l'ure a
the parties to the other in the framework of                Parties a l'autre dans le cadre du Contrat
<PAGE>

the Contract, will have to be done by letter,               devra, pour etre valable, etre faite par
or telex or fax with return receipt, and                    lettre ou par telex ou telefax avec accuse
addressed to the other party at the address                 de reception et addressee a l'autre partie a
indicated below or any other address that                   l'addresse indiquee ci-dessous ou a toute
the a party may from time to time indicate                  autre addresse que la partie interessee
by written notice to the other party.                       pourra indiquer en tant que de besoin par
                                                            notification ecrite a l'autre Partie.

For SONATRACH                                               Pour SONATRACH

10, Rue du Sahare                                           10, Rue du Sahare
Hydra - Algiers 16035 - Algeria                             Hydra - Alger 16035 (Algerie)
Telex No. 62 103 SH DG and 62 104 SH DG                     Telex nO 62 103 SH DG et 62 104 SH DG
Fax No. (213) 260.70.37                                     Fax nO (213) 260.70.37
Tel. No. (213) 260.56.34                                    Telephone nO (213) 260.56.34

For ARCO Ghadames Inc.                                      Pour ARCO Ghadames Inc.

2300 West Plano Parkway                                     2300 West Plano Parkway
Plano, Texas 75075                                          Plano, Texas  75075
United States of America                                    Etats Unis d'Amerique
Telex 163511 AIOGC PLANO                                    Telex 163511 AIOGC PLANO
Fax no. 214-509-4030                                        Fax no. 214-509-4030
Tel no. 214-509-3000                                        Tel no. 214-509-3000

For______________________                                   For ____________________

__________________________                                  ________________________
__________________________                                  ________________________
__________________________                                  ________________________

Telex_____________________                                  Telex___________________
Fax no.___________________                                  Fax no._________________
Tel no. __________________                                  Tel no. ________________

<PAGE>

Article 4:  Contractual Documents                           Article 4:  Documents Contractuels

This Amendment constitutes an integral                      Le present avenant fait partie integrante du
part of the Contract.                                       Contrat.

Article 5:  Commitment                                      Article 5:  Engagement d'execution

The company ____________ commits to                         La societe _________ s'engage a
fulfill in the same position and under the                  executer au meme titre et dans le memes
same conditions as ARCO, to the extent the                  conditions que ARCO, a concurrence de
its level of participation, the entirety of the             son taux de participation, l'ensemble de
obligations resulting from the Contract.                    obligatins qui lui incombent au titre du
                                                            Contrat.

Article 6:  General Provisions                              Article 6:  Dispositions Generales

All provisions of the contract and of its                   Toutes les dispositions du Contrat, de ses
Annexes which are not expressly modified                    annexes qui ne sont pas modifiees et / ou
and/or supplemented by the present                          completees par le present avenant
Amendment remain in effect.                                 demeurent en vigueur et s'appliquent aussi
                                                            bien a ARCO qu'a _____________.

Article 7:  Effective Date                                  Article 7:  Entree en viguer

This Amendment will be effective as from                    Le present avenant entrera en vigueur des
its approval by the competent authorities in                son approbation par les autorites
accordance with the required procedures.                    competentes dans les formes rEquises.

Done in Algiers, on _______________, 1999                   Fait a Alger, le _______________, 1999
in six (6) originals.                                       en six (6) exemplaires originaux.

For SONATRACH                                               For ARCO Ghadames Inc.

Title:_________________________                             Title:________________________
<PAGE>

Name:__________________________                             Name:_________________________

for TURKIYE PETROLLERI ANONIM                               For:__________________________
ORTAKLIGI

Title:_________________________                             Title:________________________

Name:__________________________                             Name:_________________________

</TABLE>
<PAGE>

                                 ATTACHMENT "C"
                       (FORM OF PARENT COMPANY GUARANTEE)

       The form as attached or such form as may be required by Sonatrach.

<PAGE>

                               LETTER OF GUARANTY

Atlantic  Richfield  Company hereby refers to the Agreement for the  Exploration
and  Exploitation  of  Hydrocarbons  (hereinafter  the  "Agreement") between its
subsidiary  ARCO Algeria Inc.  ("ARCO")  and the National  Enterprise  SONATRACH
("SONATRACH")  within the  Contract  area  called  Hassi Bir Rekaiz  composed of
Blocks  424a/443a  entered into  pursuant to Law no. 86-14 of 19 August 1986, in
particular  its Article 22-2 and Decree No. 87-159 of 21 July 1987 in particular
its Article 3.

Atlantic Richfield Company acknowledges it has read all the clauses contained in
the  Agreement,   especially  those  relating  to  ARCO's commitments  vis-a-vis
SONATRACH.

Atlantic  Richfield  Company  acknowledges  that ARCO  possesses  full technical
capabilities  for the execution of the operations  provided for in the Agreement
and guarantees that the commitments of ARCO in this respect will be fulfilled.

Atlantic  Richfield  Company  acknowledges  that ARCO  possesses  full financial
capabilities for the execution of its financial  commitments provided for in the
Agreement and guarantees that such commitments will be fulfilled.

Atlantic   Richfield  Company   guarantees  in  particular  ARCO's  contractual
obligations relating to:

- In the  event  that  all or  part of the  Exploration  Work  Programs  are not
completed,  payment to SONATRACH of the amount of the investments  corresponding
to such programs (Article 6.7);
<PAGE>

Page 2
Letter of Guaranty

- Completion of the Work Programs and investments  provided for in the Agreement
(Articles 7.1 and 7.2);

- Financing of the totality of the Exploration investments,  and in the event of
a discovery of commercially exploitable  Hydrocarbons,  Exploitation investments
(Articles 14.1.1, 14.1.2 and 21.4.1); and

- Payment of the costs corresponding to training programs (Article 19.4).

The  present  guaranty  is  irrevocable  and shall  expire as of the date of the
accomplishment of all the obligations set forth in the Agreement, or, subject to
the application of Article 22 of the Agreement,  as of the date ARCO assigns all
of its obligations.

All payments due by virtue of the present  guaranty  must be made within  thirty
(30) days after written  notification by SONATRACH to Atlantic Richfield Company
of the default by ARCO. Such written  notification  shall specify (i) the nature
of the  default by ARCO,  (ii) the amount of the  payment  due to  SONATRACH  by
virtue of such default and (iii) the method for  determining  the amount of such
payment.

However,  Atlantic Richfield  Company,  shall have, during such period of thirty
(30) days,  the right to remedy such  default  before this  guaranty  comes into
effect.
<PAGE>

Page 3
Letter of Guaranty

These payments will be made in U.S. dollars by transfer to an account to be
specified by SONATRACH, free of all charges or deductions.

The definitions used in the present guaranty have the meaning given to them
in the Agreement.

<PAGE>

                                 ATTACHMENT "D"
                               (FORM OF NOVATION)

                               NOVATION AGREEMENT

THIS AGREEMENT is made and entered into effective as of the ______ day of
_____________, 1999.

BETWEEN:

ARCO GHADAMES  INC., a company  established  and existing  under the laws of the
State of  Delaware,  U.S.A.  and having an office at  _________________(address)
(herein the "Transferor")'

SANTA CATALINA L.H. LUNDIN (ALGERIA) LIMITED, a company established and existing
under the laws of Bermuda and having an office at ___________  (address) (herein
"Transferee"); and

TURKIYE PETROLLERI ANONIM ORTAKLIGI, a company established and existing under
the laws of the Republic of Turkey and having an office at ___________ (address)
herein the "Transferee").

(The Transferor, the Transferee and TPAO are hereinafter collectively called the
"Parties").

WHEREAS, the National Enterprise  SONATRACH  ("SONATRACH") and ARCO Algeria Inc.
entered into the "Contrat pour la Recherche et  l'Exploitation  d'Hydrocarbures
(Permieter:  Hassi Bir Rekaiz)" dated May 10, 1992, as amended (the "Contract");
and

WHEREAS, ARCO Algeria Inc. heretofore assigned an undivided one hundred percent
(100%) Participating Interest in the Contract to ARCO; and

WHEREAS, ARCO heretofore assigned a twenty-five (25%) Participating Interest in
the Contract to Turkiye Petrolleri Anonim Ortakligi ("TPAO" with Effect from the
Effective Time; and

<PAGE>
WHEREAS,   ARCO  and  TPAO  entered  into  that  certain   Operating   Agreement
(hereinafter the "Novated Agreement") dated ___________, 1996 to provide for the
conduct of the  operations by, and  determination  of their  respective  rights,
interests and obligations as Contractor under the Contract; and

WHEREAS,  with effect from  _______________  (hereinafter the "Effective  Time")
ARCO has agreed to assign an undivided  twenty-five percent (25.00%) interest in
the  Contract  and the JOA (the  "Assigned  Interest")  to  Lundin,  and TPAO is
willing to consent thereto.

NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:

1.  Nothwithstanding  anything to the  contrary in the Novated  Agreement,  this
novation of the Novated  Agreement  shall be subject to the  publication  in the
Official Journal of Algeria of the ministerial decrees effecting the transfer of
Assigned  Interest from the  Transferor to the  Transferee  and on and after the
said  publication  this  novation  shall take and have effect from the Effective
Time.

2. To the extent of the  Assigned  Interest the  Transferor  shall cease for all
purposes to be a party to the Novated  Agreement and the Transferee shall become
for all purposes a party  thereto in place of the  Transferor  and shall perform
and assume the  obligations  and  liabilities  and be entitled to the rights and
benefits of the Transferor thereunder.

3. To the extent of the Assigned Interest the Transferee  undertakes with and to
each of the Continuing Parties to observe, perform and discharge the obligations
and  liabilities  imposed on the Transferor by the Novated  Agreement as a party
thereto  in  place  of the  Transferor  and as if each  act or  omission  of the
Transferor had been an act or omission of the Transferee.

4. Each of the Continuing  Parties  releases and discharges the Transferor  from
the performance and discharge of the obligations  (other than any obligations of
confidentiality)  and  liabilities and all claims and demands in respect thereof
assumed  by the  Transferee  pursuant  to  Clause 3 above  and which but for the
operations  of that  Clause  would  have  continued  to be the  obligations  and
liabilities of the Transferor.

<PAGE>
5. Each of the  Continuing  Parties  accepts the assumption by the Transferee of
the  liabilities  and  obligations  referred  to in Clause 3 and all  claims and
demands  in respect  thereof in place of the  liability  of the  Transferor  and
agrees to be bound by the terms of the Novated  Agreement in every way as if the
Transferee  were named in the Novated  Agreement as a party  thereto in place of
the Transferor.

6.  The  Transferee  hereby  undertakes  to  indemnify  and  hold  harmless  the
Continuing Parties and each of them in respect of any claim, proceedings,  loss,
damage, costs or expense for which the Transferor would have been liable but for
the release and discharge referred to in Clause 4 above.

7.  Notwithstanding  the foregoing  provisions of this  Agreement the Transferor
shall be bound by this Clause 7 which shall take effect as an agreement separate
and independent from the Novated  Agreement,  to such duties of  confidentiality
and non-disclosure  owed to such  persons as would have been  applicable  to it
under  the  Novated  Agreement  had it  continued  to be  party  to the  Novated
Agreement.

8. The  Transferee  agrees to bear any stamp duty  (including  penalties  and/or
fines) or similar or other taxes  payable in  connection  with the  execution or
enforcement  of this  Agreement  and  shall  fully  indemnify  each of the other
parties  in respect of any costs,  expenses,  loss or damage  occasioned  by its
failure to pay any such stamp duty or any delay in paying any such stamp duty.

9. This  Agreement  shall be  treated as  constituting  all  consents,  actions,
waivers, confirmations and undertakings of the Transferor and the Transferee and
of  the  Continuing  Parties  required  under  the  Novated  Agreement  for  the
assumption  by  the  Transferee  of all of the  Transferor's  right,  title  and
interest  thereunder  and the  Parties  hereby  give their  irrevocable  consent
thereto.

10. The  Participating  Interests as defined in the Novated Agreement and as set
out therein are with effect from the Effective Time hereof:

ARCO                50.00%
TPAI                25.00%
Santa Catalina      25.00%

<PAGE>

11.  The particulars of the Transferee for the purposes of the Novated Agreement
shall be as follows:

(                   )
(                   )
(                   )
(                   )

12.  Except as amended hereby the Novated Agreement shall remain in full force
and effect and binding on the parties thereto, insofar as the same are in force
and effect and binding on those parties immediately prior to the Effective Time.

13.  This Agreement may be executed in any number of counterparts and by the
Parties on separate counterparts, each of which when so executed shall be an
original, but all the counterparts shall together constitute one and the same
instrument provided that this agreement shall not be effective until all of the
counterparts have been executed.

14. This Agreement shall be governed by and construed in accordance with English
Law and the Parties hereby irrevocably  submit to the exclusive  jurisdiction of
the English Courts.

IN WITNESS WHEREOF the Parties have caused these presents to be executed the
day and year first above written.

ARCO GHADAMES INC.

By:___________________

Name:_________________

Title:________________

<PAGE>

SANTA CATALINA L.H. LUNDIN (ALGERIA) LIMITED

By:___________________

Name:_________________

Title:________________

TURKIYE PETROLLERI ANONIM ORTAKLIGI

By:___________________

Name:_________________

Title:________________

<PAGE>

                          Attachment "E" Contract Area

<PAGE>

                            Hassi Bin Rekaiz Licence

Drawing Omitted

<PAGE>

                   Attachment "F" Estimate of Drilling Costs

ARCO Internal Charges Incurred to Date            $1,000,000

Cost of Well (Turnkey Contract)                   $10,352,000*

* breakdown of well costs in attached Drilling Cost Estimate

<PAGE>

ARCO International Oil and Gas Company           Drilling Cost Estimate - Page 1
Exploration - expected case -

Well Name:     Sernhari East - 1             Cost Estimate       TD 3860 M
Region: N. Africa             Country: Algeria         Field: Wildcat

     Development              X    Single
X    Exploratory                   Dual
     Workover/Completion           Multiple

<TABLE>
<CAPTION>
<S>                                     <C>         <C>          <C>            <C>
Tubular goods - Major account 290       DRY         COMPLETE     DETAIL         GROSS
-----------------------------------------------------------------------------------------

1                                                                030
30" 0.5 WT Grade B                      $13,000                  020            $13,000
20" 1333 ppt K-55                       $22,000                  016            $22,000
13-3/8" 72ppf                           $77,000                  012            $77,000
9-5/8" 47 ppf                           $246,000                 009            $246,000
7" 32 ppf p-110 BTC                     $78,000                  008            $78,000
4-1/2" 13.5 ppf                         $14,000                  004            $14,000
2 WH EQUIP & TREE - TEMPLATE            $80,000                  022            $80,000
3 TUBING ACCESS.                                                 023
4 ART LIFT EQUIP.                                                024
5 UNCLASS MAT'L (5%)                    $27,000                  025            $27,000

TOTAL TANGIBLES                         $557,000                                $557,000

Intangible Costs - Major Account 295

6 TUBULAR INSPECTION                    $15,000                  026            $15,000
7 TUBULAR TRANS (S300/TON)                                       027
8 CASING ACCESSORIES                                             028
9 SITE PREPARATION                      $285,000                 029            $285,000
10 PERMITS. INS. DAMAGES                                         030
11 MOVING EXPENSE                       $25,000                  031            $25,000
12 BOAT & BARGE RENTAL                                           032
13 CAMP & CATERING                                               033
14 ROADS, SHORE BASE                                             034
15 AIR FREIGHT & TRANS                                           035
16 AIR TRANSPORTATION                                            036
17 DRILLING FOOTAGE S/FT.                                        037
18 DRILLING DAYWORK S/DAY                $6,100,000              038            $6,100,000
19 MOB/DEMOB FEE                                                 039
20 COMPLETION UNIT S/DAY                                         043
21 RENTAL DP. DC. TOOLS                                          044
22 WELL CONTROL EQUIPMENT                                        045
23 DRILL BITS                                                    046
24 FUEL GAS DRAYAGE
25 WATER SUPPLY WELL GENSEI                                      047
26 DRLG MUD, MATL & DRAYAGE                                      048
27 DRLG MUD EQUIPMENT                                            049
28 COMPLETION FLUIDS                                             051
29 OPEN HOLE LOGS                       $600,000                 052            $600,000
30 MUG LOGGING                                                   053
31 CASED HOLE LOGS/PERF                                          054

<PAGE>

ARCO International Oil and Gas Company            Drilling Cost Estimate - Page 2
Exploration
Estimated by D. Beaghan

Tubular goods - Major account 290       DRY        COMPLETE     DETAIL         GROSS
-----------------------------------------------------------------------------------------

32 WT. WORK & COIL TUBING                                        055
33 WELL TEST EQUIPEMENT                           $2,000,000     056            $2,000,000
34 CONVENTIONAL CORING 108 evaluation   $180,000                 057            $180,000
35 OST EQUIPMENT                                                 058
36 ENVIRONMENT/SAFETY                                            059
37 STIMULATION (ACID/FRAC)              $30,000                  060            $30,000
38 CEMENTING & RUNNING FEES:
     MOB/DEMOB
     20"                                                         079
     13-3/8"                                                     076
     9-5/8"                                                      073
     7"                                                          070
     4-1/2"                                                      068
39 CEMENT PLUGS, SQUEEZES                                        081
40 FISHING TOOLS                                                 082
41 DIRECTIONAL DRILLING - LWD                                    083
42 UNCL. TOOL RENTAL                                             084
43 UNCL. SUPPLIES                                                085
44 UNCL. DRAYAGE                                                 086
45 UNCL. SERVICES                                                087
46 ROV                                                           088
47 TELECOMMUNICATIONS                    $10,000                 089            $10,000
48 SUPPORT SERVICES                                              090
49 UNCL. MATERIAL LOSSES                                         091
50 TECHNICAL SERVICE                    $300,000                 092            $300,000
51 RIG SUPERVISION - CONTRACT           $250,000                 093
52 RIG SUPERVISION - ARCO                                        094
53 FIELD SUPPORT                                                 096
54 SECURITY
PRESPUD COST                            $1,089 M
LOADED DAY RATE                         $79,800
TOTAL INTANGIBLES                       $7,795 M  $2,000 M                      $9,795 M
TOTAL COST                              $8,352 M  $2,000 M                      $10,352 M
DRY HOLE COST  $8,352 M                 $2,164/M
COMPLETED COST $2,000 M
TOTAL WELL COST $10,352 M               $2,682/M

This is a turnkey drilling project with Arco free issuing tubulars and wellhead equipment.
Formation evaluation will be run under a separate Arco contract.
The first well is proposed to be tested with the rig offsite.
Detailed costs will be worked up after the technical scope is finalised.
Testing costs are a latest "best estimate".

</TABLE>
<PAGE>
                         ATTACHMENT "G" BANK GUARANTEE

                              LETTER OF GUARANTEE
                 (On the headed notepaper of the issuing Bank)

To:  ARCO Ghadames Inc.
     2300 West Plano Parkway
     Plano, Texas  75075
     USA

                                                            (date)

Dear Sirs:

Letter of Guarantee No. (___________)

Whereas our  client,  Santa  Catalina  L.H.  Lundin  (Algeria)  Limited  ("Santa
Catalina"),  has entered into a Farmout  Agreement  concerning  Hassi Bir Rekaiz
Block,  Onshore  Algeria  dated  (insert  day and  month)  1999  with  you  (the
"Agreement").

Unless the contrary  intention  appears,  words and  expressions  defined in the
Agreement  have the same  meaning  when used in this Letter of  Guarantee  (this
"Guarantee").

Whereas the Agreement  contains an  obligation on the part of Santa  Catalina to
provide an irrevocable bank guarantee in the amount of ($****),  we (insert name
of bank), a bank organised  under the laws of (insert  jurisdiction)  and having
its  registered/principal  office at  (insert  address)  (the  "Bank") do hereby
undertake to pay you up to an aggregate  amount of ($****)  subject to the terms
and conditions  hereinafter  provided;  provided,  however, that the said amount
shall be automatically reduced by the amount of any and all intermediate payment
or other payment or  satisfaction  made by us under this  Guarantee from time to
time (said amount, as so reduced from time to time, the "Guaranteed Amount").

We shall only make payment under this  Guarantee upon receipt by us of a written
demand,  in the form  attached  as  Appendix  1,  signed by two (2) of your duly
appointed  and  authorised  directors  or other duly  authorised  officers for a
specified sum, where -

(1) such written  demand arises  because Santa Catalina has failed to pay you an
amount due and owing to you, and  required to be paid by Santa  Catalina to you,
under and in  accordance  with the  ex-press  terms of the  Agreement  (the "Sum
Demanded").

<PAGE>

(2) such written demand is accompanied by each of the following -

(a) a copy of the written  notice sent by you to Santa  Catalina  before  making
claim under this  Guarantee,  specifying  the payment  that Santa  Catalina  has
failed to make under and in  accordance  with the terms of the  Agreement in the
amount of the Sum Demanded,  and  requesting  Santa  Catalina to remedy any such
failure;

(b) a letter  signed by your  duly  authorised  officer  certifying  that  Santa
Catalina  has  failed to remedy  the  payment  default  in the amount of the Sum
Demanded within the period allowed for remedial  action under the Agreement,  if
any; and

(c) a copy of your written notice to Santa Catalina stating your intent to claim
under this Guarantee  because of Santa Catalina's  failure to remedy the payment
default  in the  amount of the Sum  Demanded  in  accordance  with the  relevant
request referred to in 2(a) above.

Except for the documents  herein  specified,  no other documents or other action
shall be required notwithstanding any applicable law or regulation.

Our  liability  under this  Guarantee  shall be to pay to you  whichever  is the
lesser of the Sum Demanded or the Guaranteed Amount as in effect and applicable
hereunder from time to time,  without being  entitled to require  whether or not
the payment is lawfully demanded.

This Guarantee shall be valid on the date hereof in the full  Guaranteed  Amount
and shall become null and void on (insert  expiry date),  except with respect to
any demand duly made hereunder  prior to such date.  This Guarantee shall not be
valid with  respect  to any  written  notice  given  after  such date.  When the
validity  of  this  Guarantee  has  expired,  it  must  be  returned  to us  for
cancellation,  but we shall be released  from any further  obligation  hereunder
even if, in breach of this  provision,  that  return has not taken  place.  Such
release will be without  prejudice to any liability  under this Guarantee  which
arose prior to such date.

Any  payment  by  us  hereunder  shall  be  immediately   available  and  freely
transferable  in  United  States  Dollars,  free and  clear of and  without  any
deduction  for or on account of any present or future  taxes,  levies,  imposts,
duties, charges, fees, set off, counterclaims, deductions or withholdings of any
nature whatsoever and by whomsoever imposed.

We  hereby  agree  that  any  part of the  Agreement  may be  amended,  renewed,
extended,  modified,  compromised,  released or discharged  by mutual  agreement
between you and Santa Catalina,  and this Guarantee may exchanged or surrendered
without in any way  impairing or affecting  our  liabilities  hereunder  without
notice to us and without the

<PAGE>
necessity for any additional endorsement,  consent or guarantee by us, provided,
however, that the Guaranteed Amount shall not be increased or decreased.

This  Guarantee  is not  personal  to you,  but may only be assigned by you to a
Person  concurrently  and in connection with an assignment to such Person of the
whole of your interest under the  Agreement,  and provided that you notify us in
writing of any such Guarantee to the Person specified in the notice which shall
constitute  a full and valid  discharge  to us in relation to that  payment.  No
action,  event or  condition  which by any  applicable  law  should  operate  to
discharge us from liability  hereunder shall have any effect and we hereby waive
any right we may have to apply such law so that in all  respects  our  liability
hereunders shall be irrevocable  and, except as stated herein,  unconditional in
all respects.

Any notice  hereunder  shall be deemed to be duly given when  delivered  (in the
case of the  personal  delivery) or 48 hours after being  dispatched  by prepaid
registered  post or  recorded  delivery  (in the case of letter) to our  address
appearing on the  Guarantee or such other address as we may notify to you by not
less than (5) days' prior written notice.

This  Guarantee  shall be governed by and construed in  accordance  with English
law.

IN WITNESS of which this Guarantee has been executed by us as AS A DEED and has
been delivered on the date first written above.

(THE COMMON SEAL OF                )
(              ) PLC               )
was affixed to this deed           )
in the presence of:-               ))

<PAGE>

                            APPENDIX 1 TO SCHEDULES
                                 FORM OF NOTICE
                (On the headed notepaper of ARCO Ghadames Inc.)

To:  (Issuing Bank)

Dear Sirs:

Re: Letter of Guarantee No. (___)

We refer to the Letter of Guarantee No. (___) dated (______) and hereby give you
this  written  notice  that in the sole  and  absolute  judgment  of the two (2)
undersigned  duly  appointed and authorised  directors or other duly  authorised
officers of this company:

Santa Catalina has failed to pay us L(insert amount) (the "Sum Demanded"), which
is an  amount  that is due and  owing to us,  and  required  to be paid by Santa
Catalina to us, under and in accordance with the express terms of the Agreement,
and has not been  questioned or disputed by Santa  Catalina,  written  notice of
such failure having been given by us to Santa Catalina;

As required by the Letter of Guarantee  referenced  above,  we attach hereto the
following  documents (which in respect of any copy attached  hereto,  is a true,
correct and complete copy of the original of such document):

(i) a copy of the written notice sent by us to Santa Catalina before making this
claim,  which notice  specifieds  the payment that Santa  Catalina has failed to
make under and in  accordance  with the terms of the  Agreement in the amount of
the Sum Demanded, and requests Santa Catalina to remedy such failure;

(ii) a letter  signed  by our duly  authorised  officer  certifying  that  Santa
Catalina  has  failed to remedy  the  payment  default  in the amount of the Sum
Demanded within the period allowed for remedial action under the Agreement.

(iii) a copy of our written notice to Santa Catalina stating our intent to claim
under this Guarantee  because of Santa Catalina's  failure to remedy the payment
default  in the  amount of the Sum  Demanded  in  accordance  with the  relevant
request referred to in (i) above

<PAGE>

We hereby demand that you pay us the Sum Demanded immediately upon receipt
of this notice.

-----------------------------------------
For and on behalf of ARCO British Limited

<PAGE>

                         Attachment "H" Data Room Index

<PAGE>

1999 REPORTS

     1.  Biostratigraphic  Analysis of  selected  core  samples  from eight Arco
Algerian Wells (ONR-1, AT-2, EHT-1, RDC-4, TO-1, DJF-1)

     2. Diagenetic Evolution of Cambrian Sandstones, HBR

     3. Discovery Report Bir Seba-1 Touggourt Block 433A BRS-1

     4. Geochemical Evaluation of Oils from Semhari-1, Hassi Bir Rekaiz

     5.  Geologic  Analysis of  Triassic  Cores,  Semhari-1  Well HBR & Geologic
Analysis Cambro-Ordovician Cores

     6. HBR Exploration Area: Discovery Report Semhari-1

     7. Hydrocarbon Charge Analysis

     8.  Lithology  and Reservoir  quality of core samples from  Triassic  cores
Semhari 1 well, Hassi Bir Rekaiz, Ghadames Basin

     9. Mesures Petrophysiques sur Carottes (Core Petrophysics SMR-1)

     10. Palynology and Biostratigraphy of Well EHT-1 (35410.33-3909.75m)

     11. Palynology & Biostratigraphy of the Semhari-1 Well, Algeria

     12. Petr.  Analysis of Core Saples from Trias.  T2 & T1  Sandstones  (Trias
Greseux) * Andesite & Serle Inferieure sed...

     13. PVT Laboratory Study Report SMR-1 (Zone DST 1b)

     14. PVT Laboratory Study Report SMR-1 (Zone DST 2)

     15. Rapport d'Implantation Semhari East-1

     16. Rapport de fin Sondage El Hammamt EHT-1 (End of Well Report)

     17. Regional Geological Evaluation & Seismic Interpretation of Semhari Area

     18. RS-1 Well Completion Report

<PAGE>

     19.  Districts 4 & 5 and Preliminary  Sequence  Stratigraphy,  Implications
Algerian Sanata

     20. SMR-1 Final Well Report

     21. Structural Interpretation of the Boulefa Structure, HBR

     22. Timing of cementation in Triassic,  Ordovician and cambrian sandstones,
HBR, Algeria

OPERATING AGREEMENTS

     23.  Operating  agreement  by and  between  ARCO  GHADAMS  INC and  TURKIYE
PETROLLERI ANONIM ORTAKLIGI (TPAO) Hassi Bir Rekaiz Block

     24.  Agreement for  exploration and  exploitation  of hydrocarbons  between
Sonatrach and ARCO Algeria Inc (Area: Hassi Bir Rekaiz)

HBR DATAROOM 1999 DISPLAYS

     25. Hercynian Unconformity in depth 1:50 000 (AJ)

     26. Hercynian Unconformity in TWT 1:50 000 (AJ)

     27. Internal velocity maps

     28. Semhari East-1 montage (SM)

     29. Petrophysical Interpretation (RH)

     30. Acreage Position Map

     31. Seismic displays AGS97-03 to 42 (from workstation)

     32. Synthetic impedance log/seismic display AGS97-12

     33. Geogram, synthetic seismogram (Schlumberger)

     34. W-E Triassic-Ordovician Structural Section (TG)

     35. SW-NE Triassic-Ordovician Structural Section (TG)

VIEWGRAPHS

     36. Miscellaneous viewgraphs (circa 100)

     37. NW Berkine HBR Isopach Triassic Volcanics (TG)

     38. Preliminary Ordovician Reservoir Distribution & Concep. Paleogeography

     39. Farmout document, HBR Exploration Area (SM)

GEOPHYSICAL LOGS

BAT-1
BLF-1
BRS-1
BRT-1
BST-1
EAT-1
EHT-1
GEF-1
HB-1A
HBR-1
HN-2
LD-1
OER-1
RBN-1
RBT-1BIS
RDC-4
REL-1
REN-1
RS-1
SD-1
SMR-1

<PAGE>

               SCHEDULE "B" TO THE LETTER AGREEMENT MADE BETWEEN
        SANTA CATALINA (BERMUDA) I LTD., SANTA CATALINA (ALGERIA) LTD.,
     ESSEX RESOURCE (BARBADOES) CORPORATION, CVL RESOURCES (BARBADOS) LTD.
                      and DRUCKER PETROLEUM (ALGERIA) INC.

                            SHAREHOLDERS' AGREEMENT

<PAGE>

                             SHAREHOLDERS' AGREEMENT

THIS AGREEMENT dated for reference the 27" day of October, 1999,

AMONG:

     SANTA CATALINA (ALGERIA) LTD., a corporation duly incorporated  pursuant to
     the laws of Bermuda  and having an office at Suite 1320,  885 West  Georgia
     Street Vancouver, British Columbia, V6C 3E8

     (hereinafter called the "Company")

AND:

     SANTA CATALINA  (BERMUDA) I LTD., a corporation duly incorporated  pursuant
     to the laws of Bermuda and having its registered  office at Cedar House, 41
     Cedar Avenue, HM EX Hamilton, Bermuda

     (hereinafter called "Santa Catalina")

AND:

     ESSEX RESOURCE  (BARBADOS)  CORPORATION,  a corporation  duly  incorporated
     pursuant  to the laws of  Barbados  and  having  its  registered  office at
     "Whitepark House", Whitepark Road, Bridgetown, Barbados

     (hereinafter called "Essex")

AND:

     CVL RESOURCES (BARBADOS) LTD., a corporation duly incorporated  pursuant to
     the laws of Barbados and having its registered office at "Whitepark House",
     Whitepark Road, Bridgetown, Barbados

     (hereinafter called "CVL")

AND:

     DRUCKER PETROLEUM (ALGERIA) INC., a corporation duly incorporated  pursuant
     to the laws of the British Virgin Islands and having an office at Craigmuir
     Chambers, Road Town, Tortola, British Virgin Islands

     (hereinafter called "Drucker")

<PAGE>

WHEREAS:

A. The authorized  capital of the Company  consists of 24,000 common shares (the
"Common  Shares")  without par value,  of which the following  Common Shares are
issued and outstanding as fully paid and non-assessable:

     Name                            Number of Common Shares
     ----                            -----------------------
     Santa Catalina                             12,000
     Essex                                       4,800
     CVL                                         4,800
     Drucker                                     2,400
     TOTAL:                                     24,000

B. Santa Catalina, Essex, CVL and Drucker (collectively, the "Shareholders") and
the  Company  desire to enter  into  this  Agreement  in order to  record  their
respective rights and obligations.

     NOW  THEREFORE  THIS  AGREEMENT  WITNESSETH  that in  consideration  of the
recitals, the following agreements,  the payment of US One Dollar (US$1.00) made
by each  party to the  other,  and other good and  valuable  consideration,  the
receipt and  sufficiency  of which is  acknowledged  by each party,  the parties
agree as follows:

1.      INTERPRETATION

1.1     Where used in this  Agreement  each of the words and  phrases set out in
        the agreement and recitals hereto shall have the meanings therein set
        forth.

1.2     This Agreement  shall in all respects be governed by and be construed in
        accordance  with the laws of the Province of British Columbia.

1.3     If any one or more of the provisions  contained in this Agreement  shall
        be invalid, illegal or unenforceable in any respect in any jurisdiction,
        the  validity,   legality  and   enforceability  of  such  provision  or
        provisions  shall not in any way be affected or impaired  thereby in any
        other jurisdiction and the validity,  legality and enforceability of the
        remaining  provisions  contained herein shall not in any way be affected
        or impaired thereby.

1.4     Wherever the singular or the  masculine is used herein the same shall be
        deemed to include  the  plural or the  feminine  or the body  politic or
        corporate where the context or the parties so require.

1.5     The headings of the Parts of this  Agreement  are inserted  for
        convenience  only and shall not affect the construction hereo(pound)

1.6     Unless  otherwise  stated a  reference  herein to a numbered or lettered
        paragraph or Part refers to the paragraph or Part bearing that number or
        letter in this Agreement.

<PAGE>

1.7     All  accounting  terms not  defined in this  Agreement  shall have those
        meanings  generally  ascribed  to  them  in  accordance  with  generally
        accepted accounting principles, applied consistently.

2.       CONDUCT OF THE AFFAIRS OF THE COMPANY

2.1      Subject  to  paragraph  2.2,  each of the  Shareholders  shall vote his
         Common  Shares  so that the  Board of  Directors  of the  Company  (the
         "Board")  shall  be  comprised  of four  directors  nominated  by Santa
         Catalina,  two of whom are  resident  in  Bermuda.  In the event that a
         position  on the Board shall be open for any reason  whatsoever,  Santa
         Catalina  shall be  entitled  to  nominate a new  director to fill such
         vacancy.

2.2      In the event that a nominee to the Board  shall fail to vote and act as
         a director  to carry out the  provisions  of this  Agreement,  then the
         Shareholders  agree to  exercise  their  right as  shareholders  of the
         Company  and in  accordance  with the  By-laws of the Company to remove
         such nominee from the Board and to elect in the place or stead  thereof
         such  individual  nominated  by  Santa  Catalina  who will use his best
         efforts to carry out the provisions of this Agreement.

2.3      Unless otherwise  provided  herein,  the conduct of the business of the
         Company  shall  be  governed  in  accordance  with the  By-laws  of the
         Company.

2.4      A quorum  required for the  transaction of business at a meeting of the
         Board shall be two  directors or their alternates.

2.5     The following  matters shall only be undertaken  upon the unanimous
        resolution of all the directors of the Company able to vote:

          (a) the sale, lease, transfer,  mortgage,  pledge or other disposition
          of the undertaking of the Company, or any of its subsidiaries;

          (b) any increase or reduction in the capital of the Company;

          (c) the consolidation,  merger or amalgamation of the Company with any
          other company, association, partnership or legal entity;

          (d) any  single  capital  expenditure  of the  Company  in  excess  of
          US$50,000,  or any  lease by the  Company  of  property  having a fair
          market value in excess of US$50,000;

          (e) any  borrowing  by the  Company or any of its  subsidiaries  which
          would result in the aggregate indebtedness of the Corn any (other than
          amounts due to Shareholders) being in excess of US$50,000 at any one
          time;

          (f)  any  loans  by the  Company  or any  of its  subsidiaries  to any
          Shareholder, or to an Affiliate;

<PAGE>

          (g) any  transaction out of the ordinary course of the business of the
          Company;

          (h) any contract (or  amendment  thereof)  between the Company and any
          Shareholder or an Affiliate;

          (i) any change in the authorized  signing officers in respect of legal
          documents or any bank or other financial institution;

          (j) any  agreement  by the  Company  which  restricts  or  purports to
          restrict, or which permits any other party to accelerate or demand the
          payment of any indebtedness of the Company upon the sale,  transfer or
          other disposition by a Shareholder of his Common Shares, provided that
          nothing in this  paragraph  2.5 shall be construed so as to fetter the
          discretion of the  directors of the Company or require such  directors
          to act in a  particular  manner with  respect to any of the  foregoing
          matters.

2.6      Each Shareholder  shall for so long as it is the owner of Common Shares
         of the Company use its best efforts, skill and abilities to promote the
         interest of the Company.

2.7     Except with the unanimous consent in writing of the other  Shareholders,
        no  Shareholder  shall,  while it is a Shareholder  of the Company,  or
        within a period of two years after it ceases to be a Shareholder:

          (a) directly or  indirectly,  whether as principal,  agent,  employee,
          director of a company,  or otherwise,  or be means of any corporate or
          other  device,  solicit  or aid in the  solicitation  of any  business
          similar  to the  business  being  carried on by the  Company  from any
          customer  or  customers  of the  Company or, in the event of it having
          ceased to be a  Shareholder,  any customer or customers of the Company
          with whom it has business dealings on behalf of the Company; or

          (b) directly or indirectly,  use or disclose to any person,  except to
          duly  authorized  officers  and  employees  of  the  Company  entitled
          thereto, any trade secret, business date or other information acquired
          by it by reason of its involvement and association with the Company.

2.8      Each of the  Shareholders  acknowledges  that by reason  of its  unique
         knowledge of and  association  with the  business of the  Company,  the
         scope of the covenants in paragraph 2.7 is reasonable and  commensurate
         with the protection of the legitimate  interests of the Company.  It is
         understood  and agreed that the  covenants  contained in paragraph  2.7
         shall  subsist even if the rest of this  agreement  shall be terminated
         for any reason whatsoever and is severable for such purpose.

3.       RESTRICTIONS ON TRANSFER/RIGHT OF FIRST REFUSAL

3.1       Except as otherwise expressly permitted in this Agreement:

<PAGE>

(a)      no Shareholder  shall sell,  transfer or otherwise  dispose or offer to
         sell, transfer or otherwise dispose of, any of its Common Shares unless
         that Shareholder (the "Offeror") first offers to the Company and to the
         other  Shareholders  (the  "Others") by notice in writing (the "Offer")
         delivered to the  Secretary,  the prior right to  purchase,  receive or
         otherwise acquire the same;

(b)      the Offer shall state that the Offeror has  determined  to avail itself
         of the  provisions  of this Part 3 and shall set forth:

          (i)  the number  of  Common  Shares  offered  for sale  (the  "Offered
               Shares"),

          (ii)  the price as determined  by the Offeror,  in lawful money of the
                United States for the Offered Shares (the "Purchase Price"),

          (iii) that the terms and  conditions  of the sale are that at closing,
                100% of the Purchase  Price is to be paid by  certified  cheque
                to the Offeror, and

          (iv)  that the Offer shall either be accepted in the  aggregate in its
                entirety  or not at all  and  that it is open for acceptance  by
                the Company and the Others for a period of 60 days after receipt
                of such Offer by the Secretary;

(c)       upon receipt of the Offer, the Secretary shall forthwith:

          (i)    transmit the Offer to each director of the Board,

          (ii)   trasmit the Offer to each of the Others, and

          (iii)  call a meeting of the Board to consider the Offer;

(d)      the  Company  shall have the first right to accept the Offer and to the
         extent  that it is  accepted  the  Others  agree to refuse any pro rata
         offer by the Company to purchase shares which is required to be made by
         the Company  under the  corporate  laws of Bermuda,  the By-laws of the
         Company or this Agreement;

(e)      if the Offer is not wholly accepted by the Company within 30 days after
         receipt thereof by the Secretary:

         (i)     the  Secretary  shall  advise the Others of the extent to which
                 the Offer is still open  forthwith  upon the  expiration of the
                 aforesaid 30 day period;

         (ii)    that portion of the Offer not accepted by the Company  shall be
                 open for acceptance  within the next  14 days by the Others pro
                 rata in  accordance with  their  respective holdings of  Common
                 Shares in the Company;

         (iii)   acceptance by the Others shall be by written notice to the
                 Secretary and by such acceptance a Shareholder  may specify any
                 additional  portion of the Common Shares  offered for sale that

<PAGE>

                 such Shareholder is prepared to purchase in  the event that any
                 of the Others  fails to fully  accept such Offer, and if any of
                 the Others fails to fully accept such Offer, such Shareholder
                 (pro rata if more than one) shall be entitled  to purchase such
                 additional  portion of the Common Shares as shall be so
                 available; and

         (iv)    the Secretary shall advise the Company of the extent to which
                 the Offer is still open  forthwith upon the  expiration  of the
                 aforesaid 14 day period;

(f)      if,  and to the extent  the Offer is not fully  accepted  by the Others
         within  the 14 days  that it is open to  them,  the  Company  shall  be
         entitled  prior to the expiration of the Offer to accept the Offer with
         respect  to  that  portion  of the  Offered  Shares  as  shall  then be
         available, in which event the Others agree to refuse any pro rata offer
         by the Company to purchase  shares  which is required to be made by the
         Company under the corporate laws of Bermuda, the By-laws of the Company
         or this agreement;

(g)     prior to the expiration of the 60 day period, the Secretary shall advise
        the Offeror  whether the Offer has been  accepted in its entirety and by
        whom;

(h)      if the Offer is not wholly accepted as set out herein, the Offeror may,
         within 60 days after the  expiry of the 60 day  period for  acceptance,
         sell, transfer or otherwise dispose of the whole of that portion of the
         Offered  Shares  to any other  person,  firm or  corporation  (a "Third
         Party")  for not  less  than  the  price  and on no  better  terms  and
         conditions than as set out in the Offer.  Upon the expiry of the 60 day
         period  without  the  completion  of a  sale  to  a  Third  Party,  the
         provisions of this  paragraph  3.1 will again become  applicable to the
         sale,  transfer or other  disposition of the Common Shares owned by the
         Offeror or part thereof and so on from time to time;

(i)      no disposition permitted by this paragraph 3.1 shall be made to a Third
         Party unless the Third Party shall have entered into an agreement  with
         the Others by which the Third Party  shall be bound by and  entitled to
         the  benefit of the  provisions  of this  Agreement  and the Others and
         shall enter into such an agreement;

(j)      upon the acceptance of the Offer, the Company, the Others or the Third
         Party, as the case may be, shall purchase, at the Purchase Price, the
         Offered Shares (or that part thereof) of the Offeror being sold and the
         closing of the purchase thereof shall occur on the 30th day following
         the date of the last acceptance in respect to the Offer or, if that day
         is not a business day, then on the next ensuing business day (or such
         other date as the parties thereto may agree), at which time the
         appropriate parties shall execute and deliver such certified cheques,
         share certificates, instruments, conveyances, assignments, escrow
         agreements and releases as may be reasonably required to effect and
         complete the sale; and

<PAGE>

(k)     the  Others  and the  Company  covenant  and  agree,  in  respect of any
        Shareholder  who shall  have  disposed  of all of its  Common  Shares in
        compliance  with the  provisions  of this  Agreement,  to use their best
        efforts to cause to be  discharged  or cancelled any guarantee or pledge
        issued or granted by such Shareholder in respect of the Company.

3.2      Except as specifically  provided herein, no Shareholder shall mortgage,
         pledge, charge,  hypothecate or otherwise encumber its Common Shares or
         any part thereof without the prior written consent thereto of the other
         Shareholders, which consent may be unreasonably withheld without giving
         any reason therefor.

3.3      Notwithstanding any other provision of this Agreement,  any Shareholder
         may sell, transfer or otherwise dispose of the whole or any part of his
         Common Shares to a corporation or trust  controlled by the Shareholder
         (the "Affiliate") provided that the Shareholder and the Affiliate enter
         into an agreement with the other Shareholders that:

          (a) the Affiliate will remain an Affiliate of the  Shareholder so long
              as the Affiliate holds the Common Shares or any other part
              thereof,

          (b) prior to the  Affiliate  ceasing to be an Affiliate of the
              Shareholder, the Affiliate will transfer the Common Shares back to
              the Shareholder or to  another  Affiliate  of the  Shareholder,
              provided  that such  other Affiliate  enters into a similar
              agreement with the Shareholder and the other Shareholders;

          (c) the  Affiliate will  otherwise be bound by and have the benefit of
              the provisions under this Agreement; and

          (d) the  Shareholder will continue to be liable for all obligations of
              the Affiliate under this Agreement.

3.4     Notwithstanding any other provision of this Agreement, upon the death or
        insolvency of a Shareholder,  the Common Shares of the Shareholder will
        be  transferred in accordance  with the applicable  laws of intestacy or
        bankruptcy.

3.5      Notwithstanding  any other provision of this Agreement,  no Shareholder
         shall be entitled to sell,  transfer or otherwise dispose of any of its
         Common Shares in accordance  with paragraph 3.1 if it is at such time a
         Defaulting  Shareholder  as  defined  in Part  5,  unless  prior  to or
         concurrently with such sale, transfer or other disposition it ceases to
         be a Defaulting Shareholder.

3.6      Notwithstanding  any other provision of this Agreement,  no Shareholder
         shall be entitled to sell,  transfer or otherwise dispose of any of its
         Common Shares or any part thereof without first obtaining:

<PAGE>

         (a)      the prior written consent of the other  Shareholders,  if such
                  action  would permit any other party to  accelerate  or demand
                  the payment of any indebtedness of the Company; or

         (b)      the consent of any other party, if such consent is required by
                  agreement of the Company with that party.

3.7      Notwithstanding  any other provision of this  Agreement,  a Shareholder
         may  transfer  its  Common  Shares to a third  party  with the  written
         consent of the other Shareholders.

3.8      Upon execution of this Agreement,  the Shareholders  shall surrender to
         the Company and there  shall be legibly  stamped or endorsed  upon each
         certificate representing their Common Shares a statement as follows:

               "The shares represented by this certificate are transferable only
               in  compliance  with and  pursuant  to the terms of an  agreement
               among Santa Catalina  (Algeria) Ltd., Santa Catalina  (Bermuda) I
               Ltd.,  Essex  Resource  (Barbados)  Corporation,   CVL  Resources
               (Barbados)  Ltd. and Drucker  Petroleum  (Algeria) Inc. dated for
               reference October 27, 1999."

4.       ANTI-DILUTION PROVISIONS

4.1      Except as otherwise expressly permitted in this Agreement:

         (a)      In  the  event  that  all  of  the  Shareholders  continue  to
                  participate  on a  pro-rata  basis  under the  agreement  (the
                  "Farm-In  Agreement")  among them dated October 27, any funds
                  required to be advanced by each  Shareholder in respect of its
                  interest under the Farm-In  Agreement will be advanced by such
                  Shareholder to the Company as a contribution to capital;

         (b)    In the event that any of the  Shareholders  do not  continue  to
                participate on a prorata basis under the Farm-In Agreement,  any
                funds  required to be advanced by any  Shareholder in respect of
                its interest under the Farm-In  Agreement  will be.  advanced by
                such Shareholder to the Company as a subscription for additional
                common  shares  of the  Company  and the  Shareholders  agree to
                increase the  authorized  capital of the Company and to take all
                such other steps as may be necessary and execute and deliver any
                necessary documentation to permit such share issuances;

         (c)    In the  event  that  any of  Essex,  CVL or  Drucker  elects  to
                withdraw  from the  FarmIn  Agreement  within 10 days  after the
                receipt by the Company of final well logs  relating to the First
                Well or prior to the spudding of the Second  Well,  whichever is
                later,  in accordance  with the terms of the Farm-In  Agreement,
                then that  Shareholder must gift all of its Common Shares of the
                Company back to the Company; and

<PAGE>

(d)      In the event that Santa  Catalina  elects to withdraw from the Farm-In
         Agreement,  then each of Essex,  CVL and Drucker will  immediately gift
         all of  their  respective  Common  Shares  of the  Company  back to the
         Company, unless otherwise agreed.

5.       DEFAULT

5.1 It is an event of default (a "Default") if a  Shareholder  (the  "Defaulting
Shareholder"):

     (a) fails to observe, perform or carry out any of its obligations hereunder
         and such failure  continues  for 30 days after any of the  Shareholders
         not in default (the  "Nondefaulting  Shareholder"  individually and the
         "Nondefaulting Shareholders" collectively) has in writing demanded that
         such failure be cured;

     (b) fails to take reasonable actions to prevent or defend assiduously,  any
         action or  proceeding  in  relation  to any of its  Common  Shares  for
         seizure, execution or attachment or which claims:

          (i)      possession,

          (ii)     sale,

          (iii)    foreclosure,

          (iv)     the appointment of a receiver or receiver-manager of his
                   assets, or

          (v)      forfeiture or termination,

          of or  against,  any of the  Common  Shares  owned by the  Defaulting
          Shareholder,   and  such  failure   continues  for  30  days  after  a
          Nondefaulting  Shareholder  has in writing  demanded  that the same be
          taken or the Defaulting  Shareholder fails to defend  successfully any
          such action or proceeding; or

     (c)  becomes a bankrupt or commits an act of  bankruptcy  or if a receiver
          or receiver manager  of its assets is appointed or makes an assignment
          for the benefit of creditors or otherwise.

5.2      In the event of a Default under  paragraph 5.1, the  Nondefaulting
         Shareholder(s)  may do any one or more of the following:

        (a)     pursue  any  remedy  available  to them in law or in  equity, it
                being acknowledged  by each of the  Shareholders  that  specific
                performance, injunctive relief (mandatory or otherwise) or other
                equitable relief may be the only adequate remedy for a Default;

        (b)     take all  actions  in their own names or in the name of the
                Defaulting Shareholder,  as may  reasonably  be required to cure
                the  Default,  in which event all payments,

<PAGE>

               costs and  expenses  incurred  therefor  shall be  payable by the
               Defaulting  Shareholder to the  Nondefaulting  Shareholder(s)  on
               demand with interest as provided in paragraph 5. 1;

        (c)    implement the buy-sell procedure  as set out in  paragraph 5.3 by
               notifying the  Secretary of the Default and the name of the
               Defaulting Shareholder; or

        (d)    waive the Default  provided,  however,  that any waiver of a
               particular Default  shall not operate as a waiver of any
               subsequent or continuing Default.

5.3     In  the  event  the  buy-sell  procedure  herein  is  implemented,   the
        Defaulting Shareholder is deemed to offer to sell to the Company all but
        not less  than all of its  Common  Shares  on the  following  terms and
        conditions:

        (a)     the price payable for the Common Shares of the Defaulting
                Shareholder shall be US$ 1.00 per Common Share;

        (b)     the  terms and conditions  of the  sale shall be as  provided in
                subparagraphs 3.1 (b)(iii) and (iv) (as may be applicable);

        (c)     the  Common  Shares  shall be sold in  accordance  with  the
                procedure specified  in  paragraphs  3.1(c),  (d)  and  (e)  (as
                the  Defaulting Shareholder was the "Offeror" and the
                Nondefaulting  Shareholders were the "Others");

        (d)     after compliance with paragraph 5.3(c) hereof, to the extent the
                Offer has not been  accepted,  the Company shall purchase such
                portion of the Common Shares as shall be available; and

        (e)     the provisions of paragraphs 3.1 (j) and (k) shall apply (as may
                be applicable).

6.       GENERAL PROVISIONS

6.1     This Agreement shall terminate:

        (a)     if the Company has a receiving  order made against it, goes into
                bankruptcy  either  voluntarily  or  involuntarily  or  makes  a
                proposal to its creditors; or

        (b)     if the parties hereto consent in writing to the termination
                hereof.

6.2     Any  Shareholder  who shall have disposed of all of its Common Shares in
        compliance  with the provisions of this  Agreement  shall be entitled to
        the  benefit of and be bound by only the rights  and  obligations  which
        arose pursuant to this Agreement prior to such disposition.

6.3     The  Shareholders  shall  execute  such  further  assurances  and  other
        documents and instruments and do such further and other things as may be
        necessary to implement and carry out the intent of this Agreement.

<PAGE>

6.4      The  provisions  herein  constitute  the entire  agreement  between the
         Shareholders and supersedes all previous expectations,  understandings,
         communications,   representations  and  agreements  whether  verbal  or
         written  between the  Shareholders  with respect to the subject  matter
         hereof.

6.5      Unless  otherwise  specified  herein,  any notice  required to be given
         hereunder  by  any  party  shall  be  deemed  to  have  been  well  and
         sufficiently  given if such notice is delivered by personal delivery to
         such  party  or  transmitted  to  such  party  by fax at the  following
         addresses:

If to the Company:

         Santa Catalina (Algeria) Ltd.
         Suite 1320, 885 West Georgia Street
         Vancouver, British Columbia

         Fax No. (604) 689-4250

If to SANTA CATALINA:

         Santa Catalina (Bermuda) I Ltd.
         Suite 1320, 885 West Georgia Street
         Vancouver, British Columbia

          Fax No. (604) 689-4250

If to ESSEX:

         Essex Resource (Barbados) Corporation
         Suite 1220, 800 West Pender Street
         Vancouver, B.C. V6C 2V6

         Fax No. (604) 685-6493

If to CVL:

         CVL Resources (Barbados) Ltd.
         Suite 1220, 800 West Pender Street
         Vancouver, B.C. V6C 2V6

         Fax No. (604) 685-6493

<PAGE>

If to DRUCKER:

         Drucker Petroleum (Algeria) Inc.
         Suite 830, 789 West Pender Street
         Vancouver, B.C. V6C I H2

         Fax No. (604) 689-7654

or at such  other  address  as the other  party may from time to time  direct in
writing.  Any notice personally delivered to the party to whom such Notice is to
be given shall be deemed to have been given and received by the party to whom it
is addressed on the day it is personally  delivered.  Any Notice  transmitted by
fax shall be deemed to have been received on the day it is faxed, if faxed prior
to 5:00 p.m. on such day and,  otherwise,  on the day next following the date of
transmission, provided that if such day falls on a weekend or statutory holiday,
then such notice shall be deemed to have been given and received on the business
day next following such day.

6.6     Time shall be of the essence hereof

6.7      This  Agreement  shall enure to the benefit of and be binding  upon the
         Shareholders   and  the   Company   and   their   respective   personal
         representatives, successors and permitted assigns.

6.8      This  Agreement  may be  executed  in as  many  counterparts  as may be
         necessary and by facsimile,  each of such counterparts so executed will
         be  deemed  to be an  original  and  such  counterparts  together  will
         constitute  one and the same instrument and notwithstanding the date of
         execution  will be deemed to bear the date as of the day and year first
         above written.

     IN WITNESS WHEREOF the parties have executed this Agreement all on the date
and year first above written.

SANTA CATALINA (ALGERIA) LTD.
Per:

--------------------------------
Authorized Signatory

<PAGE>

SANTA CATALINA (BERMUDA) I LTD.
Per:

--------------------------------
Authorized Signatory

ESSEX RESOURCE (BARBADOS) CORPORATION
Per:

--------------------------------
Authorized Signatory

CVL RESOURCES (BARBADOS) LTD.
Per:

----------------------------------
Authorized Signatory

DRUCKER PETROLEUM (ALGERIA) INC.
Per:

----------------------------------
Authorized Signatory

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