Document:

REVISED JOINT DEVELOPMENT
                                    AGREEMENT

     THIS REVISED JOINT DEVELOPMENT AGREEMENT  ("Agreement") is made and entered
into  effective as of August 8, 2000, by and between AVALON  EXPLORATION,  INC.,
Fifteen East Fifth, Suite 2100, Tulsa, Oklahoma, 74103 ("Avalon"), and RED RIVER
ENERGY,  L.L.C.,  6120 South Yale,  Suite 813,  Tulsa,  Oklahoma,  74136 ("RRE")
(Avalon and RRE are collectively hereinafter referred to as "the Parties").

                              W I T N E S S E T H:
                              -------------------

     WHEREAS,  RRE and its Affiliates  (as hereafter  defined) are the owners of
certain oil and gas  interests in the West Edmond  Hunton Lime Unit as hereafter
described, and desire to contract with Avalon for the development of the oil and
gas reserve potential of the WEHLU by the drilling of a Pilot Project within the
unit to be performed by Avalon, upon the terms and conditions of this Agreement;
and

     WHEREAS,  Avalon  desires to engage in the  exploitation  and if  necessary
de-watering of a Pilot Project within the unit, to obtain the earning  interests
provided  for  herein in the  pilot  project  production  and  subsequent  joint
development  production,  and to operate the wells within the Pilot  Project and
subsequent  joint  development  areas,  all in  accordance  with the  terms  and
conditions of this Agreement.

     WHEREAS,   Avalon  and  RRE  entered  into  that  certain  agreement  Joint
Development  Agreement dated May 25, 2000 and this agreement shall supercede and
replace that certain agreement,

     NOW,  THEREFORE,  in  consideration  of the mutual covenants and agreements
herein contained, the Parties hereto agree as follows:

                               A G R E E M E N T:
                               -----------------
1.       DEFINITIONS.
--------------------

     For the  purposes  of this  Agreement,  the  following  definitions  and/or
interpretations shall apply:

(a)  "Affiliates" shall mean all persons, corporations,  companies, partnerships
     and other  entities that own or control a majority of the voting  authority
     of either of the  parties,  or are  related  to,  affiliated  with or under
     common  ownership  or control  with such  owners or either of the  parties,
     including all parent and subsidiary entities.

(b)  "AMI" shall mean the Area of Mutual Interest consisting of all of WEHLU and
     any area  outside  of WEHLU as  mutually  agreed  by  Avalon  and RRE to be
     incorporated into the AMI.

(c)  "Completion"  of any well as provided for herein has  occurred  when a well
     has been fully equipped for the taking of production, through and including
     the tanks for an oil well and through and including the  connection of said
     well to the  existing  gathering  systems,  for a gas well,  or plugged and
     abandoned, after being drilled to Contract Depth, if a dry hole.

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(d)  "Completion  Date" for purposes of this Agreement  shall be the date of the
     official  completion  report  filed by  Avalon  on  behalf  of RRE with the
     appropriate state, federal or Indian agency having jurisdiction thereof for
     such well.

(e)  "Contract Depth" is a depth sufficient to fully penetrate the stratigraphic
     equivalent of the Hunton formation.

(f)  "Expenditures"  shall refer to the total of (a) all severance,  ad valorem,
     windfall  profit,  and other taxes  applicable to the Pilot Wells, the JVDA
     Wells or the Unit Wells,  as applicable,  and, (b) all billings or invoices
     for  operating  expenses,  equipment,   supplies,  or  services,  including
     gathering,  transportation, and compression charges, used or intended to be
     used in connection with the  exploration,  development,  or operation of or
     applicable  to the  Pilot  Wells,  the JVDA  Wells or the  Unit  Wells,  as
     applicable.

(g)  "Field Study" shall refer to the Work,  analysis and all other  information
     prepared or obtained by Avalon in connection with the  determination of the
     optimal locations, economic viability and project engineering prognosis for
     the development of the Pilot Project.

(h)  "Interest  Rate"  shall be the  prime  rate  published  in the Wall  Street
     Journal (Southwestern  Edition) on the date any reimbursement  hereunder is
     demanded  (with  the last such  published  rate to govern on any day when a
     rate is not so published).

(i)  "Joint Operating  Agreement" shall be the Joint Operating Agreement between
     Avalon,  RRE and other parties  evidencing  Avalon's  contract  operational
     rights and responsibilities for the Pilot Project and the JVDA, the form of
     which is attached hereto as Exhibit "C".

(j)  "JVDA" shall mean the Joint Venture  Development  Area consisting of all of
     WEHLU exclusive of the Pilot Project.

(k)  "JVDA  Production"  shall mean and include all oil,  gas,  casinghead  gas,
     distillate  and/or  condensate  and other  minerals  which are produced and
     saved from a JVDA Well.

(l)  "JVDA Well" or "JVDA Wells" whether individually or collectively, means any
     and all wells  within  WEHLU or the AMI that are drilled and  produced as a
     part of the JVDA on a Spacing Unit, and all increased density wells on such
     Spacing  Unit or any  lesser  Spacing  Units,  which  are  covered  by this
     Agreement.

(m)  "Non-commercial Wells" means any wells that is not capable of producing oil
     and gas and other minerals in Paying Quantities.

(n)  "Paying  Quantities"  means  a  quantity  of  oil  (including  any  gaseous
     hydrocarbons   produced  with  oil)  and/or  gas   (including   any  liquid
     hydrocarbons  produced with gas)  sufficient  (not  considering the cost of
     drilling) to repay the cost of operations.

(o)  "Pilot Well  Production"  shall mean and include all oil,  gas,  casinghead
     gas, distillate and/or condensate and other minerals which are produced and
     saved from a Pilot Well.

(p)  "Pilot Well" or "Pilot Wells" whether individually or collectively, means a
     minimum of four (4) and a maximum of eight (8) production wells and

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     injection  well(s) , if  necessary  drilled  pursuant  to Section 3 of this
     agreement  together with their  associated  Spacing Unit, and all increased
     density  wells on a Spacing  Unit or any lesser  Spacing  Units,  which are
     covered by this Agreement and located within WEHLU.

(q)  "Pilot Project" shall be a group of up to eight (8) wells,  but in no event
     less than four (4) Pilot Wells  capable of producing  in Paying  Quantities
     and if necessary,  injection  well(s)  drilled  pursuant to this  Agreement
     within their  associated  Spacing Unit in WEHLU as  subsequently  agreed to
     between the Parties.

(r)  "Spacing Unit" shall mean a 160 acre drilling and spacing unit, or any such
     smaller  drilling  and  spacing  unit  subsequently  established  within or
     including a portion of said 160 acre unit to accommodate  increased density
     drilling.

(s)  "Third Party Charges"  shall be any and all charges  incurred by Avalon for
     the retention of contractors or subcontractors  that Avalon deems necessary
     to perform or assist in the performance of the Work hereunder.

(t)  "Unit  Production"  shall mean and include all oil,  gas,  casinghead  gas,
     distillate  and/or  condensate  and other  minerals  which are produced and
     saved from a Unit Well.

(u)  "Unit Well" or "Unit Wells" whether individually or collectively, means any
     and all  wells  within  WEHLU  that  are not  Pilot  Wells  or JVDA  Wells,
     including  without  limitation those wells located on the properties listed
     in Exhibit "A" attached hereto and made a part hereof.

(v)  "WEHLU"  shall  refer to the West Edmond  Hunton  Lime Unit as  established
     pursuant to a Plan of Unitization.

(w)  "Work"  shall mean all of the  equipment,  services,  materials,  products,
     supplies, labor and management personnel required to drill and complete the
     Pilot Wells hereunder, together with the Field Study.

2. FIELD STUDY.

Avalon  agrees to complete the Field Study by August 15, 2000 and will provide a
complete copy of the same to RRE upon  completion.  RRE agrees to provide Avalon
with complete  access to its well,  production,  accounting,  land,  engineering
files and field operational facilities in connection with the preparation of the
Field Study.  Avalon shall  provide all of the  geologic and  engineering  staff
necessary  to perform the Field  Study.  The Field Study shall be  performed  by
Avalon at its sole cost, risk and expense.

Upon timely delivery of the Field Study, Avalon shall have the right to elect to
proceed  or  discontinue  the Pilot  Project,  which  election  shall be made in
writing to RRE on or before August 31, 2000. Should Avalon elect not to continue
with the Pilot Project based on the results of the Field Study, RRE will receive
a complete  copy of the Field  Study and release  Avalon from all other  claims,
responsibilities  and  obligations  with  respect to the Pilot  Project and this
Agreement  shall be  deemed  terminated  without  any other act by either of the
parties.  However,  should Avalon  determine that the results of the Field Study
are favorable, Avalon may provide its written election to proceed with the Pilot
Project on or before August 31, 2000.

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3. PILOT WELLS.

If Avalon elects to proceed with the  development of the Pilot  Project,  Avalon
shall perform a Pilot Project  consisting of a minimum of four (4) and a maximum
of  eight  (8)  Hunton   production   wells  and  if   necessary   the  required
injection/disposal  well(s).  Avalon and RRE shall determine the total number of
wells within the Pilot Project based upon their evaluation of the results of the
Field Study and  information  gained from the  drilling  and test results of the
Pilot  Project  wells.  The Pilot  Project area will consist of a total of up to
eight (8) Spacing  Units  encompassing  1280 total acres in the  combined  Pilot
Project  area,  unless  Avalon  determines  a lesser  number of Pilots Wells are
warranted within the Pilot Project.  RRE has presently  producing and or shut-in
Unit  Wells in the  respective  quarter  sections  defined  on the  Exhibit  "A"
attached  hereto and made a part  hereof.  Avalon  agrees to obtain  RRE's prior
written  consent for inclusion of any 160 acre quarter section unit containing a
presently  producing or shut-in Unit Well unit described on the attached Exhibit
"A" in the Pilot Project or the JVDA.

In the  event a Pilot  Well is lost for any  reason  prior to being  drilled  to
Contract Depth or Avalon has encountered  during the drilling of such Pilot Well
mechanical  difficulty  or  formation or  condition  which would render  further
drilling impractical or impossible,  Avalon may plug and abandon such Pilot Well
and  thereafter  may  continue its rights  hereunder by  commencing a substitute
Pilot Well  ("Substitute  Location")  for such well within thirty (30) days from
the date the drilling rig for such well was released.  Any  Substitute  Location
drilled  hereunder shall be drilled subject to the same terms and conditions and
to the same  depth as  provided  for the said  well.  Any  reference  herein  or
hereinafter  made to the said  well  shall be deemed  to be a  reference  to any
Substitute Locations which may be drilled therefor.

4. EARNING INTERESTS.

RRE hereby  grants to Avalon a continuous  drilling  option on the Pilot Project
area.  Avalon may  exercise  its option to receive  rights and  interests in the
Pilot Project upon  commencement  of operations to drill the first Pilot Well in
the Pilot  Project.  Avalon  shall have such an option for the Pilot  Project if
such  operations  to drill  commence on or before  September 30, 2000. If Avalon
timely  commences such first Pilot Well,  Avalon shall earn 100% of RRE's right,
title and interest in the Pilot Well Production from each respective  Pilot Well
and Spacing Unit containing such Pilot Well within an applicable  Pilot Project.
After  commencement  of the first Pilot  Well,  the Pilot  Project  Wells may be
conducted in any order  determined  by Avalon and its  obligation  to commence a
Pilot Well  shall be  satisfied  if a Pilot Well in the Pilot  Project is timely
commenced as hereafter provided.  To earn such interest in each subsequent Pilot
Well Production and corresponding Spacing Units, Avalon must commence operations
for the drilling of each subsequent  Pilot Well within thirty (30) days from the
Completion  Date of the previous Pilot Well or such  continuous  drilling option
shall expire,  subject to the notice requirements provided in Section 12 hereon.
RRE  will  allow  Avalon  a 90 day  testing  and  evaluation  period  after  the
Completion  Date of the fourth (4th) well and the  commencement of operations of
the fifth (5th) well of the Pilot  Project.  Should Avalon timely  commence each
consecutive Pilot Well, Avalon will maintain and continue its right to drill and
complete  consecutive  Pilot Wells within the Pilot Project until  Completion of
the Pilot Project.

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5. ASSIGNMENT OF INTERESTS.

Upon the Completion  Date of each Pilot Well or JVDA Well drilled within a Pilot
Project or the JVDA,  RRE agrees to assign all its right,  title and interest in
the Pilot Well  Production  from the completed Pilot Well and 60% of RRE's right
title and interest in the JVDA Well  Production  from the  completed  JVDA Well,
subject to RRE's  election  to  participate  with its 40%  interest  as provided
herein, in the corresponding Spacing Unit. Title to the leasehold for the Hunton
rights is derived from RRE's respective ownership in the entire WEHLU;  however,
Avalon's  earning  interest  will be limited to Pilot  Well  Production  or JVDA
Production  received by virtue of the Pilot Wells or JVDA Wells  drilled in each
respective  Spacing Unit. Depth of rights earned will be from the surface to the
base of the  stratigraphic  equivalent of total depth drilled in each Pilot Well
or JVDA Well and further  limited to those  leasehold  rights RRE actually owns.
Assignment  of rights lying outside the Hunton  formation  will be done for each
Spacing Unit as rights are earned limited to those leasehold rights RRE actually
owns.  RRE will retain all right,  title and  interest in and to all  production
from the Unit Wells,  if any,  within the Pilot Project or the JVDA.  RRE grants
Avalon the right to  operate,  drill,  inject,  dispose  fluids into any and all
formations which RRE presently owns the leasehold and operating rights to inject
said  fluids in the WEHLU.  All Pilot  Wells  shall be  drilled to the  Contract
Depth.

The interests earned as specified above shall be conveyed and assigned to Avalon
with covenants of special warranty for each Pilot Well, JVDA Well and applicable
Spacing Unit pursuant to the applicable  form of Assignment  attached  hereto as
Exhibit "B". The  assignments for each such well and Spacing Unit and any future
assignments for future wells and Spacing Units shall be in a recordable form for
the applicable  recording offices,  shall be otherwise  acceptable to Avalon and
shall be delivered to Avalon within thirty (30) days after the  Completion  Date
of each Pilot Well or JVDA Well.  The  assignment  shall be made  subject to the
terms of the WEHLU and to all  royalties,  overrides  and  other  lease  burdens
currently  existing,  but  shall  otherwise  be free  and  clear  of all  liens,
encumbrances and claims of any kind.

Additionally,  the parties may  hereafter  designate an AMI. If either Avalon or
RRE shall own or hereafter  acquire any  additional  leases or rights within the
AMI, said party, as soon as possible,  shall provide the other party the details
of such interest,  including  purchase price,  acreage amounts,  description and
acquisition  costs.  Such party shall then have twenty (20) days from receipt of
such  information  to elect  whether  it wishes to pay its  proportionate  share
(based on each parties respective  participating  working interest) of the costs
and acquire its  proportionate  share of the leases or rights. In the event such
party does not make an election within the twenty (20) day period, or elects not
to  participate in the  acquisition,  the leases and rights offered shall not be
considered subject to this Agreement and the AMI, and such party shall be deemed
to have  waived any present or future  claim to said leases or rights.  Any such
leases or rights  owned or acquired by the  consenting  party shall be operated,
developed and produced  outside the terms and  conditions of this  Agreement and
shall be subject to other  joint  operating  agreements  and  documentation.  By
written  agreement between Avalon and RRE, the AMI may be expanded or contracted
as may be  mutually  agreed.  Any renewal or  extension  of any leases or rights
previously offered and not accepted, shall not be required to be reoffered.

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6. OWNERSHIP OF INTERESTS.

RRE represents that it owns an approximate 97% Unit leasehold interest in Hunton
rights only within the WEHLU and controls field  operations  with respect to the
WEHLU.  WEHLU is  currently  a valid  existing  unit,  which  has been  duly and
properly  established and maintained in accordance with applicable Oklahoma law.
RRE will  deliver  to  Avalon  an  average  80.0% net  revenue  interest  on all
interests delivered under this Agreement.

7.   RIGHT TO REPURCHASE.
     -------------------

Avalon  hereby  grants to RRE an option to  repurchase  from Avalon 40% of RRE's
original  interest in the Pilot Project,  proportionately  reduced.  Such option
shall be exercised in writing and delivered to Avalon within one hundred  twenty
(120) days of the  Completion  Date of the last Pilot Well in the Pilot Project.
The  repurchase  price  shall  be an  amount  equal to 40% of the  actual  costs
incurred  by Avalon in  drilling  and  completing  the Pilot Wells for the Pilot
Project.  Avalon  agrees to reassign  such interest free and clear of all liens,
overriding  royalty  interests,  or encumbrances not of record prior to Avalon's
acquisition  of such  interest  from RRE.  Should RRE elect not to exercise  its
option to  repurchase or shall fail to timely elect to  repurchase,  this option
shall  terminate  and all right,  title,  and interest of RRE to such 40% option
interest shall be null and void.

8.   JVDA WELLS.
     ----------

Upon  completion and  development  of the Pilot  Project,  Avalon shall have the
continuing right to develop the remaining portion of the WEHLU  constituting the
JVDA on a joint  venture  basis with RRE. The terms of such venture  shall be as
follows:

(a)  Avalon  will  have  the  right  to  earn  64.0%  of  the  JVDA   Production
     attributable  to  RRE's  ownership  position  in the  JVDA on a  continuous
     drilling to earn basis.

(b)All JVDA Production attributable to RRE's acreage acquired by Avalon pursuant
     to Section  8(a)  above in the JVDA will be  subject  to Avalon  paying all
     drilling, testing, completing, and equipping costs equal to a 6.25% carried
     working  interest to the tanks (i.e.  ready for production) for the benefit
     of RRE,  proportionately  reduced to Avalon's actual  interest  acquired in
     each respective Spacing Unit for each JVDA Well.

(c)  RRE will deliver to Avalon an average 80.0% net revenue  interest  equal to
     the same terms as specified in Section 6 above.

(d)  RRE will retain the right to participate in all JVDA Wells in the JVDA with
     36.0% of its original  leasehold  interest in each Spacing Unit. Should RRE
     elect to  participate  with its 36.0%  interest,  said interest shall be in
     addition to the carried working interest set out in Section 8(b) above. For
     illustrative  purposes  only,  each  parties'  JVDA unit working  interest,
     should all parties elect to participate with their full interest,  would be
     as follows,  proportionately reduced: Working Interest Before Production in
     the Tanks:  Avalon- 64.0%, RRE- 36.0%; Working Interest After Production in
     the  Tanks:  Avalon-  64.0% less  (64.0% x 6.25%) = 60.0%,  RRE- 36.0% plus
     (64.0% x 6.25%) = 40.0%.

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(e)  Avalon shall  provide  written  notice of any proposed JVDA Well to RRE and
     RRE shall then have twenty  (20) days from  receipt of such notice to elect
     whether it wishes to  participate  in such JVDA Well. In the event RRE does
     not make an election  within the twenty  (20) day period,  or elects not to
     participate  in the JVDA Well,  Avalon will have the right of first refusal
     to acquire and participate with such interest.  Such right of first refusal
     shall be exercised by written notification from Avalon to RRE within thirty
     (30) days after the  expiration  of RRE's twenty (20) day election  period.
     RRE shall retain its right to the 6.25% carried  working  interest in wells
     in which it does not elect to participate.

(f)  Within one hundred eighty (180) days from the Completion  Date of the final
     Pilot Well in the Pilot  Project,  Avalon must notify RRE in writing of its
     desire to develop the JVDA and commence operations on the initial JVDA Well
     in the JVDA.  The  parties  agree that such one  hundred  eighty  (180) day
     period is intended to be sufficient time to evaluate the production success
     from the  Pilot  Project;  however,  should  additional  time be  needed to
     evaluate  the  success  of the Pilot  Project,  Avalon  will  request  such
     extension from RRE in writing, and RRE shall not unreasonably  withhold its
     consent thereto.

(g)  Avalon will  continue  to develop  the JVDA on a well by well basis  within
     applicable  Spacing  Units  with no more than  thirty  (30)  days  elapsing
     between  the  Completion  Date of one  JVDA  Well and the  commencement  of
     operations on the subsequent JVDA Well.

(h)  For any JVDA Well, the drilling and spacing earning units in the JVDA shall
     be  Spacing  Units of 160 acre  units,  unless  hereafter  modified  by the
     written agreement of the parties.

9 OPERATIONS.

(a)  RRE or one of its  Affiliates  is presently  the legal unit operator of the
     WEHLU as  recognized  by the Oklahoma  Corporation  Commission.  RRE hereby
     grants  Avalon the right to be  contractual  operator of all Pilot Wells in
     the Pilot Project and all JVDA Wells in the JVDA,  notwithstanding that RRE
     shall  continue  to be the  unit  operator  of  WEHLU  and  continue  to be
     responsible and obligated for all unit operating  requirements  established
     by  the  WEHLU  unitization  agreement.  RRE  will  retain  the  right  and
     obligation  to operate the WEHLU for all Unit Wells  presently in existence
     and be the legal  operator  of all Pilot  Wells and JVDA  Wells  drilled by
     Avalon. RRE agrees to support Avalon in any Oklahoma Corporation Commission
     or other  governmental  filings necessary to conduct  operations under this
     Agreement within the boundaries of the WEHLU.

(b)  Avalon shall have the responsibility  for all operations  involved with the
     drilling and completion of the Pilot Wells and JVDA Wells hereunder and for
     causing each such well that is capable of producing in Paying Quantities to
     be hooked-up to the appropriate separation facilities and gathering system.
     Avalon shall perform all the activities and functions normally performed by
     an operator as a contract  service to the  working  interest  owners in the
     Pilot  Project and JVDA Wells.  Avalon's  contract  operational  rights and
     responsibilities  shall be evidenced by the Joint Operating  Agreement.  In
     the event any provision of the Joint Operating  Agreement conflicts with or
     is contrary to the terms and  conditions of this  Agreement,  the terms and
     conditions of this Agreement shall govern and control. Any reference in the
     Joint  Operating  Agreement to Avalon being the operator shall be deemed to
     be Avalon as a  contract  operator  under  this  Agreement.  The  services,
     materials,  and  equipment  for such wells  shall be  procured  and used by
     Avalon in accordance with this Agreement and shall be subject to the

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     interests of Avalon and RRE as provided herein. Upon the Completion Date of
     each well completed as a well capable of producing oil/and or gas in Paying
     Quantities,  Avalon  shall  continue to be contract  operator and RRE shall
     continue to be operator of record and Avalon  agrees to conduct  operations
     in accordance with the Operations  Contract,  the form of which is attached
     hereto as Exhibit "D".

(c)  Prior to the commencement of drilling operations on each Pilot Well or JVDA
     Well,  Avalon shall prepare a well program for the drilling and  completion
     of the well.  Avalon will conduct its operations of such well in accordance
     with the terms and conditions of the Joint Operating Agreement.

(d)  In performing  the drilling  program  contemplated  hereunder,  the parties
     acknowledge that Avalon shall not be obligated to provide services or Third
     Party  Charges  for  drilling  any well beyond the depth  specified  on the
     appropriate well program.  Should Avalon determine that continued  drilling
     operations  on  any  well  have  become   uneconomical  due  to  unforeseen
     conditions or circumstances,  then Avalon may discontinue  further drilling
     and may commence such further  services Avalon deems necessary to determine
     whether  completion  operations should be undertaken.  Avalon shall provide
     RRE twenty-four  (24) hours notice of Avalon's intent to log a well so that
     RRE may have a representative  present. Upon completion of such log, Avalon
     shall have the right to make an  election  to proceed  with  completion  or
     plugging and abandonment of the well.

(e)  RRE  shall  perform  the  duties of the  operator  in  accordance  with all
     operating agreements applicable to the Unit Wells and the WEHLU unitization
     agreement.  Avalon  agrees to perform or cause to be  performed  all of its
     duties and obligations under this Agreement, including, without limitation,
     with respect to the Pilot Wells and JVDA Wells, the operation of such wells
     in good faith,  in a workmanlike  and prudent  manner,  in conformity  with
     accepted and prudent oil and gas industry standards of operations,  in full
     compliance in all material respects with all applicable federal, state, and
     local laws,  rules,  and  regulations  and in material  compliance with all
     expressed or implied  obligations  of the lessee  under all leases  subject
     hereto and assigned  hereunder  and in material  compliance  with the WEHLU
     unitization agreement.  Notwithstanding the above, RRE shall be responsible
     for collection and  distribution of all revenues  attributable to the Pilot
     Wells, the JVDA Wells and the Unit Wells,  provided,  however,  that Avalon
     shall have the right (i) to assume the administrative functions for revenue
     distribution  under the Pilot Wells  and/or the JVDA Wells,  and/or (ii) to
     assume the  responsibilities for marketing oil and gas from the Pilot Wells
     and/or the JVDA Wells,  upon twenty (20) days prior  written  notice to RRE
     and the written agreement/consent of RRE. The assumption of these functions
     shall not relieve RRE of its obligations and  responsibilities  as operator
     of WEHLU.  Avalon shall be responsible for the payment of all  Expenditures
     on any Pilot Well or JVDA Well. RRE shall be responsible for the payment of
     all Expenditures on all Unit Wells.

(f)  Avalon  covenants  and agrees to use prudent,  good faith,  and  reasonable
     efforts (and to devote  sufficient  numbers of its  employees  and adequate
     amounts of equipment and machinery) to maintain  production from each Pilot
     Well and JVDA  Well  operated  by it  pursuant  to this  Agreement,  all in
     accordance with industry standards,  to the extent that a market exists for
     such production.

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<PAGE>

(g)  RRE will promptly make all filings,  elections,  and  applications and will
     promptly  take such other  action  (including,  without  limitation,  price
     re-determination)  as may be necessary to establish  and obtain the highest
     maximum pricing category and highest price reasonably available for the oil
     or gas production  from the wells,  subject to existing oil or gas purchase
     contracts.  In  the  negotiation  of  future  contracts  for  the  sale  of
     production  from the  wells,  RRE will use its best  efforts  to obtain the
     highest price and best terms reasonably available.

(h)  Gas  produced  and sold  from the  Pilot  Wells  and JVDA  Wells  completed
     hereunder will be measured at the wellhead  prior to  commingling  with any
     other gas stream. Copies of measurement tests and monthly volume statements
     provided by gas  purchasers  for the  subject  wells will be  available  to
     Avalon from RRE. RRE covenants to maintain sufficient facilities to be able
     to conduct, and to conduct no less than semi-annually, sufficient tests for
     each well, so as to be able to allocate the quantities of gas produced back
     to the well  producing  such  gas  within a  degree  of  accuracy  normally
     acceptable within the industry for gas and wells of this nature.  RRE shall
     provide  the  results  of tests  to  Avalon  within  ten  (10)  days  after
     completion  of the  tests.  Avalon  shall  have the  right to  inspect  the
     production  facilities,  surface equipment and meters, to be able to verify
     the tests and  allocations  of production  for the gas. Oil and  condensate
     produced  from the subject  wells will be stored and  measured  separately,
     before commingling with other well streams. Avalon shall have the right, at
     its own expense,  to determine  production and measurement  accuracy.  Upon
     request, Avalon shall be provided with advance notice of any meter tests or
     calibrations so that it may have a  representative  present to witness such
     tests.

(i)  Each party shall notify the other party of every material  adverse claim or
     demand  made  or  threatened  to be  made  by  any  person  (including  any
     government or  governmental  agency)  affecting the Pilot Wells or the JVDA
     Wells or the proceeds of production therefrom in any manner whatsoever, and
     of any proceeding instituted with respect thereto.

(j)RRE, on behalf of itself and any present or future Affiliates, covenants that
     it will not contract with any third party  pursuant to a sublease,  farmout
     or other  arrangement  for any Unit Well  completed as a producer of oil or
     gas in Paying Quantities, without Avalon's prior written consent during the
     productive life of any Pilot Well or JVDA Well  hereunder,  unless required
     by applicable statutes,  rules, regulations or lease obligations,  nor will
     it drill,  propose,  or  consent  to drill  additional  wells  located in a
     Spacing  Unit where a Pilot Well or JVDA Well is drilled or Avalon owns the
     right  to  propose  and  drill a JVDA  well  pursuant  to  this  agreement.
     Notwithstanding  the foregoing,  nothing contained in this subsection shall
     prohibit RRE from  drilling  replacement  Unit Wells should RRE lose such a
     well during recompletion operations.

10. ENVIRONMENTAL LIABILITY.

RRE, as operator of the WEHLU,  shall have all  responsibility and liability for
any past,  present  or future  generation,  handling,  storage,  transportation,
treatment  and disposal of all  hazardous  or toxic  substances,  pollutants  or
contaminants  ("contamination")  at or  relating  to any Unit  Well  site in the
WEHLU.  Avalon,  as operator  of the Pilot Wells and JVDA Wells,  shall have all
responsibility  and  liability  for any future  generation,  handling,  storage,
transportation,  treatment and disposal of all  contamination  at or relating to
any Pilot Well site or JVDA Well site. Each party shall defend and indemnity the
other party against all liabilities,  obligations,  costs and expenses which may
arise from a violation of such party's responsibilities described above.

                                       9
<PAGE>

11. HEALTH AND SAFETY COMPLIANCE.

Avalon  and RRE  shall  each  comply  with,  and  require  and  insure  that all
contractors or  subcontractors,  vendors and materialmen  which it supervises or
controls,  comply  with all  federal,  state and local laws and  ordinances,  or
orders,  regulations and directives  issued by any governmental  agency,  or any
health and safety plan pertaining to the health and safety of persons working or
otherwise on any well site. All materials  furnished and/or work performed under
this Agreement, or any subcontract,  by Avalon or RRE or any of their respective
contractors or subcontractors  under their  supervision or control,  shall fully
comply with all governmental safety and health requirements, including the rules
and standards  contained in the  Occupational  Safety and Health Act of 1970, as
amended,  Federal Mine Safety and Health Act of 1977, as amended,  and any other
applicable or similar  federal,  state and local safety or health laws, rules or
regulations.  Avalon  and RRE  shall,  to the  extent  either of them  prepares,
supervises  or  controls  the  conditions  at any well site,  provide all safety
equipment,  materials,  tools and  personal  protection  equipment  necessary to
insure that work is performed in a safe, healthful and workmanlike manner.

12. FAILURE TO CONDUCT DRILLING OPERATIONS OR DEFAULT.

(a)  Any  failure of Avalon to (i) timely  comply with the  continuous  drilling
     obligations  provided for herein,  under  circumstances  not constituting a
     force majeure,  or (ii) perform or comply with any other  provision of this
     Agreement  applicable  to  Avalon,  and with  respect to either (i) or (ii)
     above, after thirty (30) days notice of such event by RRE to Avalon,  shall
     be deemed a default hereunder by Avalon.

(b)  Any  failure  of RRE to  perform  or  comply  with  any  provision  of this
     Agreement  applicable to RRE after thirty (30) days notice of such event by
     Avalon to RRE, shall be deemed a default hereunder by RRE.

(c)  Upon a default by Avalon,  RRE shall have the right to (i)  terminate  this
     Agreement,  and (ii)  receive  reassignments  of its  interests  except  as
     hereafter  provided,  and (iii)  recover  such  damages and other relief to
     which  it  may  be  entitled  at  law  or in  equity.  Notwithstanding  the
     foregoing,  if such default occurs prior to the Completion Date of the last
     Pilot  Well  in  the  second  Pilot  Project,  RRE  shall  be  entitled  to
     reassignment  of its  interests in the Pilot Wells and  applicable  Spacing
     Units, but in no event shall Avalon be obligated to reassign or release its
     interest in those Pilot Wells and applicable Spacing Units unless and until
     Payout has occurred (whether by prepayment or otherwise).  Further, if such
     default  occurs  after the  Completion  Date of the last  Pilot Well in the
     Pilot Project or after any JVDA Well has been  completed,  RRE shall not be
     entitled to  reassignment  of its  interests in the Pilot  Wells,  the JVDA
     Wells and the  applicable  Spacing  Units,  and in no event shall Avalon be
     obligated to reassign or release its  interest in those Pilot  Wells,  JVDA
     Wells and applicable Spacing Units.

(d)  Upon a default  by RRE,  Avalon  shall  have the right to any or all of the
     following:  (i) terminate its obligations to drill  additional  Pilot Wells
     under this  Agreement;  (ii) if such default occurs prior to the Completion
     Date of the last Pilot Well in the Pilot  Project,  Avalon  may,  but shall
     have no obligation to,  perform such  covenant,  agreement or obligation of
     RRE and any payment made or expense incurred in such performance shall be

                                       10
<PAGE>

     reimbursed to Avalon by RRE on demand,  and, until and unless so reimbursed
     (other than with  revenues  from the proceeds of  production of the wells),
     such expenses  shall bear interest  calculated  at the Interest  Rate;  and
     (iii) recover its damages and exercise all other remedies available, at law
     or in equity.  In addition to the remedies  provided in this  subparagraph,
     Avalon shall be  subrogated  to the extent  permitted by law to all rights,
     liens,  and security  interests  securing the payment of any debt,  claims,
     tax, or assessment for the payment of which Avalon may make an advance.  No
     such payment or performance by Avalon shall constitute a waiver of any such
     default by RRE. If Avalon shall provide notice to RRE of Avalon's  election
     to  terminate  this  Agreement,  Avalon  shall  thereafter  have no further
     obligations  or duties  hereunder  to drill  such  additional  wells.  Such
     termination  shall  not have any  effect  upon  Avalon's  right to  receive
     payments  as  described  herein,  nor shall it affect the  validity  of any
     Assignments  provided  herein  as to  Pilot  Wells  or JVDA  Wells  already
     completed or in the process of being completed.  Such termination shall not
     have any effect upon RRE's  reversionary  rights,  rights to repurchase and
     carried interest hereunder.

(e)  Any  termination  of  this  Agreement  shall  not  affect  the  obligations
     specified hereunder that survive termination,  including without limitation
     Section 10& Section 13.

(f)  Upon RRE's receipt of written  notice from Avalon,  Avalon may, in its sole
     discretion,  elect to amend completion of a Pilot Project  containing fewer
     than five (5) wells as sufficient  performance to continue  Avalon's rights
     under this Agreement.

13. PROTECTION FROM LIENS AND ENCUMBRANCES.

The parties  shall keep the interests in the WEHLU free and clear from all liens
and  encumbrances  created by the actions or improper  inactions of  themselves,
their  agents  and  their  contractors,  except  (i) those for which a party has
disputed in good faith and  diligently  acts to resolve,  and (ii) any  mortgage
lien encumbering RRE's rights and interests.  The parties  acknowledge and agree
that RRE's rights and interests in WEHLU are currently subject to mortgage liens
and security interests in favor of Bank of Oklahoma,  N.A. ("BOK") and that as a
condition to this Agreement, RRE shall provide Avalon with BOK's written consent
to this Agreement in the form as attached  Exhibit "E" and commitment to execute
and deliver such partial  releases of its mortgage  lien in the form as attached
Exhibit "F" as Avalon may  reasonably  require to allow the rights and interests
of RRE to be conveyed to Avalon as described in this Agreement free and clear of
BOK's liens and security  interests.  Each party shall defend and  indemnify the
other party for all damages (including attorneys' fees) for such party's failure
to comply with the terms of this paragraph.

14. INSURANCE.

During the term of this Agreement during which Avalon is conducting drilling and
completion  operations on the Pilot Project and the JVDA,  Avalon shall maintain
insurance which a prudent  operator would maintain on similar  projects.  During
the term of this Agreement,  RRE shall maintain  insurance with respect to WEHLU
and its operations which a prudent operator would maintain on similar  projects.
Each party  shall,  upon  request of the other  party,  provide  copies or allow
inspection of all insurance policies required above and shall provide each other
with  certificates  of insurance  evidencing  such coverage within ten (10) days
after execution of this Agreement.

                                       11
<PAGE>

15. GAS MARKETING AND CONTRACTS.

RRE shall make available to Avalon for inspection,  copying and receipt prior to
Avalon's  commencement  hereunder  any  and all  information  it  possesses  (or
otherwise has access to), subject to any confidentiality  agreements  pertaining
thereto,  regarding existing gas contracts potentially  applicable to production
from a Pilot Well or a JVDA Well.  If gas from the Pilot  Wells or JVDA Wells is
sold on the spot market,  RRE shall  consult with and keep Avalon  advised on an
on-going  basis as to the marketing  strategy  employed with respect to such gas
and shall furnish a detailed monthly report to Avalon  commencing with the first
business day following the first month of gas sales.  Such report shall identify
the volumes of gas sold, the price obtained therefor,  and the purchaser to whom
sales were made,  with  similar  reports to be  furnished to Avalon on a monthly
basis  thereafter.  WEHLU is  currently  subject  to a gas  purchase  dedication
contract with GPM Gas Company by contract  dated  February 18, 1998, as amended,
and  expires  on  March  31,  2001.  Upon  expiration  or  termination  of  such
dedication,  Avalon  shall retain its right to take its share of  production  in
kind, to separately  market its production,  or to approve any and all marketing
arrangements with respect to its Pilot and JVDA Production .

16. NOTICES.

Any notice  required to be given by this  Agreement  shall be deemed  given when
placed in the  regular  course  of either  first  class or U.S  certified  mail,
postage prepaid, or overnight delivery service,  and addressed to the respective
parties.  Any  notice  required  or  permitted  under  this  Agreement  shall be
addressed as follows:

                  RRE:           Red River Energy, L.L.C
                  ---
                                 6120 South Yale, Suite 813
                                 Tulsa, Oklahoma  74136
                                 Attn:  Bob Davis

                  AVALON:          Avalon Exploration, Inc.
                  ------
                                   Fifteen East Fifth, Suite 2100
                                   Tulsa, Oklahoma  74103
                                   Attn:  Randy Sullivan

17.      AUDIT RIGHTS.

Costs  incurred  and  revenue  used as the basis to  determine  Payout  shall be
subject to the right of protest or question as to correctness thereof; provided,
however, all such costs and revenue shall be deemed to be true and correct after
twenty-four  (24) months  following  the end of the calendar  year in which such
cost or revenue is billed or  received,  unless  within the said  period a party
takes  written  exception  thereto  and  makes  claim  on the  other  party  for
adjustment.  Adjustments shall be made within a reasonable time from receipt and
resolution of any such written exception.

                                       12
<PAGE>

18. FORCE MAJEURE.

Neither party shall be liable to the other party, its subsidiaries,  affiliates,
or any  person,  firm or  corporation  in  privity  with such other  party,  its
subsidiaries or affiliates for any delays or any failure to act hereunder (other
than  to pay  money)  which  may be  due,  occasioned  or  caused,  directly  or
indirectly, by reason of any event of force majeure, which shall include without
limitation, the application or entry of any laws, rules, regulations,  or orders
promulgated  by any  federal,  state or local  government  body or agency or any
court of law or by the  rules,  regulations  or  orders  of any  public  body or
official  purporting to exercise  authority or control respecting the activities
and operations contemplated hereunder; strikes; lockouts; acts of God, including
but not  limited  to  actions  of the  elements,  weather  or water  conditions;
inability to obtain fuel or other  critical  materials or supplies,  including a
drilling rig; or any other cause beyond the control of the non-performing party.
In the event of the  occurrence  of any of the  foregoing  affecting one or more
non-performing  parties,  such party shall give the other party  prompt  written
notice of the force majeure with  reasonably  full  particulars  concerning  the
same, and thereupon the  obligations of the party giving such notice,  so far as
they  are  affected  by  the  force  majeure,  shall  be  suspended  during  the
continuation  of any such  event or  condition  and the terms of this  Agreement
shall be extended  for a period of time equal to the period of  suspension.  The
Parties shall make reasonable efforts to avoid the adverse impact of an event of
force  majeure and to resolve such event or  occurrence  once it has occurred in
order to resume performance.

19. ALTERNATIVE DISPUTE RESOLUTION.
   -------------------------------

Except  for  the  right  of  either  party  to  apply  to a court  of  competent
jurisdiction for a temporary  restraining  order, a preliminary  injunction,  or
other equitable relief to preserve the status quo or prevent  irreparable  harm,
if any controversy,  claim or dispute ("Dispute") between the parties arises out
of the interpretation or performance of this Agreement, the parties hereto agree
to make good faith efforts to resolve the dispute amicably as follows:

(a)  Either  party  has the  right to  request  the  other to meet to  discuss a
     Dispute.  The  party  requesting  the  meeting  will give at least ten (10)
     business  days  notice in  writing  of the  subject  it wishes to  discuss,
     provide a written statement of the Dispute, and designate an officer of the
     company with  complete  power to resolve the Dispute to attend the meeting.
     Within  three (3)  business  days,  the party  receiving  the request  will
     provide a responsive written statement and will designate an officer of the
     company  who will  attend the meeting  with  complete  power to resolve the
     Dispute.

(b)  If the meeting  fails to resolve the Dispute as  reflected  in an agreement
     signed by their  respective  officers,  the Dispute  shall be submitted for
     non-appealable,  binding  determination  through  arbitration.  The parties
     agree that an officer  with  complete  authority to resolve the Dispute for
     each entity shall attend the arbitration.  An arbitrator,  with oil and gas
     experience, chosen from the judges available through Judicial Arbitration &
     Mediation  Services,  Inc.  ("JAMS")  shall be the  arbitrator  unless  the
     parties agree on a substitute  arbitrator  because a JAMS arbitrator is not
     reasonably available.  Unless the parties agree otherwise,  the arbitration
     shall be  conducted in  accordance  with the rules of JAMS on effect of the
     date of this Agreement.

                                       13
<PAGE>

(c)  The  arbitrator  may  consider  any matter  relevant to the subject of this
     dispute and shall follow the statutes and substantive  decision of Oklahoma
     law relevant to the subject. The arbitrator shall not have the authority or
     power to alter,  amend or modify  any of the  terms and  conditions  of the
     agreement of the parties. The arbitrator will convene a hearing and issue a
     final ruling within  ninety (90) days of the date of first  notice,  unless
     otherwise agreed by the parties.

(d)  Any  agreement  by the parties with respect to  arbitration  procedures  or
     settlement  of the  dispute  shall be in  writing  and  signed and shall be
     binding  and  final  upon the  parties  hereto.  The fees and  expenses  of
     counsel,  witnesses and employees of the parties hereto and all other costs
     and expenses  incurred  exclusively  for the benefit of the party incurring
     the same shall be borne by the party incurring such fees and expenses.  All
     other fees and expenses, including without limitation, compensation for the
     arbitrator, shall be divided equally between the parties.

20. MISCELLANEOUS.

(a)  This  Agreement is made  subject to, and the parties  shall comply with all
     applicable rules, regulations, laws and orders issued or promulgated by any
     court or governmental agency having jurisdiction over operation, production
     or marketing on and from the lands covered hereby.

(b)  It is not intended nor shall this  Agreement  ever be construed to create a
     partnership,  joint venture, mining partnership, or association of any kind
     between any of the parties hereto for any purposes.

(c)  Avalon shall be an independent  contractor  with respect to the performance
     of all Work hereunder,  and unless otherwise specified in writing no person
     employed by or  contracted  by one party shall be deemed for any purpose to
     be the employee,  agent,  servant or representative of the other party, and
     neither  party  shall have  direction  or right of  control  over the other
     party,  its employees,  agents or contractors in the results to be obtained
     hereunder,  unless such employees, agents or contractors become the express
     loaned servants of the other party.

(d)  The parties expressly agree that this Agreement shall not create any rights
     in third  parties  and is not  intended  to be relied upon by any person or
     entity other than a signatory to this Agreement.

(e)  This Agreement  constitutes the entire agreement between the parties hereto
     relating   to  the   matters   covered   hereby  and  no   representations,
     correspondence,  or other  statements  made by either of the parties hereto
     prior  to the  date  hereof  shall  form a part of this  Agreement  and any
     representations,  correspondence,  or other  statements  made by any of the
     parties  hereto  prior to the date hereof  relating to the matters  covered
     hereby shall be superseded and canceled by the terms of this Agreement.

                                       14
<PAGE>

     Without limiting the foregoing, the parties agree that the Letter of Intent
     dated February 18, 2000, is hereby  superseded and canceled by the terms of
     this Agreement. No modification, alteration, or amendment of this Agreement
     shall be  effective  unless in  writing  and  signed by all of the  parties
     hereto,  and no modification or amendment shall be inferred from any act or
     failure to act, or any rules of waiver,  estoppel,  ratification,  or other
     equitable principle.  No division order signed by Avalon shall be construed
     to modify or amend the terms of this Agreement.

(f)  THIS  AGREEMENT  SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH THE
     INTERNAL LAW OF THE STATE OF OKLAHOMA. SUBJECT TO THE BINDING MEDIATION AND
     ARBITRATION  PROVISIONS  OF  SECTION 19 HEREOF,  EACH PARTY  HERETO  HEREBY
     SUBMITS  TO THE  JURISDICTION  OF THE COURTS OF THE STATE OF  OKLAHOMA  AND
     AGREES THAT ANY ACTION  RELATING TO THE AGREEMENT BE BROUGHT IN THE CITY OF
     TULSA, TULSA COUNTY, OKLAHOMA.

(g)  Each party  agrees that it will  maintain  the terms of this  Agreement  in
     confidence  and that it will not  cause or permit  disclosure  to any third
     party of this Agreement or of the terms hereof or any information  received
     from the other in connection herewith,  without the express written consent
     of the other party,  except that  disclosures may be made (i) to the extent
     the disclosing  party is required to make the disclosure by statute or by a
     court, agency or other governmental body having  jurisdiction,  and (ii) to
     the extent  necessary for the disclosing  party to enforce its rights under
     this Agreement.

(h)  This Agreement may be executed in any number of counterparts  and each such
     counterpart so executed shall have the same force and effect as an original
     instrument as if all of the parties hereto the aggregate  counterparts  had
     signed the same  document  and shall be binding  upon the  parties  hereto,
     their representatives,  successors and assigns,  regardless of whether such
     signatures  are  notarized  or attested by a corporate  secretary  or other
     comparable officer.

(i)  The paragraph  headings used in this Agreement are inserted for convenience
     only and shall be disregarded in construing this Agreement.

(j)  The terms and conditions of this Agreement  shall survive the completion of
     operations hereunder and of any Assignment earned pursuant hereto.

(k)  Avalon  shall be  responsible  for  payment  of all sales  and/or use taxes
     applicable to materials and services furnished in connection with the Pilot
     Project or the JVDA.  (l) At the end of each  calendar  year,  or sooner if
     Avalon shall request, RRE shall furnish to Avalon such data and information
     as it may reasonably  request to enable Avalon and its engineers to prepare
     reserve reports for wells drilled in the Pilot Project or the JVDA.

                                       15
<PAGE>

     IN WITNESS  WHEROF,  the parties  hereto have executed this Agreement as of
the day and year first above written.

     "RRE"                       RED RIVER ENERGY, L.L.C. (RRE)

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

                                 Name:
                                       -----------------------------------------

                                 Title:
                                        ----------------------------------------

     "AVALON"                    AVALON EXPLORATION, INC. (AVALON)

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

                                 Name:
                                       -----------------------------------------

                                 Title:
                                        ----------------------------------------

                                       16
<PAGE>

                RRE/Avalon Joint Development Agreement Exhibit A

Section    TWN     RGE     QUARTER        COUNTY

24         15N      5W     NE,NW,SE      KINGFISHER
25         15N      5W     NE            KINGFISHER
36         15N      5W     SW            KINGFISHER
30         15N      4W     NE,SE         LOGAN
32         15N      4W     SE            LOGAN
33         15N      4W     SE            LOGAN
 5         14N      4W     SW            OKLAHOMA
 8         14N      4W     SE            OKLAHOMA
 9         14N      4W     NE,NW         OKLAHOMA
10         14N      4W     NE,SW,SE      OKLAHOMA
15         14N      4W     NE            OKLAHOMA
15         14N      4W     SW,SE         OKLAHOMA
16         14N      4W     NE            OKLAHOMA
16         14N      4W     SE            OKLAHOMA
17         14N      4W     NE            OKLAHOMA
21         14N      4W     SE            OKLAHOMA
22         14N      4W     NE,SW         OKLAHOMA
27         14N      4W     NE,NW,SW      OKLAHOMA
30         14N      4W     SE            OKLAHOMA
32         14N      4W     NW            OKLAHOMA
32         14N      4W     SE            OKLAHOMA
33         14N      4W     SW            OKLAHOMA
 4         13N      4W     NW            OKLAHOMA
 5         13N      4W     NE            OKLAHOMA
15         13N      4W     NW            OKLAHOMA
16         13N      4W     NW            OKLAHOMA
16         13N      4W     NE            OKLAHOMA
20         13N      4W     NE            OKLAHOMA
 9         12N      4W     SE            OKLAHOMA

                            End of Exhibit A
                                       17
<PAGE>PURCHASE AGREEMENT

     THIS  PURCHASE  AGREEMENT  dated as of September 19, 2000, by and among Red
River Energy, L.L.C, an Oklahoma limited liability company  ("Purchaser");  Duke
Energy Financial Services,  LLC, a Delaware limited liability company,  formerly
by  way  of  conversion  Duke  Energy  Financial  Services,   Inc.,  a  Delaware
corporation ("Seller"); and Beta Oil & Gas, Inc., a Nevada corporation ("Beta").
TCM, L.L.C., an Oklahoma limited liability company  ("Borrower"),  joins in this
Agreement for the purpose of consenting to the transactions  contemplated hereby
and making the covenants described below.

                                    RECITALS:

     WHEREAS,  Borrower and Seller  entered into that certain  Credit  Agreement
dated as of August 18, 1998,  as amended (the "Credit  Agreement"),  pursuant to
which  Seller   extended   credit  to  Borrower  in  an  amount  not  to  exceed
$2,500,000.00 to be used for the development of certain  undeveloped methane gas
properties; and

     WHEREAS,  Seller made principal  advances to Borrower under and pursuant to
the Credit Agreement, which indebtedness is evidenced by that certain Promissory
Note dated  August 18,  1998  issued by Borrower to Seller in the face amount of
$2,500,000.00 (the "Note"); and

     WHEREAS,  the indebtedness  evidenced by the Note is secured by a Mortgage,
Deed of  Trust,  Security  Agreement,  Financing  Statement  and  Assignment  of
Production  dated as of August 18, 1998 covering  certain oil and gas properties
and related fixtures, equipment, rights and other property, which instrument was
ratified and amended by that certain  Ratification of and Amendment to Mortgage,
Deed of  Trust,  Security  Agreement,  Financing  Statement  and  Assignment  of
Production dated April 20, 1999 (collectively,  the "Mortgage") and that certain
Security Agreement dated August 18, 1998 (the "Security  Agreement")  granting a
security  interest  on  certain  equipment  and  other  property  and  rights of
Borrower; and

     WHEREAS, pursuant to the Credit Agreement,  Borrower has conveyed to Seller
certain overriding royalty interests in oil and gas properties owned by Borrower
(the "Overriding Royalty Interests") which are more fully described in Exhibit A
attached hereto and incorporated herein by reference; and

     WHEREAS, Purchaser and Seller have agreed that Purchaser will purchase from
Seller and Seller will sell to  Purchaser  of all of Seller's  right,  title and
interest  in and  to  the  Note,  the  Mortgage,  the  Security  Agreement,  the
Overriding  Royalty Interests and all of the Seller's other rights and interests
in the  properties  encumbered  by the  Mortgage  to the extent  such rights and
interests  arose pursuant to the terms of the Credit  Agreement,  subject to the
terms, provisions and conditions set forth in this Agreement; and

                                        1
<PAGE>

     WHEREAS, Red River Energy, Inc., the parent of Purchaser,  has entered into
an Agreement and Plan of Merger dated  November 19, 1999, as amended,  with Beta
pursuant to which Red River Energy,  Inc. will become a wholly owned  subsidiary
of Beta; and

     WHEREAS,  part of the consideration to be paid to Seller in connection with
the transactions  contemplated hereby are shares of the common stock of Beta and
warrants  which,  upon exercise,  would entitle the holder to purchase shares of
the outstanding common stock of Beta. NOW THEREFORE, in consideration of the sum
of $10.00 and other good and valuable consideration, the receipt and sufficiency
of which are hereby  acknowledged,  the parties  hereto do hereby  covenant  and
agree, as follows:

     1. Purchase and Sale. For the  consideration  herein  described,  Purchaser
agrees to purchase and acquire from Seller,  and Seller agrees to sell,  assign,
convey and transfer, without warranty, express or implied except as set forth in
this Agreement, and without recourse, to Purchaser the Note. In addition, Seller
agrees to sell, assign,  transfer and convey to Purchaser all of Seller's right,
title and interest in, to and under (i) the Mortgage and the Security Agreement,
and the liens, mortgages,  charges, security interests, pledges and other rights
granted  thereby and created  therein (the  "Security  Documents")  and (ii) the
Overriding Royalty Interests.  By virtue of the consummation of the transactions
contemplated  by this Agreement,  Purchaser will acquire,  succeed to and assume
all of the rights, titles and interests, as well as the duties,  commitments and
obligations of Seller in, to, under and relating to the Note and the properties,
rights  and  interests  covered by the  Security  Documents  and the  Overriding
Royalty Interests. All proceeds and revenues attributable to production from the
oil and gas properties encumbered by the Mortgage on and before the date of this
Agreement  shall belong to Seller and all proceeds and revenues  attributable to
production  from the from the oil and gas properties  encumbered by the Mortgage
after the date of this  Agreement  shall belong to Purchaser.  In addition,  all
proceeds and revenues  attributable  to production  from the Overriding  Royalty
Interests  on and before the date of this  Agreement  shall belong to Seller and
all proceeds and revenues attributable to production from the Overriding Royalty
Interests after the date of this Agreement shall belong to Purchaser.  If either
Seller or Purchaser should ever be paid or otherwise  obtain  possession of such
proceeds or revenues  which  belongs to the other  pursuant  hereto,  such party
shall promptly remit such proceeds or revenues to the other.

     2. Purchase  Price.  At Closing,  Purchaser  will pay to Seller cash in the
amount of $525,000.00.  In addition,  Beta will issue to Seller 10,000 shares of
its common stock plus 100,000  warrants (the  "Warrants"),  each of which,  upon
exercise,  will entitle the holder  thereof to purchase one share of Beta common
stock at a price  equal to 125% of the per share  closing  price of Beta  common
stock as reported on the Nasdaq  National Market at the close of business on the
last trading day immediately preceding the date of Closing. The warrants will be
exercisable for a period of 48 months and will be issued pursuant to the form of
Warrant  Agreement   attached  hereto  as  Exhibit  B  incorporated   herein  by
referenced.  The  Warrants  will be  subject to call by Beta under the terms set
forth in the Warrant Agreement.

                                       2
<PAGE>

     3. Purchaser's Representations and Warranties.  Purchaser has all requisite
power and  authority  to  execute,  deliver and perform  this  Agreement  and to
consummate the transactions  contemplated  hereby.  The execution,  delivery and
performance  by Purchaser of this  Agreement  have been duly  authorized  by all
requisite action by Purchaser and its member, this Agreement constitutes a valid
and binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms,  except, in each case, as limited by (a) applicable  bankruptcy,
insolvency,  reorganization,  moratorium  or other laws of  general  application
affecting the  enforcement  of creditors'  rights and (b) general  principles of
equity that restrict the availability of equitable remedies.

     4. Seller's  Representations  and Warranties.  (a) Seller has all requisite
power and  authority  to  execute,  deliver and perform  this  Agreement  and to
consummate the transactions  contemplated  hereby.  The execution,  delivery and
performance  by  Seller of this  Agreement  have  been  duly  authorized  by all
requisite  action by Seller,  this  Agreement  constitutes  a valid and  binding
obligation of Seller,  enforceable  against Seller in accordance with its terms,
except,  in each  case,  as limited by (i)  applicable  bankruptcy,  insolvency,
reorganization,  moratorium or other laws of general  application  affecting the
enforcement  of  creditors'  rights and (ii) general  principles  of equity that
restrict the availability of equitable remedies.

     (b) Seller will assign,  transfer and convey the Note, its interests in the
Security  Documents and the Overriding  Royalty  Interests free and clear of any
lien,  charge,  encumbrance,  security  interest,  pledge or other adverse claim
which may have been  created by or which may exist by virtue of Seller's  action
or inaction.  Seller shall convey its title to the Overriding  Royalty Interests
with a special  warranty  protecting  Purchaser  from adverse claims arising by,
through or under Seller but not otherwise.

     (c) In connection  with its acquisition of the shares of Beta common stock,
the Warrants and the shares of Beta common stock  issuable  upon exercise of the
Warrants (the "Securities"), Seller represents, warrants and covenants that:

          (i) Seller is acquiring the Securities  for  investment  purposes only
     and not with a view to the distribution  thereof.  Seller acknowledges that
     the issuance of the Securities has not been  registered with the Securities
     Exchange  Commission under the Securities Act of 1933, as amended,  or with
     any state  securities  agencies or commission under any state securities or
     blue sky laws.  Seller  will not sell,  assign or  otherwise  transfer  the
     Securities or any portion thereof or interest  therein except pursuant to a
     registration  statement that has been filed with and declared  effective by
     the  Securities and Exchange  Commission and any relevant state  securities
     agencies or  commissions or such  transaction is made in strict  compliance
     with the  requirements  and  conditions of applicable  exemptions  from the
     registration requirements of such acts.

          (ii) Seller has received and reviewed copies of the Beta Annual Report
     on Form 10-K for year ended December 31, 1999;  Beta  Quarterly  Reports on
     Form 10-Q for the periods  ended  September 30, 1999 and March 31, 2000 and
     June 30, 2000, and copies of the definitive Proxy Statement prepared for
                                       3
<PAGE>

     use in connection with management's  solicitation of proxies for its annual
     meeting of  shareholders  to be held June 24, 2000.  The said materials are
     referred to herein collectively as the "Disclosure  Materials".  Seller has
     had the  opportunity to discuss Beta's  business,  management and financial
     affairs with its President and Chief  Executive  Officer or other executive
     officers  of Beta and has had the  opportunity  to  review  Beta's  plan of
     operation.  Seller  understands  that  such  discussions,  as  well  as the
     Disclosure  Materials and any other written information issued by Beta were
     intended to describe certain aspects of Beta's business and prospects which
     it  believes  to be  material  but  were  not  necessarily  a  thorough  or
     exhaustive description.

          (iii) Seller further agrees that prior to the exercise of the Warrants
     at a time when the issuance of the shares of Beta common stock  pursuant to
     the exercise of the Warrants has not been  registered  under the Securities
     Act of 1933, as amended,  it will deliver to Beta a written  representation
     that  it is  acquiring  such  shares  for its own  account  for  investment
     purposes only, and not with a view to, or for sale in connection  with, any
     distribution thereof, and not with any present intention of distributing or
     selling the same and its agreement  that any resales or other  transfers of
     such  shares  will  be  subject  to  the  same  restrictions  described  in
     subsection (i). above.  Each certificate  representing the Securities shall
     be endorsed with the following legend:

          (i) THE  SECURITIES  REPRESENTED  BY THIS  CERTIFICATE  HAVE  NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR ANY APPLICABLE
     STATE  SECURITIES ACT.  NEITHER THE RECORD NOR THE BENEFICIAL  OWNERSHIP OF
     SAID  SECURITIES  MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
     REGISTRATION  STATEMENT FOR SAID  SECURITIES  UNDER SAID ACTS AND ANY OTHER
     APPLICABLE  STATE SECURITIES LAWS OR RULES UNLESS IN THE OPINION OF COUNSEL
     REASONABLY  SATISFACTORY TO THE COMPANY  EXEMPTIONS  FROM THE  REGISTRATION
     REQUIREMENTS  OF SAID  ACTS ARE  AVAILABLE  WITH  RESPECT  TO SUCH  SALE OR
     TRANSFER  AND SAID  SALE OR  TRANSFER  IS MADE  PURSUANT  TO AND IN  STRICT
     COMPLIANCE WITH THE TERMS AND CONDITIONS OF SAID EXEMPTIONS.

          (ii) Any other legend required by any state securities laws.

     5. Beta's Representations and Warranties.  (a) Beta has all requisite power
and authority to execute,  deliver and perform this  Agreement and to consummate
the issuance of the Securities as contemplated  hereby. The execution,  delivery
and  performance  by Beta of this  Agreement  have been duly  authorized  by all
requisite  action  by Beta,  this  Agreement  constitutes  a valid  and  binding
obligation  of Beta,  enforceable  against  Beta in  accordance  with its terms,
except,  in each  case,  as limited by (i)  applicable  bankruptcy,  insolvency,
reorganization,  moratorium or other laws of general  application  affecting the
enforcement  of  creditors'  rights and (ii) general  principles  of equity that
restrict the availability of equitable remedies.

                                       4
<PAGE>

     (b) The  authorization,  issuance,  sale and delivery of the shares of Beta
common stock and the Warrants, and the reservation of the shares of common stock
issuable  upon  exercise  of the  Warrants,  have  been duly  authorized  by all
requisite  corporate action on the part of Beta. As of Closing,  the Beta common
stock and  Warrants  and,  upon their  issuance  pursuant to the exercise of the
Warrants in accordance  with the Warrant  Agreement,  will be validly issued and
outstanding,  fully paid and nonassessable  (except for the obligation under the
Warrant  Agreement to pay the exercise  price upon an exercise of the Warrants),
with no personal liability attaching to the ownership thereof.

     6. Conditions to Closing.  Consummation of the transactions contemplated by
        ---------- -- --------
this Agreement  shall be contingent  upon the  satisfaction or waiver of each of
the following conditions:

     (a) The  acquisition  of Red River  Energy,  Inc.  by Beta  shall have been
consummated  and Red River Energy,  Inc.  shall be a wholly owned  subsidiary of
Beta.

     (b) The representations and warranties of each of the parties shall be true
and  correct at the time of  Closing  to the same  effect as at the date of this
Agreement except as otherwise contemplated hereby.

     (c)  All  third  party  consents,   approvals  and  authority  required  to
consummate the transactions contemplated hereby shall have been received.

     (d) The Closing shall occur no later than September 15, 2000.

     7. No Merger of Title.  It is  contemplated  and agreed by all the  parties
hereto that the  acquisition  of the Note and  Seller's  rights in the  Security
Documents  and  the  Overriding   Royalty   Interests  shall  not  constitute  a
forgiveness of any portion of the indebtedness evidenced by the Note or a merger
of the rights,  titles or interests represented by the Security Documents or the
Overriding Royalty Interests with any rights, titles or interests of Borrower.

     8. Closing.  At the Closing the following  actions and deliveries  shall be
        -------
made:

     (a) The Seller will execute and deliver to Purchaser the following:

          (i) The Note  endorsed  with the phrase  "Payable  to the order of Red
     River Energy,  L.L.C.,  without warranty,  express or implied except as set
     forth in that certain Purchase Agreement dated as of September 19, 2000, by
     and among Red River Energy, L.L.C., Duke Energy Financial, LLC and Beta Oil
     & Gas, Inc., and without recourse."

          (ii) An Assignment  of the Mortgage in  recordable  form and substance
     mutually acceptable to Seller and Purchaser and their respective counsel.

                                       5
<PAGE>

          (iii) An Assignment of Seller's rights under the Security Agreement in
     form and  substance  mutually  acceptable to Seller and Purchaser and their
     respective counsel.

          (iv)  Assignments  of Financing  Statements  on Form UCC-3 showing the
     Purchaser  to be  the  assignee  of  Seller's  rights  under  the  Security
     Agreement  and with respect to the other  security  interests  securing the
     indebtedness evidenced by the Note.

          (v) Conveyances of Overriding  Royalty  Interests in the form attached
     hereto as Exhibit C.

     (b) At the Closing, Beta will deliver or cause to be delivered to Seller:

          (i) Certificates  evidencing  10,000 shares of the outstanding  common
     stock of Beta.

          (ii) Executed Warrant Agreement in the form of Exhibit B hereto.

          (iii)  Executed  Warrant  Certificate  issued  in the  name of  Seller
     evidencing 100,000 Warrants.

     (c) Purchaser will wire transfer funds to Seller's account in the amount of
$525,000.

     (d)  Purchaser  will  deliver  to  Seller  by check  or  other  immediately
available  funds in the  amount of  Seller's  costs  and  expenses  incurred  in
connection with the negotiation and execution of this Agreement and consummation
of  the  transactions   contemplated  by  this  Agreement,   including  Seller's
reasonable attorneys' fees.

     9. Borrower  Covenants.  Borrower hereby covenants and agrees that from the
        --------  ----------
date of this Agreement and until the Closing:

     (a) It will operate the properties in a reasonable and workmanlike  manner,
consistent with the standards and practices of prudent  operators of oil and gas
properties in the area; and

     (b) It will apply the net proceeds from the  production and sale of natural
gas and crude oil from the properties  (determined after operating costs, taxes,
transportation  costs and other costs or producing and marketing the natural gas
and oil from the  properties)  will be applied to the  outstanding  indebtedness
evidenced by the Note.

     10.  Piggyback  Registration  Rights.  (a) If Beta at any time  proposes to
          ---------  ------------  -------
register any shares of its common  stock under the  Securities  Act of 1933,  as
amended (the "Securities  Act") on a form which permits  inclusion of the shares

                                       6
<PAGE>

of its common  stock  issued  pursuant to this  Agreement  and any shares of its
common  stock  issued  upon  an  exercise  of the  Warrants  (collectively,  the
"Shares"),  it shall  each  such  time  give  written  notice  to  Seller of its
intention to do so. Upon the written  request  (stating  the intended  method of
disposition  of such Shares) of Seller given within 30 days after receipt of any
such notice, Beta shall, unless registration for immediate public sale of all of
such requested  Shares is determined by opinion of counsel  satisfactory to such
holder or holders not to be required, or unless the underwriter of such offering
advises Beta that the inclusion of such Shares will adversely  affect the market
for the  securities  being  registered  by Beta (in which  latter  event  Beta's
obligation  hereunder  shall  be  limited  to  such  number  of  Shares  as  the
underwriter  reasonably  believes compatible with the success of such offering),
use its best  efforts  to cause  all of such  Shares  which  Seller  shall  have
requested be registered to be registered  under the  Securities  Act, all to the
extent  requisite  to  permit  the sale or other  disposition  by Seller of such
Shares so registered in the manner  intended by such holder as set forth in such
request.  If and whenever Beta is required by the  provisions of this Section 10
to use its best efforts to effect the  registration  under the Securities Act of
any of the Shares  issued  upon an  exercise of the  Warrants,  Beta  shall,  as
expeditiously as possible:

          (i)  furnish  to  Seller  such  numbers  of  copies  of a  prospectus,
     including a preliminary prospectus,  in conformity with the requirements of
     the  Securities  Act, and such other  documents,  as Seller may  reasonably
     request in order to facilitate the public sale or other disposition of such
     Shares;

          (ii) use every  reasonable  effort to  register  or qualify the Shares
     covered by a registration statement under such other securities or Blue Sky
     laws of such jurisdictions as Seller shall reasonably  request,  and do any
     and all other acts and things which may be necessary  under such securities
     or Blue Sky laws to enable  Seller to  consummate  the public sale or other
     disposition  in  such  jurisdiction  of the  such  Shares  covered  by such
     registration statement,  except that Beta shall not for any such purpose be
     required  to  qualify  to do  business  as a  foreign  corporation  in  any
     jurisdiction  wherein it is not so qualified or subject  itself to taxation
     in any such jurisdiction;

          (iii) before filing the  registration  statement or any  prospectus or
     any amendment or supplement to the registration statement or any prospectus
     with the Securities and Exchange  Commission  (the  "Commission"),  furnish
     counsel to Seller with copies of all such  documents  proposed to be filed;
     provided,  however,  that  notwithstanding  any  other  provisions  of this
     Section  10,  Beta's  obligation  to register  securities  pursuant to this
     Section 10 shall be limited such that (1) Beta shall have no  obligation to
     include any Shares in a registration  statement under the Securities Act to
     the extent  Seller  is, in the  opinion  of  counsel  satisfactory  to such
     holder,  then eligible to resell all of such securities  immediately  under
     Rule 144 of the Act; (2) Beta shall have no  obligation  to register on any
     one occasion fewer than 10,000 Shares (adjusted for stock dividends,  stock
     split-ups  and the like) or such lesser  number as  represents  all of such
     Shares outstanding  entitled to registration  rights under this Section 10;
     (3) Beta shall be  required  to  register  such  Shares  only if and to the
     extent that Seller furnishes Beta with a written statement of its intention
     to sell and such other information as Beta may reasonably request;  and (4)
     Beta shall not be obligated  to keep any  registration  statement  filed in
     accordance with this Section 10 effective for more than ninety days.

                                       7
<PAGE>

     (b) All expenses  incurred in effecting the  registrations  provided for in
this Section 10,  including,  without  limitation,  all  registration and filing
fees, printing expenses, fees and disbursements of counsel for Beta, expenses of
any audits  incident  to or required by any such  registration  and  expenses of
complying  with  the  securities  or  Blue  Sky  laws of any  jurisdiction,  but
excluding  fees  and  disbursements  of  counsel  for  Seller  and  underwriting
commissions and discounts attributable to such Shares being sold by Seller shall
be paid by Beta.

     (c) In the  event  of any  registration  of any of such  Shares  under  the
Securities  Act  pursuant  to this  Section 10,  Beta shall  indemnify  and hold
harmless  Seller,  each  underwriter  (as defined in the  Securities  Act),  the
directors and officers of such  underwriter,  each other person who participates
in the offering of such  securities and each other person,  if any, who controls
(within  the  meaning  of  the  Securities  Act)  Seller,  such  underwriter  or
participating person against any losses, claims,  damages or liabilities,  joint
or  several,   to  which  Seller,   such   underwriter,   director  or  officer,
participating  person  or  controlling  person  may  become  subject  under  the
Securities  Act or any other statute or at common law, in so far as such losses,
claims,  damages or liabilities (or actions in respect  thereof) arise out of or
are based upon (i) an untrue statement or alleged untrue statement of a material
fact contained, on the effective date thereof, in any Registration Statement (or
a post-effective  amendment to such Registration  Statement, as the case may be)
under  which  such  Shares  were  registered   under  the  Securities  Act,  any
preliminary  Prospectus or final Prospectus  contained  therein,  or any summary
Prospectus issued in connection with such Shares, or any amendment or supplement
thereto, or (ii) an omission or alleged omission to state in any such document a
material fact required to be stated  therein or necessary to make the statements
therein not  misleading,  and shall  reimburse  each such  seller,  underwriter,
participating  person or  controlling  person  for any  legal or other  expenses
reasonably   incurred  by  Seller,   such  underwriter,   director  or  officer,
participating person or such controlling person in connection with investigating
or  defending  any such  loss,  damage,  liability  or any action  with  respect
thereto;  provided,  however,  that Beta  shall  not be  liable  to any  seller,
underwriter, director or officer, participating person, or controlling person in
any such case to the  extent  that any such  loss,  claim,  damage or  liability
arises out of or is based upon an untrue  statement or alleged untrue  statement
or omission or alleged  omission  made in such  registration  statement (or such
registration  statement  as  post-effectively  amended,  as the  case  may  be),
preliminary prospectus,  final prospectus,  summary prospectus,  or amendment or
supplement thereto in reliance upon and in conformity with information furnished
to Beta by any Seller,  such  underwriter,  director  or officer,  participating
person, or controlling person specifically for use therein. Such indemnity shall
remain in full force and effect  regardless of any  investigation  made by or on
behalf of Seller, such underwriter, director or officer, participating person or
controlling person, and shall survive transfer of the such Shares by Seller;

     (d) Seller, shall, by acceptance thereof,  indemnify and hold harmless each
other  holder  of any such  Shares,  Beta,  its  directors  and  officers,  each
underwriter (as defined in the Securities Act), the directors and officers of

                                       8
<PAGE>

such  underwriter,  and each other  person,  if any,  who  controls  Beta or any
underwriter,  against any losses,  claims,  damages,  or  liabilities,  joint or
several, to which any such other holder, Beta, any such director or officer, any
such  underwriter,  or any such controlling  person may become subject under the
Securities  Act or any other statute or at common law, in so far as such losses,
claims,  damages or liabilities (or actions in respect  thereof) arise out of or
are based upon (i) an untrue  statement or alleged untrue  statement of material
fact contained, on the effective date thereof, in any registration statement (or
a post-effective  amendment to such registration  statement, as the case may be)
under which such Shares were registered  under the Securities Act at the request
of Seller, any preliminary  prospectus or final prospectus contained therein, or
any summary prospectus issued in connection with such Shares or any amendment or
supplement thereto, or (ii) an omission or alleged omission to state in any such
document a material fact required to be stated  therein or necessary to make the
statements therein not misleading, in the case of (i) or (ii) to the extent, but
only to the extent,  that such untrue  statement  or omission or alleged  untrue
statement  or  alleged  omission  was  made  in  such  registration   statement,
preliminary prospectus,  final prospectus,  summary prospectus,  or amendment or
supplement thereto in reliance upon and in conformity with information furnished
to Beta by Seller  specifically for use therein,  and shall reimburse Beta, each
such other holder,  underwriter,  director or officer, or controlling person for
any  legal  or  any  other  expenses  reasonably  incurred  in  connection  with
investigating or defending any such loss, claim, damage, liability or any action
with respect thereto.

     (e) Indemnification similar to that specified in subsections (c) and (d) of
this  Section  10 shall be given by Beta and each  holder of any of such  Shares
(with such modifications as shall be appropriate) covered by any registration or
other  qualification  of securities under any federal or state securities law or
regulation  other than the Securities Act with respect to any such  registration
or other qualification effected pursuant to this Section 10.

     (f) Within 30 days after receipt by an indemnified  party under subsections
(c), (d) or (e) of this Section 10 of a complaint,  claim or other notice of any
loss,  claim,   damage,   liability  or  action  giving  rise  to  a  claim  for
indemnification  under any such  subsections,  such indemnified party shall if a
claim in respect thereof is to be made against the indemnifying party under such
subsection,  notify  the  indemnifying  party  in  writing  of the  commencement
thereof;  but the omission so to notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified  party otherwise than
under such  subsection.  In case any such  action  shall be brought  against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent  that it shall  wish,  to assume the defense  thereof,  with  counsel
satisfactory to such  indemnified  party (who shall not, except with the consent
of the  indemnified  party,  be counsel to the  indemnified  party),  and, after
notice from the indemnifying  party to such indemnified party of its election so
to assume the defense  thereof,  the  indemnifying  party shall not be liable to
such  indemnified  party under such  subsection  for any legal expenses of other
counsel  or any other  expenses,  in each  case  subsequently  incurred  by such
indemnified  party, in connection with the defense thereof other than reasonable
costs of investigation.

                                       9
<PAGE>

     11. Consent to Transactions. By execution and delivery of this Agreement to
         ------- -- ------------- -
Seller, Borrower consents to the transactions contemplated under this Agreement.

     12. Entire  Agreement.  This Agreement is the entire agreement  between the
         ------  ----------
parties and shall supersede all prior agreements, documents or other instruments
with respect to the matters covered hereby.

     13. Costs and  Expenses.  The  reasonable  costs and  expenses  incurred by
Seller in connection  with the  negotiation  and execution of this Agreement and
consummation of the transactions  contemplated by this Agreement,  including its
reasonable  attorneys' fees, shall be paid by Purchaser.  Except as specifically
provided  in the  foregoing  sentence,  each  party  will pay its own  costs and
expenses  incurred in  connection  with the  negotiation  and  execution of this
Agreement and the consummation of the transactions contemplated hereby.

     14.  Governing  Law. The terms and  conditions of this  Agreement  shall be
          ---------  ----
governed by, and  interpreted in accordance  with the provisions of, the laws of
the State of Oklahoma.

     15. Descriptive  Headings and Captions.  Descriptive  headings and captions
         -----------  -------- --- ---------
are for  convenience  only and  shall  not  control  or affect  the  meaning  or
construction  of any provision of this  Agreement,  or  determining  the rights,
obligations or liabilities of any party hereto.

     16. Successors and Assigns.  This Agreement shall be binding upon and inure
         ---------- --- --------
to the  benefit  of and be  enforceable  by the  successors  and  assigns of the
parties hereto.

     17.  Counterparts.  This  Agreement  may  be  executed  in  any  number  of
          -------------
counterparts,  each of which when so executed  shall be deemed an original,  but
all of which together shall constitute one and the same instrument.

     18.  Further  Acts.  Each  party  shall take such  action or  execute  such
          -------  -----
documents,  deeds,  instruments  of transfer or  assignments as the parties deem
necessary and proper to accomplish the transactions contemplated herein.

     19. No Effect on Other  Agreements.  Each party agrees that the  execution,
delivery and  performance of this Agreement shall have no effect on that certain
Gas Gathering and Purchase  Agreement dated August 18, 1998, by and between Duke
Energy Field Services, Inc. and Borrower or on other similar agreements.

                                       10
<PAGE>

     THIS  AGREEMENT has been  executed and  delivered as of the date  indicated
above by the parties hereto listed below.

                                 DUKE ENERGY FINANCIAL SERVICES, LLC

                                 By:
                                     ------------------------------------------
                                 Name:
                                       ----------------------------------------
                                 Title:
                                        ---------------------------------------

                                 RED RIVER ENERGY, L.L.C.

                                 By:
                                     ------------------------------------------
                                 Name:
                                       ----------------------------------------
                                 Title:
                                        ---------------------------------------

                                 BETA OIL & GAS, INC.

                                 By:
                                     ------------------------------------------
                                 Name:
                                       ----------------------------------------
                                 Title:
                                        ---------------------------------------

                                 TCM, L.L.C.

                                 By:
                                     ------------------------------------------
                                 Name:
                                       ----------------------------------------
                                 Title:
                                        ---------------------------------------

                                       11

<PAGE>

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