Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - MegaWest Energy Corp. - Exhibit 10.31

October 24, 2007 

Longshot Oil Company 
P.O. Box 397 
Somers, MT

59932 

BS Oil Company Ltd. 
88 Bennett Cr. NW 
Calgary, AB

T2L 1R1 

	RE: 	OPERATING AND FARMIN
      AGREEMENT 
	  	Loma Area, Montana 
	 	MegaWest File No.:
      25001C00004 

The purpose of this letter is to confirm the agreement which
has been reached between our companies regarding the acreage set forth below.

	1. 	
      DEFINITIONS

	 	 	 	 
		
      The following terms and expressions shall have the
      meanings hereinafter assigned to them, namely:

	 	 	 	 
		(a) 	
      "Additional Loma Program" shall mean, in the event that
      Farmor and Farmee agree that the adequate initial evaluation of the
      farmout lands requires the expenditure of more than US $500,000.00, the
      mutually agreed upon nature and extent of the additional activities and
      expenditures required to complete such adequate initial evaluation, which
      additional activities may, without limitation, include (i) the kicking off
      and horizontal drilling into one or more of the zones of interest
      determined during the initial drilling of such test well (a "Supplemental
      Operation"), or (ii) the drilling of a second test well (a "Second Test
      Well"); provided, however, that under no circumstances shall the
      Additional Loma Program require expenditures in excess of US $1,000,000.00
      over and above the Earning Expenditures;

	 	 	 	 
		(b) 	
      "agreement" shall mean this letter Operating and Farmin
      Agreement;

	 	 	 	 
		(c) 	
      "Approved Encumbrances" shall mean the applicable
      lessor's royalty and any other encumbrances set forth and described in
      Schedule "A";

	 	 	 	 
		(d) 	
      "cap" shall mean the installation of such casing, plugs
      and equipment as are necessary to enable a well prospective of production
      of petroleum substances to be completed at a later date;

	 	 	 	 
		(e) 	
      "complete or completion" and the derivatives thereof
      shall mean in the case of a well capable of producing petroleum substances
      in at least paying quantities:

	 	 	 	 
			(i) 	
      in the case of an oil well: (A) the acquisition and
      installation of production casing in the hole (exclusive of surface and
      intermediate casing) and all other equipment, materials and services
      required to complete the well up to and

Farmin Agreement 
Page 2 

	 		
      including the outlet valve at the wellhead; and (B) such
      production testing as is reasonably desirable under the
    circumstances;

	 	 	 
	 	(ii) 	
      in the case of a gas well: (A) the acquisition and
      installation of production casing in the hole (exclusive of surface and
      intermediate casing) and all other equipment, materials and services
      required to complete the well up to and including the outlet valve at the
      wellhead; and (B) running adequate back pressure tests and a sustained
      production test consisting of an absolute open flow potential test
      sufficient to establish the initial productivity of the
  well;

	 	(f) 	
      "contract depth" shall mean a depth sufficient to
      penetrate to the base of the Souris River formation or to a final total
      depth of 4400 feet subsurface, whichever depth first occurs;

	 	 	 	 
	 	(g) 	
      "drilling" and the derivatives thereof shall mean all
      activities incidental to the drilling of a well and all services in
      respect thereof including, without limitation, the acquisition of all
      surface rights, construction of access roadways and the wellsite,
      drilling, coring, testing, logging and the acquisition and installation of
      all surface and intermediate casing as well as material and services in
      respect thereof;

	 	 	 	 
	 	(h) 	
      "Earning Date" means the first date on which the Farmee
      has satisfied the provisions of Clause 5(a) of the agreement
  herein;

	 	 	 	 
	 	(i) 	
      "Earning Expenditures" means the sum of $500,000.00 US
      dollars;

	 	 	 	 
	 	(j) 	
      "equip or equipping" and the derivatives thereof shall
      mean the acquisition and permanent installation of equipment beyond the
      outlet valve at the wellhead and required to produce petroleum substances
      from the well (excluding the equipment required to complete the well),
      including without limitation:

	 	 	 	 
	 		(i) 	
      in the case of an oil well: the acquisition and permanent
      installation of pumping equipment, flowlines, production tankage and all
      other equipment necessary for the production of petroleum
    substances;

	 	 	 	 
	 		(ii) 	
      in the case of a gas well: the acquisition and permanent
      installation of compressors, separators, heaters, treaters, dehydrators or
      other hydrate control facilities, production test tanks and all other
      equipment necessary for the production of petroleum substances to the
      point of entry into a gathering system, plant or other common
    facility;

	 	 	 	 
	 	(k) 	
      "Farmee" shall mean MegaWest Energy Montana
  Corp.;

	 	 	 	 
	 	(l) 	
      "Farmor" shall mean collectively Longshot Oil Company,
      and BS Oil Company Ltd.;

	 	 	 	 
	 	(m) 	
      "farmout lands" shall mean the areal, stratigraphic and
      substance rights described in Schedule "A" or so much of those rights as
      remain subject to this agreement and the title documents;

	 	 	 	 
	 	(n) 	
      "Loma Area AMI Lands" shall mean all areal, stratigraphic
      and substance rights with respect to lands within one mile of the outer
      boundary of the farmout lands;

	 	 	 	 
	 	(o) 	
      "Operating Procedure" shall mean the standard form AAPL
      1989 Model Form Operating Agreement, as amended, attached as Schedule "B"
      hereto;

Farmin Agreement 
Page 3 

	 	(p) 	
      "Payout" shall mean the point in time at which the
      cumulative gross revenues from the sale of 100% of production of petroleum
      substances from, or allocated to, the test well (net of any and all
      cumulative operating expenses and Approved Encumbrances) shall first
      exceed the greater of (i) the total expenditures of Farmee in drilling,
      completing, equipping and otherwise rendering the test well capable of
      production in paying quantities, and (ii) the Earning
  Expenditures;

	 	 	 	 
	 	(q) 	
      "Regulations" shall mean the applicable federal laws and
      laws of the state of Montana pertaining to drilling and production spacing
      units;

	 	 	 	 
	 	(r) 	
      "rentals or rental payments" shall mean all rents,
      renewals, taxes, penalties and other payments payable with respect to the
      title documents, but shall not include the initial consideration paid by
      Farmor with respect to any of the title documents;

	 	 	 	 
	 	(s) 	
      "spacing unit" shall mean all zones of that area of the
      farmout lands earned by the Farmee pursuant to this agreement, which area
      will be determined as of the drilling rig release date of the test well,
      and is described as follows;

	 	 	 	 
	 		(i) 	
      for a capped or completed well: the area allocated to a
      well pursuant to the Regulations for the purpose of producing the
      petroleum substance(s) in the zone(s) for which that well has been capped
      or completed; and

	 	 	 	 
	 		(ii) 	
      in every other case: the area allocated to a well
      pursuant to the Regulations for the purpose of producing crude oil, but in
      the absence of that allocation, the quarter-section, unit or similar
      geographical area that includes the bottom-hole co-ordinates of that
      well;

	 	 	 	 
	 	(t) 	
      "test well" shall mean an exploratory test well drilled
      by Farmee pursuant to Clause 5 for the recovery of petroleum substances;
      and

	 	 	 	 
	 	(u) 	
      "title documents" shall mean the documents set forth and
      described as such in Schedule "A" and any renewals or extensions thereof
      or further title documents issued pursuant thereto insofar as they relate
      to the farmout lands.

	2. 	
      SCHEDULES

	 	 	 
		
      The following schedules are attached hereto and
      incorporated into this agreement:

	 	 	 
		(a) 	
      Schedule "A", which sets forth the farmout lands, the
      title documents and the Approved Encumbrances; and

	 	 	 
		(b) 	
      Schedule "B", which sets forth the Operating
      Procedure.

	 	 	 
	3. 	
      TITLE

	 	 	 
		(a) 	
      Farmor does not warrant title to the farmout lands or the
      title documents or agree to convey to Farmee any better title thereto than
      Farmor has on the date hereof. Farmor covenants that the farmout lands are
      only encumbered by the Approved Encumbrances and that it has complied with
      all the terms of the grant of its interest in the farmout lands to the
      extent necessary to maintain them in force as of the date of this
      agreement.

	 	 	 
		(b) 	
      If the interest of any party in the farmout lands is now
      or hereafter shall become encumbered by any royalty, overriding royalty,
      production payment or other charge of a

Farmin Agreement 
Page 4 

similar nature, other than the
Approved Encumbrances, such royalty, overriding royalty, production payment or
other charge of a similar nature shall be charged to and paid entirely by the
party whose interest is or becomes thus encumbered. 

	4. 	 TEST WELL

	 	 	 	 
		 On or before October 31, 2008, Farmee shall
        have the exclusive right to spud a test well at a mutually acceptable
        location within the farmout lands and shall thereafter diligently and
        continuously, drill same to contract depth and test, to the reasonable
        satisfaction of Farmor, all zones prospective or containing petroleum
        substances, log and either complete, cap or abandon same all at Farmee's
        sole cost, risk and expense and in accordance with the terms and conditions
        of this agreement and the Regulations.

	 	 	 	 
	5. 	 INTEREST EARNED

	 	 	 	 
		(a) 	 Provided Farmee has either:

	 	 	 	 
			(i) 	 performed all of its requirements and obligations pursuant
        to this agreement with respect to the drilling, testing, logging, completion,
        capping or abandonment of the test well, or

	 	 	 	 
			(ii) 	 expended a sum equal to the Earning Expenditures in
        an effort to satisfy its requirements and obligations pursuant to Subclause
        7(a)(i) hereof,

	 	 	 	 
			 and provided further that Farmee is not
        in default of any term or condition of this agreement, then Farmee shall
        have earned, effective as of Earning Date, one third of Farmor's 60% interest
        (a net 20% interest) in and to the farmout lands and in the title documents
        as they pertain thereto, subject only to its proportionate share of the
        Approved Encumbrances.

	 	 	 	 
		(b) 	 Notwithstanding that earning has occurred,
        Farmee shall continue to bear 100% of the costs and expenses in respect
        of any Additional Loma Program, and shall be entitled to receive and retain
        100% of the revenues from the sale of production from the test well and/or
        any Second Earning Operation and/or Second Test Well (as applicable) that
        may form part of any such Additional Loma Program, until Payout, all as
        more particularly described in Clause 9 hereof.

	 	 	 	 
	6. 	 JOINT OPERATIONS AS AT THE DATE HEREOF

	 	 	 	 
		(a) 	 From and after the date hereof, the farmout
        lands shall be owned by the parties hereto in the following respective
        undivided working interests (hereinafter referred to as the "Participating
        Interests"):

MegaWest Energy Montana Corp.   
     -      40% 
Longshot Oil
Company                            
-     51% 
BS Oil Company
Ltd.                                
-       9% 

	 	(b) 	
      From and after the date hereof, except as otherwise
      provided in this Agreement, the parties hereto shall bear all costs and
      expenses paid or incurred under this Agreement and shall own, operate and
      develop the farmout lands, appurtenances thereto, the production of
      Petroleum Substances therefrom, and revenues received in connection
      therewith in accordance with the Participating Interests, and the
      Operating Procedure shall govern all operations on or in respect of the
      Joint Lands.

Farmin Agreement 
Page 5 

	 	(c) 	
      MegaWest Energy Montana Corp. is hereby appointed as
      initial Operator of the farmout lands as of the date
  hereof.

	7. 	
      JOINT OPERATIONS FOLLOWING EARNING BUT PRIOR TO
      PAYOUT

	 	 	 	 
		(a) 	
      Upon earning having occurred pursuant to Clause 5
      hereof:

	 	 	 	 
			(i) 	
      Farmor agrees to execute and deliver such assignments,
      without warranty of title, express or implied, as may reasonably be
      required to vest in Farmee the interest earned pursuant to this
      agreement;

	 	 	 	 
			(ii) 	
      until such time as the grantor of the title documents is
      bound thereby, Farmor shall hold the interest earned by Farmee in trust
      for Farmee until such time as Farmee has become the entitled owner
      pursuant to and in accordance with the terms of the Agreement of Purchase
      and Sale dated October 15, 2007 between Farmor and Farmee.

	 	 	 	 
		(b) 	
      Further, upon earning having occurred pursuant to Clause
      7 hereof, but prior to Payout:

	 	 	 	 
			(i) 	
      the farmout lands shall be owned by the parties hereto in
      the following respective undivided working interests (hereinafter referred
      to as the "Participating Interests");

MegaWest Energy Montana
Corp.   -      60% 
Longshot Oil
Company                       
-      34% 
BS Oil Company
Ltd.                           
-       6% 

	 	(ii) 	
      notwithstanding Subclause 7(b) hereof, Farmee shall bear
      100% of all costs and expenses in the farmout lands and shall be entitled
      to receive and retain all revenues from the sale of production from the
      farmout lands; and

subject only to Subclauses 7(b), 9,
10, 12, 13 and 14 hereof, the Operating Procedure shall govern operations
in respect of the farmout lands. 

	8. 	
      JOINT OPERATIONS FOLLOWING PAYOUT

	 	 	 
		
      Upon both earning and Payout having occurred, subject to
      the provisions of Clause 9 hereof, operations in respect of the farmout
      lands shall continue to be governed by the Operating Procedure, but the
      Parties shall bear all costs and expenses in accordance with their
      respective interests in the farmout lands and shall be entitled to receive
      and retain all revenues from the sale of production from the farmout lands
      in accordance with their respective working interests in the farmout
      lands.

	 	 	 
	9. 	
      ADDITIONAL EXPENDITURES REQUIRED FOR EVALUATION OF
      FARMOUT LANDS

	 	 	 
		(a) 	
      If the Farmee and Farmor agree that the adequate initial
      evaluation of the farmout lands requires an Additional Loma Program, then
      Farmee shall bear the cost of such Additional Loma Program notwithstanding
      that it has already earned a 20% interest in and to the farmout
    lands.

	 	 	 
		(b) 	
      In the event that Payout has not occurred prior to the
      conduct of the Additional Loma Program and the Farmee is bearing
      the cost of such Additional Loma Program
pursuant

Farmin Agreement 
Page 6 

	 		
      to the terms of Subclause 9(a) hereof, an amount equal to
      125% of the Farmor's share of the cost of the Additional Loma Program
      shall be added to the total expenditures of Farmee for the purposes of the
      calculation of "Payout".

	 	 	 
	 	(c) 	
      In the event that Payout has occurred prior to the
      conduct of the Additional Loma Program and the Farmee is bearing
      the cost of such Additional Loma Program pursuant to the terms of
      Subclause 9(a) hereof, Farmee shall nonetheless be entitled to receive the
      revenues attributable to Farmor's 40% share from the sale of production
      from the farmout lands until such time as the cumulative gross revenues
      from the sale of 100% of production of petroleum substances from, or
      allocated to, the test well (net of any and all cumulative operating
      expenses and Approved Encumbrances) shall first exceed 125% of the total
      expenditures of Farmee in completing the Additional Loma
  Program.

	10. 	
      ABANDONMENT

	 	 	 
		
      Insofar as the abandonment of a well forms part of the
      Farmee's earning operation or part of an Additional Loma Program, the
      following Subclauses shall apply.

	 	 	 
		(a) 	
      If Farmee has performed all related obligations hereunder
      to Farmor's reasonable satisfaction and if Farmee decides to abandon the
      test well upon reaching contract depth, Farmee shall give Farmor 48 hours
      notice (Farmee must supply Farmor with all information Farmee is obligated
      to provide Farmor for the test well and such other data for that well as
      Farmor may reasonably require for the exercise of its rights hereunder) if
      a drilling rig capable of conducting such abandonment is on location and
      15 days notice in any other case prior to commencing abandonment, within
      which time Farmor may:

	 	(i) 	
      at its sole risk and expense, elect to further test the
      test well. Farmee shall conduct the tests at Farmor's request and in a
      timely manner. Farmor shall reimburse Farmee for all expenses that Farmee
      incurs that it would not have otherwise incurred had Farmor not elected to
      make the tests and Farmee will promptly provide the data therefrom to
      Farmor, in which case the election period described above will apply from
      Farmor's receipt of that additional testing information; or

	 	 	 
	 	(ii) 	
      elect to take over the test well for completion in which
      event Farmee will, effective as of the date of Farmor's election to take
      over the well, assign the well (including the material, equipment and
      surface access rights relating solely thereto that Farmor wishes to use)
      to Farmor, without warranty; or

	 	 	 
	 	(iii) 	
      concur with Farmee's decision to abandon the test well
      and Farmee shall promptly so abandon the wellbore at its sole
    expense.

	 		
      If Farmor fails to respond to Farmee's notice given under
      this clause within the time mentioned above, then Farmor is deemed to have
      concurred in the abandonment.

	 	 	 
	 	(b) 	
      Compliance by Farmee with the provisions of Clause 10(a)
      will constitute Farmee's satisfaction of its obligation to abandon the
      wellbore of the test well for the purpose of earning hereunder.

	 	 	 
	 	(c) 	
      If Farmor takes over a well pursuant to this clause, and
      if Farmor commences to abandon the well within 13 months of Farmor's
      election to take over the well, Farmor will abandon that well for the
      account of Farmee, provided that Farmee will not be responsible for any
      extra costs of abandonment resulting from Farmor's takeover of that well.
      Farmor will

Farmin Agreement 
Page 7 

	 		
      calculate the abandonment costs for which Farmee is
      responsible under this clause and the net salvage value of the material
      and equipment Farmee had installed respecting that well. Farmor will
      provide Farmee with a statement showing the calculation of the proposed
      adjustment of accounts in reasonable detail. The party owing an amount
      will pay that amount to the other party within 30 days of the receipt of
      that statement.

	 	 	 
	 	(d) 	
      If Farmor does not commence to abandon the well within
      the period prescribed above, Farmee will calculate the amount of the
      estimated net salvage value of the material and equipment assigned to
      Farmor. Farmor will pay that amount within 30 days of receiving an invoice
      for same. Farmee will cease to be responsible for abandonment costs if
      Farmor so retains the well.

	 	 	 
	 	(e) 	
      If Farmor successfully completes the well in a zone
      originally contained in the farmout lands, Farmee will assign to Farmor,
      without warranty, Farmee's working interest in the spacing unit for that
      well in only the zone(s) completed by Farmor and the petroleum substances
      therein, effective as of the date of Farmor's election to take over that
      well. That assignment will not release Farmee from any obligation that
      should have been performed by it or any liability that may have accrued to
      it prior to that assignment.

	 	 	 
	 		
      With respect to the abandonment of any well which does
      not form part of the Farmee's earning operation or part of an Additional
      Loma Program, the Operating Procedure shall
apply.

	11. 	
      AREA OF MUTUAL INTEREST

	 	 	 
		(a) 	
      Farmor and Farmee hereby establish an area of mutual
      interest ("Loma Area AMI") encompassing all lands and formations within
      the Loma Area AMI lands, which Loma Area AMI shall remain active for a
      period of two (2) years from the date hereof.

	 	 	 
		(b) 	
      Farmor or Farmee shall not lease or sublease within the
      Loma Area AMI without giving notice to the other party of such lease or
      sub lease and the terms thereof, and offering the other party the
      opportunity to participate in that lease or sublease as to its respective
      working interest share. The party receiving such notice shall have fifteen
      (15) days to elect to participate in that lease or sub lease as to its
      working interest share, which election shall validly be made only if made
      in writing and accompanied by such party's share of the cost of acquiring
      such lease.

	 	 	 
		(c) 	
      Neither the Farmor or Farmee, nor the assignees of any of
      them, shall have the right to file a partition action of any mineral or
      leasehold interest within the Loma Area AMI. This provision may be indexed
      into the chain of title of the leases involved.

	 	 	 
		(d) 	
      Operations in respect of any lands acquired jointly be
      the parties pursuant to the terms of this Clause 11 shall be governed by
      the Operating Procedure.

	 	 	 
		(e) 	
      The Farmee shall be responsible for the administrative
      payment of lease delay rentals for present and future leases within the
      Loma Area AMI.

	 	 	 
	12. 	
      INDEMNIFICATION

	 	 	 
		(a) 	
      With respect to the operations set forth and described in
      Clause 4 hereof, Farmee shall:

Farmin Agreement 
Page 8 

	 	(i) 	
      be liable to Farmor for all losses, costs, damages and
      expenses whatsoever (whether contractual or otherwise) which Farmor may
      suffer, sustain, pay or incur; and, in addition

	 	 	 
	 	(ii) 	
      indemnify and hold harmless Farmor and its directors,
      officers, agents and employees against all actions, causes of action,
      proceedings, claims, demands, losses, costs, damages and expenses
      whatsoever that may be brought against or suffered by Farmor, its
      directors, officers, agents and employees or that they may sustain, pay or
      incur,

	 		
      by reason of any matter or thing arising out of or in any
      way attributable to the operations carried on by Farmee or its servants,
      agents, employees, independent contractors, licensees or invitees pursuant
      to this agreement; or

	 	 	 
	 	(b) 	
      With respect to all other operations carried on by Farmee
      or its servants, agents, employees, independent contractors, licensees or
      invitees, the Operating Procedure shall apply.

	 	 	 
	 	(c) 	
      With respect to any operations assumed or undertaken by
      Farmor, whether pursuant to Article 10 of this Agreement or otherwise,
      Farmor will indemnify Farmee in the same manner as Farmee indemnifies
      Farmor pursuant to this Agreement.

	13. 	
      RENTALS

	 	 	 
		(a) 	
      With respect to the operations set forth and described in
      Clause 4 hereof, Farmee shall reimburse Farmor for all rentals, security
      payments, penalties and/or compensatory royalties attributable to the
      farmout lands on a per diem basis from the date hereof until the date when
      Farmee has performed all of its obligations to earn its entire interest in
      the farmout lands as hereinbefore provided, with such payments being
      included in the definition of Earning Expenditures. If Farmee fails to
      reimburse Farmor within 30 days after receipt of Farmor's invoice, Farmor
      may charge interest from the day such invoice is due at the rate of 2%
      percent higher than the prevailing prime bank interest rate charged by the
      principal chartered bank in Canada then used by Farmor; and

	 	 	 
		(b) 	
      With respect to all other rentals, security payments,
      penalties and/or compensatory royalties attributable to the farmout lands,
      the Operating Procedure shall apply.

	 	 	 
	14. 	
      NOTICES

	 	 	 
		
      The addresses for service of the parties hereto shall be
      as follows:

BS Oil Company Ltd. 
Longshot Oil
Company 
c/o 
Longshot Oil Company 
P.O. Box 397 
Somers, MT

59932 
Attention: Land Department 
Fax: (509) 455-5924 * 51

Farmin Agreement 
Page 9 

Megawest Energy Montana Corp. 
c/o

Megawest Energy Corp. 
800, 926 - 5th Ave. SW 
Calgary, AB, Canada

T2P 0N7 

Attention: Land Department

Fax: (403) 984-6343 

All notices, communications and
statements required, permitted or contemplated hereunder shall be in writing,
and shall be delivered as follows: 

	 	(a) 	
      by personal service on a party at the address of such
      party set out above, in which case the item so served shall be deemed to
      have been received by that party when personally served;

	 	 	 
	 	(b) 	
      by facsimile transmission to a party to the fax number of
      such party set out above, in which case the item so transmitted shall be
      deemed to have been received by that party when transmitted; or

	 	 	 
	 	(c) 	
      except in the event of an actual or threatened postal
      strike or other labour disruption that may affect mail service, by mailing
      first class post, postage prepaid, to a party at the address of such party
      set out above, in which case the item so mailed shall be deemed to have
      been received by that party on the fifth day following the date of
      mailing.

		
      Farmor and Farmee may from time to time change their
      respective addresses for service by giving written notice to the
    other.

	 	 	 	 
	15. 	
      DEFAULT

	 	 	 	 
		(a) 	
      Insofar as the earning operations set forth and described
      in Clause 4 hereof are concerned, if Farmee is in default of any of its
      obligations:

	 	 	 	 
			(i) 	
      Farmor may give Farmee notice stating the nature of that
      default. If Farmee fails to commence to remedy that default within 30 days
      after receipt of notice or fails to continue to remedy that default with
      due diligence thereafter, Farmor may, by notice to Farmee, terminate all
      or any portion of the interest Farmee may have acquired in the farmout
      lands hereunder;

	 	 	 	 
			(ii) 	
      Nothing in this clause will release Farmee from any
      obligation: (i) to indemnify or be liable to Farmor pursuant to Clause 12;
      (ii) to pay any amount owing hereunder by Farmee; (iii) to keep
      information confidential; or (iv) if applicable, to finish abandoning the
      test well; and

	 	 	 	 
			(iii) 	
      The rights granted to Farmor in this clause will be in
      addition to and not in substitution for any other right or remedy that
      Farmor may have under this agreement. The existence or the exercise of
      those rights or the termination of Farmee's interests or rights under this
      clause will not deprive Farmor of any other right or remedy at law or in
      equity, including damages and indemnity.

Farmin Agreement 
Page 10 

	 	(b) 	
      In respect of all other operations, if Farmee is in
      default of any of its obligations, the Operating Procedure shall
    apply.

	16. 	
      MISCELLANEOUS

	 	 	 
		(a) 	
      Wherever any term or condition of any schedule conflicts
      or is at variance with any term or condition in the body hereof the latter
      shall prevail. In the event of any conflict or inconsistency between the
      provisions of this agreement and the title documents the provisions of the
      title documents shall prevail.

	 	 	 
		(b) 	
      This agreement and the relationship amongst the parties
      hereto shall be construed and determined according to the laws of the
      Province of Alberta and each party hereto does attorn to the jurisdiction
      of the courts of the Province of Alberta with respect to any matter
      arising out of this agreement.

	 	 	 
		(c) 	
      This agreement may be executed in separate counterparts
      each of which taken together shall comprise a complete
  agreement.

If the foregoing is in accordance with your understanding of
the agreement reached amongst our companies, would you please indicate your
acknowledgement and acceptance by signing in the space provided and returning
one copy of this letter agreement to this office. 

Yours very truly, 

MegaWest Energy Montana Corp. 

/s/ George Stapleton, II 

 

 

ACKNOWLEDGED AND AGREED TO THIS [] day of October, 2007.

 

BS OIL COMPANY LTD. 

Per: /s/ Geoffrey Say 

 

LONGSHOT OIL COMPANY 

Per: /s/ signed 

SCHEDULE "A" ATTACHED TO AND FORMING PART OF AN OPERATING
  AND FARMIN AGREEMENT DATED THIS • DAY OF OCTOBER, 2007 BETWEEN LONGSHOT
  OIL COMPANY, BS OIL COMPANY LTD., AND MEGAWEST ENERGY MONTANA CORP. 

Loma Area 

	Lease Date

	Lease/Acreage 
	Land
      Description 
	Assigned
      
Interest 
	January 14, 2007
      

	Lippard Clawitter 
Foundation 
76%
      Mineral Interest 
(6,575.03 gross acres) 
(4,977.5 net acres)
      

	Twp 26N
      Rge 10E 
Section 13, 23–26, all 
Section 22
      E2, SE4; Section 34 NE4; 
Section 35 Lots 1 & 2, N2, N2SW4, SE4
      
Twp 26N Rge 11E
      
Section 7 Lots 3 & 4, W2E2SW4, 
W2E2E2SW4, SE4SE4; 
Section
      17 N2, SW4, W2SE4, SE4SE4; 
Section 18 Lots 2, 3 & 4, E2W2, E2;
      
Section 19 Lots 1, 2 & 6, E2NW4, NE4; 
Section 20 Lots 1, 2
      & 6, NE4, N2NW4, 
SE4NW4, NE4SE4; 
Section 30 Lots 2, 6, 7, 8, 9
      & 13; 
Section 31 Lots 1 & 6 
Twp
      25N Rge 10E 
Section 1 Lots 3
      & 4; Section 2 Lots 1 & 2 	40%
      

	October 11, 2006 

	Gary Lippard 
20% Mineral Interest
      
(6,575.03 gross acres) 
(1,341.02 net acres) 

	Twp 26N
      Rge 10E 
Sections 13, 23, 26, all; Section 22
      E2, SE4 
Twp 26N Rge
      11E 
Section 17 N2, SW4, W2SE4, SE4SE4; 
Section 18 Lots
      2, 3 & 4, E2W2, E2; 
Section 19 Lots 1, 2 & 6, E2NW4, NE4;
      
Section 20 Lots 1, 2 & 6, NE4, N2NW4, 
SE4NW4, NE4SE4 	40%
    

	March 6, 2007 
	State of Montana 
(640 acres) 	Twp 26N
      Rge 10E 
Section 36, all 	40%

Page 2 

SCHEDULE "B" ATTACHED TO AND FORMING PART OF AN OPERATING
  AND FARMIN AGREEMENT DATED THIS • DAY OF OCTOBER, 2007 BETWEEN LONGSHOT
  OIL COMPANY, BS OIL COMPANY LTD., AND MEGAWEST ENERGY MONTANA CORP. 

[ AAPL Operating Procedure to be added ] 

SCHEDULE "B" ATTACHED TO AND FORMING PART OF OPERATING AND
  FARMIN AGREEMENT DATED THIS - DAY OF OCTOBER, 2007 BETWEEN LONGSHOT OIL
  COMPANY, BS OIL COMPANY LTD., AND MEGAWEST ENERGY MONTANA CORP.

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

MODEL FORM OPERATING AGREEMENT 

 

 

 

 

 

OPERATING AGREEMENT 

DATED 

October [] , 2007 , 

  year 

OPERATOR MegaWest Energy Montana Corp.                                                                                                             
  

CONTRACT AREA Loma                                                                                                                                                   

___________________________________________________________________________________ 

___________________________________________________________________________________ 

___________________________________________________________________________________ 

___________________________________________________________________________________ 

COUNTY OR PARISH OF Choteau                                                     ,
  STATE OF Montana                                        
  

  
    
      
        
          
            
              COPYRIGHT 1989 – ALL RIGHTS RESERVED AMERICAN
                ASSOCIATION OF PETROLEUM LANDMEN, 4100 FOSSIL CREEK BLVD. FORT
                WORTH, TEXAS, 76137, APPROVED FORM. 

              A.A.P.L. NO. 610 – 1989 

            

          

        

      

    

  

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

TABLE OF CONTENTS 

  	Article 	Title 	Page 
	I. 	DEFINITIONS 	1 
	II. 	EXHIBITS 	1 
	III. 	INTERESTS OF PARTIES 	2 
	  	A.	OIL AND GAS INTERESTS: 	2 
	  	B.	INTERESTS OF PARTIES IN COSTS AND PRODUCTION: 	2 
	  	C.	SUBSEQUENTLY CREATED INTERESTS: 	2 
	IV. 	TITLES 	2 
	  	A.	TITLE EXAMINATION: 	2 
	  	B	LOSS OR FAILURE OF TITLE: 	3 
	  		1.	Failure of Title 	3 
	  		2.	Loss by Non-Payment or Erroneous Payment of Amount Due
        	3 
	  		3.	Other Losses 	3 
	  		4.	Curing Title 	3 
	V. 	OPERATOR 	4 
	  	A.	DESIGNATION AND RESPONSIBILITIES OF OPERATOR: 	4 
	  	B	RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:
        	4 
	  		1.	Resignation or Removal of Operator 	4 
	  		2.	Selection of Successor Operator 	4 
	  		3.	Effect of Bankruptcy 	4 
	  	C.	EMPLOYEES AND CONTRACTORS: 	4 
	  	D.	RIGHTS AND DUTIES OF OPERATOR: 	4 
	  		1.	Competitive Rates and Use of Affiliates 	4 
	  		2.	Discharge of Joint Account Obligations 	4 
	  		3.	Protection from Liens 	4 
	  		4.	Custody of Funds 	5 
	  		5.	Access to Contract Area and Records 	5 
	  		6.	Filing and Furnishing Governmental Reports 	5 
	  		7.	Drilling and Testing Operations 	5 
	  		8.	Cost Estimates 	5 
	  		9.	Insurance 	5 
	VI. 	DRILLING AND DEVELOPMENT 	5 
	  	A.	INITIAL WELL: 	5 
	  	B.	SUBSEQUENT OPERATIONS: 	5 
	  		1.	Proposed Operations 	5 
	  		2.	Operations by Less Than All Parties 	6 
	  		3.	Stand-By Costs 	7 
	  		4.	Deepening 	8 
	  		5.	Sidetracking 	8 
	  		6.	Order of Preference of Operations 	8 
	  		7.	Conformity to Spacing Pattern 	9 
	  		8.	Paying Wells 	9 
	  	C.	COMPLETION OF WELLS; REWORKING AND PLUGGING BACK: 	9 
	  		1.	Completion 	9 
	  		2.	Rework, Recomplete or Plug Back 	9 
	  	D.	OTHER OPERATIONS: 	9 
	  	E.	ABANDONMENT OF WELLS: 	9 
	  		1.	Abandonment of Dry Holes 	9 
	  		2.	Abandonment of Wells That Have Produced 	10 
	  		3.	Abandonment of Non-Consent Operations 	10 
	  	F.	TERMINATION OF OPERATIONS: 	10 
	  	G.	TAKING PRODUCTION IN KIND: 	10 
	  			(Option 1) Gas Balancing Agreement 	10 
	  			(Option 2) No Gas Balancing Agreement 	11 
	VII. 	EXPENDITURES AND LIABILITY OF PARTIES 	11 
	  	A.	LIABILITY OF PARTIES: 	11 
	  	B.	LIENS AND SECURITY INTERESTS: 	12 
	  	C.	ADVANCES: 	12 
	  	D.	DEFAULTS AND REMEDIES: 	12 
	  		1.	Suspension of Rights 	13 
	  		2.	Suit for Damages 	13 
	  		3.	Deemed Non-Consent 	13 
	  		4.	Advance Payment 	13 
	  		5.	Costs and Attorneys’ Fees 	13 
	  	E.	RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:
        	13 
	  	F.	TAXES: 	13 
	VIII. 	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
        	14 
	  	A.	SURRENDER OF LEASES: 	14 
	  	B.	RENEWAL OR EXTENSION OF LEASES: 	14 
	  	C.	ACREAGE OR CASH CONTRIBUTIONS: 	14 

i 

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

TABLE OF CONTENTS 

	  	D.	ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: 	15 
	  	E.	WAIVER OF RIGHTS TO PARTITION: 	15 
	  	F.	PREFERENTIAL RIGHT TO PURCHASE: 	15 
	IX. 	INTERNAL REVENUE CODE ELECTION 	15 
	X. 	CLAIMS AND LAWSUITS 	15 
	XI. 	FORCE MAJEURE 	16 
	XII. 	NOTICES 	16 
	XIII. 	TERM OF AGREEMENT 	16 
	XIV. 	COMPLIANCE WITH LAWS AND REGULATIONS 	16 
	  	A.	LAWS, REGULATIONS AND ORDERS: 	16 
	  	B.	GOVERNING LAW: 	16 
	  	C.	 REGULATORY AGENCIES: 	16 
	XV. 	MISCELLANEOUS 	17 
	  	A.	EXECUTION: 	17 
	  	B.	SUCCESSORS AND ASSIGNS: 	17 
	  	C.	COUNTERPARTS: 	17 
	  	D.	SEVERABILITY 	17 
	XVI. 	OTHER PROVISIONS 	17 

ii 

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

OPERATING AGREEMENT 

                   
  THIS AGREEMENT, entered into by and between MegaWest Energy Montana Corp.
  , hereinafter designated and referred to as "Operator," and the signatory party
  or parties other than Operator, sometimes hereinafter referred to individually
  as "Non-Operator," and collectively as "Non-Operators." 

WITNESSETH: 

                   
  WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or
  Oil and Gas Interests in the land identified in Exhibit "A," and the parties
  hereto have reached an agreement to explore and develop these Leases and/or
  Oil and Gas Interests for the production of Oil and Gas to the extent and as
  hereinafter provided,

                    
  NOW, THEREFORE, it is agreed as follows: 

ARTICLE I. 

  DEFINITIONS 

                   
  As used in this agreement, the following words and terms shall have the meanings
  here ascribed to them: 

                   
  A. The term "AFE" shall mean an Authority for Expenditure prepared by a party
  to this agreement for the purpose of estimating the costs to be incurred in
  conducting an operation hereunder. 

                   
  B. The term "Completion" or "Complete" shall mean a single operation intended
  to complete a well as a producer of Oil and Gas in one or more Zones, including,
  but not limited to, the setting of production casing, perforating, well stimulation
  and production testing conducted in such operation. 

                   
  C. The term "Contract Area" shall mean all of the lands, Oil and Gas Leases
  and/or Oil and Gas Interests intended to be developed and operated for Oil and
  Gas purposes under this agreement. Such lands, Oil and Gas Leases and Oil and
  Gas Interests are described in Exhibit "A."

                    
  D. The term "Deepen" shall mean a single operation whereby a well is drilled
  to an objective Zone below the deepest Zone in which the well was previously
  drilled, or below the Deepest Zone proposed in the associated AFE, whichever
  is the lesser. 

                   
  E. The terms "Drilling Party" and "Consenting Party" shall mean a party who
  agrees to join in and pay its share of the cost of any operation conducted under
  the provisions of this agreement. 

                   
  F. The term "Drilling Unit" shall mean the area fixed for the drilling of one
  well by order or rule of any state or federal body having authority. If a Drilling
  Unit is not fixed by any such rule or order, a Drilling Unit shall be the drilling
  unit as established by the pattern of drilling in the Contract Area unless fixed
  by express agreement of the Drilling Parties. 

                   
  G. The term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas Interest
  on which a proposed well is to be located. 

                   
  H. The term "Initial Well" shall mean the well required to be drilled by the
  parties hereto as provided in Article VI.A. 

                   
  I. The term "Non-Consent Well" shall mean a well in which less than all parties
  have conducted an operation as provided in Article VI.B.2. 

                   
  J. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a party
  who elects not to participate in a proposed operation. 

                   
  K. The term "Oil and Gas" shall mean oil, gas, casinghead gas, gas condensate,
  and/or all other liquid or gaseous hydrocarbons and other marketable substances
  produced therewith, unless an intent to limit the inclusiveness of this term
  is specifically stated. 

                   
  L. The term "Oil and Gas Interests" or "Interests" shall mean unleased fee and
  mineral interests in Oil and Gas in tracts of land lying within the Contract
  Area which are owned by parties to this agreement. 

                   
  M. The terms "Oil and Gas Lease," "Lease" and "Leasehold" shall mean the oil
  and gas leases or interests therein covering tracts of land lying within the
  Contract Area which are owned by the parties to this agreement. 

                   
  N. The term "Plug Back" shall mean a single operation whereby a deeper Zone
  is abandoned in order to attempt a Completion in a shallower Zone. 

                   
  O. The term "Recompletion" or "Recomplete" shall mean an operation whereby a
  Completion in one Zone is abandoned in order to attempt a Completion in a different
  Zone within the existing wellbore. 

                   
  P. The term "Rework" shall mean an operation conducted in the wellbore of a
  well after it is Completed to secure, restore, or improve production in a Zone
  which is currently open to production in the wellbore. Such operations include,
  but are not limited to, well stimulation operations but exclude any routine
  repair or maintenance work or drilling, Sidetracking, Deepening, Completing,
  Recompleting, or Plugging Back of a well. 

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

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

                   
  Unless the context otherwise clearly indicates, words used in the singular include
  the plural, the word "person" includes natural and artificial persons, the plural
  includes the singular, and any gender includes the masculine, feminine, and
  neuter. 

ARTICLE II. 

  EXHIBITS 

                   
  The following exhibits, as indicated below and attached hereto, are incorporated
  in and made a part hereof: 

		A. 	 Exhibit "A," shall include the following information:

	 	 	 	 
			(1) 	 Description of lands subject to this agreement,

	 	 	 	 
			(2) 	 Restrictions, if any, as to depths, formations, or substances,

	 	 	 	 
			(3) 	 Parties to agreement with addresses and telephone numbers
        for notice purposes,

	 	 	 	 
			(4) 	 Percentages or fractional interests of parties to this
        agreement,

	 	 	 	 
			(5) 	 Oil and Gas Leases and/or Oil and Gas Interests subject
        to this agreement,

	 	 	 	 
			(6) 	 Burdens on production.

	 	 	 	 
		B. 	 Exhibit "B," Form of Lease.

	 	 	 	 
	X 	 C. 
	Exhibit "C," Accounting Procedure.
	 	 	 	 
	X 	 D. 
	Exhibit "D," Insurance.
	 	 	 	 
		E. 	 Exhibit "E," Gas Balancing Agreement.

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

	 	 	 	 
		G. 	 Exhibit "G," Tax Partnership.

	 	 	 	 
		H. 	 Other: __________________________________

	- 1 - 

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

                   
  If any provision of any exhibit, except Exhibits "E," "F" and "G," is inconsistent
  with any provision contained in the body of this agreement, the provisions in
  the body of this agreement shall prevail. 

ARTICLE III. 

  INTERESTS OF PARTIES 

A. Oil and Gas Interests: 

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

B. Interests of Parties in Costs and Production: 

                   
  Unless changed by other provisions, all costs and liabilities incurred in operations
  under this agreement shall be borne and paid, and all equipment and materials
  acquired in operations on the Contract Area shall be owned, by the parties as
  their interests are set forth in Exhibit "A." In the same manner, the parties
  shall also own all production of Oil and Gas from the Contract Area subject,
  however, to the payment of royalties and other burdens on production as described
  hereafter. 

                   
  Regardless of which party has contributed any Oil and Gas Lease or Oil and Gas
  Interest on which royalty or other burdens may be payable and except as otherwise
  expressly provided in this agreement, each party shall pay or deliver, or cause
  to be paid or delivered, all burdens on its share of the production from the
  Contract Area, and shall indemnify, defend and hold the other parties
  free from any liability therefor. Except as otherwise expressly provided in
  this agreement, if any party has contributed hereto any Lease or Interest which
  is burdened with any royalty, overriding royalty, production payment or other
  burden on production in excess of the amounts stipulated above, such party so
  burdened shall assume and alone bear all such excess obligations and shall indemnify,
  defend and hold the other parties hereto harmless from any and all claims attributable
  to such excess burden. However, so long as the Drilling Unit for the productive
  Zone(s) is identical with the Contract Area, each party shall pay or deliver,
  or cause to be paid or delivered, all burdens on production from the Contract
  Area due under the terms of the Oil and Gas Lease(s) which such party has contributed
  to this agreement, and shall indemnify, defend and hold the other parties free
  from any liability therefor. 

                   
  No party shall ever be responsible, on a price basis higher than the price received
  by such party, to any other party's lessor or royalty owner, and if such other
  party's lessor or royalty owner should demand and receive settlement on a higher
  price basis, the party contributing the affected Lease shall bear the additional
  royalty burden attributable to such higher price. 

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

C. Subsequently Created Interests: 

                   
  If any party has contributed hereto a Lease or Interest that is burdened with
  an assignment of production given as security for the payment of money, or if,
  after the date of this agreement, any party creates an overriding royalty, production
  payment, net profits interest, assignment of production or other burden payable
  out of production attributable to its working interest hereunder, such burden
  shall be deemed a "Subsequently Created Interest." Further, if any party has
  contributed hereto a Lease or Interest burdened with an overriding royalty,
  production payment, net profits interests, or other burden payable out of production
  created prior to the date of this agreement, and such burden is not shown on
  Exhibit "A," such burden also shall be deemed a Subsequently Created Interest
  to the extent such burden causes the burdens on such party's Lease or Interest
  to exceed the amount stipulated in Article III.B. above. 

                   
  The party whose interest is burdened with the Subsequently Created Interest
  (the "Burdened Party") shall assume and alone bear, pay and discharge the Subsequently
  Created Interest and shall indemnify, defend and hold harmless the other parties
  from and against any liability therefor. Further, if the Burdened Party fails
  to pay, when due, its share of expenses chargeable hereunder, all provisions
  of Article VII.B. shall be enforceable against the Subsequently Created Interest
  in the same manner as they are enforceable against the working interest of the
  Burdened Party. If the Burdened Party is required under this agreement to assign
  or relinquish to any other party, or parties, all or a portion of its working
  interest and/or the production attributable thereto, said other party, or parties,
  shall receive said assignment and/or production free and clear of said Subsequently
  Created Interest, and the Burdened Party shall indemnify, defend and hold harmless
  said other party, or parties, from any and all claims and demands for payment
  asserted by owners of the Subsequently Created Interest. 

ARTICLE IV. 

  TITLES 

A. Title Examination: 

                   
  Title examination shall be made on the Drillsite of any proposed well prior
  to commencement of drilling operations and, if a majority in interest of the
  Drilling Parties so request or Operator so elects, title examination shall be
  made on the entire Drilling Unit, or maximum anticipated Drilling Unit, of the
  well. The opinion will include the ownership of the working interest, minerals,
  royalty, overriding royalty and production payments under the applicable Leases.
  Each party contributing Leases and/or Oil and Gas Interests to be included in
  the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator all
  abstracts (including federal lease status reports), title opinions, title papers
  and curative material in its possession free of charge. All such information
  not in the possession of or made available to Operator by the parties, but necessary
  for the examination of the title, shall be obtained by Operator. Operator shall
  cause title to be examined by attorneys on its staff or by outside attorneys.
  Copies of all title opinions shall be furnished to each Drilling Party. Costs
  incurred by Operator in procuring abstracts, fees paid outside attorneys for
  title examination (including preliminary, supplemental, shut-in royalty opinions
  and division order title opinions) and other direct charges as provided in Exhibit
  "C" shall be borne by the Drilling Parties in the proportion that the interest
  of each Drilling Party bears to the total interest of all Drilling Parties as
  such interests appear in Exhibit "A." Operator shall make no charge for services
  rendered by its staff attorneys or other personnel in the performance of the
  above functions. 

                   
  Each party shall be responsible for securing curative matter and pooling amendments
  or agreements required in connection with Leases or Oil and Gas Interests contributed
  by such party. Operator shall be responsible for the preparation and recording
  of pooling designations or declarations and communitization agreements as well
  as the conduct of hearings before governmental agencies for the securing of
  spacing or pooling orders or any other orders necessary or appropriate to the
  conduct of operations hereunder. This shall not prevent any party from appearing
  on its own behalf at such hearings. Costs incurred by Operator, including fees
  paid to outside attorneys, which are associated with hearings before governmental
  agencies, and which costs are necessary and proper for the activities contemplated
  under this agreement, shall be direct charges to the joint account and shall
  not be covered by the administrative overhead charges as provided in Exhibit
  "C." 

- 2 - 

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

Operator shall make no charge for services rendered by its staff
  attorneys or other personnel in the performance of the above functions. 

                   
  No well shall be drilled on the Contract Area until after (1) the title to the
  Drillsite or Drilling Unit, if appropriate, has been examined as above provided,
  and (2) the title has been approved by the examining attorney or title has been
  accepted by all of the Drilling Parties in such well. 

B. Loss or Failure of Title: 

                   
  1. Failure of Title: Should any Oil and Gas Interest or Oil and Gas Lease
  be lost through failure of title, which results in a reduction of interest from
  that shown on Exhibit "A," the party credited with contributing the affected
  Lease or Interest (including, if applicable, a successor in interest to such
  party) shall have ninety (90) days from final determination of title failure
  to acquire a new lease or other instrument curing the entirety of the title
  failure, which acquisition will not be subject to Article VIII.B., and failing
  to do so, this agreement, nevertheless, shall continue in force as to all remaining
  Oil and Gas Leases and Interests; and, 

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

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

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

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

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

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

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

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

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

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

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

                   
  3. Other Losses: All losses of Leases or Interests committed to this
  agreement, other than those set forth in Articles IV.B.1. and IV.B.2. above,
  shall be joint losses and shall be borne by all parties in proportion to their
  interests shown on Exhibit "A." This shall include but not be limited to the
  loss of any Lease or Interest through failure to develop or because express
  or implied covenants have not been performed (other than performance which requires
  only the payment of money), and the loss of any Lease by expiration at the end
  of its primary term if it is not renewed or extended. There shall be no readjustment
  of interests in the remaining portion of the Contract Area on account of any
  joint loss. 

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

- 3 - 

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

ARTICLE V. 

  OPERATOR 

A. Designation and Responsibilities of Operator: 

                   
  MegaWest Energy Montana Corp. shall be the Operator of the Contract Area,
  and shall conduct and direct and have full control of all operations on the
  Contract Area as permitted and required by, and within the limits of this agreement.
  In its performance of services hereunder for the Non-Operators, Operator shall
  be an independent contractor not subject to the control or direction of the
  Non-Operators except as to the type of operation to be undertaken in accordance
  with the election procedures contained in this agreement. Operator shall not
  be deemed, or hold itself out as, the agent of the Non-Operators with authority
  to bind them to any obligation or liability assumed or incurred by Operator
  as to any third party. Operator shall conduct its activities under this agreement
  as a reasonable prudent operator, in a good and workmanlike manner, with due
  diligence and dispatch, in accordance with good oilfield practice, and in compliance
  with applicable law and regulation, but in no event shall it have any liability
  as Operator to the other parties for losses sustained or liabilities incurred
  except such as may result from gross negligence or willful misconduct. 

B. Resignation or Removal of Operator and Selection of Successor:
  

                   
  1. Resignation or Removal of Operator: Operator may resign at any time
  by giving written notice thereof to Non-Operators. If Operator terminates its
  legal existence, no longer owns an interest hereunder in the Contract Area,
  or is no longer capable of serving as Operator, Operator shall be deemed to
  have resigned without any action by Non-Operators, except the selection of a
  successor. Operator may be removed only for good cause by the affirmative vote
  of Non-Operators owning a majority interest based on ownership as shown on Exhibit
  "A" remaining after excluding the voting interest of Operator; such vote shall
  not be deemed effective until a written notice has been delivered to the Operator
  by a Non-Operator detailing the alleged default and Operator has failed to cure
  the default within thirty (30) days from its receipt of the notice or, if the
  default concerns an operation then being conducted, within forty-eight (48)
  hours of its receipt of the notice. For purposes hereof, "good cause" shall
  mean not only gross negligence or willful misconduct but also the material
  breach of or inability to meet the standards of operation contained in Article
  V.A. or material failure or inability to perform its obligations under this
  agreement. 

                   
  Subject to Article VII.D.1., such resignation or removal shall not become effective
  until 7:00 o'clock A.M. on the first day of the calendar month following the
  expiration of ninety (90) days after the giving of notice of resignation by
  Operator or action by the Non-Operators to remove Operator, unless a successor
  Operator has been selected and assumes the duties of Operator at an earlier
  date. Operator, after effective date of resignation or removal, shall be bound
  by the terms hereof as a Non-Operator. A change of a corporate name or structure
  of Operator or transfer of Operator's interest to any single subsidiary, parent
  or successor corporation shall not be the basis for removal of Operator. 

                   
  2. Selection of Successor Operator: Upon the resignation or removal of
  Operator under any provision of this agreement, a successor Operator shall be
  selected by the parties. The successor Operator shall be selected from the parties
  owning an interest in the Contract Area at the time such successor Operator
  is selected. The successor Operator shall be selected by the affirmative vote
  of two (2) or more parties owning a majority interest based on ownership as
  shown on Exhibit "A"; provided, however, if an Operator which has been removed
  or is deemed to have resigned fails to vote or votes only to succeed itself,
  the successor Operator shall be selected by the affirmative vote of the party
  or parties owning a majority interest based on ownership as shown on Exhibit
  "A" remaining after excluding the voting interest of the Operator that was removed
  or resigned. The former Operator shall promptly deliver to the successor Operator
  all records and data relating to the operations conducted by the former Operator
  to the extent such records and data are not already in the possession of the
  successor operator. Any cost of obtaining or copying the former Operator's records
  and data shall be charged to the joint account. 

                   
  3. Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is
  placed in receivership, it shall be deemed to have resigned without any action
  by Non-Operators, except the selection of a successor. If a petition for relief
  under the federal bankruptcy laws is filed by or against Operator, and the removal
  of Operator is prevented by the federal bankruptcy court, all Non-Operators
  and Operator shall comprise an interim operating committee to serve until Operator
  has elected to reject or assume this agreement pursuant to the Bankruptcy Code,
  and an election to reject this agreement by Operator as a debtor in possession,
  or by a trustee in bankruptcy, shall be deemed a resignation as Operator without
  any action by Non-Operators, except the selection of a successor. During the
  period of time the operating committee controls operations, all actions shall
  require the approval of two (2) or more parties owning a majority interest based
  on ownership as shown on Exhibit "A." In the event there are only two (2) parties
  to this agreement, during the period of time the operating committee controls
  operations, a third party acceptable to Operator, Non-Operator and the federal
  bankruptcy court shall be selected as a member of the operating committee, and
  all actions shall require the approval of two (2) members of the operating committee
  without regard for their interest in the Contract Area based on Exhibit "A."

C. Employees and Contractors: 

                   
  The number of employees or contractors used by Operator in conducting operations
  hereunder, their selection, and the hours of labor and the compensation for
  services performed shall be determined by Operator, and all such employees or
  contractors shall be the employees or contractors of Operator. 

D. Rights and Duties of Operator: 

                   
  1. Competitive Rates and Use of Affiliates: All wells drilled on the
  Contract Area shall be drilled on a competitive contract basis at the usual
  rates prevailing in the area. If it so desires, Operator may employ its own
  tools and equipment in the drilling of wells, but its charges therefor shall
  not exceed the prevailing rates in the area and the rate of such charges shall
  be agreed upon by the parties in writing before drilling operations are commenced,
  and such work shall be performed by Operator under the same terms and conditions
  as are customary and usual in the area in contracts of independent contractors
  who are doing work of a similar nature. All work performed or materials supplied
  by affiliates or related parties of Operator shall be performed or supplied
  at competitive rates, pursuant to written agreement, and in accordance with
  customs and standards prevailing in the industry. 

                   
  2. Discharge of Joint Account Obligations: Except as herein otherwise
  specifically provided, Operator shall promptly pay and discharge expenses incurred
  in the development and operation of the Contract Area pursuant to this agreement
  and shall charge each of the parties hereto with their respective proportionate
  shares upon the expense basis provided in Exhibit "C." Operator shall keep an
  accurate record of the joint account hereunder, showing expenses incurred and
  charges and credits made and received. 

                   
  3. Protection from Liens: Operator shall pay, or cause to be paid, as
  and when they become due and payable, all accounts of contractors and suppliers
  and wages and salaries for services rendered or performed, and for materials
  supplied on, to or in respect of the Contract Area or any operations for the
  joint account thereof, and shall keep the Contract Area free from 

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

liens and encumbrances resulting therefrom except for those resulting
  from a bona fide dispute as to services rendered or materials supplied. 

                   
  4. Custody of Funds: Operator shall hold for the account of the Non-Operators
  any funds of the Non-Operators advanced or paid to the Operator, either for
  the conduct of operations hereunder or as a result of the sale of production
  from the Contract Area, and such funds shall remain the funds of the Non-Operators
  on whose account they are advanced or paid until used for their intended purpose
  or otherwise delivered to the Non-Operators or applied toward the payment of
  debts as provided in Article VII.B. Nothing in this paragraph shall be construed
  to establish a fiduciary relationship between Operator and Non-Operators for
  any purpose other than to account for Non-Operator funds as herein specifically
  provided. Nothing in this paragraph shall require the maintenance by Operator
  of separate accounts for the funds of Non-Operators unless the parties otherwise
  specifically agree. 

                   
  5. Access to Contract Area and Records: Operator shall, except as otherwise
  provided herein, permit each Non-Operator or its duly authorized representative,
  at the Non-Operator's sole risk and cost, full and free access at all reasonable
  times to all operations of every kind and character being conducted for the
  joint account on the Contract Area and to the records of operations conducted
  thereon or production therefrom, including Operator's books and records relating
  thereto. Such access rights shall not be exercised in a manner interfering with
  Operator's conduct of an operation hereunder and shall not obligate Operator
  to furnish any geologic or geophysical data of an interpretive nature unless
  the cost of preparation of such interpretive data was charged to the joint account.
  Operator will furnish to each Non-Operator upon request copies of any and all
  reports and information obtained by Operator in connection with production and
  related items, including, without limitation, meter and chart reports, production
  purchaser statements, run tickets and monthly gauge reports, but excluding purchase
  contracts and pricing information to the extent not applicable to the production
  of the Non-Operator seeking the information. Any audit of Operator's records
  relating to amounts expended and the appropriateness of such expenditures shall
  be conducted in accordance with the audit protocol specified in Exhibit "C."

                   
  6. Filing and Furnishing Governmental Reports: Operator will file, and
  upon written request promptly furnish copies to each requesting Non-Operator
  not in default of its payment obligations, all operational notices, reports
  or applications required to be filed by local, State, Federal or Indian agencies
  or authorities having jurisdiction over operations hereunder. Each Non-Operator
  shall provide to Operator on a timely basis all information necessary to Operator
  to make such filings. 

                   
  7. Drilling and Testing Operations: The following provisions shall apply
  to each well drilled hereunder, including but not limited to the Initial Well:

                   
  (a) Operator will promptly advise Non-Operators of the date on which the well
  is spudded, or the date on which drilling operations are commenced. 

                   
  (b) Operator will send to Non-Operators such reports, test results and notices
  regarding the progress of operations on the well as the Non-Operators shall
  reasonably request, including, but not limited to, daily drilling reports, completion
  reports, and well logs. 

                   
  (c) Operator shall adequately test all Zones encountered which may reasonably
  be expected to be capable of producing Oil and Gas in paying quantities as a
  result of examination of the electric log or any other logs or cores or tests
  conducted hereunder. 

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

                   
  9. Insurance: At all times while operations are conducted hereunder,
  Operator shall comply with the workers compensation law of the state where the
  operations are being conducted; provided, however, that Operator may be a self-
  insurer for liability under said compensation laws in which event the only charge
  that shall be made to the joint account shall be as provided in Exhibit "C."
  Operator shall also carry or provide insurance for the benefit of the joint
  account of the parties as outlined in Exhibit "D" attached hereto and made a
  part hereof. Operator shall require all contractors engaged in work on or for
  the Contract Area to comply with the workers compensation law of the state where
  the operations are being conducted and to maintain such other insurance as Operator
  may require. 

                   
  In the event automobile liability insurance is specified in said Exhibit "D,"
  or subsequently receives the approval of the parties, no direct charge shall
  be made by Operator for premiums paid for such insurance for Operator's automotive
  equipment. 

ARTICLE VI. 

  DRILLING AND DEVELOPMENT 

A. Initial Well: 

                   
  On or before the 31 day of October , 2008 , Operator shall
  commence the drilling of the Initial Well under the provisions in the head
  agreement. The drilling of the Initial Well and the participation therein
  by all parties is obligatory, subject to Article VI.C.1. as to participation
  in Completion operations and Article VI.F. as to termination of operations and
  Article XI as to occurrence of force majeure. 

B. Subsequent Operations: 

                   
  1. Proposed Operations: If any party hereto should desire to drill any
  well on the Contract Area other than the Initial Well, or if any party should
  desire to Rework, Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a
  well no longer capable of producing in paying quantities in which such party
  has not otherwise relinquished its interest in the proposed objective Zone under
  this agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete
  or Plug Back such a well shall give written notice of the proposed operation
  to the parties who have not otherwise relinquished their interest in such objective
  Zone 

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

under this agreement and to all other parties in the case of
  a proposal for Sidetracking or Deepening, specifying the work to be performed,
  the location, proposed depth, objective Zone and the estimated cost of the operation.
  The parties to whom such a notice is delivered shall have thirty (30) days after
  receipt of the notice within which to notify the party proposing to do the work
  whether they elect to participate in the cost of the proposed operation. If
  a drilling rig is on location, notice of a proposal to Rework, Sidetrack, Recomplete,
  Plug Back or Deepen may be given by telephone and the response period shall
  be limited to forty- eight (24) hours, exclusive of Saturday, Sunday and
  legal holidays. Failure of a party to whom such notice is delivered to reply
  within the period above fixed shall constitute an election by that party
  not to participate in the cost of the proposed operation. Any proposal by a
  party to conduct an operation conflicting with the operation initially proposed
  shall be delivered to all parties within the time and in the manner provided
  in Article VI.B.6. 

                   
  If all parties to whom such notice is delivered elect to participate in such
  a proposed operation, the parties shall be contractually committed to participate
  therein provided such operations are commenced within the time period hereafter
  set forth, and Operator shall, no later than ninety (90) days after expiration
  of the notice period of thirty (30) days (or as promptly as practicable after
  the expiration of the forty-eight (24) hour period when a drilling rig is
  on location, as the case may be), actually commence the proposed operation
  and thereafter complete it with due diligence at the risk and expense of the
  parties participating therein; provided, however, said commencement date may
  be extended upon written notice of same by Operator to the other parties, for
  a period of up to thirty (30) additional days if, in the sole opinion of Operator,
  such additional time is reasonably necessary to obtain permits from governmental
  authorities, surface rights (including rights-of- way) or appropriate drilling
  equipment, or to complete title examination or curative matter required for
  title approval or acceptance. If the actual operation has not been commenced
  within the time provided (including any extension thereof as specifically permitted
  herein or in the force majeure provisions of Article XI) and if any party hereto
  still desires to conduct said operation, written notice proposing same must
  be resubmitted to the other parties in accordance herewith as if no prior proposal
  had been made. Those parties that did not participate in the drilling of a well
  for which a proposal to Deepen or Sidetrack is made hereunder shall, if such
  parties desire to participate in the proposed Deepening or Sidetracking operation,
  reimburse the Drilling Parties in accordance with Article VI.B.4. in the event
  of a Deepening operation and in accordance with Article VI.B.5. in the event
  of a Sidetracking operation. 

                   
  2. Operations by Less Than All Parties: 

                   
  (a) Determination of Participation. If any party to whom such notice
  is delivered as provided in Article VI.B.1. or VI.C.1. (Option No. 2) elects
  not to participate in the proposed operation, then, in order to be entitled
  to the benefits of this Article, the party or parties giving the notice and
  such other parties as shall elect to participate in the operation shall, no
  later than ninety (90) days after the expiration of the notice period of thirty
  (30) days (or as promptly as practicable after the expiration of the forty-eight
  (24) hour period when a drilling rig is on location, as the case may be)
  actually commence the proposed operation and complete it with due diligence.
  Operator shall perform all work for the account of the Consenting Parties; provided,
  however, if no drilling rig or other equipment is on location, and if Operator
  is a Non-Consenting Party, the Consenting Parties shall either: (i) request
  Operator to perform the work required by such proposed operation for the account
  of the Consenting Parties, or (ii) designate one of the Consenting Parties as
  Operator to perform such work. The rights and duties granted to and imposed
  upon the Operator under this agreement are granted to and imposed upon the party
  designated as Operator for an operation in which the original Operator is a
  Non-Consenting Party. Consenting Parties, when conducting operations on the
  Contract Area pursuant to this Article VI.B.2., shall comply with all terms
  and conditions of this agreement. 

                   
  If less than all parties approve any proposed operation, the proposing party,
  immediately after the expiration of the applicable notice period, shall advise
  all Parties of the total interest of the parties approving such operation and
  its recommendation as to whether the Consenting Parties should proceed with
  the operation as proposed. Each Consenting Party, within forty-eight (24)
  hours (exclusive of Saturday, Sunday, and legal holidays) after delivery of
  such notice, shall advise the proposing party of its desire to (i) limit
  participation to such party's interest as shown on Exhibit "A" or (ii) carry
  only its proportionate part (determined by dividing such party's interest in
  the Contract Area by the interests of all Consenting Parties in the Contract
  Area) of Non-Consenting Parties' interests, or (iii) carry its proportionate
  part (determined as provided in (ii)) of Non-Consenting Parties' interests together
  with all or a portion of its proportionate part of any Non-Consenting Parties'
  interests that any Consenting Party did not elect to take. Any interest of Non-Consenting
  Parties that is not carried by a Consenting Party shall be deemed to be carried
  by the party proposing the operation if such party does not withdraw its proposal.
  Failure to advise the proposing party within the time required shall be deemed
  an election under (i). In the event a drilling rig is on location, notice may
  be given by telephone, and the time permitted for such a response shall not
  exceed a total of forty-eight (24) hours (exclusive of Saturday, Sunday and
  legal holidays). The proposing party, at its election, may withdraw such
  proposal if there is less than 100% participation and shall notify all parties
  of such decision within ten (10) days, or within twenty-four (24) hours if a
  drilling rig is on location, following expiration of the applicable response
  period. If 100% subscription to the proposed operation is obtained, the proposing
  party shall promptly notify the Consenting Parties of their proportionate interests
  in the operation and the party serving as Operator shall commence such operation
  within the period provided in Article VI.B.1., subject to the same extension
  right as provided therein. 

                   
  (b) Relinquishment of Interest for Non-Participation. The entire cost
  and risk of conducting such operations shall be borne by the Consenting Parties
  in the proportions they have elected to bear same under the terms of the preceding
  paragraph. Consenting Parties shall keep the leasehold estates involved in such
  operations free and clear of all liens and encumbrances of every kind created
  by or arising from the operations of the Consenting Parties. If such an operation
  results in a dry hole, then subject to Articles VI.B.6. and VI.E.3., the Consenting
  Parties shall plug and abandon the well and restore the surface location at
  their sole cost, risk and expense; provided, however, that those Non-Consenting
  Parties that participated in the drilling, Deepening or Sidetracking of the
  well shall remain liable for, and shall pay, their proportionate shares of the
  cost of plugging and abandoning the well and restoring the surface location
  insofar only as those costs were not increased by the subsequent operations
  of the Consenting Parties. If any well drilled, Reworked, Sidetracked, Deepened,
  Recompleted or Plugged Back under the provisions of this Article results in
  a well capable of producing Oil and/or Gas in paying quantities, the Consenting
  Parties shall Complete and equip the well to produce at their sole cost and
  risk, and the well shall then be turned over to Operator (if the Operator did
  not conduct the operation) and shall be operated by it at the expense and for
  the account of the Consenting Parties. Upon commencement of operations for the
  drilling, Reworking, Sidetracking, Recompleting, Deepening or Plugging Back
  of any such well by Consenting Parties in accordance with the provisions of
  this Article, each Non-Consenting Party shall be deemed to have relinquished
  to Consenting Parties, and the Consenting Parties shall own and be entitled
  to receive, in proportion to their respective interests, all of such Non- Consenting
  Party's interest in the well and share of production therefrom or, in the case
  of a Reworking, Sidetracking, 

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

Deepening, Recompleting or Plugging Back, or a Completion pursuant
  to Article VI.C.1. Option No. 2, all of such Non- Consenting Party's interest
  in the production obtained from the operation in which the Non-Consenting Party
  did not elect to participate. Such relinquishment shall be effective until the
  proceeds of the sale of such share, calculated at the well, or market value
  thereof if such share is not sold (after deducting applicable ad valorem, production,
  severance, and excise taxes, royalty, overriding royalty and other interests
  not excepted by Article III.C. payable out of or measured by the production
  from such well accruing with respect to such interest until it reverts), shall
  equal the total of the following: 

                   
  (i) 300 % of each such Non-Consenting Party's share of the cost of any
  newly acquired surface equipment beyond the wellhead connections (including
  but not limited to stock tanks, separators, treaters, pumping equipment and
  piping), plus 100% of each such Non-Consenting Party's share of the cost of
  operation of the well commencing with first production and continuing until
  each such Non-Consenting Party's relinquished interest shall revert to it under
  other provisions of this Article, it being agreed that each Non-Consenting Party's
  share of such costs and equipment will be that interest which would have been
  chargeable to such Non-Consenting Party had it participated in the well from
  the beginning of the operations; and 

                   
  (ii) 600 % of (a) that portion of the costs and expenses of drilling,
  Reworking, Sidetracking, Deepening, Plugging Back, testing, Completing, and
  Recompleting, after deducting any cash contributions received under Article
  VIII.C., and of (b) that portion of the cost of newly acquired equipment in
  the well (to and including the wellhead connections), which would have been
  chargeable to such Non-Consenting Party if it had participated therein. 

                   
  Notwithstanding anything to the contrary in this Article VI.B., if the well
  does not reach the deepest objective Zone described in the notice proposing
  the well for reasons other than the encountering of granite or practically impenetrable
  substance or other condition in the hole rendering further operations impracticable,
  Operator shall give notice thereof to each Non-Consenting Party who submitted
  or voted for an alternative proposal under Article VI.B.6. to drill the well
  to a shallower Zone than the deepest objective Zone proposed in the notice under
  which the well was drilled, and each such Non- Consenting Party shall have the
  option to participate in the initial proposed Completion of the well by paying
  its share of the cost of drilling the well to its actual depth, calculated in
  the manner provided in Article VI.B.4. (a). If any such Non- Consenting Party
  does not elect to participate in the first Completion proposed for such well,
  the relinquishment provisions of this Article VI.B.2. (b) shall apply to such
  party's interest. 

                   
  (c) Reworking, Recompleting or Plugging Back. An election not to participate
  in the drilling, Sidetracking or Deepening of a well shall be deemed an election
  not to participate in any Reworking or Plugging Back operation proposed in such
  a well, or portion thereof, to which the initial non-consent election applied
  that is conducted at any time prior to full recovery by the Consenting Parties
  of the Non-Consenting Party's recoupment amount. Similarly, an election not
  to participate in the Completing or Recompleting of a well shall be deemed an
  election not to participate in any Reworking operation proposed in such a well,
  or portion thereof, to which the initial non-consent election applied that is
  conducted at any time prior to full recovery by the Consenting Parties of the
  Non-Consenting Party's recoupment amount. Any such Reworking, Recompleting or
  Plugging Back operation conducted during the recoupment period shall be deemed
  part of the cost of operation of said well and there shall be added to the sums
  to be recouped by the Consenting Parties _300______% of that portion
  of the costs of the Reworking, Recompleting or Plugging Back operation which
  would have been chargeable to such Non-Consenting Party had it participated
  therein. If such a Reworking, Recompleting or Plugging Back operation is proposed
  during such recoupment period, the provisions of this Article VI.B. shall be
  applicable as between said Consenting Parties in said well. 

                   
  (d) Recoupment Matters. During the period of time Consenting Parties
  are entitled to receive Non-Consenting Party's share of production, or the proceeds
  therefrom, Consenting Parties shall be responsible for the payment of all ad
  valorem, production, severance, excise, gathering and other taxes, and all royalty,
  overriding royalty and other burdens applicable to Non-Consenting Party's share
  of production not excepted by Article III.C. 

                   
  In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening
  operation, the Consenting Parties shall be permitted to use, free of cost, all
  casing, tubing and other equipment in the well, but the ownership of all such
  equipment shall remain unchanged; and upon abandonment of a well after such
  Reworking, Sidetracking, Plugging Back, Recompleting or Deepening, the Consenting
  Parties shall account for all such equipment to the owners thereof, with each
  party receiving its proportionate part in kind or in value, less cost of salvage.

                   
  Within ninety (90) days after the completion of any operation under this Article,
  the party conducting the operations for the Consenting Parties shall furnish
  each Non-Consenting Party with an inventory of the equipment in and connected
  to the well, and an itemized statement of the cost of drilling, Sidetracking,
  Deepening, Plugging Back, testing, Completing, Recompleting, and equipping the
  well for production; or, at its option, the operating party, in lieu of an itemized
  statement of such costs of operation, may submit a detailed statement of monthly
  billings. Each month thereafter, during the time the Consenting Parties are
  being reimbursed as provided above, the party conducting the operations for
  the Consenting Parties shall furnish the Non-Consenting Parties with an itemized
  statement of all costs and liabilities incurred in the operation of the well,
  together with a statement of the quantity of Oil and Gas produced from it and
  the amount of proceeds realized from the sale of the well's working interest
  production during the preceding month. In determining the quantity of Oil and
  Gas produced during any month, Consenting Parties shall use industry accepted
  methods such as but not limited to metering or periodic well tests. Any amount
  realized from the sale or other disposition of equipment newly acquired in connection
  with any such operation which would have been owned by a Non-Consenting Party
  had it participated therein shall be credited against the total unreturned costs
  of the work done and of the equipment purchased in determining when the interest
  of such Non-Consenting Party shall revert to it as above provided; and if there
  is a credit balance, it shall be paid to such Non- Consenting Party. 

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

                   
  3. Stand-By Costs: When a well which has been drilled or Deepened has
  reached its authorized depth and all tests have been completed and the results
  thereof furnished to the parties, or when operations on the well have been otherwise
  terminated pursuant to Article VI.F., stand-by costs incurred pending response
  to a party's notice proposing a Reworking, 

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

Sidetracking, Deepening, Recompleting, Plugging Back or Completing
  operation in such a well (including the period required under Article VI.B.6.
  to resolve competing proposals) shall be charged and borne as part of the drilling
  or Deepening operation just completed. Stand-by costs subsequent to all parties
  responding, or expiration of the response time permitted, whichever first occurs,
  and prior to agreement as to the participating interests of all Consenting Parties
  pursuant to the terms of the second grammatical paragraph of Article VI.B.2.
  (a), shall be charged to and borne as part of the proposed operation, but if
  the proposal is subsequently withdrawn because of insufficient participation,
  such stand-by costs shall be allocated between the Consenting Parties in the
  proportion each Consenting Party's interest as shown on Exhibit "A" bears to
  the total interest as shown on Exhibit "A" of all Consenting Parties. 

                   
  In the event that notice for a Sidetracking operation is given while the drilling
  rig to be utilized is on location, any party may request and receive up to five
  (5) additional days after expiration of the forty-eight hour response period
  specified in Article VI.B.1. within which to respond by paying for all stand-by
  costs and other costs incurred during such extended response period; Operator
  may require such party to pay the estimated stand-by time in advance as a condition
  to extending the response period. If more than one party elects to take such
  additional time to respond to the notice, standby costs shall be allocated between
  the parties taking additional time to respond on a day-to-day basis in the proportion
  each electing party's interest as shown on Exhibit "A" bears to the total interest
  as shown on Exhibit "A" of all the electing parties. 

                   
  4. Deepening: If less than all parties elect to participate in a drilling,
  Sidetracking, or Deepening operation proposed pursuant to Article VI.B.1., the
  interest relinquished by the Non-Consenting Parties to the Consenting Parties
  under Article VI.B.2. shall relate only and be limited to the lesser of (i)
  the total depth actually drilled or (ii) the objective depth or Zone of which
  the parties were given notice under Article VI.B.1. ("Initial Objective"). Such
  well shall not be Deepened beyond the Initial Objective without first complying
  with this Article to afford the Non-Consenting Parties the opportunity to participate
  in the Deepening operation. 

                   
  In the event any Consenting Party desires to drill or Deepen a Non-Consent Well
  to a depth below the Initial Objective, such party shall give notice thereof,
  complying with the requirements of Article VI.B.1., to all parties (including
  Non- Consenting Parties). Thereupon, Articles VI.B.1. and 2. shall apply and
  all parties receiving such notice shall have the right to participate or not
  participate in the Deepening of such well pursuant to said Articles VI.B.1.
  and 2. If a Deepening operation is approved pursuant to such provisions, and
  if any Non-Consenting Party elects to participate in the Deepening operation,
  such Non-Consenting party shall pay or make reimbursement (as the case may be)
  of the following costs and expenses. 

                   
  (a) If the proposal to Deepen is made prior to the Completion of such well as
  a well capable of producing in paying quantities, such Non-Consenting Party
  shall pay (or reimburse Consenting Parties for, as the case may be) that share
  of costs and expenses incurred in connection with the drilling of said well
  from the surface to the Initial Objective which Non- Consenting Party would
  have paid had such Non-Consenting Party agreed to participate therein, plus
  the Non-Consenting Party's share of the cost of Deepening and of participating
  in any further operations on the well in accordance with the other provisions
  of this Agreement; provided, however, all costs for testing and Completion or
  attempted Completion of the well incurred by Consenting Parties prior to the
  point of actual operations to Deepen beyond the Initial Objective shall be for
  the sole account of Consenting Parties. 

                   
  (b) If the proposal is made for a Non-Consent Well that has been previously
  Completed as a well capable of producing in paying quantities, but is no longer
  capable of producing in paying quantities, such Non-Consenting Party shall pay
  (or reimburse Consenting Parties for, as the case may be) its proportionate
  share of all costs of drilling, Completing, and equipping said well from the
  surface to the Initial Objective, calculated in the manner provided in paragraph
  (a) above, less those costs recouped by the Consenting Parties from the sale
  of production from the well. The Non-Consenting Party shall also pay its proportionate
  share of all costs of re-entering said well. The Non-Consenting Parties' proportionate
  part (based on the percentage of such well Non-Consenting Party would have owned
  had it previously participated in such Non-Consent Well) of the costs of salvable
  materials and equipment remaining in the hole and salvable surface equipment
  used in connection with such well shall be determined in accordance with Exhibit
  "C." If the Consenting Parties have recouped the cost of drilling, Completing,
  and equipping the well at the time such Deepening operation is conducted, then
  a Non- Consenting Party may participate in the Deepening of the well with no
  payment for costs incurred prior to re-entering the well for Deepening 

                   
  The foregoing shall not imply a right of any Consenting Party to propose any
  Deepening for a Non-Consent Well prior to the drilling of such well to its Initial
  Objective without the consent of the other Consenting Parties as provided in
  Article VI.F. 

                   
  5. Sidetracking: Any party having the right to participate in a proposed
  Sidetracking operation that does not own an interest in the affected wellbore
  at the time of the notice shall, upon electing to participate, tender to the
  wellbore owners its proportionate share (equal to its interest in the Sidetracking
  operation) of the value of that portion of the existing wellbore to be utilized
  as follows: 

                   
  (a) If the proposal is for Sidetracking an existing dry hole, reimbursement
  shall be on the basis of the actual costs incurred in the initial drilling of
  the well down to the depth at which the Sidetracking operation is initiated.

                   
  (b) If the proposal is for Sidetracking a well which has previously produced,
  reimbursement shall be on the basis of such party's proportionate share of drilling
  and equipping costs incurred in the initial drilling of the well down to the
  depth at which the Sidetracking operation is conducted, calculated in the manner
  described in Article VI.B.4(b) above. Such party's proportionate share of the
  cost of the well's salvable materials and equipment down to the depth at which
  the Sidetracking operation is initiated shall be determined in accordance with
  the provisions of Exhibit "C." 

                   
  6. Order of Preference of Operations. Except as otherwise specifically
  provided in this agreement, if any party desires to propose the conduct of an
  operation that conflicts with a proposal that has been made by a party under
  this Article VI, such party shall have fifteen (15) days from delivery of the
  initial proposal, in the case of a proposal to drill a well or to perform an
  operation on a well where no drilling rig is on location, or twenty-four (24)
  hours, exclusive of Saturday, Sunday and legal holidays, from delivery of the
  initial proposal, if a drilling rig is on location for the well on which such
  operation is to be conducted, to deliver to all parties entitled to participate
  in the proposed operation such party's alternative proposal, such alternate
  proposal to contain the same information required to be included in the initial
  proposal. Each party receiving such proposals shall elect by delivery of notice
  to Operator within five (5) days after expiration of the proposal period, or
  within twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays)
  if a drilling rig is on location for the well that is the subject of the proposals,
  to participate in one of the competing proposals. Any party not electing within
  the time required shall be deemed not to have voted. The proposal receiving
  the vote of parties owning the largest aggregate percentage interest of the
  parties voting shall have priority over all other competing proposals; in the
  case of a tie vote, the 

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

 initial proposal shall prevail. Operator shall deliver
  notice of such result to all parties entitled to participate in the operation
  2 within five (5) days after expiration of the election period (or within twenty-four
  (24) hours, exclusive of Saturday, Sunday 3 and legal holidays, if a drilling
  rig is on location). Each party shall then have two (2) days (or twenty-four
  (24) hours if a rig 4 is on location) from receipt of such notice to elect by
  delivery of notice to Operator to participate in such operation or to 5 relinquish
  interest in the affected well pursuant to the provisions of Article VI.B.2.;
  failure by a party to deliver notice within 6 such period shall be deemed an
  election not to participate in the prevailing proposal. 

                   
  7. Conformity to Spacing Pattern. Notwithstanding the provisions of this
  Article VI.B.2., it is agreed that no wells shall be 8 proposed to be drilled
  to or Completed in or produced from a Zone from which a well located elsewhere
  on the Contract Area is producing, unless such well conforms to the then-existing
  well spacing pattern for such Zone. 

                   
  8. Paying Wells. No party shall conduct any Reworking, Deepening, Plugging
  Back, Completion, Recompletion, or Sidetracking operation under this agreement
  with respect to any well then capable of producing in paying quantities except
  with the consent of all parties that have not relinquished interests in the
  well at the time of such operation. 

C. Completion of Wells; Reworking and Plugging Back: 

                   
  1. Completion: Without the consent of all parties, no well shall be drilled,
  Deepened or Sidetracked, except any well drilled, Deepened or Sidetracked pursuant
  to the provisions of Article VI.B.2. of this agreement. Consent to the drilling,
  Deepening or Sidetracking shall include: 

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

		[X] 	 Option No. 2: All necessary
        expenditures for the drilling, Deepening or Sidetracking and testing of
        the well. When such well has reached its authorized depth, and all logs,
        cores and other tests have been completed, and the results thereof furnished
        to the parties, Operator shall give immediate notice to the Non-Operators
        having the right to participate in a Completion attempt whether or not
        Operator recommends attempting to Complete the well, together with Operator's
        AFE for Completion costs if not previously provided. The parties receiving
        such notice shall have forty-eight (24) hours
        (exclusive of Saturday, Sunday and legal holidays) in which to elect by
        delivery of notice to Operator to participate in a recommended Completion
        attempt or to make a Completion proposal with an accompanying AFE. Operator
        shall deliver any such Completion proposal, or any Completion proposal
        conflicting with Operator's proposal, to the other parties entitled to
        participate in such Completion in accordance with the procedures specified
        in Article VI.B.6. Election to participate in a Completion attempt shall
        include consent to all necessary expenditures for the Completing and equipping
        of such well, including necessary tankage and/or surface facilities but
        excluding any stimulation operation not contained on the Completion AFE.
        Failure of any party receiving such notice to reply within the period
        above fixed shall constitute an election by that party not to participate
        in the cost of the Completion attempt; provided, that Article VI.B.6.
        shall control in the case of conflicting Completion proposals. If one
        or more, but less than all of the parties, elect to attempt a Completion,
        the provision of Article VI.B.2. hereof (the phrase "Reworking, Sidetracking,
        Deepening, Recompleting or Plugging Back" as contained in Article VI.B.2.
        shall be deemed to include "Completing") shall apply to the operations
        thereafter conducted by less than all parties; provided, however, that
        Article VI.B.2. shall apply separately to each separate Completion or
        Recompletion attempt undertaken hereunder, and an election to become a
        Non-Consenting Party as to one Completion or Recompletion attempt shall
        not prevent a party from becoming a Consenting Party in subsequent Completion
        or Recompletion attempts regardless whether the Consenting Parties as
        to earlier Completions or Recompletion have recouped their costs pursuant
        to Article VI.B.2.; provided further, that any recoupment of costs by
        a Consenting Party shall be made solely from the production attributable
        to the Zone in which the Completion attempt is made. Election by a previous
        Non-Consenting party to participate in a subsequent Completion or Recompletion
        attempt shall require such party to pay its proportionate share of the
        cost of salvable materials and equipment installed in the well pursuant
        to the previous Completion or Recompletion attempt, insofar and only insofar
        as such materials and equipment benefit the Zone in which such party participates
        in a Completion attempt. 

                   
  2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted
  or Plugged Back except a well Reworked, Recompleted, or Plugged Back pursuant
  to the provisions of Article VI.B.2. of this agreement. Consent to the Reworking,
  Recompleting or Plugging Back of a well shall include all necessary expenditures
  in conducting such operations and Completing and equipping of said well, including
  necessary tankage and/or surface facilities. 

D. Other Operations: 

                   
  Operator shall not undertake any single project reasonably estimated to require
  an expenditure in excess of Fifty thousand / 50,000.00 Dollars ($/
  ) except in connection with the Plugging Back of a well that has been
  previously authorized by or pursuant to this agreement; provided, however, that,
  in case of explosion, fire, flood or other sudden emergency, whether of the
  same or different nature, Operator may take such steps and incur such expenses
  as in its opinion are required to deal with the emergency to safeguard life
  and property but Operator, as promptly as possible, shall report the emergency
  to the other parties. If Operator prepares an AFE for its own use, Operator
  shall furnish any Non-Operator so requesting an information copy thereof for
  any single project costing in excess of twenty five thousand Dollars
  ($ 25,000.00 ). Any party who has not relinquished its interest in a
  well shall have the right to propose that Operator perform repair work or undertake
  the installation of artificial lift equipment or ancillary production facilities
  such as salt water disposal wells or to conduct additional work with respect
  to a well drilled hereunder or other similar project (but not including the
  installation of gathering lines or other transportation or marketing facilities,
  the installation of which shall be governed by separate agreement between the
  parties) reasonably estimated to require an expenditure in excess of the amount
  first set forth above in this Article VI.D. (except in connection with an operation
  required to be proposed under Articles VI.B.1. or VI.C.1. Option No. 2, which
  shall be governed exclusively be those Articles). Operator shall deliver such
  proposal to all parties entitled to participate therein. If within thirty (30)
  days thereof Operator secures the written consent of any party or parties owning
  at least 60 % of the interests of the parties entitled to participate
  in such operation, each party having the right to participate in such project
  shall be bound by the terms of such proposal and shall be obligated to pay its
  proportionate share of the costs of the proposed project as if it had consented
  to such project pursuant to the terms of the proposal. 

E. Abandonment of Wells: 

                   
  1. Abandonment of Dry Holes: Except for any well drilled or Deepened
  pursuant to Article VI.B.2., any well which has been drilled or Deepened under
  the terms of this agreement and is proposed to be completed as a dry hole shall
  not be 

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

plugged and abandoned without the consent of all parties. Should
  Operator, after diligent effort, be unable to contact any party, or should any
  party fail to reply within forty-eight (24) hours (exclusive of Saturday,
  Sunday and legal holidays) after delivery of notice of the proposal to plug
  and abandon such well, such party shall be deemed to have consented to the proposed
  abandonment. All such wells shall be plugged and abandoned in accordance with
  applicable regulations and at the cost, risk and expense of the parties who
  participated in the cost of drilling or Deepening such well. Any party who objects
  to plugging and abandoning such well by notice delivered to Operator within
  forty-eight (24) hours (exclusive of Saturday, Sunday and legal holidays)
  after delivery of notice of the proposed plugging shall take over the well as
  of the end of such forty-eight (24) hour notice period and conduct further
  operations in search of Oil and/or Gas subject to the provisions of Article
  VI.B.; failure of such party to provide proof reasonably satisfactory to Operator
  of its financial capability to conduct such operations or to take over the well
  within such period or thereafter to conduct operations on such well or plug
  and abandon such well shall entitle Operator to retain or take possession of
  the well and plug and abandon the well. The party taking over the well shall
  indemnify Operator (if Operator is an abandoning party) and the other abandoning
  parties against liability for any further operations conducted on such well
  except for the costs of plugging and abandoning the well and restoring the surface,
  for which the abandoning parties shall remain proportionately liable. 

                   
  2. Abandonment of Wells That Have Produced: Except for any well in which
  a Non-Consent operation has been conducted hereunder for which the Consenting
  Parties have not been fully reimbursed as herein provided, any well which has
  been completed as a producer shall not be plugged and abandoned without the
  consent of all parties. If all parties consent to such abandonment, the well
  shall be plugged and abandoned in accordance with applicable regulations and
  at the cost, risk and expense of all the parties hereto. Failure of a party
  to reply within sixty (60) days of delivery of notice of proposed abandonment
  shall be deemed an election to consent to the proposal. If, within sixty (60)
  days after delivery of notice of the proposed abandonment of any well, all parties
  do not agree to the abandonment of such well, those wishing to continue its
  operation from the Zone then open to production shall be obligated to take over
  the well as of the expiration of the applicable notice period and shall indemnify
  Operator (if Operator is an abandoning party) and the other abandoning parties
  against liability for any further operations on the well conducted by such parties.
  Failure of such party or parties to provide proof reasonably satisfactory to
  Operator of their financial capability to conduct such operations or to take
  over the well within the required period or thereafter to conduct operations
  on such well shall entitle operator to retain or take possession of such well
  and plug and abandon the well. 

                   
  Parties taking over a well as provided herein shall tender to each of the other
  parties its proportionate share of the value of the well's salvable material
  and equipment, determined in accordance with the provisions of Exhibit "C,"
  less the estimated cost of salvaging and the estimated cost of plugging and
  abandoning and restoring the surface; provided, however, that in the event the
  estimated plugging and abandoning and surface restoration costs and the estimated
  cost of salvaging are higher than the value of the well's salvable material
  and equipment, each of the abandoning parties shall tender to the parties continuing
  operations their proportionate shares of the estimated excess cost. Each abandoning
  party shall assign to the non-abandoning parties, without warranty, express
  or implied, as to title or as to quantity, or fitness for use of the equipment
  and material, all of its interest in the wellbore of the well and related equipment,
  together with its interest in the Leasehold insofar and only insofar as such
  Leasehold covers the right to obtain production from that wellbore in the Zone
  then open to production. If the interest of the abandoning party is or includes
  and Oil and Gas Interest, such party shall execute and deliver to the non- abandoning
  party or parties an oil and gas lease, limited to the wellbore and the Zone
  then open to production, for a term of one (1) year and so long thereafter as
  Oil and/or Gas is produced from the Zone covered thereby, such lease to be on
  the form attached as Exhibit "B." The assignments or leases so limited shall
  encompass the Drilling Unit upon which the well is located. The payments by,
  and the assignments or leases to, the assignees shall be in a ratio based upon
  the relationship of their respective percentage of participation in the Contract
  Area to the aggregate of the percentages of participation in the Contract Area
  of all assignees. There shall be no readjustment of interests in the remaining
  portions of the Contract Area. 

                   
  Thereafter, abandoning parties shall have no further responsibility, liability,
  or interest in the operation of or production from the well in the Zone then
  open other than the royalties retained in any lease made under the terms of
  this Article. Upon request, Operator shall continue to operate the assigned
  well for the account of the non-abandoning parties at the rates and charges
  contemplated by this agreement, plus any additional cost and charges which may
  arise as the result of the separate ownership of the assigned well. Upon proposed
  abandonment of the producing Zone assigned or leased, the assignor or lessor
  shall then have the option to repurchase its prior interest in the well (using
  the same valuation formula) and participate in further operations therein subject
  to the provisions hereof. 

                   
  3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.1.
  or VI.E.2. above shall be applicable as between Consenting Parties in the event
  of the proposed abandonment of any well excepted from said Articles; provided,
  however, no well shall be permanently plugged and abandoned unless and until
  all parties having the right to conduct further operations therein have been
  notified of the proposed abandonment and afforded the opportunity to elect to
  take over the well in accordance with the provisions of this Article VI.E.;
  and provided further, that Non-Consenting Parties who own an interest in a portion
  of the well shall pay their proportionate shares of abandonment and surface
  restoration cost for such well as provided in Article VI.B.2.(b). 

F. Termination of Operations: 

                   
  Upon the commencement of an operation for the drilling, Reworking, Sidetracking,
  Plugging Back, Deepening, testing, Completion or plugging of a well, including
  but not limited to the Initial Well, such operation shall not be terminated
  without consent of parties bearing _60____% of the costs of such operation;
  provided, however, that in the event granite or other practically impenetrable
  substance or condition in the hole is encountered which renders further operations
  impractical, Operator may discontinue operations and give notice of such condition
  in the manner provided in Article VI.B.1, and the provisions of Article VI.B.
  or VI.E. shall thereafter apply to such operation, as appropriate. 

G. Taking Production in Kind: 

	 	[   ] 	Option No. 1: Gas Balancing Agreement
      Attached 
			       Each party shall
        take in kind or separately dispose of its proportionate share of all Oil
        and Gas produced from the Contract Area, exclusive of production which
        may be used in development and producing operations and in preparing and
        treating Oil and Gas for marketing purposes and production unavoidably
        lost. Any extra expenditure incurred in the taking in kind or separate
        disposition by any party of its proportionate share of the production
        shall be borne by such party. Any party taking its share of production
        in kind shall be required to pay for only its proportionate share of such
        part of Operator's surface facilities which it uses. 

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

- 10 - 

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

	 	  	 directly from the purchaser
        thereof for its share of all production. 

			       
        If any party fails to make the arrangements necessary to take in kind
        or separately dispose of its proportionate share of the Oil produced from
        the Contract Area, Operator shall have the right, subject to the revocation
        at will by the party owning it, but not the obligation, to purchase such
        Oil or sell it to others at any time and from time to time, for the account
        of the non-taking party. Any such purchase or sale by Operator may be
        terminated by Operator upon at least ten (10) days written notice to the
        owner of said production and shall be subject always to the right of the
        owner of the production upon at least ten (10) days written notice to
        Operator to exercise at any time its right to take in kind, or separately
        dispose of, its share of all Oil not previously delivered to a purchaser.
        Any purchase or sale by Operator of any other party's share of Oil shall
        be only for such reasonable periods of time as are consistent with the
        minimum needs of the industry under the particular circumstances, but
        in no event for a period in excess of one (1) year. 

			       
        Any such sale by Operator shall be in a manner commercially reasonable
        under the circumstances but Operator shall have no duty to share any existing
        market or to obtain a price equal to that received under any existing
        market. The sale or delivery by Operator of a non-taking party's share
        of Oil under the terms of any existing contract of Operator shall not
        give the non-taking party any interest in or make the non-taking party
        a party to said contract. No purchase shall be made by Operator without
        first giving the non-taking party at least ten (10) days written notice
        of such intended purchase and the price to be paid or the pricing basis
        to be used. 

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

			       
        In the event one or more parties' separate disposition of its share of
        the Gas causes split-stream deliveries to separate pipelines and/or deliveries
        which on a day-to-day basis for any reason are not exactly equal to a
        party's respective proportion- ate share of total Gas sales to be allocated
        to it, the balancing or accounting between the parties shall be in accordance
        with any Gas balancing agreement between the parties hereto, whether such
        an agreement is attached as Exhibit "E" or is a separate agreement. Operator
        shall give notice to all parties of the first sales of Gas from any well
        under this agreement. 

	 	[X]	 Option No. 2: No Gas
        Balancing Agreement: 

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

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

			       
        If any party fails to make the arrangements necessary to take in kind
        or separately dispose of its proportionate share of the Oil and/or Gas
        produced from the Contract Area, Operator shall have the right, subject
        to the revocation at will by the party owning it, but not the obligation,
        to purchase such Oil and/or Gas or sell it to others at any time and from
        time to time, for the account of the non-taking party. Any such purchase
        or sale by Operator may be terminated by Operator upon at least ten (10)
        days written notice to the owner of said production and shall be subject
        always to the right of the owner of the production upon at least ten (10)
        days written notice to Operator to exercise its right to take in kind,
        or separately dispose of, its share of all Oil and/or Gas not previously
        delivered to a purchaser; provided, however, that the effective date of
        any such revocation may be deferred at Operator's election for a period
        not to exceed ninety (90) days if Operator has committed such production
        to a purchase contract having a term extending beyond such ten (10) -day
        period. Any purchase or sale by Operator of any other party's share of
        Oil and/or Gas shall be only for such reasonable periods of time as are
        consistent with the minimum needs of the industry under the particular
        circumstances, but in no event for a period in excess of one (1) year.
      

			       
        Any such sale by Operator shall be in a manner commercially reasonable
        under the circumstances, but Operator shall have no duty to share any
        existing market or transportation arrangement or to obtain a price or
        transportation fee equal to that received under any existing market or
        transportation arrangement. The sale or delivery by Operator of a non-taking
        party's share of production under the terms of any existing contract of
        Operator shall not give the non-taking party any interest in or make the
        non-taking party a party to said contract. No purchase of Oil and Gas
        and no sale of Gas shall be made by Operator without first giving the
        non-taking party ten days written notice of such intended purchase or
        sale and the price to be paid or the pricing basis to be used. Operator
        shall give notice to all parties of the first sale of Gas from any well
        under this Agreement. 

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

ARTICLE VII. 

  EXPENDITURES AND LIABILITY OF PARTIES 

A. Liability of Parties: 

                   
  The liability of the parties shall be several, not joint or collective. Each
  party shall be responsible only for its obligations, and shall be liable only
  for its proportionate share of the costs of developing and operating the Contract
  Area. Accordingly, the liens granted among the parties in Article VII.B. are
  given to secure only the debts of each severally, and no party shall have any
  liability to third parties hereunder to satisfy the default of any other party
  in the payment of any expense or obligation hereunder. It is not the intention
  of the parties to create, nor shall this agreement be construed as creating,
  a mining or other partnership, joint venture, agency relationship or association,
  or to render the parties liable as partners, co-venturers, or principals. In
  their relations with each other under this agreement, the parties shall not
  be considered fiduciaries or to have established a confidential relationship
  but rather shall be free to act on an arm's-length basis in accordance with
  their own respective self-interest, subject, however, to the obligation of the
  parties to act in good faith in their dealings with each other with respect
  to activities hereunder. 

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

B. Liens and Security Interests: 

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

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

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

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

                   
  If any party fails to pay its share of cost within one hundred twenty (60)
  days after rendition of a statement therefor by Operator, the non-defaulting
  parties, including Operator, shall upon request by Operator, pay the unpaid
  amount in the proportion that the interest of each such party bears to the interest
  of all such parties. The amount paid by each party so paying its share of the
  unpaid amount shall be secured by the liens and security rights described in
  Article VII.B., and each paying party may independently pursue any remedy available
  hereunder or otherwise. 

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

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

C. Advances: 

                   
  Operator, at its election, shall have the right from time to time to demand
  and receive from one or more of the other parties payment in advance of their
  respective shares of the estimated amount of the expense to be incurred in operations
  hereunder during the next succeeding month, which right may be exercised only
  by submission to each such party of an itemized statement of such estimated
  expense, together with an invoice for its share thereof. Each such statement
  and invoice for the payment in advance of estimated expense shall be submitted
  on or before the 20th day of the next preceding month. Each party shall pay
  to Operator its proportionate share of such estimate within fifteen (15) days
  after such estimate and invoice is received. If any party fails to pay its share
  of said estimate within said time, the amount due shall bear interest as provided
  in Exhibit "C" until paid. Proper adjustment shall be made monthly between advances
  and actual expense to the end that each party shall bear and pay its proportionate
  share of actual expenses incurred, and no more. 

D. Defaults and Remedies: 

                   
  If any party fails to discharge any financial obligation under this agreement,
  including without limitation the failure to make any advance under the preceding
  Article VII.C. or any other provision of this agreement, within the period required
  for such payment hereunder, then in addition to the remedies provided in Article
  VII.B. or elsewhere in this agreement, the remedies specified below shall be
  applicable. For purposes of this Article VII.D., all notices and elections shall
  be delivered 

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

only by Operator, except that Operator shall deliver any such
  notice and election requested by a non-defaulting Non-Operator, and when Operator
  is the party in default, the applicable notices and elections can be delivered
  by any Non-Operator. Election of any one or more of the following remedies shall
  not preclude the subsequent use of any other remedy specified below or otherwise
  available to a non-defaulting party. 

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

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

                   
  3. Deemed Non-Consent: The non-defaulting party may deliver a written
  Notice of Non-Consent Election to the defaulting party at any time after the
  expiration of the thirty-day cure period following delivery of the Notice of
  Default, in which event if the billing is for the drilling a new well or the
  Plugging Back, Sidetracking, Reworking or Deepening of a well which is to be
  or has been plugged as a dry hole, or for the Completion or Recompletion of
  any well, the defaulting party will be conclusively deemed to have elected not
  to participate in the operation and to be a Non-Consenting Party with respect
  thereto under Article VI.B. or VI.C., as the case may be, to the extent of the
  costs unpaid by such party, notwithstanding any election to participate theretofore
  made. If election is made to proceed under this provision, then the non-defaulting
  parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.

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

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

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

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

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

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

F. Taxes: 

                   
  Beginning with the first calendar year after the effective date hereof, Operator
  shall render for ad valorem taxation all property subject to this agreement
  which by law should be rendered for such taxes, and it shall pay all such taxes
  assessed thereon before they become delinquent. Prior to the rendition date,
  each Non-Operator shall furnish Operator information as to burdens (to include,
  but not be limited to, royalties, overriding royalties and production payments)
  on Leases and Oil and Gas Interests contributed by such Non-Operator. If the
  assessed valuation of any Lease is reduced by reason of its being subject to
  outstanding excess royalties, overriding royalties or production payments, the
  reduction in ad valorem taxes resulting therefrom shall inure to the benefit
  of the owner or owners of such Lease, and Operator shall adjust the charge to
  such owner or owners so as to reflect the benefit of such reduction. If the
  ad valorem taxes are based in whole or in part upon separate valuations of each
  party's working interest, then notwithstanding anything to the contrary herein,
  charges to the joint account shall be made and paid by the parties hereto in
  accordance with the tax value generated by each party's working interest. Operator
  shall bill the other parties for their proportionate shares of all tax payments
  in the manner provided in Exhibit "C." 

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

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

                   
  Each party shall pay or cause to be paid all production, severance, excise,
  gathering and other taxes imposed upon or with respect to the production or
  handling of such party's share of Oil and Gas produced under the terms of this
  agreement. 

ARTICLE VIII. 

  ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST 

A. Surrender of Leases: 

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

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

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

B. Renewal or Extension of Leases: 

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

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

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

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

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

C. Acreage or Cash Contributions: 

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

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

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

D. Assignment; Maintenance of Uniform Interest: 

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

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

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

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

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

E. Waiver of Rights to Partition: 

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

F. Preferential Right to Purchase: 

[X]              
   (Optional; Check if applicable.) 

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

ARTICLE IX. 

  INTERNAL REVENUE CODE ELECTION 

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

ARTICLE X. 

  CLAIMS AND LAWSUITS 

                   
  Operator may settle any single uninsured third party damage claim or suit arising
  from operations hereunder if the expenditure does not exceed 10,000.00 ten
  thousand Dollars ($ / ) and if the payment is in complete settlement
  of such claim or suit. If the amount required for settlement exceeds the above
  amount, the parties hereto shall assume and take over the further handling of
  the claim or suit, unless such authority is delegated to Operator. All costs
  and expenses of handling settling, or otherwise discharging such claim or suit
  shall be a the joint expense of the parties participating in the operation from
  which the claim or suit arises. If a claim is made against any party or if any
  party is sued on account of any matter arising from operations hereunder over
  which such individual has no control because of the rights given Operator by
  this agreement, such party shall immediately notify all other parties, and the
  claim or suit shall be treated as any other claim or suit involving operations
  hereunder. 

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

ARTICLE XI. 

  FORCE MAJEURE 

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

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

ARTICLE XII. 

  NOTICES 

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

ARTICLE XIII. 

  TERM OF AGREEMENT 

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

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

		[   ] 	 Option No. 2: In the
        event the well described in Article VI.A., or any subsequent well drilled
        under any provision of this agreement, results in the Completion of a
        well as a well capable of production of Oil and/or Gas in paying quantities,
        this agreement shall continue in force so long as any such well is capable
        of production, and for an additional period of ___ days thereafter; provided,
        however, if, prior to the expiration of such additional period, one or
        more of the parties hereto are engaged in drilling, Reworking, Deepening,
        Sidetracking, Plugging Back, testing or attempting to Complete or Re-complete
        a well or wells hereunder, this agreement shall continue in force until
        such operations have been completed and if production results therefrom,
        this agreement shall continue in force as provided herein. In the event
        the well described in Article VI.A., or any subsequent well drilled hereunder,
        results in a dry hole, and no other well is capable of producing Oil and/or
        Gas from the Contract Area, this agreement shall terminate unless drilling,
        Deepening, Sidetracking, Completing, Re- completing, Plugging Back or
        Reworking operations are commenced within __________________________ days
        from the date of abandonment of said well. "Abandonment" for such purposes
        shall mean either (i) a decision by all parties not to conduct any further
        operations on the well or (ii) the elapse of 180 days from the conduct
        of any operations on the well, whichever first occurs. 

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

                   
  Upon termination of this agreement and the satisfaction of all obligations hereunder,
  in the event a memorandum of this Operating Agreement has been filed of record,
  Operator is authorized to file of record in all necessary recording offices
  a notice of termination, and each party hereto agrees to execute such a notice
  of termination as to Operator's interest, upon request of Operator, if Operator
  has satisfied all its financial obligations. 

ARTICLE XIV. 

  COMPLIANCE WITH LAWS AND REGULATIONS 

A. Laws, Regulations and Orders: 

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

B. Governing Law: 

                   
  This Agreement shall, in all respects, be subject to, interpreted, construed
  and enforced in accordance with andunder the laws of the Province of Alberta
  and applicable laws of Canada and shall, in all respects, be treated as a contract
  made in theProvince of Alberta. The Parties irrevocably attorn and submit to
  the exclusive jurisdiction of the courts of the Province of Alberta andcourts
  of appeal therefrom in respect of all matters arising out of or in connection
  with this Agreement, including but not limited tomatters of performance,
  non-performance, breach, remedies, procedures, rights, duties, and interpretation
  or construction;provided, however that the laws of the State of Montana shall
  be applicable in respect of the defined term "Regulations" as definedand used
  in the head agreement . 

C. Regulatory Agencies: 

                   
  Nothing herein contained shall grant, or be construed to grant, Operator the
  right or authority to waive or release any rights, privileges, or obligations
  which Non-Operators may have under federal or state laws or under rules, regulations
  or 

- 16 - 

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

orders promulgated under such laws in reference to oil, gas and
  mineral operations, including the location, operation, or production of wells,
  on tracts offsetting or adjacent to the Contract Area. 

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

ARTICLE XV. 

  MISCELLANEOUS 

A. Execution: 

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

B. Successors and Assigns: 

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

C. Counterparts: 

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

D. Severability: 

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

ARTICLE XVI. 

  OTHER PROVISIONS 

- 17 - 

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

IN WITNESS WHEREOF, this agreement shall be effective as of the
  ___________________day of October , 2007 . 

MegaWest Energy Montana Corp. , who has prepared and circulated
  this form for execution, represents and warrants that the form was printed from
  and, with the exception(s) listed below, is identical to the AAPL Form 610-1989
  Model Form Operating Agreement, as published in computerized form by Forms On-A-Disk,
  Inc. No changes, alterations, or modifications, other than those made by strikethrough
  and/or insertion and that are clearly recognizable as changes, have been
  made to the form. 

	ATTEST OR WITNESS: 	 	 	OPERATOR 
	 	 	 	 
	  	 	 	MegaWest
      Energy Montana Corp. 
	 	 	 	 
	  	 	By 	
	 	 	 	 
	 	 	 	 
	  	 	 	Type or print name 
	 	 	 	 
	 	 	 	 
	  	 	 	Title ____________________________________________
	 	 	 	 
	  	 	 	Date ____________________________________________
	 	 	 	 
	  	 	 	Tax ID or S.S. No. __________________________________
	  	 	 	  
	 NON-OPERATORS 
	 	 	 	 
	  	 	 	BS Oil
      Company 
	 	 	 	 
	  	 	By 	
	 	 	 	 
	 	 	 	 
	  	 	 	Type or print name 
	 	 	 	 
	 	 	 	 
	  	 	 	Title ____________________________________________
	 	 	 	 
	  	 	 	Date ____________________________________________
	 	 	 	 
	  	 	 	Tax ID or S.S. No. __________________________________
	  	 	 	
	  	 	 	Longshot
      Oil Company 
	 	 	 	 
	  	 	By 	
	 	 	 	 
	 	 	 	 
	  	 	 	Type or print name 
	 	 	 	 
	 	 	 	 
	  	 	 	Title ____________________________________________
	 	 	 	 
	  	 	 	Date ____________________________________________
	 	 	 	 
	  	 	 	Tax ID or S.S. No. __________________________________
	  	 	 	
	 	 	 	 
	 	 	 	 
	  	 	By 	
	 	 	 	 
	 	 	 	 
	  	 	 	Type or print name 
	 	 	 	 
	  	 	 	Title ____________________________________________
	 	 	 	 
	  	 	 	Date ____________________________________________
	 	 	 	 
	  	 	 	Tax ID or S.S. No. __________________________________

- 18 - 

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

ACKNOWLEDGMENTS 

                   
  Note: The following forms of acknowledgment are the short forms approved by
  the Uniform Law on Notarial Acts. 

The validity and effect of these forms in any state will depend
  upon the statutes of that state. 

Individual acknowledgment: 

State of __________________________ ) 

                                                                           
  ) ss. 

County of ________________________ ) 

                   
  This instrument was acknowledged before me on 

___________________________________________________ by _______________________________________________________

 

	(Seal, if any) 	
	 	 
	 	Title (and Rank) __________________________________________
	 	 
	 	My commission expires: ____________________________________

Acknowledgment in representative capacity: 

State of __________________________ ) 

                                                                           
  ) ss. 

County of ________________________ ) 

                   
  This instrument was acknowledged before me on 

___________________________________________________ by _____________________________________________________as

______________of________________________________________________________________________________________________
  . 

 

	(Seal, if any) 	
	 	 
	 	Title (and Rank) __________________________________________
	 	 
	 	My commission expires: ____________________________________

- 19 -Filed by Automated Filing Services Inc. (604) 609-0244 - MegaWest Energy Montana Corp.- Exhibit 10.32

October 24, 2007

Longshot Oil Company
P.O. Box
397
Somers, MT
59932

BS Oil Company Ltd.
88 Bennett Cr.
NW
Calgary, AB
T2L 1R1

Armont Energy Inc.
P.O. Box 397
Somers,
MT, USA
59932

Attention: Ron Lambrecht

	RE: 	OPERATING AND FARMIN AGREEMENT
  
	  	Teton Area, Montana 
	  	REL File No.:25001C0004 

The purpose of this letter is to confirm the agreement which
has been reached between our companies regarding the acreage set forth
below.

	1. 	
      DEFINITIONS

	 	 	 	 
		
      The following terms and expressions shall have the
      meanings hereinafter assigned to them, namely:

	 	 	 	 
		(a) 	
      "Additional Teton Program" shall mean, in the event that
      Farmor and Farmee agree that the adequate initial evaluation of the
      farmout lands requires the expenditure of more than US $2,000,000.00, the
      mutually agreed upon nature and extent of the additional activities and
      expenditures required to complete such adequate initial evaluation;
      provided, however, that under no circumstances shall the Additional Teton
      Program require expenditures in excess of US $1,000,000.00 over and above
      the Earning Expenditures;

	 	 	 	 
		(b) 	
      "agreement" shall mean this letter Operating and Farmin
      Agreement;

	 	 	 	 
		(c) 	
      "Approved Encumbrances" shall mean the applicable
      lessor's royalty and any other encumbrances set forth and described in
      Schedule "A";

	 	 	 	 
		(d) 	
      "cap" shall mean the installation of such casing, plugs
      and equipment as are necessary to enable a well prospective of production
      of petroleum substances to be completed at a later date;

	 	 	 	 
		(e) 	
      "complete or completion" and the derivatives thereof
      shall mean in the case of a well capable of producing petroleum substances
      in at least paying quantities:

	 	 	 	 
			(i) 	
      in the case of an oil well: (A) the acquisition and
      installation of production casing in the hole (exclusive of surface and
      intermediate casing) and all other equipment, materials and services
      required to complete the well up to and

Farmin Agreement
Page 2

	 	 		 including the outlet valve at the wellhead; and (B)
        such production testing as is reasonably desirable under the circumstances;
        and

	 	 	 	 
	 	 	(ii) 	 in the case of a gas well: (A) the acquisition and installation
        of production casing in the hole (exclusive of surface and intermediate
        casing) and all other equipment, materials and services required to complete
        the well up to and including the outlet valve at the wellhead; and (B)
        running adequate back pressure tests and a sustained production test consisting
        of an absolute open flow potential test sufficient to establish the initial
        productivity of the well;

	 	(f) 	 "contract depth" shall mean a depth sufficient
        to penetrate to the base of the Swift formation;

	 	 	 	 
	 	(g) 	 "drilling" and the derivatives thereof shall
        mean all activities incidental to the drilling of a well and all services
        in respect thereof including, without limitation, the acquisition of all
        surface rights, construction of access roadways and the wellsite, drilling,
        coring, testing, logging and the acquisition and installation of all surface
        and intermediate casing as well as material and services in respect thereof;

	 	 	 	 
	 	(h) 	 "Earning Date" means the first date on which
        the Farmee has satisfied the provisions of Clause 5(a) of the agreement
        herein;

	 	 	 	 
	 	(i) 	 "Earning Expenditures" means the sum of $2,000,000.00
        US dollars;

	 	 	 	 
	 	(j) 	 "equip or equipping" and the derivatives thereof
        shall mean the acquisition and permanent installation of equipment beyond
        the outlet valve at the wellhead and required to produce petroleum substances
        from the well (excluding the equipment required to complete the well),
        including without limitation:

	 	 	 	 
			(i) 	 in the case of an oil well: the acquisition and permanent
        installation of pumping equipment, flowlines, production tankage and all
        other equipment necessary for the production of petroleum substances;

	 	 	 	 
			(ii) 	 in the case of a gas well: the acquisition and permanent
        installation of compressors, separators, heaters, treaters, dehydrators
        or other hydrate control facilities, production test tanks and all other
        equipment necessary for the production of petroleum substances to the
        point of entry into a gathering system, plant or other common facility;

	 	 	 	 
	 	(k) 	 "Farmee" shall mean MegaWest Energy Montana
        Corp.;

	 	 	 	 
	 	(l) 	 "Farmor" shall mean collectively Longshot
        Oil Company, Armont Energy Inc., BS Oil Company Ltd. ;

	 	 	 	 
	 	(m) 	 "farmout lands" shall mean the areal, stratigraphic
        and substance rights described in Schedule "A" or so much of those rights
        as remain subject to this agreement and the title documents;

	 	 	 	 
	 	(n) 	 "Operating Procedure" shall mean the standard
        form AAPL 1989 Model Form Operating Agreement, as amended, attached as
        Schedule "B" hereto;

	 	 	 	 
	 	(o) 	 "Payout" shall mean the point in time at which
        the cumulative gross revenues from the sale of 100% of production of petroleum
        substances from, or allocated to, the test well or

Farmin Agreement
Page
3

wells (net of any and all cumulative
operating expenses and Approved Encumbrances) shall first exceed the greater of
(i) the total expenditures of Farmee in drilling, completing, equipping and
otherwise rendering the test well or wells capable of production in paying
quantities, and (ii) the Earning Expenditures;

	 	(p) 	 "Teton Area AMI Lands" shall mean all areal,
        stratigraphic and substance rights with respect to lands within one mile
        of the outer boundary of the farmout lands;

	 	 	 	 
	 	(q) 	 "Regulations" shall mean the applicable federal
        laws and laws of the state of Montana pertaining to drilling and production
        spacing units;

	 	 	 	 
	 	(r) 	 "rentals or rental payments" shall mean all
        rents, renewals, taxes, penalties and other payments payable with respect
        to the title documents, but shall not include the initial consideration
        paid by Farmor with respect to any of the title documents;

	 	 	 	 
	 	(s) 	 "spacing unit" shall mean all zones of that
        area of the farmout lands earned by the Farmee pursuant to this agreement,
        which area will be determined as of the drilling rig release date of the
        test well, and is described as follows:

	 	 	 	 
			(i) 	 for a capped or completed well: the area allocated to
        a well pursuant to the Regulations for the purpose of producing the petroleum
        substance(s) in the zone(s) for which that well has been capped or completed;
        and

	 	 	 	 
			(ii) 	 in every other case: the area allocated to a well pursuant
        to the Regulations for the purpose of producing crude oil, but in the
        absence of that allocation, the quarter-section, unit or similar geographical
        area that includes the bottom-hole co-ordinates of that well;

	 	 	 	 
	 	(t) 	 "test well" shall mean an exploratory test
        or wells drilled by Farmee pursuant to Clause 5 for the recovery of petroleum
        substances; and

	 	 	 	 
	 	(u) 	 "title documents" shall mean the documents
        set forth and described as such in Schedule "A" and any renewals or extensions
        thereof or further title documents issued pursuant thereto insofar as
        they relate to the farmout lands.

	2. 	
      SCHEDULES

	 	 	 
		
      The following schedules are attached hereto and
      incorporated into this agreement:

	 	 	 
		(a) 	
      Schedule "A", which sets forth the farmout lands, the
      title documents and the Approved Encumbrances; and

	 	 	 
		(b) 	
      Schedule "B", which sets forth the Operating
      Procedure.

	 	 	 
	3. 	
      TITLE

	 	 	 
		(a) 	
      Farmor does not warrant title to the farmout lands or the
      title documents or agree to convey to Farmee any better title thereto than
      Farmor has on the date hereof. Farmor covenants that the farmout lands are
      only encumbered by the Approved Encumbrances

Farmin Agreement
Page 4

and that it has complied with all the
terms of the grant of its interest in the farmout lands to the extent necessary
to maintain them in force as of the date of this agreement.

	 	(b) 	 If the interest of any party in the farmout lands is
        now or hereafter shall become encumbered by any royalty, overriding royalty,
        production payment or other charge of a similar nature, other than the
        Approved Encumbrances, such royalty, overriding royalty, production payment
        or other charge of a similar nature shall be charged to and paid entirely
        by the party whose interest is or becomes thus encumbered.

	4. 	
      TEST WELLS

	 	 	 	 
		
      On or before the October 31, 2008, Farmee shall have the
      exclusive right to spud a minimum of two test wells at mutually acceptable
      locations within the farmout lands and shall thereafter diligently and
      continuously, drill same to contract depth and test, to the reasonable
      satisfaction of Farmor, all zones prospective or containing petroleum
      substances, log and either complete, cap or abandon same all at Farmee's
      sole cost, risk and expense and in accordance with the terms and
      conditions of this agreement and the Regulations.

	 	 	 	 
	5. 	
      INTEREST EARNED

	 	 	 	 
		(a) 	
      Provided Farmee has either:

	 	 	 	 
			(i) 	
      performed all of its requirements and obligations
      pursuant to this agreement with respect to the drilling, testing, logging,
      completion, capping or abandonment of the test well and conducted such
      simulations of thermal recovery options as Farmee deems appropriate and
      commenced the design of a production scheme for any completed well or
      wells, and acquired portable steam generation and surface production
      equipment sufficient to conduct the demonstration of a recovery scheme
      capable of effecting production in paying quantities from either or both
      test wells, or

	 	 	 	 
			(ii) 	
      expended a sum equal to the Earning Expenditures in an
      effort to satisfy its requirements and obligations pursuant to Subclause
      7(a)(i) hereof,

and provided further that Farmee is not in default of any term
or condition of this agreement, then Farmee shall have earned, effective as of
Earning Date, one third of Farmor's 60% interest (a net 20% interest) in and to
the farmout lands and in the title documents as they pertain thereto, subject
only to its proportionate share of the Approved Encumbrances.

	6. 	
      JOINT OPERATIONS AS AT THE DATE HEREOF

	 	 	 
		(a) 	
      From and after the date hereof, the farmout lands shall
      be owned by the parties hereto in the following respective undivided
      working interests (hereinafter referred to as the "Participating
      Interests"):

	 	MegaWest Energy Montana Corp. 	- 	40% 
	 	Longshot Oil Company 	- 	25.5% 
	 	Armont Energy Inc. 	- 	25.5% 
	 	BS Oil Company Ltd. 	- 	9% 

Farmin Agreement
Page 5

	 	(b) 	
      From and after the date hereof, except as otherwise
      provided in this Agreement, the parties hereto shall bear all costs and
      expenses paid or incurred under this Agreement and shall own, operate and
      develop the farmout lands, appurtenances thereto, the production of
      Petroleum Substances therefrom, and revenues received in connection
      therewith in accordance with the Participating Interests, and the
      Operating Procedure shall govern all operations on or in respect of the
      Joint Lands.

	 	 	 
	 	(c) 	
      MegaWest Energy Montana Corp. is hereby appointed as
      initial Operator of the farmout lands as of the date
  hereof.

	7. 	
      JOINT OPERATIONS FOLLOWING EARNING BUT PRIOR TO
      PAYOUT

	 	 	 	 
		(a) 	
      Upon earning having occurred pursuant to Clause 5
      hereof:

	 	 	 	 
			(i) 	
      Farmor agrees to execute and deliver such assignments,
      without warranty of title, express or implied, as may reasonably be
      required to vest in Farmee the interest earned pursuant to this
      agreement;

	 	 	 	 
			(ii) 	
      until such time as the grantor of the title documents is
      bound thereby, Farmor shall hold the interest earned by Farmee in trust
      for Farmee until such time as Farmee has become the entitled owner
      pursuant to and in accordance with the terms of the Agreement of Purchase
      and Sale dated October 15, 2007 between Farmor and Farmee.

	 	 	 	 
		(b) 	
      Further, upon earning having occurred pursuant to Clause
      7 hereof, but prior to Payout:

	 	 	 	 
			(i) 	
      the farmout lands shall be owned by the parties hereto in
      the following respective undivided working interests (hereinafter referred
      to as the "Participating Interests");

	 	MegaWest Energy Montana Corp. 	- 	60% 
	 	Longshot Oil Company 	- 	17% 
	 	Armont Energy Inc. 	- 	17% 
	 	BS Oil Company Ltd. 	- 	6% 

 

	 	(ii) 	
      notwithstanding Subclause 7(b) hereof, Farmee shall bear
      100% of all costs and expenses in the farmout lands and shall be entitled
      to receive and retain all revenues from the sale of production from the
      farmout lands; and

subject only to Subclauses 7(b), 9,
10, 12, 13 and 14 hereof, the Operating Procedure shall govern operations in
respect of the farmout lands.

	8.	
      JOINT OPERATIONS FOLLOWING
PAYOUT

Upon both earning and Payout having
occurred, subject to the provisions of Clause 9 hereof, operations in respect of
the farmout lands shall continue to be governed by the Operating Procedure, but
the Parties shall bear all costs and expenses in accordance with their
respective interests in the farmout lands and shall be entitled to receive and
retain all revenues from the sale of production from the farmout lands in
accordance with their respective working interests in the farmout lands.

Farmin Agreement
Page 6

	9. 	 ADDITIONAL EXPENDITURES REQUIRED FOR EVALUATION
        OF FARMOUT LANDS

	 	 	 	 
		(a) 	 If the Farmee and Farmor agree that the adequate
        initial evaluation of the farmout lands requires an Additional Teton Program,
        then Farmee shall bear the cost of such Additional Teton Program notwithstanding
        that it has already earned a 20% interest in and to the farmout lands.

	 	 	 	 
		(b) 	 In the event that Payout has not occurred
        prior to the conduct of the Additional Teton Program and the Farmee
        is bearing the cost of such Additional Teton Program pursuant to the terms
        of Subclause 9(a) hereof, an amount equal to 125% of the Farmor's share
        of the cost of the Additional Teton Program shall be added to the total
        expenditures of Farmee for the purposes of the calculation of "Payout".

	 	 	 	 
		(c) 	 In the event that Payout has occurred prior
        to the conduct of the Additional Teton Program and the Farmee is
        bearing the cost of such Additional Teton Program pursuant to the terms
        of Subclause 9(a) hereof, Farmee shall nonetheless be entitled to receive
        the revenues attributable to Farmor's 40% share from the sale of production
        from the farmout lands until such time as the cumulative gross revenues
        from the sale of 100% of production of petroleum substances from, or allocated
        to, the test well or wells (net of any and all cumulative operating expenses
        and Approved Encumbrances) shall first exceed 125% of the total expenditures
        of Farmee in completing the Additional Teton Program.

	 	 	 	 
	10. 	 ABANDONMENT

	 	 	 	 
		 Insofar as the abandonment of a well forms
        part of the Farmee's earning operation or part of an Additional Teton
        Program, the following Subclauses shall apply.

	 	 	 	 
		(a) 	 If Farmee has performed all related obligations
        hereunder to Farmor's reasonable satisfaction and if Farmee decides to
        abandon the test well upon reaching contract depth, Farmee shall give
        Farmor 48 hours notice (Farmee must supply Farmor with all information
        Farmee is obligated to provide Farmor for the test well and such other
        data for that well as Farmor may reasonably require for the exercise of
        its rights hereunder) if a drilling rig capable of conducting such abandonment
        is on location and 15 days notice in any other case prior to commencing
        abandonment, within which time Farmor may:

	 	 	 	 
			(i) 	 at its sole risk and expense, elect to further test
        the test well. Farmee shall conduct the tests at Farmor's request and
        in a timely manner. Farmor shall reimburse Farmee for all expenses that
        Farmee incurs that it would not have otherwise incurred had Farmor not
        elected to make the tests and Farmee will promptly provide the data therefrom
        to Farmor, in which case the election period described above will apply
        from Farmor's receipt of that additional testing information; or

	 	 	 	 
			(ii) 	 elect to take over the test well for completion in which
        event Farmee will, effective as of the date of Farmor's election to take
        over the well, assign the well (including the material, equipment and
        surface access rights relating solely thereto that Farmor wishes to use)
        to Farmor, without warranty; or

	 	 	 	 
			(iii) 	 concur with Farmee's decision to abandon the test well
        and Farmee shall promptly so abandon the wellbore at its sole expense.

	 	 	 	 
			 If Farmor fails to respond to Farmee's notice
        given under this clause within the time mentioned above, then Farmor is
        deemed to have concurred in the abandonment.

Farmin Agreement
Page 7

	 	(b) 	
      Compliance by Farmee with the provisions of Clause 10(a)
      will constitute Farmee's satisfaction of its obligation to abandon the
      wellbore of the test well for the purpose of earning hereunder.

	 	 	 
	 	(c) 	
      If Farmor takes over a well pursuant to this clause, and
      if Farmor commences to abandon the well within 13 months of Farmor's
      election to take over the well, Farmor will abandon that well for the
      account of Farmee, provided that Farmee will not be responsible for any
      extra costs of abandonment resulting from Farmor's takeover of that well.
      Farmor will calculate the abandonment costs for which Farmee is
      responsible under this clause and the net salvage value of the material
      and equipment Farmee had installed respecting that well. Farmor will
      provide Farmee with a statement showing the calculation of the proposed
      adjustment of accounts in reasonable detail. The party owing an amount
      will pay that amount to the other party within 30 days of the receipt of
      that statement.

	 	 	 
	 	(d) 	
      If Farmor does not commence to abandon the well within
      the period prescribed above, Farmee will calculate the amount of the
      estimated net salvage value of the material and equipment assigned to
      Farmor. Farmor will pay that amount within 30 days of receiving an invoice
      for same. Farmee will cease to be responsible for abandonment costs if
      Farmor so retains the well.

	 	 	 
	 	(e) 	
      If Farmor successfully completes the well in a zone
      originally contained in the farmout lands, Farmee will assign to Farmor,
      without warranty, Farmee's working interest in the spacing unit for that
      well in only the zone(s) completed by Farmor and the petroleum substances
      therein, effective as of the date of Farmor's election to take over that
      well. That assignment will not release Farmee from any obligation that
      should have been performed by it or any liability that may have accrued to
      it prior to that assignment.

	 	 	 
	 	(f) 	
      With respect to the abandonment of any well which does
      not form part of the Farmee's earning operation or part of an Additional
      Teton Program, the Operating Procedure shall
apply.

	11. 	
      AREA OF MUTUAL INTEREST

	 	 	 
		(a) 	
      Farmor and Farmee hereby establish an area of mutual
      interest ("Teton Area AMI") encompassing all lands and formations within
      the Teton Area AMI lands, which Teton Area AMI shall remain active for a
      period of two (2) years from the date hereof.

	 	 	 
		(b) 	
      Farmor or Farmee shall not lease or sublease within the
      Teton Area AMI without giving notice to the other party of such lease or
      sub lease and the terms thereof, and offering the other party the
      opportunity to participate in that lease or sublease as to its respective
      working interest share. The party receiving such notice shall have fifteen
      (15) days to elect to participate in that lease or sub lease as to its
      working interest share, which election shall validly be made only if made
      in writing and accompanied by such party's share of the cost of acquiring
      such lease.

	 	 	 
		(c) 	
      Neither the Farmor or Farmee, nor the assignees of any of
      them, shall have the right to file a partition action of any mineral or
      leasehold interest within the Teton Area AMI. This provision may be
      indexed into the chain of title of the leases involved.

	 	 	 
		(d) 	
      Operations in respect of any lands acquired jointly be
      the parties pursuant to the terms of this Clause 11 shall be governed by
      the Operating Procedure.

Farmin Agreement
Page 8

	 	(e) 	
      The Farmee shall be responsible for the administrative
      payment of lease delay rentals for present and future leases within the
      Teton Area AMI.

	12. 	 INDEMNIFICATION

	 	 	 	 
		(a) 	 With respect to the operations set forth and
        described in Clause 4 hereof, Farmee shall:

	 	 	 	 
			(i) 	 be liable to Farmor for all losses, costs, damages and
        expenses whatsoever (whether contractual or otherwise) which Farmor may
        suffer, sustain, pay or incur; and, in addition

	 	 	 	 
			(ii) 	 indemnify and hold harmless Farmor and its directors,
        officers, agents and employees against all actions, causes of action,
        proceedings, claims, demands, losses, costs, damages and expenses whatsoever
        that may be brought against or suffered by Farmor, its directors, officers,
        agents and employees or that they may sustain, pay or incur,

	 	 	 	 
			 by reason of any matter or thing arising
        out of or in any way attributable to the operations carried on by Farmee
        or its servants, agents, employees, independent contractors, licensees
        or invitees pursuant to this agreement; or

	 	 	 	 
		(b) 	 With respect to all other operations carried
        on by Farmee or its servants, agents, employees, independent contractors,
        licensees or invitees, the Operating Procedure shall apply.

	 	 	 	 
		(c) 	 With respect to any operations assumed or
        undertaken by Farmor, whether pursuant to Article 10 of this Agreement
        or otherwise, Farmor will indemnify Farmee in the same manner as Farmee
        indemnifies Farmor pursuant to this Agreement.

	 	 	 	 
	13. 	 RENTALS

	 	 	 	 
		(a) 	 With respect to the operations set forth and
        described in Clause 4 hereof, Farmee shall reimburse Farmor for all rentals,
        security payments, penalties and/or compensatory royalties attributable
        to the farmout lands on a per diem basis from the date hereof until the
        date when Farmee has performed all of its obligations to earn its entire
        interest in the farmout lands as hereinbefore provided, with such payments
        being included in the definition of Payout. If Farmee fails to reimburse
        Farmor within 30 days after receipt of Farmor's invoice, Farmor may charge
        interest from the day such invoice is due at the rate of 2% percent higher
        than the prevailing prime bank interest rate charged by the principal
        chartered bank in Canada then used by Farmor; and

	 	 	 	 
		(b) 	 With respect to all other rentals, security
        payments, penalties and/or compensatory royalties attributable to the
        farmout lands, the Operating Procedure shall apply.

Farmin Agreement
Page 9

	14. 	
      NOTICES

The addresses for service of the
parties hereto shall be as follows:

BS Oil Company Ltd.
Armont Energy
Inc.
Longshot Oil Company
c/o
Longshot Oil Company
P.O. Box
397
Somers, MT
59932
Attention: Land Department
Fax: (509)
455-5924 * 51

Megawest Energy Montana
Corp.
c/o
Megawest Energy Corp.
800, 926 - 5th Ave. SW
Calgary, AB,
Canada
T2P 0N7

Attention: Land
Department
Fax: (403) 984-6343

All notices, communications and statements required, permitted
or contemplated hereunder shall be in writing, and shall be delivered as
follows:

	 	(a) 	 by personal service on a party at the address of such
        party set out above, in which case the item so served shall be deemed
        to have been received by that party when personally served;

	 	 	 
	 	(b) 	 by facsimile transmission to a party to the fax number
        of such party set out above, in which case the item so transmitted shall
        be deemed to have been received by that party when transmitted; or

	 	 	 
	 	(c) 	 except in the event of an actual or threatened postal
        strike or other labour disruption that may affect mail service, by mailing
        first class post, postage prepaid, to a party at the address of such party
        set out above, in which case the item so mailed shall be deemed to have
        been received by that party on the fifth day following the date of mailing.

Farmor and Farmee may from time to time change their respective
addresses for service by giving written notice to the other.

	15. 	
      DEFAULT

	 	 	 	 
		(a) 	
      Insofar as the earning operations set forth and described
      in Clause 4 hereof are concerned, if Farmee is in default of any of its
      obligations:

	 	 	 	 
			(i) 	
      Farmor may give Farmee notice stating the nature of that
      default. If Farmee fails to commence to remedy that default within 30 days
      after receipt of notice or fails

Farmin Agreement
Page 10

	 		
      to continue to remedy that default with due diligence
      thereafter, Farmor may, by notice to Farmee, terminate all or any portion
      of the interest Farmee may have acquired in the farmout lands
      hereunder;

	 	 	 
	 	(ii) 	
      Nothing in this clause will release Farmee from any
      obligation: (i) to indemnify or be liable to Farmor pursuant to Clause 12;
      (ii) to pay any amount owing hereunder by Farmee; (iii) to keep
      information confidential; or (iv) if applicable, to finish abandoning the
      test well; and

	 	 	 
	 	(iii) 	
      The rights granted to Farmor in this clause will be in
      addition to and not in substitution for any other right or remedy that
      Farmor may have under this agreement. The existence or the exercise of
      those rights or the termination of Farmee's interests or rights under this
      clause will not deprive Farmor of any other right or remedy at law or in
      equity, including damages and indemnity.

	 	(b) 	
      In respect of all other operations, if Farmee is in
      default of any of its obligations, the Operating Procedure shall
    apply.

	16. 	
      MISCELLANEOUS

	 	 	 
		(a) 	
      Wherever any term or condition of any schedule conflicts
      or is at variance with any term or condition in the body hereof the latter
      shall prevail. In the event of any conflict or inconsistency between the
      provisions of this agreement and the title documents the provisions of the
      title documents shall prevail.

	 	 	 
		(b) 	
      This agreement and the relationship amongst the parties
      hereto shall be construed and determined according to the laws of the
      Province of Alberta and each party hereto does attorn to the jurisdiction
      of the courts of the Province of Alberta with respect to any matter
      arising out of this agreement.

	 	 	 
		(c) 	
      This agreement may be executed in separate counterparts
      each of which taken together shall comprise a complete
  agreement.

Farmin Agreement
Page 11

If the foregoing is in accordance with your understanding of
the agreement reached amongst our companies, would you please indicate your
acknowledgement and acceptance by signing in the space provided and returning
one copy of this letter agreement to this office.

Yours very truly,

MegaWest Energy Montana Corp.

/s/ George Stapleton, II

ACKNOWLEDGED AND AGREED TO THIS [] day of October,
2007.

BS OIL COMPANY LTD.

Per: /s/ George Say

LONGSHOT OIL COMPANY

Per: /s/ signed

ARMONT ENERGY INC.

Per: /s/ signed

	SCHEDULE
      "A" ATTACHED TO AND FORMING PART OF AN OPERATING AND FARMIN AGREEMENT
      DATED THIS [] DAY OF OCTOBER, 2007

      BETWEEN LONGSHOT OIL COMPANY BS OIL COMPANY LTD., ARMONT ENERGY INC.
      AND MEGAWEST ENERGY MONTANA CORP. 

Teton Area 

	Lease Date 
	Lease/Acreage 
	Land Description 
	Assigned
      
Interest 
	September 16, 2007
      

	Triangle N Farms, Inc. 
(6,200 acres)
      

	Twp 24N Rge 6E 
Section 1
      NE4SE4, S2SE4; 
Section 12 NE4, N2SE4 
Twp 24N Rge 7E
      
Section 4 Lots 2, 3 & 4, SW4NW4, N2SW4, 
SE4SW4; 
Section 5
      Lots 1, 2, 3 & 4, S2N2, S2; 
Section 6 Lots 7 & 8, E2SE4, SE4;
      
Section 7 Lots 1, 2, 3 & 4, E2W2, E2; 
Section 8 N2; Section 9
      NW4, E2NE4, S2; 
Section 10 NW4, W2NE4, S2; 
Section 14 S2SW4;
      Section 15 SW4, S2SE4; 
Section 17, all; Section 18 NE4, E2E2NW4;
      
Section 20 N2; Section 21 E2, NE4NW4; 
Section 22 W2, NE4, W2SE4;
      
Section 23 W2NE4, NW4, E2SW4, N2SE4; 
Section 31 S2SW4, NW4SW4,
      SW4SE4 	40%
      

	September 22, 2005 

	Mark N. Squires 
Revocable Living
      Trust 
(880 acres) 

	Twp 24N Rge 7E 
Section 11
      SW4SW4, W2SE4, SE4SE4, 
SW4NE4; 
Section 13 W2NW4, NW4SW4;
      
Section 14 NW4NW4, NE4NE4, S2NE4, 
N2S2; 
Section 15 NE4, N2SE4
    	40% 

	September 22, 2005 

	Helen Van Horn 
(2160 acres)
      

	Twp 24N Rge 7E 
Section 15
      NW4; Section 20 E2SE4; 
Section 21 SW4, S2NW4, NW4NW4; 
Section 28
      N2; Section 29 NE4NE4; 
Section 30 NE4; Section 31 W2, SE4; 
Section
      32 NE4; Section 33 NW4 	40% 

	September 23, 2005 
	Damon Molinario 
(160 acres) 	Twp 24N Rge 7E 
Section 19 SW4
    	40% 

Page 2

	Lease Date 
	Lease/Acreage 
	Land
      Description 
	Assigned
      
Interest 
	September 23, 2005
      

	James Olson 
(1720
      acres) 

	Twp 23N Rge 6E
      
Section 1 NE4, NE4NW4, N2SE4, NE4SW4 
Twp 23N Rge 7E
      
Section 5 N2; Section 6 NE4, N2NE4, 
E2SE4; 
Section 7 E2NE4,
      NE4SE4; 
Section 8 N2NW4, NE4SW4 
Twp 24N Rge 7E 
Section
      10 S2; Section 28 N2NE4; 
Section 31 W2SW4, SE4SW4, SW4SE4 	40%
      

	September 24, 2005 

	Terry Jewell 
(1320
      acres) 

	Twp 24N Rge 7E
      
Section 8 S2; Section 20 SW4, W2SE4; 
Section 29 NW4, W2NE4,
      SE4NE4, N2SW4, 
N2SE4; 
Section 32 S2 	40% 

	October 12, 2005
      

	Gary Argenbright &
      
Argenbright Farms 
(2120 acres) 

	Twp 23N Rge 6E
      
Section 1 W2W2, S2SE4, SE4SW4; 
Section 2 NE4, E2SE4, S2SW4,
      NW4SW4, 
W2NW4 Sec 2 
Twp 24N Rge 6E 
Section 26 W2;
      Section 33 E2; 
Section 34 N2 
Twp 24N Rge 7E 
Section 22
      E2SE4; Section 23 W2NW4; 
Section 27 N2NW4; Section 29 S2S2;
      
Section 31 NE4; Section 32 NW4 	40%
      

	October 12, 2005 
	Larry Emmett 
(600
      acres) 	Twp 24N Rge 6E
      
Section 22 S2, NE4, E2NW4, SW4NW4 	40% 

	October 13, 2005 
	Hardway Ranch 
(320
      acres) 	Twp 24N Rge 6E
      
Section 34 S2 	40% 

	October 13, 2005 

	William A & Mary
      
Ellen Vischer 
(480 acres) 	Twp 24N Rge 6E
      
Section 27 W2; Section 28 N2SE4, S2NE4 
	40%

Page 3

	Lease Date 
	Lease/Acreage 
	Land
      Description 
	Assigned
      
Interest 
	October 14, 2005
      

	Martin & Toni
      
Molinario 
(2275.04 acres)
    

	Twp 24N Rge 6E
      
Section 12 S2SE4; Section 13 NE4, E2SE4; 
Section 23 W2;
      
Section 24 E2; Section 25 S2, NE4, E2NW4; 
Section 27 E2 
Twp
      24N Rge 7E 
Section 13 SE4, S2NE4, S2SW4, NE4SW4; 
Section 14
      S2SE4; 
Section 18 S2, W2E2NW4, W2NW4; 
Section 19 E2NW4, NE4, SE4;
      
Section 23 E2NE4; 
Section 24 N2, N2S2, S2SE4; 
Section 30 S2,
      NW4 	40%
      

	November 1, 2005 
	Triple E Incorporated
      
(640 acres) 	Twp 24N Rge 6E
      
Section 23 E2; Section 24 W2 	40% 

	November 2, 2005 

	Robert Jacobson for
      
Mountain View Land 
& Grain 
(480 acres) 	Twp 24N Rge 6E
      
Section 35 S2, S2N2 

	40% 

	November 12, 2005 

	Castor Farm 
50%
      Mineral Interest 
(1160 gross acres) 
(580 net acres) 
	Twp 24N Rge 6E
      
Section 21, all; Section 22 NW4NW4; 
Section 25 W2NW4; Section 26
      NE4, 
N2SE4; 
Section 28 N2N2 	40% 

	November 15, 2005 

	Marilyn Porter Trust
      
50% Mineral Interest 
(1160 gross acres) 
(580 net acres)

	Twp 24N Rge 6E
      
Section 21, all; Section 22 NW4NW4; 
Section 25 W2NW4; Section 26
      NE4, 
N2SE4; 
Section 28 N2N2 	40% 

	December 6, 2005 

	State of Montana
      
OG-36274-05 
(640 acres) 	Twp 24N Rge 6E
      
Section 36, all 
	40% 

	December 6, 2005 

	State of Montana
      
OG-36275-05 
(480 acres) 	Twp 24N Rge 7E
      
Section 33 NE4, S2 
	40% 

	April 1, 2006 
	Maxine Rupp 
(240
      acres) 	Twp 24N Rge 6E
      
Section 26 S2SE; Section 35 N2N2 	40% 

	June 6, 2006 

	State of Montana
      
OG-36812-06 
(320.18 acres) 	Twp 23N Rge 6E
      
Section 2 Lots 3&4, S2NW4, N2SW4, 
W2SE4 	40% 

	June 6, 2006 

	State of Montana
      
OG-36813-06 
(160 acres) 	Twp 23N Rge 6E
      
Section 3 SW4SE4, N2SW4, SE4SW4 
	40%

Page 4

	Lease Date 
	Lease/Acreage 
	Land Description 
	Assigned
      
Interest 
	March 6, 2007 

	State of Montana 
OG-37368-07
      
(650.04 acres) 	Twp 24N Rge 8E 
Section 6 Lots
      1-7; SE4NW4, S2NE4, SE4, 
E2SW4 	40% 

	March 6, 2007 

	State of Montana 
OG-37369-07
      
(320 acres) 	Twp 24N Rge 8E 
Section 7 E2
      
	40% 

	March 6, 2007 

	State of Montana 
OG-37370-07 
(40
      acres) 	Twp 24N Rge 8E 
Section 8
      SE4SE4 
	40% 

	March 6, 2007 

	State of Montana 
OG-37372-07
      
(640 acres) 	Twp 24N Rge 8E 
Section 16,
      all 
	40% 

	March 6, 2007 

	State of Montana 
OG-37373-07 
(45
      acres) 

	Twp 24N Rge 8E 
Section 17
      NE4NE4 and the bed of the 
Teton River from low-water mark to low-
      
water mark, all abandoned channels within 
the original GLO
      meandered survey, all 
islands vertically emerging from between 
the
      low-water marks after November 8, 
1889 and their accretions 	40% 

	April 18, 2007
      

	Kalanick Ranch, 
Incorporated
      
(2,720 acres) 

	Twp 24N Rge 7E 
Section 1 SW4,
      S2SE4, W2NW4; 
Section 2 SE4; Section 11 N2NE4; 
Section 12 N2N2,
      S2SE4, NE4SE4, SE4SW4; 
Section 13 N2NE4, E2NW4 
Twp 24N Rge
      7E 
Section 7 SW4; 
Section 17 S2, NW4, S2NE4, NE4SE4,
      
SE4SW4; 
Section 18 N2, N2S2, S2SE4, SE4SW4; 
Section 20 N2, SE4
    	40%
      

	SCHEDULE
      "B" ATTACHED TO AND FORMING A PART OF AN OPERATING AND FARMIN AGREEMENT
      DATED THIS [] DAY OF OCTOBER, 2007

      BETWEEN LONGSHOT OIL COMPANY, BS OIL COMPANY LTD., ARMONT ENERGY
      INC. AND MEGAWEST ENERGY MONTANA CORP. 

[ AAPL Operating Procedure to be added ]

SCHEDULE "B" ATTACHED TO AND FORMING PART OF OPERATING
  AND FARMIN AGREEMENT DATED THIS [] DAY OF OCTOBER, 2007 BETWEEN LONGSHOT OIL
  COMPANY, ARMONT ENERGY INC., BS OIL COMPANY LTD., AND MEGAWEST
  ENERGY MONTANA CORP.

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

MODEL FORM OPERATING AGREEMENT

OPERATING AGREEMENT

DATED

October [] , 2007 ,

                        year

OPERATOR MegaWest Energy Montana Corp.

CONTRACT AREA Teton

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

COUNTY OR PARISH OF Choteau , STATE OF Montana

 

 

COPYRIGHT 1989 – ALL RIGHTS RESERVED
  

  AMERICAN ASSOCIATION OF PETROLEUM 

  LANDMEN, 4100 FOSSIL CREEK BLVD. 

  FORT WORTH, TEXAS, 76137, APPROVED FORM.

A.A.P.L. NO. 610 – 1989

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

TABLE OF CONTENTS

  	Article 	  	  	             
                           
                           
                           
           Title 	Page 
	I. 	DEFINITIONS 	1 
	II. 	EXHIBITS 	1 
	III. 	INTERESTS OF PARTIES 	2 
	  	A. 	OIL AND GAS INTERESTS: 	2 
	  	B. 	INTERESTS OF PARTIES IN COSTS AND PRODUCTION: 	2 
	  	C. 	SUBSEQUENTLY CREATED INTERESTS: 	2 
	IV. 	TITLES 	2 
	  	A. TITLE EXAMINATION: 	2 
	  	B. 	LOSS OR FAILURE OF TITLE: 	3 
	  	  	   1. 	Failure of Title 	3 
	  	  	   2. 	Loss by Non-Payment or Erroneous Payment of Amount Due
        	3 
	  	  	   3. 	Other Losses 	3 
	  	  	   4. 	Curing Title 	3 
	V. 	OPERATOR 	4 
	  	A. 	DESIGNATION AND RESPONSIBILITIES OF OPERATOR: 	4 
	  	B. 	RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:
        	4 
	  	  	   1. 	Resignation or Removal of Operator 	4 
	  	  	   2. 	Selection of Successor Operator 	4 
	  	  	   3. 	Effect of Bankruptcy 	4 
	  	C. 	EMPLOYEES AND CONTRACTORS: 	4 
	  	D. 	RIGHTS AND DUTIES OF OPERATOR: 	4 
	  	  	   1. 	Competitive Rates and Use of Affiliates 	4 
	  	  	   2. 	Discharge of Joint Account Obligations 	4 
	  	  	   3. 	Protection from Liens 	4 
	  	  	   4. 	Custody of Funds 	5 
	  	  	   5. 	Access to Contract Area and Records 	5 
	  	  	   6. 	Filing and Furnishing Governmental Reports 	5 
	  	  	   7. 	Drilling and Testing Operations 	5 
	  	  	   8. 	Cost Estimates 	5 
	  	  	   9. 	Insurance 	5 
	VI. 	DRILLING AND DEVELOPMENT 	5 
	  	A. INITIAL WELL: 	5 
	  	B. SUBSEQUENT OPERATIONS: 	5 
	  	  	   1. 	Proposed Operations 	5 
	  	  	   2. 	Operations by Less Than All Parties 	6 
	  	  	   3. 	Stand-By Costs 	7 
	  	  	   4. 	Deepening 	8 
	  	  	   5. 	Sidetracking 	8 
	  	  	   6. 	Order of Preference of Operations 	8 
	  	  	   7. 	Conformity to Spacing Pattern 	9 
	  	  	   8. 	Paying Wells 	9 
	  	C. 	COMPLETION OF WELLS; REWORKING AND PLUGGING BACK: 	9 
	  	  	   1. 	Completion 	9 
	  	  	   2. 	Rework, Recomplete or Plug Back 	9 
	  	D. OTHER OPERATIONS: 	9 
	  	E. 	ABANDONMENT OF WELLS: 	9 
	  	  	   1. 	Abandonment of Dry Holes 	9 
	  	  	   2. 	Abandonment of Wells That Have Produced 	10 
	  	  	   3. 	Abandonment of Non-Consent Operations 	10 
	  	F. TERMINATION OF OPERATIONS: 	10 
	  	G. 	TAKING PRODUCTION IN KIND: 	10 
	  	  	   (Option 1) Gas Balancing Agreement 	10 
	  	  	   (Option 2) No Gas Balancing Agreement 	11 
	VII. 	EXPENDITURES AND LIABILITY OF PARTIES 	11 
	  	A. 	LIABILITY OF PARTIES: 	11 
	  	B. 	LIENS AND SECURITY INTERESTS: 	12 
	  	C. ADVANCES: 	12 
	  	D. 	DEFAULTS AND REMEDIES: 	12 
	  	  	   1. 	Suspension of Rights 	13 
	  	  	   2. 	Suit for Damages 	13 
	  	  	   3. 	Deemed Non-Consent 	13 
	  	  	   4. 	Advance Payment 	13 
	  	  	   5. 	Costs and Attorneys’ Fees 	13 
	  	E. 	RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:
        	13 
	  	F. TAXES: 	13 
	VIII. 	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
        	14 
	  	A. 	SURRENDER OF LEASES: 	14 
	  	B. 	RENEWAL OR EXTENSION OF LEASES: 	14 
	  	C. 	ACREAGE OR CASH CONTRIBUTIONS: 	14 

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

TABLE OF CONTENTS

	  	D. 	ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: 	15 
	  	E. 	WAIVER OF RIGHTS TO PARTITION: 	15 
	  	F. 	PREFERENTIAL RIGHT TO PURCHASE: 	15 
	IX. 	INTERNAL REVENUE CODE ELECTION 	15 
	X. 	CLAIMS AND LAWSUITS 	15 
	XI. 	FORCE MAJEURE 	16 
	XII. 	NOTICES 	16 
	XIII. 	TERM OF AGREEMENT 	16 
	XIV. 	COMPLIANCE WITH LAWS AND REGULATIONS 	16 
	  	A. 	LAWS, REGULATIONS AND ORDERS: 	16 
	  	B. GOVERNING LAW: 	16 
	  	C. REGULATORY AGENCIES: 	16 
	XV. 	MISCELLANEOUS 	17 
	  	A. EXECUTION: 	17 
	  	B. 	SUCCESSORS AND ASSIGNS: 	17 
	  	C. COUNTERPARTS: 	17 
	  	D. SEVERABILITY 	17 
	XVI. 	OTHER PROVISIONS 	17 

ii

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

OPERATING AGREEMENT

     THIS AGREEMENT, entered into by
  and between MegaWest Energy Montana Corp. , hereinafter designated and
  referred to as "Operator," and the signatory party or parties other than Operator,
  sometimes hereinafter referred to individually as "Non-Operator," and collectively
  as "Non-Operators."

WITNESSETH:

     WHEREAS, the parties to this agreement
  are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land identified
  in Exhibit "A," and the parties hereto have reached an agreement to explore
  and develop these Leases and/or Oil and Gas Interests for the production of
  Oil and Gas to the extent and as hereinafter provided, 

     NOW, THEREFORE, it is agreed as
  follows:

ARTICLE I. 

DEFINITIONS

     As used in this agreement, the
  following words and terms shall have the meanings here ascribed to them:

     A. The term "AFE" shall mean an
  Authority for Expenditure prepared by a party to this agreement for the purpose
  of estimating the costs to be incurred in conducting an operation hereunder.

     B. The term "Completion" or "Complete"
  shall mean a single operation intended to complete a well as a producer of Oil
  and Gas in one or more Zones, including, but not limited to, the setting of
  production casing, perforating, well stimulation and production testing conducted
  in such operation.

     C. The term "Contract Area" shall
  mean all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended
  to be developed and operated for Oil and Gas purposes under this agreement.
  Such lands, Oil and Gas Leases and Oil and Gas Interests are described in Exhibit
  "A." 

     D. The term "Deepen" shall mean
  a single operation whereby a well is drilled to an objective Zone below the
  deepest Zone in which the well was previously drilled, or below the Deepest
  Zone proposed in the associated AFE, whichever is the lesser.

     E. The terms "Drilling Party" and
  "Consenting Party" shall mean a party who agrees to join in and pay its share
  of the cost of any operation conducted under the provisions of this agreement.

     F. The term "Drilling Unit" shall
  mean the area fixed for the drilling of one well by order or rule of any state
  or federal body having authority. If a Drilling Unit is not fixed by any such
  rule or order, a Drilling Unit shall be the drilling unit as established by
  the pattern of drilling in the Contract Area unless fixed by express agreement
  of the Drilling Parties.

     G. The term "Drillsite" shall mean
  the Oil and Gas Lease or Oil and Gas Interest on which a proposed well is to
  be located.

     H. The term "Initial Well" shall
  mean the well required to be drilled by the parties hereto as provided in Article
  VI.A.

     I. The term "Non-Consent Well"
  shall mean a well in which less than all parties have conducted an operation
  as provided in Article VI.B.2.

     J. The terms "Non-Drilling Party"
  and "Non-Consenting Party" shall mean a party who elects not to participate
  in a proposed operation.

     K. The term "Oil and Gas" shall
  mean oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous
  hydrocarbons and other marketable substances produced therewith, unless an intent
  to limit the inclusiveness of this term is specifically stated.

     L. The term "Oil and Gas Interests"
  or "Interests" shall mean unleased fee and mineral interests in Oil and Gas
  in tracts of land lying within the Contract Area which are owned by parties
  to this agreement.

     M. The terms "Oil and Gas Lease,"
  "Lease" and "Leasehold" shall mean the oil and gas leases or interests therein
  covering tracts of land lying within the Contract Area which are owned by the
  parties to this agreement.

     N. The term "Plug Back" shall mean
  a single operation whereby a deeper Zone is abandoned in order to attempt a
  Completion in a shallower Zone.

     O. The term "Recompletion" or "Recomplete"
  shall mean an operation whereby a Completion in one Zone is abandoned in order
  to attempt a Completion in a different Zone within the existing wellbore.

     P. The term "Rework" shall mean
  an operation conducted in the wellbore of a well after it is Completed to secure,
  restore, or improve production in a Zone which is currently open to production
  in the wellbore. Such operations include, but are not limited to, well stimulation
  operations but exclude any routine repair or maintenance work or drilling, Sidetracking,
  Deepening, Completing, Recompleting, or Plugging Back of a well.

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

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

     Unless the context otherwise clearly
  indicates, words used in the singular include the plural, the word "person"
  includes natural and artificial persons, the plural includes the singular, and
  any gender includes the masculine, feminine, and neuter.

ARTICLE II. 

EXHIBITS

The following exhibits, as indicated below and attached hereto,
  are incorporated in and made a part hereof:

	_____	A. 	 Exhibit "A," shall include the following information:

	 	 	 	 
			(1) 	 Description of lands subject to this agreement,

	 	 	 	 
			(2) 	 Restrictions, if any, as to depths, formations, or substances,

	 	 	 	 
			(3) 	 Parties to agreement with addresses and telephone numbers
        for notice purposes,

	 	 	 	 
			(4) 	 Percentages or fractional interests of parties to this
        agreement,

	 	 	 	 
			(5) 	 Oil and Gas Leases and/or Oil and Gas Interests subject
        to this agreement,

	 	 	 	 
			(6) 	 Burdens on production.

	 	 	 	 
	_____	B. Exhibit "B," Form of Lease.
	 	 	 	 
	X 	 C. Exhibit "C," Accounting Procedure.

	 	 	 	 
	X 	 D. Exhibit "D," Insurance.

	 	 	 	 
	_____	E. Exhibit "E," Gas Balancing Agreement.
	 	 	 	 
	_____	F. Exhibit "F," Non-Discrimination and Certification
      of Non-Segregated Facilities.
	 	 	 	 
	_____	G. Exhibit "G," Tax Partnership.
	 	 	 	 
	_____	H. Other: ___________________________________________________

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

     If any provision of any exhibit,
  except Exhibits "E," "F" and "G," is inconsistent with any provision contained
  in the body of this agreement, the provisions in the body of this agreement
  shall prevail.

ARTICLE III. 

INTERESTS OF PARTIES

A. Oil and Gas Interests:

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

B. Interests of Parties in Costs and Production:

     Unless changed by other provisions,
  all costs and liabilities incurred in operations under this agreement shall
  be borne and paid, and all equipment and materials acquired in operations on
  the Contract Area shall be owned, by the parties as their interests are set
  forth in Exhibit "A." In the same manner, the parties shall also own all production
  of Oil and Gas from the Contract Area subject, however, to the payment of royalties
  and other burdens on production as described hereafter.

     Regardless of which party has contributed
  any Oil and Gas Lease or Oil and Gas Interest on which royalty or other burdens
  may be payable and except as otherwise expressly provided in this agreement,
  each party shall pay or deliver, or cause to be paid or delivered, all burdens
  on its share of the production from the Contract Area, and shall indemnify,
  defend and hold the other parties free from any liability therefor. Except as
  otherwise expressly provided in this agreement, if any party has contributed
  hereto any Lease or Interest which is burdened with any royalty, overriding
  royalty, production payment or other burden on production in excess of the amounts
  stipulated above, such party so burdened shall assume and alone bear all such
  excess obligations and shall indemnify, defend and hold the other parties hereto
  harmless from any and all claims attributable to such excess burden. However,
  so long as the Drilling Unit for the productive Zone(s) is identical with the
  Contract Area, each party shall pay or deliver, or cause to be paid or delivered,
  all burdens on production from the Contract Area due under the terms of the
  Oil and Gas Lease(s) which such party has contributed to this agreement, and
  shall indemnify, defend and hold the other parties free from any liability therefor.

     No party shall ever be responsible,
  on a price basis higher than the price received by such party, to any other
  party's lessor or royalty owner, and if such other party's lessor or royalty
  owner should demand and receive settlement on a higher price basis, the party
  contributing the affected Lease shall bear the additional royalty burden attributable
  to such higher price.

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

C. Subsequently Created Interests:

     If any party has contributed hereto
  a Lease or Interest that is burdened with an assignment of production given
  as security for the payment of money, or if, after the date of this agreement,
  any party creates an overriding royalty, production payment, net profits interest,
  assignment of production or other burden payable out of production attributable
  to its working interest hereunder, such burden shall be deemed a "Subsequently
  Created Interest." Further, if any party has contributed hereto a Lease or Interest
  burdened with an overriding royalty, production payment, net profits interests,
  or other burden payable out of production created prior to the date of this
  agreement, and such burden is not shown on Exhibit "A," such burden also shall
  be deemed a Subsequently Created Interest to the extent such burden causes the
  burdens on such party's Lease or Interest to exceed the amount stipulated in
  Article III.B. above.

     The party whose interest is burdened
  with the Subsequently Created Interest (the "Burdened Party") shall assume and
  alone bear, pay and discharge the Subsequently Created Interest and shall indemnify,
  defend and hold harmless the other parties from and against any liability therefor.
  Further, if the Burdened Party fails to pay, when due, its share of expenses
  chargeable hereunder, all provisions of Article VII.B. shall be enforceable
  against the Subsequently Created Interest in the same manner as they are enforceable
  against the working interest of the Burdened Party. If the Burdened Party is
  required under this agreement to assign or relinquish to any other party, or
  parties, all or a portion of its working interest and/or the production attributable
  thereto, said other party, or parties, shall receive said assignment and/or
  production free and clear of said Subsequently Created Interest, and the Burdened
  Party shall indemnify, defend and hold harmless said other party, or parties,
  from any and all claims and demands for payment asserted by owners of the Subsequently
  Created Interest.

ARTICLE IV. 

TITLES

A. Title Examination:

     Title examination shall be made
  on the Drillsite of any proposed well prior to commencement of drilling operations
  and, if a majority in interest of the Drilling Parties so request or Operator
  so elects, title examination shall be made on the entire Drilling Unit, or maximum
  anticipated Drilling Unit, of the well. The opinion will include the ownership
  of the working interest, minerals, royalty, overriding royalty and production
  payments under the applicable Leases. Each party contributing Leases and/or
  Oil and Gas Interests to be included in the Drillsite or Drilling Unit, if appropriate,
  shall furnish to Operator all abstracts (including federal lease status reports),
  title opinions, title papers and curative material in its possession free of
  charge. All such information not in the possession of or made available to Operator
  by the parties, but necessary for the examination of the title, shall be obtained
  by Operator. Operator shall cause title to be examined by attorneys on its staff
  or by outside attorneys. Copies of all title opinions shall be furnished to
  each Drilling Party. Costs incurred by Operator in procuring abstracts, fees
  paid outside attorneys for title examination (including preliminary, supplemental,
  shut-in royalty opinions and division order title opinions) and other direct
  charges as provided in Exhibit "C" shall be borne by the Drilling Parties in
  the proportion that the interest of each Drilling Party bears to the total interest
  of all Drilling Parties as such interests appear in Exhibit "A." Operator shall
  make no charge for services rendered by its staff attorneys or other personnel
  in the performance of the above functions.

     Each party shall be responsible
  for securing curative matter and pooling amendments or agreements required in
  connection with Leases or Oil and Gas Interests contributed by such party. Operator
  shall be responsible for the preparation and recording of pooling designations
  or declarations and communitization agreements as well as the conduct of hearings
  before governmental agencies for the securing of spacing or pooling orders or
  any other orders necessary or appropriate to the conduct of operations hereunder.
  This shall not prevent any party from appearing on its own behalf at such hearings.
  Costs incurred by Operator, including fees paid to outside attorneys, which
  are associated with hearings before governmental agencies, and which costs are
  necessary and proper for the activities contemplated under this agreement, shall
  be direct charges to the joint account and shall not be covered by the administrative
  overhead charges as provided in Exhibit "C."

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

Operator shall make no charge for services rendered by its staff
  attorneys or other personnel in the performance of the above functions.

     No well shall be drilled on the
  Contract Area until after (1) the title to the Drillsite or Drilling Unit, if
  appropriate, has been examined as above provided, and (2) the title has been
  approved by the examining attorney or title has been accepted by all of the
  Drilling Parties in such well.

B. Loss or Failure of Title:

     1. Failure of Title: Should
  any Oil and Gas Interest or Oil and Gas Lease be lost through failure of title,
  which results in a reduction of interest from that shown on Exhibit "A," the
  party credited with contributing the affected Lease or Interest (including,
  if applicable, a successor in interest to such party) shall have ninety (90)
  days from final determination of title failure to acquire a new lease or other
  instrument curing the entirety of the title failure, which acquisition will
  not be subject to Article VIII.B., and failing to do so, this agreement, nevertheless,
  shall continue in force as to all remaining Oil and Gas Leases and Interests;
  and, 

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

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

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

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

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

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

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

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

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

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

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

     3. Other Losses: All losses
  of Leases or Interests committed to this agreement, other than those set forth
  in Articles IV.B.1. and IV.B.2. above, shall be joint losses and shall be borne
  by all parties in proportion to their interests shown on Exhibit "A." This shall
  include but not be limited to the loss of any Lease or Interest through failure
  to develop or because express or implied covenants have not been performed (other
  than performance which requires only the payment of money), and the loss of
  any Lease by expiration at the end of its primary term if it is not renewed
  or extended. There shall be no readjustment of interests in the remaining portion
  of the Contract Area on account of any joint loss.

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

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

ARTICLE V. 

OPERATOR

A. Designation and Responsibilities of Operator:

     MegaWest Energy Montana Corp.
  shall be the Operator of the Contract Area, and shall conduct and direct and
  have full control of all operations on the Contract Area as permitted and required
  by, and within the limits of this agreement. In its performance of services
  hereunder for the Non-Operators, Operator shall be an independent contractor
  not subject to the control or direction of the Non-Operators except as to the
  type of operation to be undertaken in accordance with the election procedures
  contained in this agreement. Operator shall not be deemed, or hold itself out
  as, the agent of the Non-Operators with authority to bind them to any obligation
  or liability assumed or incurred by Operator as to any third party. Operator
  shall conduct its activities under this agreement as a reasonable prudent operator,
  in a good and workmanlike manner, with due diligence and dispatch, in accordance
  with good oilfield practice, and in compliance with applicable law and regulation,
  but in no event shall it have any liability as Operator to the other parties
  for losses sustained or liabilities incurred except such as may result from
  gross negligence or willful misconduct.

B. Resignation or Removal of Operator and Selection of Successor:

     1. Resignation or Removal of
  Operator: Operator may resign at any time by giving written notice thereof
  to Non-Operators. If Operator terminates its legal existence, no longer owns
  an interest hereunder in the Contract Area, or is no longer capable of serving
  as Operator, Operator shall be deemed to have resigned without any action by
  Non-Operators, except the selection of a successor. Operator may be removed
  only for good cause by the affirmative vote of Non-Operators owning a majority
  interest based on ownership as shown on Exhibit "A" remaining after excluding
  the voting interest of Operator; such vote shall not be deemed effective until
  a written notice has been delivered to the Operator by a Non-Operator detailing
  the alleged default and Operator has failed to cure the default within thirty
  (30) days from its receipt of the notice or, if the default concerns an operation
  then being conducted, within forty-eight (48) hours of its receipt of
  the notice. For purposes hereof, "good cause" shall mean not only gross negligence
  or willful misconduct but also the material breach of or inability to meet the
  standards of operation contained in Article V.A. or material failure or inability
  to perform its obligations under this agreement.

     Subject to Article VII.D.1., such
  resignation or removal shall not become effective until 7:00 o'clock A.M. on
  the first day of the calendar month following the expiration of ninety (90)
  days after the giving of notice of resignation by Operator or action by the
  Non-Operators to remove Operator, unless a successor Operator has been selected
  and assumes the duties of Operator at an earlier date. Operator, after effective
  date of resignation or removal, shall be bound by the terms hereof as a Non-Operator.
  A change of a corporate name or structure of Operator or transfer of Operator's
  interest to any single subsidiary, parent or successor corporation shall not
  be the basis for removal of Operator.

     2. Selection of Successor Operator:
  Upon the resignation or removal of Operator under any provision of this agreement,
  a successor Operator shall be selected by the parties. The successor Operator
  shall be selected from the parties owning an interest in the Contract Area at
  the time such successor Operator is selected. The successor Operator shall be
  selected by the affirmative vote of two (2) or more parties owning a majority
  interest based on ownership as shown on Exhibit "A"; provided, however, if an
  Operator which has been removed or is deemed to have resigned fails to vote
  or votes only to succeed itself, the successor Operator shall be selected by
  the affirmative vote of the party or parties owning a majority interest based
  on ownership as shown on Exhibit "A" remaining after excluding the voting interest
  of the Operator that was removed or resigned. The former Operator shall promptly
  deliver to the successor Operator all records and data relating to the operations
  conducted by the former Operator to the extent such records and data are not
  already in the possession of the successor operator. Any cost of obtaining or
  copying the former Operator's records and data shall be charged to the joint
  account.

     3. Effect of Bankruptcy:
  If Operator becomes insolvent, bankrupt or is placed in receivership, it shall
  be deemed to have resigned without any action by Non-Operators, except the selection
  of a successor. If a petition for relief under the federal bankruptcy laws is
  filed by or against Operator, and the removal of Operator is prevented by the
  federal bankruptcy court, all Non-Operators and Operator shall comprise an interim
  operating committee to serve until Operator has elected to reject or assume
  this agreement pursuant to the Bankruptcy Code, and an election to reject this
  agreement by Operator as a debtor in possession, or by a trustee in bankruptcy,
  shall be deemed a resignation as Operator without any action by Non-Operators,
  except the selection of a successor. During the period of time the operating
  committee controls operations, all actions shall require the approval of two
  (2) or more parties owning a majority interest based on ownership as shown on
  Exhibit "A." In the event there are only two (2) parties to this agreement,
  during the period of time the operating committee controls operations, a third
  party acceptable to Operator, Non-Operator and the federal bankruptcy court
  shall be selected as a member of the operating committee, and all actions shall
  require the approval of two (2) members of the operating committee without regard
  for their interest in the Contract Area based on Exhibit "A."

C. Employees and Contractors:

     The number of employees or contractors
  used by Operator in conducting operations hereunder, their selection, and the
  hours of labor and the compensation for services performed shall be determined
  by Operator, and all such employees or contractors shall be the employees or
  contractors of Operator.

D. Rights and Duties of Operator:

     1. Competitive Rates and Use
  of Affiliates: All wells drilled on the Contract Area shall be drilled on
  a competitive contract basis at the usual rates prevailing in the area. If it
  so desires, Operator may employ its own tools and equipment in the drilling
  of wells, but its charges therefor shall not exceed the prevailing rates in
  the area and the rate of such charges shall be agreed upon by the parties in
  writing before drilling operations are commenced, and such work shall be performed
  by Operator under the same terms and conditions as are customary and usual in
  the area in contracts of independent contractors who are doing work of a similar
  nature. All work performed or materials supplied by affiliates or related parties
  of Operator shall be performed or supplied at competitive rates, pursuant to
  written agreement, and in accordance with customs and standards prevailing in
  the industry.

     2. Discharge of Joint Account
  Obligations: Except as herein otherwise specifically provided, Operator
  shall promptly pay and discharge expenses incurred in the development and operation
  of the Contract Area pursuant to this agreement and shall charge each of the
  parties hereto with their respective proportionate shares upon the expense basis
  provided in Exhibit "C." Operator shall keep an accurate record of the joint
  account hereunder, showing expenses incurred and charges and credits made and
  received.

     3. Protection from Liens:
  Operator shall pay, or cause to be paid, as and when they become due and payable,
  all accounts of contractors and suppliers and wages and salaries for services
  rendered or performed, and for materials supplied on, to or in respect of the
  Contract Area or any operations for the joint account thereof, and shall keep
  the Contract Area free from

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

liens and encumbrances resulting therefrom except for those resulting
  from a bona fide dispute as to services rendered or materials supplied.

     4. Custody of Funds: Operator
  shall hold for the account of the Non-Operators any funds of the Non-Operators
  advanced or paid to the Operator, either for the conduct of operations hereunder
  or as a result of the sale of production from the Contract Area, and such funds
  shall remain the funds of the Non-Operators on whose account they are advanced
  or paid until used for their intended purpose or otherwise delivered to the
  Non-Operators or applied toward the payment of debts as provided in Article
  VII.B. Nothing in this paragraph shall be construed to establish a fiduciary
  relationship between Operator and Non-Operators for any purpose other than to
  account for Non-Operator funds as herein specifically provided. Nothing in this
  paragraph shall require the maintenance by Operator of separate accounts for
  the funds of Non-Operators unless the parties otherwise specifically agree.

     5. Access to Contract Area and
  Records: Operator shall, except as otherwise provided herein, permit each
  Non-Operator or its duly authorized representative, at the Non-Operator's sole
  risk and cost, full and free access at all reasonable times to all operations
  of every kind and character being conducted for the joint account on the Contract
  Area and to the records of operations conducted thereon or production therefrom,
  including Operator's books and records relating thereto. Such access rights
  shall not be exercised in a manner interfering with Operator's conduct of an
  operation hereunder and shall not obligate Operator to furnish any geologic
  or geophysical data of an interpretive nature unless the cost of preparation
  of such interpretive data was charged to the joint account. Operator will furnish
  to each Non-Operator upon request copies of any and all reports and information
  obtained by Operator in connection with production and related items, including,
  without limitation, meter and chart reports, production purchaser statements,
  run tickets and monthly gauge reports, but excluding purchase contracts and
  pricing information to the extent not applicable to the production of the Non-Operator
  seeking the information. Any audit of Operator's records relating to amounts
  expended and the appropriateness of such expenditures shall be conducted in
  accordance with the audit protocol specified in Exhibit "C." 

     6. Filing and Furnishing Governmental
  Reports: Operator will file, and upon written request promptly furnish copies
  to each requesting Non-Operator not in default of its payment obligations, all
  operational notices, reports or applications required to be filed by local,
  State, Federal or Indian agencies or authorities having jurisdiction over operations
  hereunder. Each Non-Operator shall provide to Operator on a timely basis all
  information necessary to Operator to make such filings.

     7. Drilling and Testing Operations:
  The following provisions shall apply to each well drilled hereunder, including
  but not limited to the Initial Well: 

     (a) Operator will promptly advise
  Non-Operators of the date on which the well is spudded, or the date on which
  drilling operations are commenced.

     (b) Operator will send to Non-Operators
  such reports, test results and notices regarding the progress of operations
  on the well as the Non-Operators shall reasonably request, including, but not
  limited to, daily drilling reports, completion reports, and well logs.

     (c) Operator shall adequately test
  all Zones encountered which may reasonably be expected to be capable of producing
  Oil and Gas in paying quantities as a result of examination of the electric
  log or any other logs or cores or tests conducted hereunder.

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

     9. Insurance: At all times
  while operations are conducted hereunder, Operator shall comply with the workers
  compensation law of the state where the operations are being conducted; provided,
  however, that Operator may be a self-insurer for liability under said compensation
  laws in which event the only charge that shall be made to the joint account
  shall be as provided in Exhibit "C." Operator shall also carry or provide insurance
  for the benefit of the joint account of the parties as outlined in Exhibit "D"
  attached hereto and made a part hereof. Operator shall require all contractors
  engaged in work on or for the Contract Area to comply with the workers compensation
  law of the state where the operations are being conducted and to maintain such
  other insurance as Operator may require.

     In the event automobile liability
  insurance is specified in said Exhibit "D," or subsequently receives the approval
  of the parties, no direct charge shall be made by Operator for premiums paid
  for such insurance for Operator's automotive equipment.

ARTICLE VI. 

DRILLING AND DEVELOPMENT

A. Initial Well:

     On or before the 31 day
  of October , 2008 , Operator shall commence the drilling of the
  Initial Well under the provisions in the head agreement.

The drilling of the Initial Well and the participation therein
  by all parties is obligatory, subject to Article VI.C.1. as to participation
  in Completion operations and Article VI.F. as to termination of operations and
  Article XI as to occurrence of force majeure.

B. Subsequent Operations:

     1. Proposed Operations:
  If any party hereto should desire to drill any well on the Contract Area other
  than the Initial Well, or if any party should desire to Rework, Sidetrack, Deepen,
  Recomplete or Plug Back a dry hole or a well no longer capable of producing
  in paying quantities in which such party has not otherwise relinquished its
  interest in the proposed objective Zone under this agreement, the party desiring
  to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall
  give written notice of the proposed operation to the parties who have not otherwise
  relinquished their interest in such objective Zone

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

under this agreement and to all other parties in the case of
  a proposal for Sidetracking or Deepening, specifying the work to be performed,
  the location, proposed depth, objective Zone and the estimated cost of the operation.
  The parties to whom such a notice is delivered shall have thirty (30) days after
  receipt of the notice within which to notify the party proposing to do the work
  whether they elect to participate in the cost of the proposed operation. If
  a drilling rig is on location, notice of a proposal to Rework, Sidetrack, Recomplete,
  Plug Back or Deepen may be given by telephone and the response period shall
  be limited to forty-eight (24) hours, exclusive of Saturday, Sunday and
  legal holidays. Failure of a party to whom such notice is delivered to reply
  within the period above fixed shall constitute an election by that party not
  to participate in the cost of the proposed operation. Any proposal by a party
  to conduct an operation conflicting with the operation initially proposed shall
  be delivered to all parties within the time and in the manner provided in Article
  VI.B.6.

     If all parties to whom such notice
  is delivered elect to participate in such a proposed operation, the parties
  shall be contractually committed to participate therein provided such operations
  are commenced within the time period hereafter set forth, and Operator shall,
  no later than ninety (90) days after expiration of the notice period of thirty
  (30) days (or as promptly as practicable after the expiration of the forty-eight
  (24) hour period when a drilling rig is on location, as the case may
  be), actually commence the proposed operation and thereafter complete it with
  due diligence at the risk and expense of the parties participating therein;
  provided, however, said commencement date may be extended upon written notice
  of same by Operator to the other parties, for a period of up to thirty (30)
  additional days if, in the sole opinion of Operator, such additional time is
  reasonably necessary to obtain permits from governmental authorities, surface
  rights (including rights-of-way) or appropriate drilling equipment, or to complete
  title examination or curative matter required for title approval or acceptance.
  If the actual operation has not been commenced within the time provided (including
  any extension thereof as specifically permitted herein or in the force majeure
  provisions of Article XI) and if any party hereto still desires to conduct said
  operation, written notice proposing same must be resubmitted to the other parties
  in accordance herewith as if no prior proposal had been made. Those parties
  that did not participate in the drilling of a well for which a proposal to Deepen
  or Sidetrack is made hereunder shall, if such parties desire to participate
  in the proposed Deepening or Sidetracking operation, reimburse the Drilling
  Parties in accordance with Article VI.B.4. in the event of a Deepening operation
  and in accordance with Article VI.B.5. in the event of a Sidetracking operation.

2. Operations by Less Than All Parties:

     (a) Determination of Participation.
  If any party to whom such notice is delivered as provided in Article VI.B.1.
  or VI.C.1. (Option No. 2) elects not to participate in the proposed operation,
  then, in order to be entitled to the benefits of this Article, the party or
  parties giving the notice and such other parties as shall elect to participate
  in the operation shall, no later than ninety (90) days after the expiration
  of the notice period of thirty (30) days (or as promptly as practicable after
  the expiration of the forty-eight (24) hour period when a drilling rig
  is on location, as the case may be) actually commence the proposed operation
  and complete it with due diligence. Operator shall perform all work for the
  account of the Consenting Parties; provided, however, if no drilling rig or
  other equipment is on location, and if Operator is a Non-Consenting Party, the
  Consenting Parties shall either: (i) request Operator to perform the work required
  by such proposed operation for the account of the Consenting Parties, or (ii)
  designate one of the Consenting Parties as Operator to perform such work. The
  rights and duties granted to and imposed upon the Operator under this agreement
  are granted to and imposed upon the party designated as Operator for an operation
  in which the original Operator is a Non-Consenting Party. Consenting Parties,
  when conducting operations on the Contract Area pursuant to this Article VI.B.2.,
  shall comply with all terms and conditions of this agreement.

     If less than all parties approve
  any proposed operation, the proposing party, immediately after the expiration
  of the applicable notice period, shall advise all Parties of the total interest
  of the parties approving such operation and its recommendation as to whether
  the Consenting Parties should proceed with the operation as proposed. Each Consenting
  Party, within forty-eight (24) hours (exclusive of Saturday, Sunday,
  and legal holidays) after delivery of such notice, shall advise the proposing
  party of its desire to (i) limit participation to such party's interest as shown
  on Exhibit "A" or (ii) carry only its proportionate part (determined by dividing
  such party's interest in the Contract Area by the interests of all Consenting
  Parties in the Contract Area) of Non-Consenting Parties' interests, or (iii)
  carry its proportionate part (determined as provided in (ii)) of Non-Consenting
  Parties' interests together with all or a portion of its proportionate part
  of any Non-Consenting Parties' interests that any Consenting Party did not elect
  to take. Any interest of Non-Consenting Parties that is not carried by a Consenting
  Party shall be deemed to be carried by the party proposing the operation if
  such party does not withdraw its proposal. Failure to advise the proposing party
  within the time required shall be deemed an election under (i). In the event
  a drilling rig is on location, notice may be given by telephone, and the time
  permitted for such a response shall not exceed a total of forty-eight (24)
  hours (exclusive of Saturday, Sunday and legal holidays). The proposing party,
  at its election, may withdraw such proposal if there is less than 100% participation
  and shall notify all parties of such decision within ten (10) days, or within
  twenty-four (24) hours if a drilling rig is on location, following expiration
  of the applicable response period. If 100% subscription to the proposed operation
  is obtained, the proposing party shall promptly notify the Consenting Parties
  of their proportionate interests in the operation and the party serving as Operator
  shall commence such operation within the period provided in Article VI.B.1.,
  subject to the same extension right as provided therein.

     (b) Relinquishment of Interest
  for Non-Participation. The entire cost and risk of conducting such operations
  shall be borne by the Consenting Parties in the proportions they have elected
  to bear same under the terms of the preceding paragraph. Consenting Parties
  shall keep the leasehold estates involved in such operations free and clear
  of all liens and encumbrances of every kind created by or arising from the operations
  of the Consenting Parties. If such an operation results in a dry hole, then
  subject to Articles VI.B.6. and VI.E.3., the Consenting Parties shall plug and
  abandon the well and restore the surface location at their sole cost, risk and
  expense; provided, however, that those Non-Consenting Parties that participated
  in the drilling, Deepening or Sidetracking of the well shall remain liable for,
  and shall pay, their proportionate shares of the cost of plugging and abandoning
  the well and restoring the surface location insofar only as those costs were
  not increased by the subsequent operations of the Consenting Parties. If any
  well drilled, Reworked, Sidetracked, Deepened, Recompleted or Plugged Back under
  the provisions of this Article results in a well capable of producing Oil and/or
  Gas in paying quantities, the Consenting Parties shall Complete and equip the
  well to produce at their sole cost and risk, and the well shall then be turned
  over to Operator (if the Operator did not conduct the operation) and shall be
  operated by it at the expense and for the account of the Consenting Parties.
  Upon commencement of operations for the drilling, Reworking, Sidetracking, Recompleting,
  Deepening or Plugging Back of any such well by Consenting Parties in accordance
  with the provisions of this Article, each Non-Consenting Party shall be deemed
  to have relinquished to Consenting Parties, and the Consenting Parties shall
  own and be entitled to receive, in proportion to their respective interests,
  all of such Non-Consenting Party's interest in the well and share of production
  therefrom or, in the case of a Reworking, Sidetracking,

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

Deepening, Recompleting or Plugging Back, or a Completion pursuant
  to Article VI.C.1. Option No. 2, all of such Non-Consenting Party's interest
  in the production obtained from the operation in which the Non-Consenting Party
  did not elect to participate. Such relinquishment shall be effective until the
  proceeds of the sale of such share, calculated at the well, or market value
  thereof if such share is not sold (after deducting applicable ad valorem, production,
  severance, and excise taxes, royalty, overriding royalty and other interests
  not excepted by Article III.C. payable out of or measured by the production
  from such well accruing with respect to such interest until it reverts), shall
  equal the total of the following: 

     (i) 300 % of each such Non-Consenting
  Party's share of the cost of any newly acquired surface equipment beyond the
  wellhead connections (including but not limited to stock tanks, separators,
  treaters, pumping equipment and piping), plus 100% of each such Non-Consenting
  Party's share of the cost of operation of the well commencing with first production
  and continuing until each such Non-Consenting Party's relinquished interest
  shall revert to it under other provisions of this Article, it being agreed that
  each Non-Consenting Party's share of such costs and equipment will be that interest
  which would have been chargeable to such Non-Consenting Party had it participated
  in the well from the beginning of the operations; and 

     (ii) 600 % of (a) that portion
  of the costs and expenses of drilling, Reworking, Sidetracking, Deepening, Plugging
  Back, testing, Completing, and Recompleting, after deducting any cash contributions
  received under Article VIII.C., and of (b) that portion of the cost of newly
  acquired equipment in the well (to and including the wellhead connections),
  which would have been chargeable to such Non-Consenting Party if it had participated
  therein.

     Notwithstanding anything to the
  contrary in this Article VI.B., if the well does not reach the deepest objective
  Zone described in the notice proposing the well for reasons other than the encountering
  of granite or practically impenetrable substance or other condition in the hole
  rendering further operations impracticable, Operator shall give notice thereof
  to each Non-Consenting Party who submitted or voted for an alternative proposal
  under Article VI.B.6. to drill the well to a shallower Zone than the deepest
  objective Zone proposed in the notice under which the well was drilled, and
  each such Non-Consenting Party shall have the option to participate in the initial
  proposed Completion of the well by paying its share of the cost of drilling
  the well to its actual depth, calculated in the manner provided in Article VI.B.4.
  (a). If any such Non-Consenting Party does not elect to participate in the first
  Completion proposed for such well, the relinquishment provisions of this Article
  VI.B.2. (b) shall apply to such party's interest.

     (c) Reworking, Recompleting
  or Plugging Back. An election not to participate in the drilling, Sidetracking
  or Deepening of a well shall be deemed an election not to participate in any
  Reworking or Plugging Back operation proposed in such a well, or portion thereof,
  to which the initial non-consent election applied that is conducted at any time
  prior to full recovery by the Consenting Parties of the Non-Consenting Party's
  recoupment amount. Similarly, an election not to participate in the Completing
  or Recompleting of a well shall be deemed an election not to participate in
  any Reworking operation proposed in such a well, or portion thereof, to which
  the initial non-consent election applied that is conducted at any time prior
  to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment
  amount. Any such Reworking, Recompleting or Plugging Back operation conducted
  during the recoupment period shall be deemed part of the cost of operation of
  said well and there shall be added to the sums to be recouped by the Consenting
  Parties _300______% of that portion of the costs of the
  Reworking, Recompleting or Plugging Back operation which would have been chargeable
  to such Non-Consenting Party had it participated therein. If such a Reworking,
  Recompleting or Plugging Back operation is proposed during such recoupment period,
  the provisions of this Article VI.B. shall be applicable as between said Consenting
  Parties in said well.

     (d) Recoupment Matters.
  During the period of time Consenting Parties are entitled to receive Non-Consenting
  Party's share of production, or the proceeds therefrom, Consenting Parties shall
  be responsible for the payment of all ad valorem, production, severance, excise,
  gathering and other taxes, and all royalty, overriding royalty and other burdens
  applicable to Non-Consenting Party's share of production not excepted by Article
  III.C.

     In the case of any Reworking, Sidetracking,
  Plugging Back, Recompleting or Deepening operation, the Consenting Parties shall
  be permitted to use, free of cost, all casing, tubing and other equipment in
  the well, but the ownership of all such equipment shall remain unchanged; and
  upon abandonment of a well after such Reworking, Sidetracking, Plugging Back,
  Recompleting or Deepening, the Consenting Parties shall account for all such
  equipment to the owners thereof, with each party receiving its proportionate
  part in kind or in value, less cost of salvage.

     Within ninety (90) days after the
  completion of any operation under this Article, the party conducting the operations
  for the Consenting Parties shall furnish each Non-Consenting Party with an inventory
  of the equipment in and connected to the well, and an itemized statement of
  the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing,
  Recompleting, and equipping the well for production; or, at its option, the
  operating party, in lieu of an itemized statement of such costs of operation,
  may submit a detailed statement of monthly billings. Each month thereafter,
  during the time the Consenting Parties are being reimbursed as provided above,
  the party conducting the operations for the Consenting Parties shall furnish
  the Non-Consenting Parties with an itemized statement of all costs and liabilities
  incurred in the operation of the well, together with a statement of the quantity
  of Oil and Gas produced from it and the amount of proceeds realized from the
  sale of the well's working interest production during the preceding month. In
  determining the quantity of Oil and Gas produced during any month, Consenting
  Parties shall use industry accepted methods such as but not limited to metering
  or periodic well tests. Any amount realized from the sale or other disposition
  of equipment newly acquired in connection with any such operation which would
  have been owned by a Non-Consenting Party had it participated therein shall
  be credited against the total unreturned costs of the work done and of the equipment
  purchased in determining when the interest of such Non-Consenting Party shall
  revert to it as above provided; and if there is a credit balance, it shall be
  paid to such Non-Consenting Party.

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

     3. Stand-By Costs: When
  a well which has been drilled or Deepened has reached its authorized depth and
  all tests have been completed and the results thereof furnished to the parties,
  or when operations on the well have been otherwise terminated pursuant to Article
  VI.F., stand-by costs incurred pending response to a party's notice proposing
  a Reworking,

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

Sidetracking, Deepening, Recompleting, Plugging Back or Completing
  operation in such a well (including the period required under Article VI.B.6.
  to resolve competing proposals) shall be charged and borne as part of the drilling
  or Deepening operation just completed. Stand-by costs subsequent to all parties
  responding, or expiration of the response time permitted, whichever first occurs,
  and prior to agreement as to the participating interests of all Consenting Parties
  pursuant to the terms of the second grammatical paragraph of Article VI.B.2.
  (a), shall be charged to and borne as part of the proposed operation, but if
  the proposal is subsequently withdrawn because of insufficient participation,
  such stand-by costs shall be allocated between the Consenting Parties in the
  proportion each Consenting Party's interest as shown on Exhibit "A" bears to
  the total interest as shown on Exhibit "A" of all Consenting Parties.

     In the event that notice for a
  Sidetracking operation is given while the drilling rig to be utilized is on
  location, any party may request and receive up to five (5) additional days after
  expiration of the forty-eight hour response period specified in Article VI.B.1.
  within which to respond by paying for all stand-by costs and other costs incurred
  during such extended response period; Operator may require such party to pay
  the estimated stand-by time in advance as a condition to extending the response
  period. If more than one party elects to take such additional time to respond
  to the notice, standby costs shall be allocated between the parties taking additional
  time to respond on a day-to-day basis in the proportion each electing party's
  interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit
  "A" of all the electing parties.

     4. Deepening: If less than
  all parties elect to participate in a drilling, Sidetracking, or Deepening operation
  proposed pursuant to Article VI.B.1., the interest relinquished by the Non-Consenting
  Parties to the Consenting Parties under Article VI.B.2. shall relate only and
  be limited to the lesser of (i) the total depth actually drilled or (ii) the
  objective depth or Zone of which the parties were given notice under Article
  VI.B.1. ("Initial Objective"). Such well shall not be Deepened beyond the Initial
  Objective without first complying with this Article to afford the Non-Consenting
  Parties the opportunity to participate in the Deepening operation.

     In the event any Consenting Party
  desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective,
  such party shall give notice thereof, complying with the requirements of Article
  VI.B.1., to all parties (including Non-Consenting Parties). Thereupon, Articles
  VI.B.1. and 2. shall apply and all parties receiving such notice shall have
  the right to participate or not participate in the Deepening of such well pursuant
  to said Articles VI.B.1. and 2. If a Deepening operation is approved pursuant
  to such provisions, and if any Non-Consenting Party elects to participate in
  the Deepening operation, such Non-Consenting party shall pay or make reimbursement
  (as the case may be) of the following costs and expenses.

     (a) If the proposal to Deepen is
  made prior to the Completion of such well as a well capable of producing in
  paying quantities, such Non-Consenting Party shall pay (or reimburse Consenting
  Parties for, as the case may be) that share of costs and expenses incurred in
  connection with the drilling of said well from the surface to the Initial Objective
  which Non-Consenting Party would have paid had such Non-Consenting Party agreed
  to participate therein, plus the Non-Consenting Party's share of the cost of
  Deepening and of participating in any further operations on the well in accordance
  with the other provisions of this Agreement; provided, however, all costs for
  testing and Completion or attempted Completion of the well incurred by Consenting
  Parties prior to the point of actual operations to Deepen beyond the Initial
  Objective shall be for the sole account of Consenting Parties.

     (b) If the proposal is made for
  a Non-Consent Well that has been previously Completed as a well capable of producing
  in paying quantities, but is no longer capable of producing in paying quantities,
  such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as
  the case may be) its proportionate share of all costs of drilling, Completing,
  and equipping said well from the surface to the Initial Objective, calculated
  in the manner provided in paragraph (a) above, less those costs recouped by
  the Consenting Parties from the sale of production from the well. The Non-Consenting
  Party shall also pay its proportionate share of all costs of re-entering said
  well. The Non-Consenting Parties' proportionate part (based on the percentage
  of such well Non-Consenting Party would have owned had it previously participated
  in such Non-Consent Well) of the costs of salvable materials and equipment remaining
  in the hole and salvable surface equipment used in connection with such well
  shall be determined in accordance with Exhibit "C." If the Consenting Parties
  have recouped the cost of drilling, Completing, and equipping the well at the
  time such Deepening operation is conducted, then a Non-Consenting Party may
  participate in the Deepening of the well with no payment for costs incurred
  prior to re-entering the well for Deepening 

     The foregoing shall not imply a
  right of any Consenting Party to propose any Deepening for a Non-Consent Well
  prior to the drilling of such well to its Initial Objective without the consent
  of the other Consenting Parties as provided in Article VI.F.

     5. Sidetracking: Any party
  having the right to participate in a proposed Sidetracking operation that does
  not own an interest in the affected wellbore at the time of the notice shall,
  upon electing to participate, tender to the wellbore owners its proportionate
  share (equal to its interest in the Sidetracking operation) of the value of
  that portion of the existing wellbore to be utilized as follows: 

          (a)
  If the proposal is for Sidetracking an existing dry hole, reimbursement shall
  be on the basis of the actual costs incurred in the initial drilling of the
  well down to the depth at which the Sidetracking operation is initiated.

          (b)
  If the proposal is for Sidetracking a well which has previously produced, reimbursement
  shall be on the basis of such party's proportionate share of drilling and equipping
  costs incurred in the initial drilling of the well down to the depth at which
  the Sidetracking operation is conducted, calculated in the manner described
  in Article VI.B.4(b) above. Such party's proportionate share of the cost of
  the well's salvable materials and equipment down to the depth at which the Sidetracking
  operation is initiated shall be determined in accordance with the provisions
  of Exhibit "C." 

     6. Order of Preference of Operations.
  Except as otherwise specifically provided in this agreement, if any party desires
  to propose the conduct of an operation that conflicts with a proposal that has
  been made by a party under this Article VI, such party shall have fifteen (15)
  days from delivery of the initial proposal, in the case of a proposal to drill
  a well or to perform an operation on a well where no drilling rig is on location,
  or twenty-four (24) hours, exclusive of Saturday, Sunday and legal holidays,
  from delivery of the initial proposal, if a drilling rig is on location for
  the well on which such operation is to be conducted, to deliver to all parties
  entitled to participate in the proposed operation such party's alternative proposal,
  such alternate proposal to contain the same information required to be included
  in the initial proposal. Each party receiving such proposals shall elect by
  delivery of notice to Operator within five (5) days after expiration of the
  proposal period, or within twenty-four (24) hours (exclusive of Saturday, Sunday
  and legal holidays) if a drilling rig is on location for the well that is the
  subject of the proposals, to participate in one of the competing proposals.
  Any party not electing within the time required shall be deemed not to have
  voted. The proposal receiving the vote of parties owning the largest aggregate
  percentage interest of the parties voting shall have priority over all other
  competing proposals; in the case of a tie vote, the

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

initial proposal shall prevail. Operator shall deliver notice
  of such result to all parties entitled to participate in the operation within
  five (5) days after expiration of the election period (or within twenty-four
  (24) hours, exclusive of Saturday, Sunday and legal holidays, if a drilling
  rig is on location). Each party shall then have two (2) days (or twenty-four
  (24) hours if a rig is on location) from receipt of such notice to elect by
  delivery of notice to Operator to participate in such operation or to relinquish
  interest in the affected well pursuant to the provisions of Article VI.B.2.;
  failure by a party to deliver notice within such period shall be deemed an election
  not to participate in the prevailing proposal.

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

     8. Paying Wells. No party
  shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion,
  or Sidetracking operation under this agreement with respect to any well then
  capable of producing in paying quantities except with the consent of all parties
  that have not relinquished interests in the well at the time of such operation.

C. Completion of Wells; Reworking and Plugging Back:

     1. Completion: Without the
  consent of all parties, no well shall be drilled, Deepened or Sidetracked, except
  any well drilled, Deepened or Sidetracked pursuant to the provisions of Article
  VI.B.2. of this agreement. Consent to the drilling, Deepening or Sidetracking
  shall include:

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

	[x] 	 Option No. 2: All necessary
        expenditures for the drilling, Deepening or Sidetracking and testing of
        the well. When such well has reached its authorized depth, and all logs,
        cores and other tests have been completed, and the results thereof furnished
        to the parties, Operator shall give immediate notice to the Non-Operators
        having the right to participate in a Completion attempt whether or not
        Operator recommends attempting to Complete the well, together with Operator's
        AFE for Completion costs if not previously provided. The parties receiving
        such notice shall have forty-eight (24) hours (exclusive of Saturday,
        Sunday and legal holidays) in which to elect by delivery of notice to
        Operator to participate in a recommended Completion attempt or to make
        a Completion proposal with an accompanying AFE. Operator shall deliver
        any such Completion proposal, or any Completion proposal conflicting with
        Operator's proposal, to the other parties entitled to participate in such
        Completion in accordance with the procedures specified in Article VI.B.6.
        Election to participate in a Completion attempt shall include consent
        to all necessary expenditures for the Completing and equipping of such
        well, including necessary tankage and/or surface facilities but excluding
        any stimulation operation not contained on the Completion AFE. Failure
        of any party receiving such notice to reply within the period above fixed
        shall constitute an election by that party not to participate in
        the cost of the Completion attempt; provided, that Article VI.B.6. shall
        control in the case of conflicting Completion proposals. If one or more,
        but less than all of the parties, elect to attempt a Completion, the provision
        of Article VI.B.2. hereof (the phrase "Reworking, Sidetracking, Deepening,
        Recompleting or Plugging Back" as contained in Article VI.B.2. shall be
        deemed to include "Completing") shall apply to the operations thereafter
        conducted by less than all parties; provided, however, that Article VI.B.2.
        shall apply separately to each separate Completion or Recompletion attempt
        undertaken hereunder, and an election to become a Non-Consenting Party
        as to one Completion or Recompletion attempt shall not prevent a party
        from becoming a Consenting Party in subsequent Completion or Recompletion
        attempts regardless whether the Consenting Parties as to earlier Completions
        or Recompletion have recouped their costs pursuant to Article VI.B.2.;
        provided further, that any recoupment of costs by a Consenting Party shall
        be made solely from the production attributable to the Zone in which the
        Completion attempt is made. Election by a previous Non-Consenting party
        to participate in a subsequent Completion or Recompletion attempt shall
        require such party to pay its proportionate share of the cost of salvable
        materials and equipment installed in the well pursuant to the previous
        Completion or Recompletion attempt, insofar and only insofar as such materials
        and equipment benefit the Zone in which such party participates in a Completion
        attempt. 

     2. Rework, Recomplete or Plug
  Back: No well shall be Reworked, Recompleted or Plugged Back except a well
  Reworked, Recompleted, or Plugged Back pursuant to the provisions of Article
  VI.B.2. of this agreement. Consent to the Reworking, Recompleting or Plugging
  Back of a well shall include all necessary expenditures in conducting such operations
  and Completing and equipping of said well, including necessary tankage and/or
  surface facilities.

D. Other Operations:

     Fifty thousand Operator shall not
  undertake any single project reasonably estimated to require an expenditure
  in excess of / 50,000.00 Dollars ($/ ) except in connection with
  the drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or
  Plugging Back of a well that has been previously authorized by or pursuant to
  this agreement; provided, however, that, in case of explosion, fire, flood or
  other sudden emergency, whether of the same or different nature, Operator may
  take such steps and incur such expenses as in its opinion are required to deal
  with the emergency to safeguard life and property but Operator, as promptly
  as possible, shall report the emergency to the other parties. If Operator prepares
  an AFE for its own use, Operator shall furnish any Non-Operator so requesting
  an information copy thereof for any single project costing in excess of twenty
  five thousand Dollars ($ 25,000.00 ). Any party who has not relinquished
  its interest in a well shall have the right to propose that Operator perform
  repair work or undertake the installation of artificial lift equipment or ancillary
  production facilities such as salt water disposal wells or to conduct additional
  work with respect to a well drilled hereunder or other similar project (but
  not including the installation of gathering lines or other transportation or
  marketing facilities, the installation of which shall be governed by separate
  agreement between the parties) reasonably estimated to require an expenditure
  in excess of the amount first set forth above in this Article VI.D. (except
  in connection with an operation required to be proposed under Articles VI.B.1.
  or VI.C.1. Option No. 2, which shall be governed exclusively be those Articles).
  Operator shall deliver such proposal to all parties entitled to participate
  therein. If within thirty (30) days thereof Operator secures the written consent
  of any party or parties owning at least 60 % of the interests of the
  parties entitled to participate in such operation, each party having the right
  to participate in such project shall be bound by the terms of such proposal
  and shall be obligated to pay its proportionate share of the costs of the proposed
  project as if it had consented to such project pursuant to the terms of the
  proposal.

E. Abandonment of Wells:

     1. Abandonment of Dry Holes:
  Except for any well drilled or Deepened pursuant to Article VI.B.2., any well
  which has been drilled or Deepened under the terms of this agreement and is
  proposed to be completed as a dry hole shall not be

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

plugged and abandoned without the consent of all parties. Should
  Operator, after diligent effort, be unable to contact any party, or should any
  party fail to reply within forty-eight (24) hours (exclusive of Saturday,
  Sunday and legal holidays) after delivery of notice of the proposal to plug
  and abandon such well, such party shall be deemed to have consented to the proposed
  abandonment. All such wells shall be plugged and abandoned in accordance with
  applicable regulations and at the cost, risk and expense of the parties who
  participated in the cost of drilling or Deepening such well. Any party who objects
  to plugging and abandoning such well by notice delivered to Operator within
  forty-eight (24) hours (exclusive of Saturday, Sunday and legal holidays)
  after delivery of notice of the proposed plugging shall take over the well as
  of the end of such forty-eight (24) hour notice period and conduct further
  operations in search of Oil and/or Gas subject to the provisions of Article
  VI.B.; failure of such party to provide proof reasonably satisfactory to Operator
  of its financial capability to conduct such operations or to take over the well
  within such period or thereafter to conduct operations on such well or plug
  and abandon such well shall entitle Operator to retain or take possession of
  the well and plug and abandon the well. The party taking over the well shall
  indemnify Operator (if Operator is an abandoning party) and the other abandoning
  parties against liability for any further operations conducted on such well
  except for the costs of plugging and abandoning the well and restoring the surface,
  for which the abandoning parties shall remain proportionately liable.

     2. Abandonment of Wells That
  Have Produced: Except for any well in which a Non-Consent operation has
  been conducted hereunder for which the Consenting Parties have not been fully
  reimbursed as herein provided, any well which has been completed as a producer
  shall not be plugged and abandoned without the consent of all parties. If all
  parties consent to such abandonment, the well shall be plugged and abandoned
  in accordance with applicable regulations and at the cost, risk and expense
  of all the parties hereto. Failure of a party to reply within sixty (60) days
  of delivery of notice of proposed abandonment shall be deemed an election to
  consent to the proposal. If, within sixty (60) days after delivery of notice
  of the proposed abandonment of any well, all parties do not agree to the abandonment
  of such well, those wishing to continue its operation from the Zone then open
  to production shall be obligated to take over the well as of the expiration
  of the applicable notice period and shall indemnify Operator (if Operator is
  an abandoning party) and the other abandoning parties against liability for
  any further operations on the well conducted by such parties. Failure of such
  party or parties to provide proof reasonably satisfactory to Operator of their
  financial capability to conduct such operations or to take over the well within
  the required period or thereafter to conduct operations on such well shall entitle
  operator to retain or take possession of such well and plug and abandon the
  well.

     Parties taking over a well as provided
  herein shall tender to each of the other parties its proportionate share of
  the value of the well's salvable material and equipment, determined in accordance
  with the provisions of Exhibit "C," less the estimated cost of salvaging and
  the estimated cost of plugging and abandoning and restoring the surface; provided,
  however, that in the event the estimated plugging and abandoning and surface
  restoration costs and the estimated cost of salvaging are higher than the value
  of the well's salvable material and equipment, each of the abandoning parties
  shall tender to the parties continuing operations their proportionate shares
  of the estimated excess cost. Each abandoning party shall assign to the non-abandoning
  parties, without warranty, express or implied, as to title or as to quantity,
  or fitness for use of the equipment and material, all of its interest in the
  wellbore of the well and related equipment, together with its interest in the
  Leasehold insofar and only insofar as such Leasehold covers the right to obtain
  production from that wellbore in the Zone then open to production. If the interest
  of the abandoning party is or includes and Oil and Gas Interest, such party
  shall execute and deliver to the non-abandoning party or parties an oil and
  gas lease, limited to the wellbore and the Zone then open to production, for
  a term of one (1) year and so long thereafter as Oil and/or Gas is produced
  from the Zone covered thereby, such lease to be on the form attached as Exhibit
  "B." The assignments or leases so limited shall encompass the Drilling Unit
  upon which the well is located. The payments by, and the assignments or leases
  to, the assignees shall be in a ratio based upon the relationship of their respective
  percentage of participation in the Contract Area to the aggregate of the percentages
  of participation in the Contract Area of all assignees. There shall be no readjustment
  of interests in the remaining portions of the Contract Area.

     Thereafter, abandoning parties
  shall have no further responsibility, liability, or interest in the operation
  of or production from the well in the Zone then open other than the royalties
  retained in any lease made under the terms of this Article. Upon request, Operator
  shall continue to operate the assigned well for the account of the non-abandoning
  parties at the rates and charges contemplated by this agreement, plus any additional
  cost and charges which may arise as the result of the separate ownership of
  the assigned well. Upon proposed abandonment of the producing Zone assigned
  or leased, the assignor or lessor shall then have the option to repurchase its
  prior interest in the well (using the same valuation formula) and participate
  in further operations therein subject to the provisions hereof.

     3. Abandonment of Non-Consent
  Operations: The provisions of Article VI.E.1. or VI.E.2. above shall be
  applicable as between Consenting Parties in the event of the proposed abandonment
  of any well excepted from said Articles; provided, however, no well shall be
  permanently plugged and abandoned unless and until all parties having the right
  to conduct further operations therein have been notified of the proposed abandonment
  and afforded the opportunity to elect to take over the well in accordance with
  the provisions of this Article VI.E.; and provided further, that Non-Consenting
  Parties who own an interest in a portion of the well shall pay their proportionate
  shares of abandonment and surface restoration cost for such well as provided
  in Article VI.B.2.(b).

F. Termination of Operations:

     Upon the commencement of an operation
  for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing,
  Completion or plugging of a well, including but not limited to the Initial Well,
  such operation shall not be terminated without consent of parties bearing _60____%
  of the costs of such operation; provided, however, that in the event granite
  or other practically impenetrable substance or condition in the hole is encountered
  which renders further operations impractical, Operator may discontinue operations
  and give notice of such condition in the manner provided in Article VI.B.1,
  and the provisions of Article VI.B. or VI.E. shall thereafter apply to such
  operation, as appropriate.

G. Taking Production in Kind:

[   ] Option No. 1: Gas
  Balancing Agreement Attached

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

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

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

directly from the purchaser thereof for its share of all production.

     If any party fails to make the
  arrangements necessary to take in kind or separately dispose of its proportionate
  share of the Oil produced from the Contract Area, Operator shall have the right,
  subject to the revocation at will by the party owning it, but not the obligation,
  to purchase such Oil or sell it to others at any time and from time to time,
  for the account of the non-taking party. Any such purchase or sale by Operator
  may be terminated by Operator upon at least ten (10) days written notice to
  the owner of said production and shall be subject always to the right of the
  owner of the production upon at least ten (10) days written notice to Operator
  to exercise at any time its right to take in kind, or separately dispose of,
  its share of all Oil not previously delivered to a purchaser. Any purchase or
  sale by Operator of any other party's share of Oil shall be only for such reasonable
  periods of time as are consistent with the minimum needs of the industry under
  the particular circumstances, but in no event for a period in excess of one
  (1) year.

     Any such sale by Operator shall
  be in a manner commercially reasonable under the circumstances but Operator
  shall have no duty to share any existing market or to obtain a price equal to
  that received under any existing market. The sale or delivery by Operator of
  a non-taking party's share of Oil under the terms of any existing contract of
  Operator shall not give the non-taking party any interest in or make the non-taking
  party a party to said contract. No purchase shall be made by Operator without
  first giving the non-taking party at least ten (10) days written notice of such
  intended purchase and the price to be paid or the pricing basis to be used.

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

     In the event one or more parties'
  separate disposition of its share of the Gas causes split-stream deliveries
  to separate pipelines and/or deliveries which on a day-to-day basis for any
  reason are not exactly equal to a party's respective proportionate share of
  total Gas sales to be allocated to it, the balancing or accounting between the
  parties shall be in accordance with any Gas balancing agreement between the
  parties hereto, whether such an agreement is attached as Exhibit "E" or is a
  separate agreement. Operator shall give notice to all parties of the first sales
  of Gas from any well under this agreement.

[x] Option No. 2: No Gas Balancing Agreement:

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

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

     If any party fails to make the
  arrangements necessary to take in kind or separately dispose of its proportionate
  share of the Oil and/or Gas produced from the Contract Area, Operator shall
  have the right, subject to the revocation at will by the party owning it, but
  not the obligation, to purchase such Oil and/or Gas or sell it to others at
  any time and from time to time, for the account of the non-taking party. Any
  such purchase or sale by Operator may be terminated by Operator upon at least
  ten (10) days written notice to the owner of said production and shall be subject
  always to the right of the owner of the production upon at least ten (10) days
  written notice to Operator to exercise its right to take in kind, or separately
  dispose of, its share of all Oil and/or Gas not previously delivered to a purchaser;
  provided, however, that the effective date of any such revocation may be deferred
  at Operator's election for a period not to exceed ninety (90) days if Operator
  has committed such production to a purchase contract having a term extending
  beyond such ten (10) -day period. Any purchase or sale by Operator of any other
  party's share of Oil and/or Gas shall be only for such reasonable periods of
  time as are consistent with the minimum needs of the industry under the particular
  circumstances, but in no event for a period in excess of one (1) year.

     Any such sale by Operator shall
  be in a manner commercially reasonable under the circumstances, but Operator
  shall have no duty to share any existing market or transportation arrangement
  or to obtain a price or transportation fee equal to that received under any
  existing market or transportation arrangement. The sale or delivery by Operator
  of a non-taking party's share of production under the terms of any existing
  contract of Operator shall not give the non-taking party any interest in or
  make the non-taking party a party to said contract. No purchase of Oil and Gas
  and no sale of Gas shall be made by Operator without first giving the non-taking
  party ten days written notice of such intended purchase or sale and the price
  to be paid or the pricing basis to be used. Operator shall give notice to all
  parties of the first sale of Gas from any well under this Agreement.

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

ARTICLE VII.

EXPENDITURES AND LIABILITY OF PARTIES 

A. Liability of Parties:

     The liability of the parties shall
  be several, not joint or collective. Each party shall be responsible only for
  its obligations, and shall be liable only for its proportionate share of the
  costs of developing and operating the Contract Area. Accordingly, the liens
  granted among the parties in Article VII.B. are given to secure only the debts
  of each severally, and no party shall have any liability to third parties hereunder
  to satisfy the default of any other party in the payment of any expense or obligation
  hereunder. It is not the intention of the parties to create, nor shall this
  agreement be construed as creating, a mining or other partnership, joint venture,
  agency relationship or association, or to render the parties liable as partners,
  co-venturers, or principals. In their relations with each other under this agreement,
  the parties shall not be considered fiduciaries or to have established a confidential
  relationship but rather shall be free to act on an arm's-length basis in accordance
  with their own respective self-interest, subject, however, to the obligation
  of the parties to act in good faith in their dealings with each other with respect
  to activities hereunder.

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

B. Liens and Security Interests:

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

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

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

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

     If any party fails to pay its share
  of cost within one hundred twenty (60) days after rendition of a statement
  therefor by Operator, the non-defaulting parties, including Operator, shall
  upon request by Operator, pay the unpaid amount in the proportion that the interest
  of each such party bears to the interest of all such parties. The amount paid
  by each party so paying its share of the unpaid amount shall be secured by the
  liens and security rights described in Article VII.B., and each paying party
  may independently pursue any remedy available hereunder or otherwise.

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

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

C. Advances:

     Operator, at its election, shall
  have the right from time to time to demand and receive from one or more of the
  other parties payment in advance of their respective shares of the estimated
  amount of the expense to be incurred in operations hereunder during the next
  succeeding month, which right may be exercised only by submission to each such
  party of an itemized statement of such estimated expense, together with an invoice
  for its share thereof. Each such statement and invoice for the payment in advance
  of estimated expense shall be submitted on or before the 20th day of the next
  preceding month. Each party shall pay to Operator its proportionate share of
  such estimate within fifteen (15) days after such estimate and invoice is received.
  If any party fails to pay its share of said estimate within said time, the amount
  due shall bear interest as provided in Exhibit "C" until paid. Proper adjustment
  shall be made monthly between advances and actual expense to the end that each
  party shall bear and pay its proportionate share of actual expenses incurred,
  and no more.

D. Defaults and Remedies:

     If any party fails to discharge
  any financial obligation under this agreement, including without limitation
  the failure to make any advance under the preceding Article VII.C. or any other
  provision of this agreement, within the period required for such payment hereunder,
  then in addition to the remedies provided in Article VII.B. or elsewhere in
  this agreement, the remedies specified below shall be applicable. For purposes
  of this Article VII.D., all notices and elections shall be delivered

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

only by Operator, except that Operator shall deliver any such
  notice and election requested by a non-defaulting Non-Operator, and when Operator
  is the party in default, the applicable notices and elections can be delivered
  by any Non-Operator. Election of any one or more of the following remedies shall
  not preclude the subsequent use of any other remedy specified below or otherwise
  available to a non-defaulting party.

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

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

     3. Deemed Non-Consent: The
  non-defaulting party may deliver a written Notice of Non-Consent Election to
  the defaulting party at any time after the expiration of the thirty-day cure
  period following delivery of the Notice of Default, in which event if the billing
  is for the drilling a new well or the Plugging Back, Sidetracking, Reworking
  or Deepening of a well which is to be or has been plugged as a dry hole, or
  for the Completion or Recompletion of any well, the defaulting party will be
  conclusively deemed to have elected not to participate in the operation and
  to be a Non-Consenting Party with respect thereto under Article VI.B. or VI.C.,
  as the case may be, to the extent of the costs unpaid by such party, notwithstanding
  any election to participate theretofore made. If election is made to proceed
  under this provision, then the non-defaulting parties may not elect to sue for
  the unpaid amount pursuant to Article VII.D.2.

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

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

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

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

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

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

F. Taxes:

     Beginning with the first calendar
  year after the effective date hereof, Operator shall render for ad valorem taxation
  all property subject to this agreement which by law should be rendered for such
  taxes, and it shall pay all such taxes assessed thereon before they become delinquent.
  Prior to the rendition date, each Non-Operator shall furnish Operator information
  as to burdens (to include, but not be limited to, royalties, overriding royalties
  and production payments) on Leases and Oil and Gas Interests contributed by
  such Non-Operator. If the assessed valuation of any Lease is reduced by reason
  of its being subject to outstanding excess royalties, overriding royalties or
  production payments, the reduction in ad valorem taxes resulting therefrom shall
  inure to the benefit of the owner or owners of such Lease, and Operator shall
  adjust the charge to such owner or owners so as to reflect the benefit of such
  reduction. If the ad valorem taxes are based in whole or in part upon separate
  valuations of each party's working interest, then notwithstanding anything to
  the contrary herein, charges to the joint account shall be made and paid by
  the parties hereto in accordance with the tax value generated by each party's
  working interest. Operator shall bill the other parties for their proportionate
  shares of all tax payments in the manner provided in Exhibit "C."

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

     If Operator considers any tax assessment
  improper, Operator may, at its discretion, protest within the time and manner
  prescribed by law, and prosecute the protest to a final determination, unless
  all parties agree to abandon the protest prior to final determination. During
  the pendency of administrative or judicial proceedings, Operator may elect to
  pay, under protest, all such taxes and any interest and penalty. When any such
  protested assessment shall have been finally determined, Operator shall pay
  the tax for the joint account, together with any interest and penalty accrued,
  and the total cost shall then be assessed against the parties, and be paid by
  them, as provided in Exhibit "C." Each party shall pay or cause to be paid all
  production, severance, excise, gathering and other taxes imposed upon or with
  respect to the production or handling of such party's share of Oil and Gas produced
  under the terms of this agreement.

ARTICLE VIII.

ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

 A. Surrender of Leases:

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

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

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

B. Renewal or Extension of Leases:

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

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

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

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

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

C. Acreage or Cash Contributions:

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

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

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

D. Assignment; Maintenance of Uniform Interest:

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

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

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

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

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

E. Waiver of Rights to Partition:

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

F. Preferential Right to Purchase:

[x] (Optional; Check if applicable.)

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

ARTICLE IX.

INTERNAL REVENUE CODE ELECTION

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

ARTICLE X. 

CLAIMS AND LAWSUITS

     Operator may settle any single
  uninsured third party damage claim or suit arising from operations hereunder
  if the expenditure 10,000.00 does not exceed ten thousand Dollars ($
  / ) and if the payment is in complete settlement of such claim or suit.
  If the amount required for settlement exceeds the above amount, the parties
  hereto shall assume and take over the further handling of the claim or suit,
  unless such authority is delegated to Operator. All costs and expenses of handling
  settling, or otherwise discharging such claim or suit shall be a the joint expense
  of the parties participating in the operation from which the claim or suit arises.
  If a claim is made against any party or if any party is sued on account of any
  matter arising from operations hereunder over which such individual has no control
  because of the rights given Operator by this agreement, such party shall immediately
  notify all other parties, and the claim or suit shall be treated as any other
  claim or suit involving operations hereunder.

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

ARTICLE XI. 

FORCE MAJEURE

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

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

ARTICLE XII. 

NOTICES

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

ARTICLE XIII. 

TERM OF AGREEMENT

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

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

	[  ]	 Option No. 2: In
        the event the well described in Article VI.A., or any subsequent well
        drilled under any provision of this agreement, results in the Completion
        of a well as a well capable of production of Oil and/or Gas in paying
        quantities, this agreement shall continue in force so long as any such
        well is capable of production, and for an additional period of ___________
        days thereafter; provided, however, if, prior to the expiration of such
        additional period, one or more of the parties hereto are engaged in drilling,
        Reworking, Deepening, Sidetracking, Plugging Back, testing or attempting
        to Complete or Re-complete a well or wells hereunder, this agreement shall
        continue in force until such operations have been completed and if production
        results therefrom, this agreement shall continue in force as provided
        herein. In the event the well described in Article VI.A., or any subsequent
        well drilled hereunder, results in a dry hole, and no other well is capable
        of producing Oil and/or Gas from the Contract Area, this agreement shall
        terminate unless drilling, Deepening, Sidetracking, Completing, Re- completing,
        Plugging Back or Reworking operations are commenced within ______________________
        days from the date of abandonment of said well. "Abandonment" for such
        purposes shall mean either (i) a decision by all parties not to conduct
        any further operations on the well or (ii) the elapse of 180 days from
        the conduct of any operations on the well, whichever first occurs. 

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

     Upon termination of this agreement
  and the satisfaction of all obligations hereunder, in the event a memorandum
  of this Operating Agreement has been filed of record, Operator is authorized
  to file of record in all necessary recording offices a notice of termination,
  and each party hereto agrees to execute such a notice of termination as to Operator's
  interest, upon request of Operator, if Operator has satisfied all its financial
  obligations.

ARTICLE XIV.

COMPLIANCE WITH LAWS AND REGULATIONS 

A. Laws, Regulations and Orders:

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

B. Governing Law:

     This Agreement shall, in all
  respects, be subject to, interpreted, construed and enforced in accordance with
  and under the laws of the Province of Alberta and applicable laws of Canada
  and shall, in all respects, be treated as a contract made in the Province
  of Alberta. The Parties irrevocably attorn and submit to the exclusive jurisdiction
  of the courts of the Province of Alberta and courts of appeal therefrom
  in respect of all matters arising out of or in connection with this Agreement,
  including but not limited to matters of performance,
  non-performance, breach, remedies, procedures, rights, duties, and interpretation
  or construction; provided, however that the laws of the
  State of Montana shall be applicable in respect of the defined term "Regulations"
  as defined and used in the head agreement .

C. Regulatory Agencies:

     Nothing herein contained shall
  grant, or be construed to grant, Operator the right or authority to waive or
  release any rights, privileges, or obligations which Non-Operators may have
  under federal or state laws or under rules, regulations or

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

orders promulgated under such laws in reference to oil, gas and
  mineral operations, including the location, operation, or production of wells,
  on tracts offsetting or adjacent to the Contract Area.

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

ARTICLE XV. 

MISCELLANEOUS

A. Execution:

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

B. Successors and Assigns:

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

C. Counterparts:

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

D. Severability:

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

ARTICLE XVI. 

OTHER PROVISIONS

- 17 -

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

IN WITNESS WHEREOF, this agreement shall be effective as of the
  day of October ,2007 .

MegaWest Energy Montana Corp. , who has prepared and circulated
  this form for execution, represents and warrants that the form was printed from
  and, with the exception(s) listed below, is identical to the AAPL Form 610-1989
  Model Form Operating Agreement, as published in computerized form by Forms On-A-Disk,
  Inc. No changes, alterations, or modifications, other than those made by strikethrough
  and/or insertion and that are clearly recognizable as changes, have been made
  to the form.

	ATTEST OR WITNESS: 	 	OPERATOR 
	 	 	 
	  	 	MegaWest Energy Montana Corp. 
	  	 By	                   
    
	  	 	Type or print name 
	 	 	 
	  	 	Title
    
	  	 	Date 
	  	 	Tax ID
      or S.S. No. 
	  	 	  
	NON-OPERATORS 
	 	 	 
	  	 	BS Oil Company 
	  	 By	                   
    
	  	 	Type or
      print name 
	 	 	 
	  	 	Title
    
	  	 	Date 
	  	 	Tax ID
      or S.S. No. 
	  	 	  
	  	 	Armont Energy Inc. 
	  	 By	                   
    
	  	 	Type or
      print name 
	 	 	 
	  	 	Title
    
	  	 	Date 
	  	 	Tax ID
      or S.S. No. 
	 	 	 
	  	 	Longshot Oil Company 
	  	 By	                   
    
	  	 	Type or
      print name 
	 	 	 
	  	 	Title
    
	  	 	Date 
	  	 	Tax ID
      or S.S. No. 

- 18 -

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

ACKNOWLEDGMENTS

Note: The following forms of acknowledgment are the short forms
  approved by the Uniform Law on Notarial Acts. 

The validity and effect of these forms in any state will depend
  upon the statutes of that state.

Individual acknowledgment: 

State of ________)

                                 )
  ss.

County of  ______)

This instrument was acknowledged before me on

_________________________________ by _________________________________

	 (Seal, if any) 	
	 	Title
      (and Rank) 
	 	My commission
      expires: 

Acknowledgment in representative capacity:

State of ________)

                                 )
  ss.

County of  ______)

This instrument was acknowledged before me on

_________________________________ by _________________________________
  as

________ of ___________________________________________________________.

	(Seal, if any) 	
	 	Title
      (and Rank) 
	 	My commission
      expires: 

- 19 -

 

	 	COPAS 2005 Accounting Procedure
      

      Recommended by COPAS 

Exhibit “C” 

  ACCOUNTING PROCEDURE 

  JOINT OPERATIONS 

Attached to and made part of Operating Agreement
  dated October [], 2007, between Longshot Oil Company, Armont Energy Inc., BS
  Oil Company Ltd., and MegaWestEnergy Montana Corp. 

I. GENERAL PROVISIONS 

IF THE PARTIES FAIL TO SELECT EITHER ONE
  OF COMPETING “ALTERNATIVE” PROVISIONS, OR SELECT ALL THE COMPETING
  “ALTERNATIVE” PROVISIONS, ALTERNATIVE 1 IN EACH SUCH INSTANCE SHALL
  BE DEEMED TO HAVE BEEN ADOPTED BY THE PARTIES AS A RESULT OF ANY SUCH OMISSION
  OR DUPLICATE NOTATION. 

IN THE EVENT THAT ANY “OPTIONAL”
  PROVISION OF THIS ACCOUNTING PROCEDURE IS NOT ADOPTED BY THE PARTIES TO THE
  AGREEMENT BY A TYPED, PRINTED OR HANDWRITTEN INDICATION, SUCH PROVISION SHALL
  NOT FORM A PART OF THIS ACCOUNTING PROCEDURE, AND NO INFERENCE SHALL BE MADE
  CONCERNING THE INTENT OF THE PARTIES IN SUCH EVENT. 

	1. 	 DEFINITIONS

	 	 	 
		 All terms used in this Accounting Procedure
        shall have the following meaning, unless otherwise expressly defined in
        the Agreement:

	 	 	 
		 “Affiliate” means for a person,
        another person that controls, is controlled by, or is under common control
        with that person. In this definition, (a) control means the ownership
        by one person, directly or indirectly, of more than fifty percent (50%)
        of the voting securities of a corporation or, for other persons, the equivalent
        ownership interest (such as partnership interests), and (b) “person”
        means an individual, corporation, partnership, trust, estate, unincorporated
        organization, association, or other legal entity.

	 	 	 
		 “Agreement” means the operating
        agreement, farmout agreement, or other contract between the Parties to
        which this Accounting Procedure is attached.

	 	 	 
		 “Controllable Material” means
        Material that, at the time of acquisition or disposition by the Joint
        Account, as applicable, is so classified in the Material Classification
        Manual most recently recommended by the Council of Petroleum Accountants
        Societies (COPAS).

	 	 	 
		 “Equalized Freight” means
        the procedure of charging transportation cost to the Joint Account based
        upon the distance from the nearest Railway Receiving Point to the property.

	 	 	 
		 “Excluded Amount” means a
        specified excluded trucking amount most recently recommended by COPAS.

	 	 	 
		 “Field Office” means a structure,
        or portion of a structure, whether a temporary or permanent installation,
        the primary function of which is to directly serve daily operation and
        maintenance activities of the Joint Property and which serves as a staging
        area for directly chargeable field personnel.

	 	 	 
		 “First Level Supervision” means
        those employees whose primary function in Joint Operations is the direct
        oversight of the Operator’s field employees and/or contract labor
        directly employed On-site in a field operating capacity. First Level Supervision
        functions may include, but are not limited to:

	 	 	 
		• 	 Responsibility for field employees and contract labor
        engaged in activities that can include field operations, maintenance,
        construction, well remedial work, equipment movement and drilling

		• 	 Responsibility for day-to-day direct oversight of rig
        operations

		• 	 Responsibility for day-to-day direct oversight of construction
        operations

		• 	 Coordination of job priorities and approval of work
        procedures

		• 	 Responsibility for optimal resource utilization (equipment,
        Materials, personnel)

		• 	 Responsibility for meeting production and field operating
        expense targets

		• 	 Representation of the Parties in local matters involving
        community, vendors, regulatory agents and landowners, as an incidental
        part of the supervisor’s operating responsibilities

		• 	 Responsibility for all emergency responses with field
        staff

		• 	 Responsibility for implementing safety and environmental
        practices

		• 	 Responsibility for field adherence to company policy

		• 	 Responsibility for employment decisions and performance
        appraisals for field personnel

		• 	 Oversight of sub-groups for field functions such as
        electrical, safety, environmental, telecommunications, which may have
        group or team leaders.

	 	 	 
		 “Joint Account” means the
        account showing the charges paid and credits received in the conduct of
        the Joint Operations that are to be shared by the Parties, but does not
        include proceeds attributable to hydrocarbons and by-products produced
        under the Agreement.

	 	 	 
		 “Joint Operations” means
        all operations necessary or proper for the exploration, appraisal, development,
        production, protection, maintenance, repair, abandonment, and restoration
        of the Joint Property.

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
  Inc. (COPAS) 

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	 	COPAS 2005 Accounting Procedure
      

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“Joint Property” means
  the real and personal property subject to the Agreement. 

“Laws” means any laws,
  rules, regulations, decrees, and orders of the United States of America or any
  state thereof and all other governmental bodies, agencies, and other authorities
  having jurisdiction over or affecting the provisions contained in or the transactions
  contemplated by the Agreement or the Parties and their operations, whether such
  laws now exist or are hereafter amended, enacted, promulgated or issued. 

“Material” means personal
  property, equipment, supplies, or consumables acquired or held for use by the
  Joint Property. 

“Non-Operators” means
  the Parties to the Agreement other than the Operator. 

“Offshore Facilities”
  means platforms, surface and subsea development and production systems, and
  other support systems such as oil and gas handling facilities, living quarters,
  offices, shops, cranes, electrical supply equipment and systems, fuel and water
  storage and piping, heliport, marine docking installations, communication facilities,
  navigation aids, and other similar facilities necessary in the conduct of offshore
  operations, all of which are located offshore. 

“Off-site” means any
  location that is not considered On-site as defined in this Accounting Procedure.

“On-site” means on the
  Joint Property when in direct conduct of Joint Operations. The term “On-site”
  shall also include that portion of Offshore Facilities, Shore Base Facilities,
  fabrication yards, and staging areas from which Joint Operations are conducted,
  or other facilities that directly control equipment on the Joint Property, regardless
  of whether such facilities are owned by the Joint Account. 

“Operator” means the
  Party designated pursuant to the Agreement to conduct the Joint Operations.

“Parties” means legal
  entities signatory to the Agreement or their successors and assigns. Parties
  shall be referred to individually as “Party.” 

“Participating Interest”
  means the percentage of the costs and risks of conducting an operation under
  the Agreement that a Party agrees, or is otherwise obligated, to pay and bear.

“Participating Party”
  means a Party that approves a proposed operation or otherwise agrees, or becomes
  liable, to pay and bear a share of the costs and risks of conducting an operation
  under the Agreement. 

“Personal Expenses”
  means reimbursed costs for travel and temporary living expenses. 

“Railway Receiving Point”
  means the railhead nearest the Joint Property for which freight rates are published,
  even though an actual railhead may not exist. 

“Shore Base Facilities”
  means onshore support facilities that during Joint Operations provide such services
  to the Joint Property as a receiving and transshipment point for Materials;
  debarkation point for drilling and production personnel and services; communication,
  scheduling and dispatching center; and other associated functions serving the
  Joint Property. 

“Supply Store” means
  a recognized source or common stock point for a given Material item. 

“Technical Services”
  means services providing specific engineering, geoscience, or other professional
  skills, such as those performed by engineers, geologists, geophysicists, and
  technicians, required to handle specific operating conditions and problems for
  the benefit of Joint Operations; provided, however, Technical Services shall
  not include those functions specifically identified as overhead under the second
  paragraph of the introduction of Section III (Overhead). Technical Services
  may be provided by the Operator, Operator’s Affiliate, Non- Operator, Non-Operator
  Affiliates, and/or third parties. 

	2. 	 STATEMENTS AND BILLINGS

	 	 
		 The Operator shall bill Non-Operators on or before the
        last day of the month for their proportionate share of the Joint Account
        for the preceding month. Such bills shall be accompanied by statements
        that identify the AFE (authority for expenditure), lease or facility,
        and all charges and credits summarized by appropriate categories of investment
        and expense. Controllable Material shall be separately identified and
        fully described in detail, or at the Operator’s option, Controllable
        Material may be summarized by major Material classifications. Intangible
        drilling costs, audit adjustments, and unusual charges and credits shall
        be separately and clearly identified.

	 	 
		 The Operator may make available to Non-Operators any
        statements and bills required under Section I.2 and/or Section I.3.A (Advances
        and Payments by the Parties) via email, electronic data interchange,
        internet websites or other equivalent electronic media in lieu of paper
        copies. The Operator shall provide the Non-Operators instructions and
        any necessary information to access and receive the statements and bills
        within the timeframes specified herein. A statement or billing shall be
        deemed as delivered twenty-four (24) hours (exclusive of weekends and
        holidays) after the Operator notifies the Non-Operator that the statement
        or billing is available on the website and/or sent via email or electronic
        data interchange transmission. Each Non-Operator individually shall elect
        to receive statements and billings electronically, if available from the
        Operator, or request paper copies. Such election may be changed upon thirty
        (30) days prior written notice to the Operator.

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
  Inc. (COPAS)

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	 	COPAS 2005 Accounting Procedure
      

      Recommended by COPAS 

	3. 	 ADVANCES AND PAYMENTS BY THE PARTIES

	 	 	 	 
		A. 	 Unless otherwise provided for in the Agreement,
        the Operator may require the Non-Operators to advance their share of the
        estimated cash outlay for the succeeding month’s operations within
        fifteen (15) days after receipt of the advance request or by the first
        day of the month for which the advance is required, whichever is later.
        The Operator shall adjust each monthly billing to reflect advances received
        from the Non-Operators for such month. If a refund is due, the Operator
        shall apply the amount to be refunded to the subsequent month’s billing
        or advance, unless the Non-Operator sends the Operator a written request
        for a cash refund. The Operator shall remit the refund to the Non-Operator
        within fifteen (15) days of receipt of such written request.

	 	 	 	 
		B. 	 Except as provided below, each Party shall
        pay its proportionate share of all bills in full within fifteen (15) days
        of receipt date. If payment is not made within such time, the unpaid balance
        shall bear interest compounded monthly at the prime rate published by
        the Wall Street Journal on the first day of each month the payment
        is delinquent, plus three percent (3%), per annum, or the maximum contract
        rate permitted by the applicable usury Laws governing the Joint Property,
        whichever is the lesser, plus attorney’s fees, court costs, and other
        costs in connection with the collection of unpaid amounts. If the Wall
        Street Journal ceases to be published or discontinues publishing a
        prime rate, the unpaid balance shall bear interest compounded monthly
        at the prime rate published by the Federal Reserve plus three percent
        (3%), per annum. Interest shall begin accruing on the first day of the
        month in which the payment was due. Payment shall not be reduced or delayed
        as a result of inquiries or anticipated credits unless the Operator has
        agreed. Notwithstanding the foregoing, the Non-Operator may reduce payment,
        provided it furnishes documentation and explanation to the Operator at
        the time payment is made, to the extent such reduction is caused by:

	 	 	 	 
			(1) 	 being billed at an incorrect working interest or Participating
        Interest that is higher than such Non-Operator’s actual working interest
        or Participating Interest, as applicable; or

	 	 	 	 
			(2) 	 being billed for a project or AFE requiring approval
        of the Parties under the Agreement that the Non-Operator has not approved
        or is not otherwise obligated to pay under the Agreement; or

	 	 	 	 
			(3) 	 being billed for a property in which the Non-Operator
        no longer owns a working interest, provided the Non-Operator has furnished
        the Operator a copy of the recorded assignment or letter in-lieu. Notwithstanding
        the foregoing, the Non-Operator shall remain responsible for paying bills
        attributable to the interest it sold or transferred for any bills rendered
        during the thirty (30) day period following the Operator’s receipt
        of such written notice; or

	 	 	 	 
			(4) 	 charges outside the adjustment period, as provided in
        Section I.4 (Adjustments).

	 	 	 	 
	4. 	 ADJUSTMENTS

	 	 	 	 
		A. 	 Payment of any such bills shall not prejudice
        the right of any Party to protest or question the correctness thereof;
        however, all bills and statements, including payout statements, rendered
        during any calendar year shall conclusively be presumed to be true and
        correct, with respect only to expenditures, after twenty-four (24) months
        following the end of any such calendar year, unless within said period
        a Party takes specific detailed written exception thereto making a claim
        for adjustment. The Operator shall provide a response to all written exceptions,
        whether or not contained in an audit report, within the time periods prescribed
        in Section I.5 (Expenditure Audits).

	 	 	 	 
		B. 	 All adjustments initiated by the Operator,
        except those described in items (1) through (4) of this Section I.4.B,
        are limited to the twenty-four (24) month period following the end of
        the calendar year in which the original charge appeared or should have
        appeared on the Operator’s Joint Account statement or payout statement.
        Adjustments that may be made beyond the twenty-four (24) month period
        are limited to adjustments resulting from the following:

	 	 	 	 
			(1) 	 a physical inventory of Controllable Material as provided
        for in Section V (Inventories of Controllable Material), or

	 	 	 	 
			(2) 	 an offsetting entry (whether in whole or in part) that
        is the direct result of a specific joint interest audit exception granted
        by the Operator relating to another property, or

	 	 	 	 
			(3) 	 a government/regulatory audit, or

	 	 	 	 
			(4) 	 a working interest ownership or Participating Interest
        adjustment.

	 	 	 	 
	5. 	 EXPENDITURE AUDITS

	 	 	 	 
		A. 	 A Non-Operator, upon written notice to the
        Operator and all other Non-Operators, shall have the right to audit the
        Operator’s accounts and records relating to the Joint Account within
        the twenty-four (24) month period following the end of such calendar year
        in which such bill was rendered; however, conducting an audit shall not
        extend the time for the taking of written exception to and the adjustment
        of accounts as provided for in Section I.4 (Adjustments). Any Party
        that is subject to payout accounting under the Agreement shall have the
        right to audit the accounts and records of the Party responsible for preparing
        the payout statements, or of the Party furnishing information to the Party
        responsible for preparing payout statements. Audits of payout accounts
        may include the volumes of hydrocarbons produced and saved and proceeds
        received for such hydrocarbons as they pertain to payout accounting required
        under the Agreement. Unless otherwise provided in the Agreement, audits
        of a payout account shall be conducted within the twenty-four (24) month
        period following the end of the calendar year in which the payout statement
        was rendered.

	 	 	 	 
			 Where there are two or more Non-Operators,
        the Non-Operators shall make every reasonable effort to conduct a joint
        audit in a manner that will result in a minimum of inconvenience to the
        Operator. The Operator shall bear no portion of the Non-Operators’
        audit cost incurred under this paragraph unless agreed to by the Operator.
        The audits shall not be conducted more than once each year without prior
        approval of the Operator, except upon the resignation or removal of the
        Operator, and shall be made at the expense of

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
  Inc. (COPAS) 

3 

	 	COPAS 2005 Accounting Procedure
      

      Recommended by COPAS 

	 		 those Non-Operators approving such audit.

	 	 	 
	 		 The Non-Operator leading the audit (hereinafter “lead
        audit company”) shall issue the audit report within ninety (90) days
        after completion of the audit testing and analysis; however, the ninety
        (90) day time period shall not extend the twenty-four (24) month requirement
        for taking specific detailed written exception as required in Section
        I.4.A (Adjustments) above. All claims shall be supported with sufficient
        documentation.

	 	 	 
	 		 A timely filed written exception
        or audit report containing written exceptions (hereinafter “written
        exceptions”) shall, with respect to the claims made therein, preclude
        the Operator from asserting a statute of limitations defense against such
        claims, and the Operator hereby waives its right to assert any statute
        of limitations defense against such claims for so long as any Non-Operator
        continues to comply with the deadlines for resolving exceptions provided
        in this Accounting Procedure. If the Non-Operators fail to comply with
        the additional deadlines in Section I.5.B or I.5.C, the Operator’s
        waiver of its rights to assert a statute of limitations defense against
        the claims brought by the Non-Operators shall lapse, and such claims shall
        then be subject to the applicable statute of limitations, provided that
        such waiver shall not lapse in the event that the Operator has failed
        to comply with the deadlines in Section I.5.B or I.5.C.

	 	 	 
	 	B. 	The Operator shall provide a written response to all exceptions
      in an audit report within one hundred eighty (180) days after Operator receives
      such report. Denied exceptions should be accompanied by a substantive response.
      If the Operator fails to provide substantive response to an exception within
      this one hundred eighty (180) day period, the Operator will owe interest
      on that exception or portion thereof, if ultimately granted, from the date
      it received the audit report. Interest shall be calculated using the rate
      set forth in Section I. 3.B (Advances and Payments by the Parties).
	 	 	 
	 	C. 	 The lead audit company shall reply to the Operator’s
        response to an audit report within ninety (90) days of receipt, and the
        Operator shall reply to the lead audit company’s follow-up response
        within ninety (90) days of receipt; provided, however, each Non-Operator
        shall have the right to represent itself if it disagrees with the lead
        audit company’s position or believes the lead audit company is not
        adequately fulfilling its duties. Unless otherwise provided for in Section
        I.5.E, if the Operator fails to provide substantive response to an exception
        within this ninety (90) day period, the Operator will owe interest on
        that exception or portion thereof, if ultimately granted, from the date
        it received the audit report. Interest shall be calculated using the rate
        set forth in Section I.3.B (Advances and Payments by the Parties).

	 	 	 
	 	D. 	 If any Party fails to meet the deadlines in Sections
        I.5.B or I.5.C or if any audit issues are outstanding fifteen (15) months
        after Operator receives the audit report, the Operator or any Non-Operator
        participating in the audit has the right to call a resolution meeting,
        as set forth in this Section I.5.D or it may invoke the dispute resolution
        procedures included in the Agreement, if applicable. The meeting will
        require one month’s written notice to the Operator and all Non-Operators
        participating in the audit. The meeting shall be held at the Operator’s
        office or mutually agreed location, and shall be attended by representatives
        of the Parties with authority to resolve such outstanding issues. Any
        Party who fails to attend the resolution meeting shall be bound by any
        resolution reached at the meeting. The lead audit company will make good
        faith efforts to coordinate the response and positions of the Non-Operator
        participants throughout the resolution process; however, each Non-Operator
        shall have the right to represent itself. Attendees will make good faith
        efforts to resolve outstanding issues, and each Party will be required
        to present substantive information supporting its position. A resolution
        meeting may be held as often as agreed to by the Parties. Issues unresolved
        at one meeting may be discussed at subsequent meetings until each such
        issue is resolved.

	 	 	 
	 		 If the Agreement contains no dispute resolution procedures
        and the audit issues cannot be resolved by negotiation, the dispute shall
        be submitted to mediation. In such event, promptly following one Party’s
        written request for mediation, the Parties to the dispute shall choose
        a mutually acceptable mediator and share the costs of mediation services
        equally. The Parties shall each have present at the mediation at least
        one individual who has the authority to settle the dispute. The Parties
        shall make reasonable efforts to ensure that the mediation commences within
        sixty (60) days of the date of the mediation request. Notwithstanding
        the above, any Party may file a lawsuit or complaint (1) if the Parties
        are unable after reasonable efforts, to commence mediation within sixty
        (60) days of the date of the mediation request, (2) for statute of limitations
        reasons, or (3) to seek a preliminary injunction or other provisional
        judicial relief, if in its sole judgment an injunction or other provisional
        relief is necessary to avoid irreparable damage or to preserve the status
        quo. Despite such action, the Parties shall continue to try to resolve
        the dispute by mediation.

	 	 	 
	 	E. 	 [X] (Optional Provision – Forfeiture Penalties)

	 	 	 
	 		 If the Non-Operators fail to meet the deadline in
        Section I.5.C, any unresolved exceptions that were not addressed by the
        Non- Operators within one (1) year following receipt of the last substantive
        response of the Operator shall be deemed to have been withdrawn by the
        Non-Operators. If the Operator fails to meet the deadlines in Section
        I.5.B or I.5.C, any unresolved exceptions that were not addressed by the
        Operator within one (1) year following receipt of the audit report or
        receipt of the last substantive response of the Non-Operators, whichever
        is later, shall be deemed to have been granted by the Operator and adjustments
        shall be made, without interest, to the Joint Account.

	6. 	 APPROVAL BY PARTIES

	 	 	 
		A. 	 GENERAL MATTERS

	 	 	 
			 Where an approval or other agreement of the Parties
        or Non-Operators is expressly required under other Sections of this Accounting
        Procedure and if the Agreement to which this Accounting Procedure is attached
        contains no contrary provisions in regard thereto, the

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
  Inc. (COPAS) 

4 

	 	COPAS 2005 Accounting Procedure
      

      Recommended by COPAS 

	 		 Operator shall notify all Non-Operators of
        the Operator’s proposal and the agreement or approval of a majority
        in interest of the Non-Operators shall be controlling on all Non-Operators.

	 	 	  

	 		 This Section I.6.A applies to specific situations
        of limited duration where a Party proposes to change the accounting for
        charges fromthat prescribed in this Accounting Procedure. This provision
        does not apply to amendments to this Accounting Procedure, which arecovered
        by Section I.6.B.

	 	 	  

	 	B. 	 AMENDMENTS

	 	 	  

	 		 If the Agreement to which this Accounting
        Procedure is attached contains no contrary provisions in regard thereto,
        this Accounting two 2 Procedure can be amended by an affirmative vote
        of/ / ( / )
        or more Parties, one of which is the Operator, sixty five having a combined
        working interest of at least/ percent
        (65 %), which approval shall be binding
        on all Parties, provided, however, approval of at least one (1) Non-Operator
        shall be required.

	 	 	  

	 	C. 	 AFFILIATES

	 	 	  

	 		 For the purpose of administering the voting
        procedures of Sections I.6.A and I.6.B, if Parties to this Agreement are
        Affiliates of each other, then such Affiliates shall be combined and treated
        as a single Party having the combined working interest or Participating
        Interest of such Affiliates.

	 	 	  

	 		 For the purposes of administering the voting
        procedures in Section I.6.A, if a Non-Operator is an Affiliate of the
        Operator, votes under Section I.6.A shall require the majority in interest
        of the Non-Operator(s) after excluding the interest of the Operator’s
        Affiliate.

II. DIRECT CHARGES 

The Operator shall charge the Joint Account with the following
  items: 

	1. 	 RENTALS AND ROYALTIES

	 	 	 	 
		 Lease rentals and royalties paid by the Operator,
        on behalf of all Parties, for the Joint Operations.

	 	 	 	 
	2. 	 LABOR

	 	 	 	 
		A. 	 Salaries and wages, including incentive compensation
        programs as set forth in COPAS MFI-37 (“Chargeability of Incentive
        Compensation Programs”), for:

	 	 	 	 
			(1) 	 Operator’s field employees directly employed On-site
        in the conduct of Joint Operations,

	 	 	 	 
			(2) 	 Operator’s employees directly employed on Shore
        Base Facilities, Offshore Facilities, or other facilities serving the
        Joint Property if such costs are not charged under Section II.6 (Equipment
        and Facilities Furnished by Operator) or are not a function covered
        under Section III (Overhead),

	 	 	 	 
			(3) 	 Operator’s employees providing First Level Supervision,

	 	 	 	 
			(4) 	 Operator’s employees providing On-site Technical
        Services for the Joint Property if such charges are excluded from the
        overhead rates in Section III (Overhead),

	 	 	 	 
			(5) 	 Operator’s employees providing Off-site Technical
        Services for the Joint Property if such charges are excluded from the
        overhead rates in Section III (Overhead).

	 	 	 	 
			 Charges for the Operator’s employees
        identified in Section II.2.A may be made based on the employee’s
        actual salaries and wages, or in lieu thereof, a day rate representing
        the Operator’s average salaries and wages of the employee’s
        specific job category.

	 	 	 	 
			 Charges for personnel chargeable under this
        Section II.2.A who are foreign nationals shall not exceed comparable compensation
        paid to an equivalent U.S. employee pursuant to this Section II.2, unless
        otherwise approved by the Parties pursuant to Section I.6.A (General
        Matters).

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

	 	 	 	 
		C. 	 Expenditures or contributions made pursuant
        to assessments imposed by governmental authority that are applicable to
        costs chargeable to the Joint Account under Sections II.2.A and B.

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	 	D. 	 Personal Expenses of personnel whose salaries and wages
        are chargeable to the Joint Account under Section II.2.A when the expenses
        are incurred in connection with directly chargeable activities.

	 	 	 
	 	E. 	 Reasonable relocation costs incurred in transferring
        to the Joint Property personnel whose salaries and wages are chargeable
        to the Joint Account under Section II.2.A. Notwithstanding the foregoing,
        relocation costs that result from reorganization or merger of a Party,
        or that are for the primary benefit of the Operator, shall not be chargeable
        to the Joint Account. Extraordinary relocation costs, such as those incurred
        as a result of transfers from remote locations, such as Alaska or overseas,
        shall not be charged to the Joint Account unless approved by the Parties
        pursuant to Section I.6.A (General Matters).

	 	 	 
	 	F. 	 Training costs as specified in COPAS MFI-35 (“Charging
        of Training Costs to the Joint Account”) for personnel whose salaries
        and wages are chargeable under Section II.2.A. This training charge shall
        include the wages, salaries, training course cost, and Personal Expenses
        incurred during the training session. The training cost shall be charged
        or allocated to the property or properties directly benefiting from the
        training. The cost of the training course shall not exceed prevailing
        commercial rates, where such rates are available.

	 	 	 
	 	G. 	 Operator’s current cost of established plans for
        employee benefits, as described in COPAS MFI-27 (“Employee Benefits
        Chargeable to Joint Operations and Subject to Percentage Limitation”),
        applicable to the Operator’s labor costs chargeable to the Joint
        Account under Sections II.2.A and B based on the Operator’s actual
        cost not to exceed the employee benefits limitation percentage most recently
        recommended by COPAS.

	 	 	 
	 	H. 	 Award payments to employees, in accordance with COPAS
        MFI-49 (“Awards to Employees and Contractors”) for personnel
        whose salaries and wages are chargeable under Section II.2.A.

	3. 	 MATERIAL

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

	 	 
	4. 	 TRANSPORTATION

	 	A. 	 Transportation of the Operator’s, Operator’s
        Affiliate’s, or contractor’s personnel necessary for Joint Operations.

	 	 	 	 
	 	B. 	 Transportation of Material between the Joint
        Property and another property, or from the Operator’s warehouse or
        other storage point to the Joint Property, shall be charged to the receiving
        property using one of the methods listed below. Transportation of Material
        from the Joint Property to the Operator’s warehouse or other storage
        point shall be paid for by the Joint Property using one of the methods
        listed below:

	 	 	 	 
	 		(1) 	 If the actual trucking charge is less than or equal
        to the Excluded Amount the Operator may charge actual trucking cost or
        a theoretical charge from the Railway Receiving Point to the Joint Property.
        The basis for the theoretical charge is the per hundred weight charge
        plus fuel surcharges from the Railway Receiving Point to the Joint Property..
        The Operator shall consistently apply the selected alternative.

	 	 	 	 
	 		(2) 	 If the actual trucking charge is greater than the Excluded
        Amount, the Operator shall charge Equalized Freight. Accessorial charges
        such as loading and unloading costs, split pick-up costs, detention, call
        out charges, and permit fees shall be charged directly to the Joint Property
        and shall not be included when calculating the Equalized Freight.

	 	5. 	 SERVICES

	 	 	 
	 		 The cost of contract services, equipment, and utilities
        used in the conduct of Joint Operations, except for contract services,
        equipment, and utilities covered by Section III (Overhead), or
        Section II.7 (Affiliates), or excluded under Section II.9 (Legal
        Expense). Awards paid to contractors shall be chargeable pursuant
        to COPAS MFI-49 (“Awards to Employees and Contractors”).

	 	 	 
	 		 The costs of third party Technical Services are chargeable
        to the extent excluded from the overhead rates under Section III (Overhead).

	 	 	 
	 	6. 	 EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR

	 	 	 
	 		 In the absence of a separately negotiated agreement,
        equipment and facilities furnished by the Operator will be charged as
        follows:

		 A. 
	 The Operator shall charge the
        Joint Account for use of Operator-owned equipment and facilities, including
        but not limited to production facilities, Shore Base Facilities, Offshore
        Facilities, and Field Offices, at rates commensurate with the costs of
        ownership and operation. The cost of Field Offices shall be chargeable
        to the extent the Field Offices provide direct service to personnel who
        are chargeable pursuant to Section II.2.A (Labor). Such rates may
        include labor, maintenance, repairs, other operating expense, insurance,
        taxes, depreciation using straight line depreciation method, and interest
        on gross investment less accumulated depreciation not to exceed twenty percent (20 %) per
        annum; provided, however, depreciation shall not be charged when the 

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	 		 equipment and facilities investment have been fully
        depreciated. The rate may include an element of the estimated cost for
        abandonment, reclamation, and dismantlement. Such rates shall not exceed
        the average commercial rates currently prevailing in the immediate area
        of the Joint Property.

	 	 	 
	 	B. 	 In lieu of charges in Section II.6.A above, the Operator
        may elect to use average commercial rates prevailing in the immediate
        area of the Joint Property, less twenty percent (20%). If equipment and
        facilities are charged under this Section II.6.B, the Operator shall adequately
        document and support commercial rates and shall periodically review and
        update the rate and the supporting documentation. For automotive equipment,
        the Operator may elect to use rates published by the Petroleum Motor Transport
        Association (PMTA) or such other organization recognized by COPAS as the
        official source of rates.

	7. 	 AFFILIATES

	 	  

		 A. 
	 Charges for an Affiliate’s goods and/or
        services used in operations requiring an AFE or other authorization from
        the Non-Operators may be made without the approval of the Parties provided
        (i) the Affiliate is identified and the Affiliate goods and services are
        specifically detailed in the approved AFE or other authorization, and
        (ii) the total costs for such Affiliate’s goods and services billed
        10,000.00 to such individual project do not exceed $ /
        If the total costs for an Affiliate’s goods and services
        charged to such individual project are not specifically detailed in the
        approved AFE or authorization or exceed such amount, charges for such
        Affiliate shall require approval of the Parties, pursuant to Section I.6.A
        (General Matters).

	 	  
	  

		 B. 
	 For an Affiliate’s goods
        and/or services used in operations not requiring an AFE or other authorization
        from the Non-Operators, charges for such Affiliate’s goods and services
        shall require approval of the Parties, pursuant to Section I.6.A (General
        Matters), if the charges exceed $ 50,000.00 in a given calendar
        year.

	 	  
	  

		 C. 
	 The cost of the Affiliate’s goods or
        services shall not exceed average commercial rates prevailing in the area
        of the Joint Property, unless the Operator obtains the Non-Operators’
        approval of such rates. The Operator shall adequately document and support
        commercial rates and shall periodically review and update the rate and
        the supporting documentation; provided, however, documentation of commercial
        rates shall not be required if the Operator obtains Non-Operator approval
        of its Affiliate’s rates or charges prior to billing Non-Operators
        for such Affiliate’s goods and services. Notwithstanding the foregoing,
        direct charges for Affiliate-owned communication facilities or systems
        shall be made pursuant to Section II.12 (Communications). 

	 	  
	  

			  If the Parties fail to designate an amount
        in Sections II.7.A or II.7.B, in each instance the amount deemed adopted
        by the Parties as a result of such omission shall be the amount established
        as the Operator’s expenditure limitation in the Agreement. If the
        Agreement does not contain an Operator’s expenditure limitation,
        the amount deemed adopted by the Parties as a result of such omission
        shall be zero dollars ($ 0.00).

	8. 	 DAMAGES AND LOSSES TO JOINT PROPERTY

	 	 
		 All costs or expenses necessary for the repair or replacement
        of Joint Property resulting from damages or losses incurred, except to
        the extent such damages or losses result from a Party’s or Parties’
        gross negligence or willful misconduct, in which case such Party or Parties
        shall be solely liable.

	 	 
		 The Operator shall furnish the Non-Operator written
        notice of damages or losses incurred as soon as practicable after a report
        has been received by the Operator.

	 	 
	9. 	 LEGAL EXPENSE

	 	 
		 Recording fees and costs of handling, settling, or otherwise
        discharging litigation, claims, and liens incurred in or resulting from
        operations under the Agreement, or necessary to protect or recover the
        Joint Property, to the extent permitted under the Agreement. Costs of
        the Operator’s or Affiliate’s legal staff or outside attorneys,
        including fees and expenses, are not chargeable unless approved by the
        Parties pursuant to Section I.6.A (General Matters) or otherwise
        provided for in the Agreement.

	 	 
		 Notwithstanding the foregoing paragraph, costs for procuring
        abstracts, fees paid to outside attorneys for title examinations (including
        preliminary, supplemental, shut-in royalty opinions, division order title
        opinions), and curative work shall be chargeable to the extent permitted
        as a direct charge in the Agreement.

	 	 
	10. 	 TAXES AND PERMITS

	 	 
		 All taxes and permitting fees of every kind and nature,
        assessed or levied upon or in connection with the Joint Property, or the
        production therefrom, and which have been paid by the Operator for the
        benefit of the Parties, including penalties and interest, except to the
        extent the penalties and interest result from the Operator’s gross
        negligence or willful misconduct.

	 	 
		 If ad valorem taxes paid by the Operator are based in
        whole or in part upon separate valuations of each Party’s working
        interest, then notwithstanding any contrary provisions, the charges to
        the Parties will be made in accordance with the tax value generated by
        each Party’s working interest.

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		 Costs of tax consultants or advisors, the Operator’s
        employees, or Operator’s Affiliate employees in matters regarding
        ad valorem or other tax matters, are not permitted as direct charges unless
        approved by the Parties pursuant to Section I.6.A (General Matters).

	 	 
		 Charges to the Joint Account resulting from sales/use
        tax audits, including extrapolated amounts and penalties and interest,
        are permitted, provided the Non-Operator shall be allowed to review the
        invoices and other underlying source documents which served as the basis
        for tax charges and to determine that the correct amount of taxes were
        charged to the Joint Account. If the Non-Operator is not permitted to
        review such documentation, the sales/use tax amount shall not be directly
        charged unless the Operator can conclusively document the amount owed
        by the Joint Account.

	 	 
	11. 	 INSURANCE

	 	 
		 Net premiums paid for insurance required to be carried
        for Joint Operations for the protection of the Parties. If Joint Operations
        are conducted at locations where the Operator acts as self-insurer in
        regard to its worker’s compensation and employer’s liability
        insurance obligation, the Operator shall charge the Joint Account manual
        rates for the risk assumed in its self-insurance program as regulated
        by the jurisdiction governing the Joint Property. In the case of offshore
        operations in federal waters, the manual rates of the adjacent state shall
        be used for personnel performing work On-site, and such rates shall be
        adjusted for offshore operations by the U.S. Longshoreman and Harbor Workers
        (USL&H) or Jones Act surcharge, as appropriate.

	 	 
	12. 	 COMMUNICATIONS

	 	 
		 Costs of acquiring, leasing, installing, operating,
        repairing, and maintaining communication facilities or systems, including
        satellite, radio and microwave facilities, between the Joint Property
        and the Operator’s office(s) directly responsible for field operations
        in accordance with the provisions of COPAS MFI-44 (“Field Computer
        and Communication Systems”). If the communications facilities or
        systems serving the Joint Property are Operator-owned, charges to the
        Joint Account shall be made as provided in Section II.6 (Equipment
        and Facilities Furnished by Operator). If the communication facilities
        or systems serving the Joint Property are owned by the Operator’s
        Affiliate, charges to the Joint Account shall not exceed average commercial
        rates prevailing in the area of the Joint Property. The Operator shall
        adequately document and support commercial rates and shall periodically
        review and update the rate and the supporting documentation.

	 	 
	13. 	 ECOLOGICAL, ENVIRONMENTAL, AND SAFETY

	 	 
		 Costs incurred for Technical Services and drafting to
        comply with ecological, environmental and safety Laws or standards recommended
        by Occupational Safety and Health Administration (OSHA) or other regulatory
        authorities. All other labor and functions incurred for ecological, environmental
        and safety matters, including management, administration, and permitting,
        shall be covered by Sections II.2 (Labor), II.5 (Services),
        or Section III (Overhead), as applicable.

	 	 
		 Costs to provide or have available pollution containment
        and removal equipment plus actual costs of control and cleanup and resulting
        responsibilities of oil and other spills as well as discharges from permitted
        outfalls as required by applicable Laws, or other pollution containment
        and removal equipment deemed appropriate by the Operator for prudent operations,
        are directly chargeable.

	 	 
	14. 	 ABANDONMENT AND RECLAMATION

	 	 
		 Costs incurred for abandonment and reclamation of the
        Joint Property, including costs required by lease agreements or by Laws.

	 	 
	15. 	 OTHER EXPENDITURES

	 	 
		 Any other expenditure not covered or dealt with in the
        foregoing provisions of this Section II (Direct Charges), or in
        Section III (Overhead) and which is of direct benefit to the Joint
        Property and is incurred by the Operator in the necessary and proper conduct
        of the Joint Operations. Charges made under this Section II.15 shall require
        approval of the Parties, pursuant to Section I.6.A (General Matters).

III. OVERHEAD 

As compensation for costs not specifically identified as chargeable
  to the Joint Account pursuant to Section II (Direct Charges), the Operator
  shall charge the Joint Account in accordance with this Section III. 

Functions included in the overhead rates regardless of whether
  performed by the Operator, Operator’s Affiliates or third parties and regardless
  of location, shall include, but not be limited to, costs and expenses of: 

	warehousing, other than for warehouses that are jointly owned under this
    Agreement
  
	design and drafting (except when allowed as a direct charge under Sections
    II.13, III.1.A(ii), and III.2, Option B)
  
	inventory costs not chargeable under Section V (Inventories of Controllable
    Material)
  
	procurement
  
	administration
  
	accounting and auditing
  
	gas dispatching and gas chart integration 

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	human resources
  
	management
  
	supervision not directly charged under Section II.2 (Labor)
  
	legal services not directly chargeable under Section II.9 (Legal Expense)
  
	taxation, other than those costs identified as directly chargeable under
    Section II.10 (Taxes and Permits)
  
	preparation and monitoring of permits and certifications; preparing regulatory
    reports; appearances before or meetings with governmental agencies or other
    authorities having jurisdiction over the Joint Property, other than On-site
    inspections; reviewing, interpreting, or submitting comments on or lobbying
    with respect to Laws or proposed Laws. 

Overhead charges shall include the salaries or wages plus applicable
  payroll burdens, benefits, and Personal Expenses of personnel performing overhead
  functions, as well as office and other related expenses of overhead functions.

	1. 	 OVERHEAD—DRILLING AND PRODUCING OPERATIONS

	 	 
		 As compensation for costs incurred but not chargeable
        under Section II (Direct Charges) and not covered by other provisions
        of this Section III, the Operator shall charge on either:

	 	[X]	(Alternative 1) Fixed Rate Basis, Section
      III.1.B. 
	 	[   ] 	(Alternative 2) Percentage Basis, Section
      III.1.C. 

	 	A. 	 TECHNICAL SERVICES 

	 	  	  	 	  

			(i) 	 Except as otherwise provided
        in Section II.13 (Ecological Environmental, and Safety) and Section
        III.2 (Overhead – Major Construction and Catastrophe),
        or by approval of the Parties pursuant to Section I.6.A (General Matters),
        the salaries, wages, related payroll burdens and benefits, and Personal
        Expenses for On-site Technical Services, including third party
        Technical Services: 

	 	  	  	 	  

	 	  	  	[X]	 (Alternative 1 – Direct) shall
        be charged direct to the Joint Account. 

	 	  	  	 	  

	 	  	  	[   ]	 (Alternative 2 – Overhead) shall
        be covered by the overhead rates. 

	 	  	  	 	  

			(ii) 	 Except as otherwise provided
        in Section II.13 (Ecological, Environmental, and Safety) and Section
        III.2 (Overhead – Major Construction and Catastrophe),
        or by approval of the Parties pursuant to Section I.6.A (General Matters),
        the salaries, wages, related payroll burdens and benefits, and Personal
        Expenses for Off-site Technical Services, including third party
        Technical Services: 

	 	  	  	 	  

	 	  	  	[   ]	 (Alternative 1 – All Overhead) shall
        be covered by the overhead rates. 

	 	  	  	 	  

	 	  	  	[X]	 (Alternative 2 – All Direct) shall
        be charged direct to the Joint Account. 

	 	  	  	 	  

				[   ] 	 (Alternative 3 – Drilling Direct)
        shall be charged direct to the Joint Account, only
        to the extent such Technical Services are directly attributable
        to drilling, redrilling, deepening, or sidetracking operations, through
        completion, temporary abandonment, or abandonment if a dry hole. Off-site
        Technical Services for all other operations, including workover, recompletion,
        abandonment of producing wells, and the construction or expansion of fixed
        assets not covered by Section III.2 (Overhead - Major Construction
        and Catastrophe) shall be covered by the overhead rates. 

	 		 Notwithstanding anything to the contrary in this Section
        III, Technical Services provided by Operator’s Affiliates are subject
        to limitations set forth in Section II.7 (Affiliates). Charges
        for Technical personnel performing non-technical work shall not be governed
        by this Section III.1.A, but instead governed by other provisions of this
        Accounting Procedure relating to the type of work being performed.

	 	 	 
	 	B. 	 OVERHEAD—FIXED RATE BASIS

	 	(1) 	The Operator shall charge
      the Joint Account at the following rates per well per month: 
	 	  	 	 
			Drilling Well Rate per month
      $3000.00 (prorated for less than a full month) 
	 	  	 	 
	 	  	Producing Well Rate per month
      $500.00 
	 	  	 	 
	 	(2) 	Application of Overhead—Drilling Well Rate
      shall be as follows: 
	 	  	 	 
			(a) 	Charges for onshore drilling wells shall begin on the spud
      date and terminate on the date the drilling and/or completion equipment
      used on the well is released, whichever occurs later. Charges for offshore
      and inland waters drilling wells shall begin on the date the drilling or
      completion equipment arrives on location and terminate on the date the drilling
      or completion equipment moves off location, or is released, whichever occurs
      first. No charge shall be made during suspension of drilling and/or completion
      operations for fifteen (15) or more consecutive calendar days. 

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	 	(b) 	 Charges for any well undergoing any type of workover,
        recompletion, and/or abandonment for a period of five (5) or more consecutive
        work–days shall be made at the Drilling Well Rate. Such charges shall
        be applied for the period from date operations, with rig or other units
        used in operations, commence through date of rig or other unit release,
        except that no charges shall be made during suspension of operations for
        fifteen (15) or more consecutive calendar days.

	 	(3) 	 Application of Overhead—Producing Well
        Rate shall be as follows:

	 	 	 	 
	 		(a) 	 An active well that is produced, injected into for recovery
        or disposal, or used to obtain water supply to support operations for
        any portion of the month shall be considered as a one-well charge for
        the entire month.

	 	 	 	 
	 		(b) 	 Each active completion in a multi-completed well shall
        be considered as a one-well charge provided each completion is considered
        a separate well by the governing regulatory authority.

	 	 	 	 
	 		(c) 	 A one-well charge shall be made for the month in which
        plugging and abandonment operations are completed on any well, unless
        the Drilling Well Rate applies, as provided in Sections III.1.B.(2)(a)
        or (b). This one-well charge shall be made whether or not the well has
        produced.

	 	 	 	 
	 		(d) 	 An active gas well shut in because of overproduction
        or failure of a purchaser, processor, or transporter to take production
        shall be considered as a one-well charge provided the gas well is directly
        connected to a permanent sales outlet.

	 	 	 	 
	 		(e) 	 Any well not meeting the criteria set forth in Sections
        III.1.B.(3) (a), (b), (c), or (d) shall not qualify for a producing overhead
        charge.

	 	 	 	 
	 	(4) 	 The well rates shall be adjusted on the first
        day of April each year following the effective date of the Agreement;
        provided, however, if this Accounting Procedure is attached to or otherwise
        governing the payout accounting under a farmout agreement, the rates shall
        be adjusted on the first day of April each year following the effective
        date of such farmout agreement. The adjustment shall be computed by applying
        the adjustment factor most recently published by COPAS. The adjusted rates
        shall be the initial or amended rates agreed to by the Parties increased
        or decreased by the adjustment factor described herein, for each year
        from the effective date of such rates, in accordance with COPAS MFI-47
        (“Adjustment of Overhead Rates”).

	C. 	 OVERHEAD—PERCENTAGE BASIS

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

	 	(a) 	 Development Rate percent ( ) % of the cost of development
        of the Joint Property, exclusive of costs provided under Section II.9
        (Legal Expense) and all Material salvage credits.

	 	 	 
	 	(b) 	 Operating Rate percent ( %) of the cost of operating
        the Joint Property, exclusive of costs provided under Sections II.1 (Rentals
        and Royalties) and II.9 (Legal Expense); all Material salvage
        credits; the value of substances purchased for enhanced recovery; all
        property and ad valorem taxes, and any other taxes and assessments that
        are levied, assessed, and paid upon the mineral interest in and to the
        Joint Property.

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

	 	 	 	 	 
	 		(a) 	 The Development Rate shall be applied to all
        costs in connection with:

	 	 	 	 	 
	 			[i] 	 drilling, redrilling, sidetracking, or deepening of
        a well

	 	 	 	 	 
	 			[ii] 	 a well undergoing plugback or workover operations for
        a period of five (5) or more consecutive work–days

	 	 	 	 	 
	 			[iii] 	 preliminary expenditures necessary in preparation for
        drilling

	 	 	 	 	 
	 			[iv] 	 expenditures incurred in abandoning when the well is
        not completed as a producer

	 	 	 	 	 
	 			[v] 	 construction or installation of fixed assets, the expansion
        of fixed assets and any other project clearly discernible as a fixed asset,
        other than Major Construction or Catastrophe as defined in Section III.2
        (Overhead-Major Construction and Catastrophe).

	 	 	 	 	 
	 		(b) 	 The Operating Rate shall be applied to all
        other costs in connection with Joint Operations, except those subject
        to Section III.2 (Overhead-Major Construction and Catastrophe).

	2. 	 OVERHEAD—MAJOR CONSTRUCTION AND CATASTROPHE

	 	 
		 To compensate the Operator for overhead costs incurred
        in connection with a Major Construction project or Catastrophe, the Operator
        shall either negotiate a rate prior to the beginning of the project, or
        shall charge the Joint Account for overhead based on the following rates
        for any Major Construction project in excess of the Operator’s expenditure
        limit under the Agreement, or for any Catastrophe regardless of the amount.
        If the Agreement to which this Accounting Procedure is attached does not
        contain an expenditure limit, Major Construction Overhead shall be assessed
        for any single Major Construction project costing in excess of $100,000
        gross.

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  Major Construction shall mean the construction and installation
    of fixed assets, the expansion of fixed assets, and any other project clearly
    discernible as a fixed asset required for the development and operation of
    the Joint Property, or in the dismantlement, abandonment, removal, and restoration
    of platforms, production equipment, and other operating facilities. 

  Catastrophe is defined as a sudden calamitous event bringing
    damage, loss, or destruction to property or the environment, such as an oil
    spill, blowout, explosion, fire, storm, hurricane, or other disaster. The
    overhead rate shall be applied to those costs necessary to restore the Joint
    Property to the equivalent condition that existed prior to the event. 

	 	A. 	 If the Operator absorbs the engineering, design
      and drafting costs related to the project: 
	 	 	 	 	 
	 	  	(1) 	20 	% of total costs if such costs are less than $100,000; plus
    
	 	 	 	 	 
	 	  	(2) 	10 	% of total costs in excess of $100,000 but less than $1,000,000;
      plus 
	 	 	 	 	 
	 	  	(3) 	5 	% of total costs in excess of $1,000,000. 
	 	 	 	 	 
	 	B. 	 If the Operator charges engineering, design and
      drafting costs related to the project directly to the Joint Account: 
	 	 	 	 	 
	 	  	(1) 	5 	% of total costs if such costs are less than $100,000; plus
    
	 	 	 	 	 
	 	  	(2) 	2 	% of total costs in excess of $100,000 but less than $1,000,000;
      plus 
	 	 	 	 	 
	
 	  	(3) 	1 	% of total costs in excess of $1,000,000. 

	   	 Total cost shall mean the gross
        cost of any one project. For the purpose of this paragraph, the component
        parts of a single Major Construction project shall not be treated separately,
        and the cost of drilling and workover wells and purchasing and installing
        pumping units and downhole artificial lift equipment shall be excluded.
        For Catastrophes, the rates shall be applied to all costs associated with
        each single occurrence or event. 

	 	 

	 	 On each project, the Operator shall
        advise the Non-Operator(s) in advance which of the above options shall
        apply. For the purposes of calculating Catastrophe Overhead, the cost
        of drilling relief wells, substitute wells, or conducting other well operations
        directly resulting from the catastrophic event shall be included. Expenditures
        to which these rates apply shall not be reduced by salvage or insurance
        recoveries. Expenditures that qualify for Major Construction or Catastrophe
        Overhead shall not qualify for overhead under any other overhead provisions.
      

	 	 

	 	 In the event of any conflict between
        the provisions of this Section III.2 and the provisions of Sections II.2
        (Labor), II.5 (Services), or II.7 (Affiliates), the
        provisions of this Section III.2 shall govern. 

3.        AMENDMENT OF OVERHEAD RATES
  

The overhead rates provided for in this
  Section III may be amended from time to time if, in practice, the rates are
  found to be insufficient 

  or excessive, in accordance with the provisions of Section I.6.B (Amendments).
  

IV. MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS 

The Operator is responsible for Joint Account Material and shall
  make proper and timely charges and credits for direct purchases, transfers,
  and dispositions. The Operator shall provide all Material for use in the conduct
  of Joint Operations; however, Material may be supplied by the Non- Operators,
  at the Operator’s option. Material furnished by any Party shall be furnished
  without any express or implied warranties as to quality, fitness for use, or
  any other matter. 

	1. 	 DIRECT PURCHASES

	 	 
		 Direct purchases shall be charged to the Joint Account
        at the price paid by the Operator after deduction of all discounts received.
        The Operator shall make good faith efforts to take discounts offered by
        suppliers, but shall not be liable for failure to take discounts except
        to the extent such failure was the result of the Operator’s gross
        negligence or willful misconduct. A direct purchase shall be deemed to
        occur when an agreement is made between an Operator and a third party
        for the acquisition of Material for a specific well site or location.
        Material provided by the Operator under “vendor stocking programs,”
        where the initial use is for a Joint Property and title of the Material
        does not pass from the manufacturer, distributor, or agent until usage,
        is considered a direct purchase. If Material is found to be defective
        or is returned to the manufacturer, distributor, or agent for any other
        reason, credit shall be passed to the Joint Account within sixty (60)
        days after the Operator has received adjustment from the manufacturer,
        distributor, or agent.

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
  Inc. (COPAS) 

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	2. 	 TRANSFERS

	 	 
		 A transfer is determined to occur when the Operator
        (i) furnishes Material from a storage facility or from another operated
        property, (ii) has assumed liability for the storage costs and changes
        in value, and (iii) has previously secured and held title to the transferred
        Material. Similarly, the removal of Material from the Joint Property to
        a storage facility or to another operated property is also considered
        a transfer; provided, however, Material that is moved from the Joint Property
        to a storage location for safe-keeping pending disposition may remain
        charged to the Joint Account and is not considered a transfer. Material
        shall be disposed of in accordance with Section IV.3 (Disposition of
        Surplus) and the Agreement to which this Accounting Procedure is attached.

	 	A. 	 PRICING

	 	 	 
	 		 The value of Material transferred to/from the Joint
        Property should generally reflect the market value on the date of physical
        transfer. Regardless of the pricing method used, the Operator shall make
        available to the Non-Operators sufficient documentation to verify the
        Material valuation. When higher than specification grade or size tubulars
        are used in the conduct of Joint Operations, the Operator shall charge
        the Joint Account at the equivalent price for well design specification
        tubulars, unless such higher specification grade or sized tubulars are
        approved by the Parties pursuant to Section I.6.A (General Matters).
        Transfers of new Material will be priced using one of the following pricing
        methods; provided, however, the Operator shall use consistent pricing
        methods, and not alternate between methods for the purpose of choosing
        the method most favorable to the Operator for a specific transfer:

	 	(1) 	 Using published prices in effect on date of
        movement as adjusted by the appropriate COPAS Historical Price Multiplier
        (HPM) or prices provided by the COPAS Computerized Equipment Pricing System
        (CEPS).

	 	 	 	 
	 		(a) 	 For oil country tubulars and line pipe, the published
        price shall be based upon eastern mill carload base prices (Houston, Texas,
        for special end) adjusted as of date of movement, plus transportation
        cost as defined in Section IV.2.B (Freight).

	 	 	 	 
	 		(b) 	 For other Material, the published price shall be the
        published list price in effect at date of movement, as listed by a Supply
        Store nearest the Joint Property where like Material is normally available,
        or point of manufacture plus transportation costs as defined in Section
        IV.2.B (Freight).

	 	 	 	 
	 	(2) 	 Based on a price quotation from a vendor that
        reflects a current realistic acquisition cost.

	 	 	 	 
	 	(3) 	 Based on the amount paid by the Operator for
        like Material in the vicinity of the Joint Property within the previous
        twelve (12) months from the date of physical transfer.

	 	 	 	 
	 	(4) 	 As agreed to by the Participating Parties
        for Material being transferred to the Joint Property, and by the Parties
        owning the Material for Material being transferred from the Joint Property.

	 	B. 	 FREIGHT

	 	 	 	 
	 		 Transportation costs shall be added to the
        Material transfer price using the method prescribed by the COPAS Computerized
        Equipment Pricing System (CEPS). If not using CEPS, transportation costs
        shall be calculated as follows:

	 	 	 	 
	 		(1) 	 Transportation costs for oil country tubulars and line
        pipe shall be calculated using the distance from eastern mill to the Railway
        Receiving Point based on the carload weight basis as recommended by the
        COPAS MFI-38 (“Material Pricing Manual”) and other COPAS MFIs
        in effect at the time of the transfer.

	 	 	 	 
	 		(2) 	 Transportation costs for special mill items shall be
        calculated from that mill's shipping point to the Railway Receiving Point.
        For transportation costs from other than eastern mills, the 30,000-pound
        interstate truck rate shall be used. Transportation costs for macaroni
        tubing shall be calculated based on the interstate truck rate per weight
        of tubing transferred to the Railway Receiving Point.

	 	 	 	 
	 		(3) 	 Transportation costs for special end tubular goods shall
        be calculated using the interstate truck rate from Houston, Texas, to
        the Railway Receiving Point.

	 	 	 	 
	 		(4) 	 Transportation costs for Material other than that described
        in Sections IV.2.B.(1) through (3), shall be calculated from the Supply
        Store or point of manufacture, whichever is appropriate, to the Railway
        Receiving Point

	 		 Regardless of whether using CEPS or manually calculating
        transportation costs, transportation costs from the Railway Receiving
        Point to the Joint Property are in addition to the foregoing, and may
        be charged to the Joint Account based on actual costs incurred. All transportation
        costs are subject to Equalized Freight as provided in Section II.4 (Transportation)
        of this Accounting Procedure.

	 	 	 
	 	C. 	 TAXES

	 	 	 
	 		 Sales and use taxes shall be added to the Material transfer
        price using either the method contained in the COPAS Computerized Equipment
        Pricing System (CEPS) or the applicable tax rate in effect for the Joint
        Property at the time and place of transfer. In either case, the Joint
        Account shall be charged or credited at the rate that would have governed
        had the Material been a direct purchase.

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
  Inc. (COPAS) 

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	 	D. 	 CONDITION

	 	 	 	 
	 		(1) 	 Condition “A” – New and unused Material
        in sound and serviceable condition shall be charged at one hundred percent
        (100%) of the price as determined in Sections IV.2.A (Pricing),
        IV.2.B (Freight), and IV.2.C (Taxes). Material transferred
        from the Joint Property that was not placed in service shall be credited
        as charged without gain or loss; provided, however, any unused Material
        that was charged to the Joint Account through a direct purchase will be
        credited to the Joint Account at the original cost paid less restocking
        fees charged by the vendor. New and unused Material transferred from the
        Joint Property may be credited at a price other than the price originally
        charged to the Joint Account provided such price is approved by the Parties
        owning such Material, pursuant to Section I.6.A (General Matters).
        All refurbishing costs required or necessary to return the Material to
        original condition or to correct handling, transportation, or other damages
        will be borne by the divesting property. The Joint Account is responsible
        for Material preparation, handling, and transportation costs for new and
        unused Material charged to the Joint Property either through a direct
        purchase or transfer. Any preparation costs incurred, including any internal
        or external coating and wrapping, will be credited on new Material provided
        these services were not repeated for such Material for the receiving property.

	 	 	 	 
	 		(2) 	 Condition “B” – Used Material in sound
        and serviceable condition and suitable for reuse without reconditioning
        shall be priced by multiplying the price determined in Sections IV.2.A
        (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) by
        seventy-five percent (75%).

	 	 	 	 
	 			 Except as provided in Section IV.2.D(3), all reconditioning
        costs required to return the Material to Condition “B” or to
        correct handling, transportation or other damages will be borne by the
        divesting property.

	 	 	 	 
	 			 If the Material was originally charged to the Joint
        Account as used Material and placed in service for the Joint Property,
        the Material will be credited at the price determined in Sections IV.2.A
        (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) multiplied
        by sixty-five percent (65%).

	 	 	 	 
	 			 Unless otherwise agreed to by the Parties that paid
        for such Material, used Material transferred from the Joint Property that
        was not placed in service on the property shall be credited as charged
        without gain or loss.

	 	 	 	 
	 		(3) 	 Condition “C” – Material that is not
        in sound and serviceable condition and not suitable for its original function
        until after reconditioning shall be priced by multiplying the price determined
        in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C
        (Taxes) by fifty percent (50%).

	 	 	 	 
	 			 The cost of reconditioning may be charged to the receiving
        property to the extent Condition “C” value, plus cost of reconditioning,
        does not exceed Condition “B” value.

	 	 	 	 
	 		(4) 	 Condition “D” – Material that (i) is
        no longer suitable for its original purpose but useable for some other
        purpose, (ii) is obsolete, or (iii) does not meet original specifications
        but still has value and can be used in other applications as a substitute
        for items with different specifications, is considered Condition “D”
        Material. Casing, tubing, or drill pipe used as line pipe shall be priced
        as Grade A and B seamless line pipe of comparable size and weight. Used
        casing, tubing, or drill pipe utilized as line pipe shall be priced at
        used line pipe prices. Casing, tubing, or drill pipe used as higher pressure
        service lines than standard line pipe, e.g., power oil lines, shall be
        priced under normal pricing procedures for casing, tubing, or drill pipe.
        Upset tubular goods shall be priced on a non-upset basis. For other items,
        the price used should result in the Joint Account being charged or credited
        with the value of the service rendered or use of the Material, or as agreed
        to by the Parties pursuant to Section 1.6.A (General Matters).

	 	 	 	 
	 		(5) 	 Condition “E” – Junk shall be priced
        at prevailing scrap value prices.

	 	 	 	 
	 	E. 	 OTHER PRICING PROVISIONS

	 	 	 	 
	 		(1) 	 Preparation Costs

	 	 	 	 
	 			 Subject to Section II (Direct Charges) and Section
        III (Overhead) of this Accounting Procedure, costs incurred by
        the Operator in making Material serviceable including inspection, third
        party surveillance services, and other similar services will be charged
        to the Joint Account at prices which reflect the Operator’s actual
        costs of the services. Documentation must be provided to the Non-Operators
        upon request to support the cost of service. New coating and/or wrapping
        shall be considered a component of the Materials and priced in accordance
        with Sections IV.1 (Direct Purchases) or IV.2.A (Pricing),
        as applicable. No charges or credits shall be made for used coating or
        wrapping. Charges and credits for inspections shall be made in accordance
        with COPAS MFI-38 (“Material Pricing Manual”).

	 	 	 	 
	 		(2) 	 Loading and Unloading Costs

	 	 	 	 
	 			 Loading and unloading costs related to the movement
        of the Material to the Joint Property shall be charged in accordance with
        the methods specified in COPAS MFI-38 (“Material Pricing Manual”).

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
  Inc. (COPAS) 

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	3. 	 DISPOSITION OF SURPLUS

	 	 	 
		 Surplus Material is that Material, whether
        new or used, that is no longer required for Joint Operations. The Operator
        may purchase, but shall be under no obligation to purchase, the interest
        of the Non-Operators in surplus Material.

	 	 	 
		 Dispositions for the purpose of this procedure
        are considered to be the relinquishment of title of the Material from
        the Joint Property to either a third party, a Non-Operator, or to the
        Operator. To avoid the accumulation of surplus Material, the Operator
        should make good faith efforts to dispose of surplus within twelve (12)
        months through buy/sale agreements, trade, sale to a third party, division
        in kind, or other dispositions as agreed to by the Parties.

	 	 	 
		 Disposal of surplus Materials shall be made
        in accordance with the terms of the Agreement to which this Accounting
        Procedure is attached. If the Agreement contains no provisions governing
        disposal of surplus Material, the following terms shall apply:

	 	 	 
		• 	 The Operator may, through a sale to an unrelated third
        party or entity, dispose of surplus Material having a gross sale value
        that is less than or equal to the Operator’s expenditure limit as
        set forth in the Agreement to which this Accounting Procedure is attached
        without the prior approval of the Parties owning such Material.

	 	 	 
		• 	 If the gross sale value exceeds the Agreement expenditure
        limit, the disposal must be agreed to by the Parties owning such Material.

	 	 	 
		• 	 Operator may purchase surplus Condition “A”
        or “B” Material without approval of the Parties owning such
        Material, based on the pricing methods set forth in Section IV.2 (Transfers).

	 	 	 
		• 	 Operator may purchase Condition “C” Material
        without prior approval of the Parties owning such Material if the value
        of the Materials, based on the pricing methods set forth in Section IV.2
        (Transfers), is less than or equal to the Operator’s expenditure
        limitation set forth in the Agreement. The Operator shall provide documentation
        supporting the classification of the Material as Condition C.

	 	 	 
		• 	 Operator may dispose of Condition “D” or “E”
        Material under procedures normally utilized by Operator without prior
        approval of the Parties owning such Material.

	4. 	 SPECIAL PRICING PROVISIONS

	 	 	 
		A. 	 PREMIUM PRICING

	 	 	 
			 Whenever Material is available only at inflated prices
        due to national emergencies, strikes, government imposed foreign trade
        restrictions, or other unusual causes over which the Operator has no control,
        for direct purchase the Operator may charge the Joint Account for the
        required Material at the Operator’s actual cost incurred in providing
        such Material, making it suitable for use, and moving it to the Joint
        Property. Material transferred or disposed of during premium pricing situations
        shall be valued in accordance with Section IV.2 (Transfers) or
        Section IV.3 (Disposition of Surplus), as applicable.

	 	 	 
		B. 	 SHOP-MADE ITEMS

	 	 	 
			 Items fabricated by the Operator’s employees, or
        by contract laborers under the direction of the Operator, shall be priced
        using the value of the Material used to construct the item plus the cost
        of labor to fabricate the item. If the Material is from the Operator’s
        scrap or junk account, the Material shall be priced at either twenty-five
        percent (25%) of the current price as determined in Section IV.2.A (Pricing)
        or scrap value, whichever is higher. In no event shall the amount charged
        exceed the value of the item commensurate with its use.

	 	 	 
		C. 	 MILL REJECTS

	 	 	 
			 Mill rejects purchased as “limited service”
        casing or tubing shall be priced at eighty percent (80%) of K-55/J-55
        price as determined in Section IV.2 (Transfers). Line pipe converted
        to casing or tubing with casing or tubing couplings attached shall be
        priced as K-55/J- 55 casing or tubing at the nearest size and weight.

V. INVENTORIES OF CONTROLLABLE MATERIAL 

The Operator shall maintain records of Controllable Material
  charged to the Joint Account, with sufficient detail to perform physical inventories.

Adjustments to the Joint Account by the Operator resulting from
  a physical inventory of Controllable Material shall be made within twelve (12)
  months following the taking of the inventory or receipt of Non-Operator inventory
  report. Charges and credits for overages or shortages will be valued for the
  Joint Account in accordance with Section IV.2 (Transfers) and shall be
  based on the Condition “B” prices in effect on the date of physical
  inventory unless the inventorying Parties can provide sufficient evidence another
  Material condition applies. COPYRIGHT © 2005 by Council of Petroleum Accountants
  Societies, Inc. (COPAS) 

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	1. 	 DIRECTED INVENTORIES

	 	 	 
		 Physical inventories shall be performed by
        the Operator upon written request of a majority in working interests of
        the Non-Operators (hereinafter, “directed inventory”); provided,
        however, the Operator shall not be required to perform directed inventories
        more frequently than once every five (5) years. Directed inventories shall
        be commenced within one hundred eighty (180) days after the Operator receives
        written notice that a majority in interest of the Non-Operators has requested
        the inventory. All Parties shall be governed by the results of any directed
        inventory.

	 	 	 
		 Expenses of directed inventories will be borne
        by the Joint Account; provided, however, costs associated with any post-report
        follow-up work in settling the inventory will be absorbed by the Party
        incurring such costs. The Operator is expected to exercise judgment in
        keeping expenses within reasonable limits. Any anticipated disproportionate
        or extraordinary costs should be discussed and agreed upon prior to commencement
        of the inventory. Expenses of directed inventories may include the following:

	 	 	 
		A. 	 A per diem rate for each inventory person, representative
        of actual salaries, wages, and payroll burdens and benefits of the personnel
        performing the inventory or a rate agreed to by the Parties pursuant to
        Section I.6.A (General Matters). The per diem rate shall also be
        applied to a reasonable number of days for pre-inventory work and report
        preparation.

	 	 	 
		B. 	 Actual transportation costs and Personal Expenses for
        the inventory team.

	 	 	 
		C. 	 Reasonable charges for report preparation and distribution
        to the Non-Operators.

	 	 	 
	2. 	 NON-DIRECTED INVENTORIES

	 	 	 
		A. 	 OPERATOR INVENTORIES

	 	 	 
			 Physical inventories that are not requested by the Non-Operators
        may be performed by the Operator, at the Operator’s discretion. The
        expenses of conducting such Operator-initiated inventories shall not be
        charged to the Joint Account.

	 	 	 
		B. 	 NON-OPERATOR INVENTORIES

	 	 	 
			 Subject to the terms of the Agreement to which this
        Accounting Procedure is attached, the Non-Operators may conduct a physical
        inventory at reasonable times at their sole cost and risk after giving
        the Operator at least ninety (90) days prior written notice. The Non-Operator
        inventory report shall be furnished to the Operator in writing within
        ninety (90) days of completing the inventory fieldwork.

	 	 	 
		C. 	 SPECIAL INVENTORIES

	 	 	 
			 The expense of conducting inventories other than those
        described in Sections V.1 (Directed Inventories), V.2.A (Operator
        Inventories), or V.2.B (Non-Operator Inventories), shall be
        charged to the Party requesting such inventory; provided, however, inventories
        required due to a change of Operator shall be charged to the Joint Account
        in the same manner as described in Section V.1 (Directed Inventories).

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
  Inc. (COPAS) 

15 

EXHIBIT "D" ATTACHED TO AND FORMING PART OF AN OPERATING AGREEMENT
  DATED THIS [] DAY OF OCTOBER, 2007 BETWEEN LONGSHOT OIL COMPANY, ARMONT ENERGY
  INC., BS OIL COMPANY LTD., AND MEGAWEST ENERGY MONTANA CORP. 

The Operator shall, prior to the commencement of joint operations,
  hold or cause to be held with a reputable insurance company or companies, and
  thereafter maintain or cause to be maintained for the joint account and benefit
  of the parties and their respective Affiliates, directors, officers, servants,
  consultants, agents and employees, the insurance hereinafter set forth and any
  other insurance which is specifically required to comply with the Regulations.
  The insurance required pursuant to this Subclause shall apply to each separate
  claim and shall be as follows: 

	 	(i) 	 Automobile Liability Insurance covering all motor vehicles
        or snowcraft and all terrain vehicles, owned or non-owned, operated or
        licenced by the Operator and used in joint operations (insofar only as
        they are used in joint operations), with an inclusive bodily injury, death
        and property damage limit of one million dollars ($1,000,000.00) per accident;

	 	(ii) 	 Comprehensive General Liability Insurance with an inclusive
        bodily injury, death, and property damage limit of one million dollars
        ($1,000,000.00) per occurrence, and, without restricting the generality
        of the provisions of this paragraph, such coverage shall include, but
        not be limited to, employer's, employer's contingent liability, contractual
        liability, contractor's protective liability, products and completed operations
        liability; and

	 	(iii) 	 Aircraft Liability Insurance covering all aircraft,
        owned or non-owned, operated or licenced by the Operator and used in joint
        operations (insofar only as they are used in joint operations), with an
        inclusive bodily injury, death and property damage limit of five million
        dollars ($5,000,000.00) per occurrence

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