Document:

Exhibit 10.3

                                         [LOGO]
                                         Dwight Pickle
                                         BHP Billiton Petroleum (Deepwater) Inc.
                                         1360 Post Oak Blvd., Suite 15O
                                         Houston, TX 77056-3020
                                         Phone: (713) 961-8437
                                         Fax: (713) 961-8339
                                         dwight.p.pickle@bhpbilliton.com

February 8, 2005

VIA FAX AND MAIL

Ms. Michelle Mauzy
The Houston Exploration Company
1100 Louisiana, Suite 2000
Houston, TX 77002-5219

Mr. Greg Tabor                    Mr. Melvin Baiamonte
Ridgewood Energy Corporation      Dominion Exploration & Production Inc.
5300 Memorial Drive, Suite 1070   1450 Poydras Street
Houston, TX 77007                 New Orleans, LA 70112-6000

RE: West Cameron 76 Unit
    OCS-G 9386 B#6 Well
    Gulf of Mexico

Ladies and Gentlemen:

Attached for your review and approval  please find AFE NO.  3370.C.02802  in the
gross  amount  of  $23,983,837  and a well plan  that has been  approved  by BHP
Billiton to drill and  complete the B-6 at the West Cameron 61 field B platform.
This well is proposed to uplift the  production  rate from the main reservoir in
this field, the MA3D and increase recoverable reserves.

BHPB and  partners  have a limited  opportunity  to capture a slot for the Ocean
Titan rig. It is anticipated  that the Titan rig will be available to begin work
on the B6 well in June 2005 following completion of the Mustang well. As per the
JOA,  there is a 30 day response  time to this AFE. Due to the proximity of this
well to other  producers in the Ma3D,  unanimous  approval by the partnership is
required.  It is  necessary  to obtain  unanimous  partnership  approval to this
project in the 30 day period to  facilitate  the  execution  of the  contractual
option on the Titan for this well.  The design of the B-6 9 5/8"  casing  string
requires the extra lift capacity provided by the Titan further  necessitating we
maintain this rig program if possible.

<PAGE>

The B6 well will  target the main field pay in the Ma3  downthrown  fault  block
with the objective of  increasing  ultimate  recoverable  reserves in this water
drive  gas  reservoir.  The off take  rate from the MA3D  reservoir  is  rapidly
declining and water production has significantly encroached on the B5 completion
leaving  only the A5 water free.  A new take point is needed to keep the voidage
rate as high as  possible.  For that  objective,  it is  proposed to employ sand
control in the B6 which allow higher  production  rates than have been  achieved
with the existing completions. The well can lift significant water production if
the section contains wet sand stringers. The B platform currently has 3,000 bwpd
available water handling capacity.

The B6 well is proposed  as a drill and  complete  operation.  The well has been
designed  for  maximum  flow rates.  The well  design  includes a 300' frac pack
completion with 4 1/2 "production  tubing and a large casing program (9 5/8") on
bottom to  accommodate  premium  gravel pack screens with shunt tubes.  The pore
pressure  prediction  work increased our confidence  level in our ability to get
the well down.

In addition to the Ma3 sand,  the B6 well will  appraise  the Rob C sand at this
location for a potential  sidetrack of the A4 well. Ma1 and Ma2 Sands could also
prove  productive  in the  subject  wellbore  but are not  considered  secondary
objectives. The economics are based solely on the Ma3 sand.

BHPB  proposes to have a partner  meeting to discuss this AFE if required by the
partnership on February 23, 2005. If you have questions please call Jim McFadden
at 713-961-8377 or the undersigned at 713-961-8437.

Very truly yours,

BHP BILLITON PETROLEUM (AMERICAS) INC.

/s/ Dwight Pickle
------------------------------
Dwight Pickle
Senior Staff Negotiator

<PAGE>

                           AUTHORITY FOR EXPENDITURE
                    Americas Operating and Development Team

<TABLE>
<S>                                                   <C>
Project    West Cameron 76 (OCS-G 9386) B6            BHP AFE No.  3370.C.02802.
           OCS                                        Property No. _______________
Operator   BHP-Billiton                               Supplement   _______________
Contract/Agreement No.      __________      Budget Year        2005
                                                                Yes     Amount      No
Operator AFE #              __________
Estimated Start Date        May 1, 2005     Budget              |_|   $8,096,943   |x|
Estimated Completion Date   July 23, 2005   Current Forecast    |x|   $8,096,943   |_|

====================================================================================================
Lease Name & Well No.   County and State: Offshore Louisiana   Region: Gulf of Mexico OCA
                        ----------------------------------------------------------------------------
OCSG 9386 B6            Location (Sec-Twn-Rng): West Cameron Blk 76 - OCS-G 09386 B6
----------------------------------------------------------------------------------------------------
Field or Area           Prospect Name (Exploration Only)                         Last Well on Lease
                        -----------------------------------------------------
West Cameron            Prospect#                                               Yes   |_|   No   |x|
----------------------------------------------------------------------------------------------------
Type of AFE:            Formation                        Yes    No                 BHP Interest
Expense          |_|     & Depth     New Capital Proj.   |X|   |_|                BPO        APO
Development      |X|
Exploratory      |_|    Marg A3                                       Working
   Class Inventory      16,300' MD                                   Interest    33.76%     33.76%
----------------------------------------------------------------------------------------------------
</TABLE>

Project Description: Drill the B6 well to the Ma3 sand.

The primary objective is acceleration of Ma3 reserves. Secondary targets include
the Rob C sands. AFE includes costs to drill and complete the well in the Ma3
sand. Also includes costs to run wireline logs over two intervals.

================================================================================
                        Estimated Costs
--------------------------------------------------------------------------------
      Company         Working Interest    Drilling      Completion    Total Cost
--------------------------------------------------------------------------------
BHP Billiton            33.76%           $ 4,536,101   $ 3,560,843   $ 8,096,943
--------------------------------------------------------------------------------
Dominion                40.00%           $ 5,374,527   $ 4,219,008   $ 9,593,535
--------------------------------------------------------------------------------
Houston Exploration     15.00%           $ 2,015,448   $ 1,582,128   $ 3,597,576
--------------------------------------------------------------------------------
Ridgewood               11.24%           $ 1,510,242   $ 1,185,541   $ 2,695,783
--------------------------------------------------------------------------------
TOTAL                     100%           $13,436,317   $10,547,520   $23,983,837
================================================================================
Prepared by: Andrea Stewart              Date: December 20, 2004

<TABLE>
<CAPTION>
Recommended (Signatures):
====================================================================================
Geology     Date     Reservoir      Date     Production     Date   Geophysics   Date
====================================================================================
<S>        <C>      <C>           <C>        <C>            <C>    <C>          <C>
CP         12/20    AS            12/20/04   EC 12/20              NA
====================================================================================
Drilling    Date     Economics      Date     Petrophysics   Date     Finance    Date
------------------------------------------------------------------------------------
JR         21 Dec   MB 12/20/04              NA                    NA
====================================================================================
</TABLE>

BHP Approval:                            Date: 12-20-04

Joint Interest Approval - It is recognized that the amounts provided for herein
are estimates only, and approval of this authorization shall extend to the
actual costs incurred in conducting the operation specified, either more or less
than herein set out.

-------------------------------------------------------
Company       By          Title                  Date
-------------------------------------------------------
RIDGEWOOD    [Illegible]  EXEC. VICE PRESIDENT   3/7/05
-------------------------------------------------------
ENERGY
-------------------------------------------------------
CORPORATION
-------------------------------------------------------

<PAGE>

                                     [LOGO]

Memorandum                                                       Americas Region
                                                                 Petroleum
15 December 2004

TO:        Claiborne Vansant, Development Manager

cc:        J. Stobart, J. Russell, M. Atkins, A. Klein, J. McFadden, Y. Dalal

FROM:      Gene Riddle, Drilling Engineering Supervisor

OUR REF:   R:\Drilling\Campaign\Shelf\WESTCAM\B6\AFE\B6 AFE All Inclusive Cover
           Note 15 dec 04.doc

--------------------------------------------------------------------------------

                             WEST CAMERON 76 B6 AFE

Please find attached an AFE cost estimate for the WC 76 B6 well. To drill, log
and abandon will require 57.5 days and $14.0 MM. The success case to drill and
complete will require 84 days and $23.9 MM.

This cost estimate considers the performance of the BHP offsets in the field as
well as similar wells drilled by competitors in the area. The cost includes 27%
NPT during drilling and 15% during completion.

The cost derivation was also based on the following:

     o    An estimated contract rig rate $65,000/day.

     o    Build hold build shaped well PTD 16,313/14,200 MD/TVD. WD 40 ft.

     o    Costs include:

          o    5 planned casing strings to reach TD.

          o    Synthetic based mud system.

          o    Wireline logs in two hole intervals.

          o    9-5/8" production liner, no production tieback, 4-1/2" production
               tubing.

          o    No coring or sidetracks.

          o    Single zone 300 ft frac pack.

A derivation of the cost in discrete steps is included below.

--------------------------------------------------------------------------------
                                              Days               Cost $MM
--------------------------------------------------------------------------------
              Mob / Demob                     2.8                   1.0
--------------------------------------------------------------------------------
              Drill to TD                    48.4                  11.1
--------------------------------------------------------------------------------
                  Log                         3.8                   1.3
--------------------------------------------------------------------------------
                 P & A                        2.5                   0.6
--------------------------------------------------------------------------------
         Run Liner & Clean Out               4.95                   1.8
--------------------------------------------------------------------------------
                Complete                     24.1                   8.7
--------------------------------------------------------------------------------

/s/ Gene Riddle
-----------------------------------
Gene Riddle, Drilling Engineering Supervisor

<PAGE>

                               West Cameron 76 B6

                                   [GRAPHIC]

<PAGE>

Schlumberger                    bhpbilliton                   [LOGO]

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
[Illegible]                                                                 Field

OCS-G-09386 B006 ST00BP00                                                   West Cameron BIks 60,61,76,77,96
---------------------------------------------------------------------------------------------------------------------------------
<S>      <C>         <C>         <C>         <C>            <C>             <C>       <C>         <C>     <C>         <C>
                                                                            Surface   NA027 Lousiane State Planes,
                                                                            Location  Southern Zones, US Foot

Magnetic [Illegible] [Illegible] [Illegible] Date           October 8, 2004 Latitude  [Illegible] Morning [Illegible] [Illegible]

[Illegible] 2004     [Illegible] [Illegible] Field Strength [Illegible]     Longitude [Illegible] Evening [Illegible] [Illegible]
---------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
---------------------------------------------------------------------------
Structure

BHP WC-61 B-Platform
---------------------------------------------------------------------------
<S>           <C>                                  <C>
Miscellaneous

[Illegible]   G-09388 B006 (RKB-120) FVD Reference RKB (120000 A above MSL)

Plan          [Illegible]                          [Illegible]
---------------------------------------------------------------------------
</TABLE>

                                   [GRAPHIC]

Surface Location: 3377.6' FSL, 1805.23' FWL BLK. WC-61
PBHL: 2052.16' FNL, 887.91' FWL BLK. WC-76

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                     Targets
Name               SSTVD       TVD      Northing     Easting       NS         EW       Shape       Dimensions
----------------------------------------------------------------------------------------------------------------
<S>              <C>        <C>        <C>         <C>          <C>        <C>       <C>        <C>
Rob C -11675ss   11675.00   11795.00   35O200.00   1348300.00   -2693.85   -682.84   CIRCULAR   Diameter: 300.00
----------------------------------------------------------------------------------------------------------------
MA3 -13290ss     13290.00   13410.00   348450.00   1348150.00   -4443.94   -832.85   CIRCULAR   Diameter: 300.00
----------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                            Critical Points
-------------------------------------------------------------------------------------------------------
Comments                           Survey MD   Inclination   Azimuth   Sub-Sea TVD      TVD        VS
-------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>         <C>        <C>         <C>        <C>
Slot3 WC-61 B-PLATFORM                  0.00       0.00       196.49      -120.00        0.00      0.00
-------------------------------------------------------------------------------------------------------
Mud Line-36ss                         156.00       0.00       196.49        36.00      156.00      0.00
-------------------------------------------------------------------------------------------------------
KOP Build 2DEG./100'                 6600.00       0.00       196.49      6480.00     6600.00      0.00
-------------------------------------------------------------------------------------------------------
Begin 29.68DEG. Tangent              8083.97      29.68       196.49      7898.49     8018.49    373.11
-------------------------------------------------------------------------------------------------------
Begin 1.5DEG./100' Bld & Turn       11211.26      29.68       196.49     10615.51    10735.51   1910.38
-------------------------------------------------------------------------------------------------------
Begin 47.4DEG. Tangent              12482.75      47.40       184.90     11607.32    11727.32   2696.59
-------------------------------------------------------------------------------------------------------
Rob C -11675ss                      12582.75      47.40       184.90     11675.00    11795.00   2769.96
-------------------------------------------------------------------------------------------------------
MA3 -13290ss                        14968.87      47.40       184.90     13290.00    13410.00   4520.59
-------------------------------------------------------------------------------------------------------
PBHL/TD                             16313.37      47.40       184.90     14200.00    14320.00   5507.01
-------------------------------------------------------------------------------------------------------

<CAPTION>
-------------------------------------------------------------------------------------
                                   Critical Points
-------------------------------------------------------------------------------------
Comments                              NS         EW     Northing      Easting     DLS
-------------------------------------------------------------------------------------
<S>                                <C>        <C>       <C>         <C>          <C>
Slot3 WC-61 B-PLATFORM                 0.00      0.00   352893.70   1348982.80   0.00
-------------------------------------------------------------------------------------
Mud Line-36ss                          0.00      0.00   352893.70   1348982.80   0.00
-------------------------------------------------------------------------------------
KOP Build 2DEG./100'                   0.00      0.00   352893.70   1348982.80   0.00
-------------------------------------------------------------------------------------
Begin 29.68DEG. Tangent             -360.38   -106.65   352533.34   1348876.16   2.00
-------------------------------------------------------------------------------------
Begin 1.5DEG./100' Bld & Turn      -1845.20   -546.05   351048.60   1348436.78   0.00
-------------------------------------------------------------------------------------
Begin 47.4DEG. Tangent             -2620.50   -676.55   350273.34   1348306.29   1.50
-------------------------------------------------------------------------------------
Rob C -11675ss                     -2693.85   -682.84   350200.00   1348300.00   0.00
-------------------------------------------------------------------------------------
MA3 -13290ss                       -4443.94   -832.85   348450.00   1348150.00   0.00
-------------------------------------------------------------------------------------
PBHL/TD                            -5430.06   -917.37   347463.00   1348065.48   0.00
-------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                       B6, OCSG 09386, West Cameron 76 B6

RIG POSITIONING DAYS: 2.8       SHL:   1348982.8' E &352893.7 N NAD27
DRILL & ABANDON DAYS: 49.2      BHL:   1348065' E&347363.9' N NAD 27
TOTAL DAYS            51.9      Rig:   Ocean Titan
DEPTH:                16,300'   AFE# & Revision Date:                  20-OCT-04
WD:                   0,040'

Assumptions:
1. $65k/day rig rate
2. Open hole logs in two intervals
3. No Coring or Sidetracks
4. 12-1/4* hole through primary objective

<TABLE>
<CAPTION>
DESCRIPTION                           RIG MOB/DEMOB   DRY HOLE W/LOGS   WC 76 B6 TOTAL
-----------------------------------   -------------   ---------------   --------------
<S>                                      <C>            <C>               <C>
Section 1 : Time Sensitive
Rig Rate                                  208,000         3,197,176         3,405,176
Support Vessels                            33,058           590,248           623,306
BHP Supervision                            15,427           275,449           290,876
BHP Well Site G&G                               0            42,500            42,500
Aviation                                        0                 0                 0
Mud Logging                                     0           152,000           152,000
Mud Engineering                             4,992           115,590           120,582
Cementing Services                          5,510            98,375           103,884
Communications                              3,306            59,025            62,331
Solids Control                              2,755           104,099           106,854
Diving / ROV                                    0                 0                 0
Directional Drilling                            0         1,806,554         1,806,554
Wellhead Services                               0                 0                 0
Metocean                                      931            16,625            17,556
Completion and Workover Services                0                 0                 0
Supply Base                                11,019           196,749           207,769
Rental Tools                                4,138            83,879            88,017
Fishing Services                                0                 0                 0
Rig Contractor Additional Charges           2,755            49,187            51,942
                                         --------       -----------       -----------
Total Time Sensitive                      291,890         6,787,458         7,079,347

Section 2 : Non Time Sensitive
Rig Positioning                            35,700                 0            35,700
Site Survey                                     0                 0                 0
HSE                                             0           200,000           200,000
Studies / Analysis                              0            80,000            80,000
Wireline Logging                                0           330,000           330,000
Freight and Materials Handling              6,887           122,968           129,855
Tubular Running Services                        0           241,000           241,000
Inspection and refurbishment                    0           118,375           118,375
Abandonment & Suspension                        0           600,000           600,000
                                         --------       -----------       -----------
Total Non Time Sensitive                   42,587         1,692,343         1,734,930

Section 3: Tangibles & Consumables
Wellhead Equipment                              0           186,000           186,000
Tubulars                                        0         1,792,068         1,792,068
Tubular Accessories                             0           235,000           235,000
Mud and Chemicals                               0         1,590,000         1,690,000
Cement and Additives                            0           200,000           200,000
Drill Bits                                      0           137,590           137,590
Completion Consumables                          0                 0                 0
Solids Control Equipment                        0           211,164           211,164
Rig Consumables                                 0            75,000            75,000
Fuel                                       12,397           221,343           233,740
Miscellaneous                                   0                 0                 0
                                         --------       -----------       -----------
Total Tangibles & Consumables              12,397         4,648,165         4,760,562

Section 4: Administration
Timewriting                                 9,539           347,247           359,536
Training                                        0            50,000            50,000
Travel                                          0            49,187            51,942
                                         --------       -----------       -----------
Total Administration                        9,539           446,434           461,478
                                         --------       -----------       -----------
Class 'A' Estimate (+/-15%)              $356,413       $13,574,400       $14,036,317
                                         ========       ===========       ===========
Original AFE
                                         --------       -----------       -----------
SUPPLEMENTAL AFE ESTIMATE
                                         ========       ===========       ===========
</TABLE>

DRILLING RESOURCE TEAM SIGN OFF:
--------------------------------

PREPARED BY:   RECOMMENDED BY:   RECOMMENDED BY:   RECOMMENDED BY:

DATE:          DATE:             DATE:             DATE:

<PAGE>

<TABLE>
<S>                                                        <C>
------------------------------------------------------------------------------------------------------------------------------------
Preliminary AFE Estimate $10,547.52                        BHP PETROLEUM
1 x Zones x 300ft FracPack - Deviated Well -38 deg         DRILLING & COMPLETION
Days    29.07                                              FIELD:              TBA
NPT        15%                                             WELL:               WC77-B6 COMPLETION - PLATFORM
WD         40 ft.                                          Last Revision Date: 18-Nov-04
MD     16,300 ft.                                          AFE Number:         TBA
TVD    14,200 ft.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                   Install Tree-   Run Liner              Install Upper
                                                   Rate  Rig Move   Riser & BOP    Clean-Out   Perforate    Completion
  GSAP   GSAP Code  CONTRACT SERVICES/EQUIPMENT    US$    In/Out      Run/Pull    & Displace  + FracPack      & Test        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>    <C>              <C>       <C>        <C>            <C>        <C>
                    Time Estimate                                           1.08        9.93       10.58           7.47        29.07
------------------------------------------------------------------------------------------------------------------------------------
Section 1: Time Sensitive Costs                          Day       Day            Day         Day         Day            196.8937799
------------------------------------------------------------------------------------------------------------------------------------
                    DRILLING RIG
                    Rig Rate                      60.00                    64.71      595.96      635.08         448.40     1,744.15
                    Rig Rate - Mob / DeMob        60.00
GSAP 1   702090     DRILLING RIG TOTAL                                     64.71      595.96      635.08         448.40     1,744.15
GSAP 2   715140     SUPPORT VESSELS TOTAL                                  23.19      213.55      227.57         160.68       624.99
GSAP 3   715240     BHP SUPERVISION TOTAL                                  10.73       98.83      105.32          74.36       289.24
GSAP 4   715200     WELLSITE G&G TOTAL
GSAP 5   730180     AVIATION TOTAL
GSAP 6   715090     MUD LOGGING TOTAL
GSAP 7   716120     MUD ENGINEERING TOTAL                                   1.62       94.36      100.55          71.00       267.53
GSAP 8   715100     CEMENTING SERVICES TOTAL                                4.04      137.25       39.69          28.03       209.01
GSAP 9   722045     COMMUNICATIONS TOTAL                                    1.62       14.90       15.88          11.21        43.60
GSAP 10  715150     SOLIDS CONTROL TOTAL
GSAP 11  715060     DIVING / ROV TOTAL
GSAP 12  715180     DIRECTIONAL DRILLING TOTAL
GSAP 13  715230     WELLHEAD SERVICES TOTAL
GSAP 14  715070     METOCEAN TOTAL                                          0.54        4.97        5.29           3.74        14.53
GSAP 15  715110     WELL TESTING TOTAL                                                            201.11         141.99       343.10
GSAP 16  715210     COMPLETIONS & WORKOVER
                    SERVICES TOTAL                                                     59.66      968.66         614.33     1,809.48
GSAP 17  730200     SUPPLY BASE TOTAL                                       8.36       76.98       82.03          57.92       225.29
GSAP 19  702100     RENTAL TOOLS TOTAL                                      2.16       19.87       21.17          14.95        58.14
GSAP 20  715120     FISHING SERVICES TOTAL                                  1.08        9.93       10.58           7.47        29.07
GSAP 21  702091     RIG CONTRACTOR ADDITIONAL
                    CHARGES TOTAL                                           0.81        7.45        7.94           5.61        21.80

SECTION 1: Time Sensitive Total                                           119.38    1,338.66    2,426.16       1,643.41     5,694,46

------------------------------------------------------------------------------------------------------------------------------------
Section 2: Non Time Sensitive Costs
------------------------------------------------------------------------------------------------------------------------------------
GSAP 22  715080     RIG POSITIONING TOTAL
GSAP 23  742000     SITE SURVEY TOTAL
GSAP 24  760000     HSE TOTAL
GSAP 25  743040     STUDIES / ANALYSIS TOTAL                                                                      15.00        15.00
GSAP 28  715170     WIRELINE LOGGING TOTAL                                                                       170.00       170.00
GSAP 30  730000     FREIGHT & MATERIALS HANDLING
                    TOTAL                                                   2.70       24.83       26.46          18.68        72.67
GSAP 31  715160     TUBULAR RUNNING SERVICES
                    TOTAL                                                              50.00       95.26          67.26       212.52
GSAP 32  710090     INSPECTION & REFURBISHMENT
                    TOTAL                                                   2.70       24.83       26.46          68.68       122.67

SECTION 2: Non Time Sensitive Total                                         5.39       99.66      148.19         339.63       592.87

------------------------------------------------------------------------------------------------------------------------------------
Section 3: Tangibles & Consumables
------------------------------------------------------------------------------------------------------------------------------------
GSAP 34  620117     WELLHEAD EQUIPMENT TOTAL                                                                     185.00       185.00
GSAP 35  620116     TUBULARS TOTAL                                                    301.80                     820.52     1,122.32
GSAP 36  620118     TUBULAR ACCESSORIES TOTAL                                          30.50                                   30.50
GSAP 37  620114     MUD & CHEMICALS TOTAL                                             100.00      659.60         150.00       909.60
GSAP 38  620113     CEMENT & ADDITIVES TOTAL
GSAP 39  640100     DRILL BITS TOTAL                                                   20.00                                   20.00
GSAP 40  620119     COMPLETION CONSUMABLES
                    TOTAL                                                                         758.43         490.41     1,248.84
GSAP 41  702120     SOLIDS CONTROL EQUIPMENT
                    TOTAL
GSAP 42  620115     RIG CONSUMABLES TOTAL                                   1.08        9.93       10.58           7.47        29.07
GSAP 43  642100     RIG FUEL TOTAL                                         10.78       99.33      105.85          74.73       290.69

SECTION 3: TANGIBLES & CONSUMABLES TOTAL                                   11.86      561.66    1,534.46       1,728.14     3,838.02

------------------------------------------------------------------------------------------------------------------------------------
Section 4: Administration
------------------------------------------------------------------------------------------------------------------------------------
GSAP 45             RESOURCE TEAM TIMEWRITING
                    TOTAL
GSAP 48  601800     TRAINING TOTAL                                                                                75.00        75.00
GSAP 49  801000     TRAVEL TOTAL                                                                                  75.00        75.00

SECTION 4: ADMINISTRATION TOTAL                                                                                  150.00       150.00

------------------------------------------------------------------------------------------------------------------------------------
GSAP 46             OVERHEAD TOTAL                                          3.76       55.00      112.99         106.16       274.17

                    ESTIMATED TOTAL                                       140.39    2,054.88    4,221.80       3,967.36    10,547.52
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S>                                                                                                 <C>
                                         REVIEWED BY: _____________________________________         _____________________
                                                      DRILLING ENGINEER SUPERVISOR                  DATE

                                                      _____________________________________         _____________________
                                                      COMPLETION ENGINEER SUPERVISOR                DATE

                                         APPROVED BY: _____________________________________         _____________________
                                                      DRILLING MANAGER                              DATE

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                  Attachment 1

                               B6 Well Discussion

1.   Pertinent Drilling History

     West Cameron Block 76 produces gas with minor  amounts of  condensate  from
     the MA (Marg A) interval (MA1, MA2, and MA3 sands) below-13,000' TVDss.

     MA3

     The MA3 sand,  the field's main reservoir  (Attachment  7), is divided into
     upthrown    and    downthrown    segments    by   a    large    intervening
     down-to-the-southeast fault. Most of the field's production has been from 6
     wells in the  downthrown  MA3  reservoir  (A-l,  B-2, B-3, B-4, B-5 and A-5
     wells).  The B-4 well was later  recompleted  in the  shallower MA1 sand in
     2003.

     In 1997, the B-2 well discovered the expanded downthrown MA3 reservoir.  In
     late 1998,  the B-3 was drilled as an offset to the B-2 and the B-4 and B-5
     wells  were  immediately  drilled in early  1999  during the same  drilling
     campaign.  The A-5 was drilled in the downthrown MA3 in 2001, to accelerate
     production.

     Rob C

     The A-4  well  was  drilled  on the  west  into  the  upthrown  MA  section
     (Attachment  6) but  rapidly  depleted  on test  and was  recompleted  in a
     shallower  Lower  Miocene  reservoir  near -11800' in the Robulus C (Rob C)
     section.  The Rob C  reservoir  also has gas behind pipe in the A-l and A-3
     wells,  which  have  not yet been  produced.  The A-4 Rob C  production  is
     nearing the end of its life and an updip sidetrack is planned, dependent on
     reservoir quality seen in the B-6 Rob C interval.

2.   Structure

     The West Cameron Block 76 Field is located  downthrown to a large northeast
     striking  down-to-southeast  growth  fault.  A large  regional  shale ridge
     controls the strike of the fault and parallels it along the upthrown  side.
     The WC 76 field's structure is a circular  anticlinal closure protruding as
     a salient  off the SE flank of the ridge.  Two narrow  grabens  trend SW-NE
     across the center of closure at the  four-block  junction  southwest of the
     platforms.  A small structural  ridge diverges  westward from the center of
     closure  through  the  penetration  point  of the A-2 and  B-l  wells.  The
     structure is highly faulted by synthetic and antithetic  faults striking in
     a general northeasterly direction.

     A large SW-NE  trending  down-to-SE  buried fault crosses the center of the
     structure  and  separates  the thinner  upthrown NW side from the  expanded
     downthrown  SE side.  The  upthrown MA section  between the MA2 top and MA3
     base averages 590' in thickness,  while the downthrown B-3 well  penetrated
     2,050' of MA sands without encountering the base.

     The upper extent of the fault terminates against  unconformities within the
     MA section and does not extend  above it.  Upthrown MA  production  is from
     isolated  fault blocks while  downthrown MA3 production is from an expanded
     stacked section of deltaic sands with a gas column of over 600' on a common
     water contact. The MA1 and MA2

<PAGE>

     reservoirs  occur mainly in the upthrown  areas and are  shaled-out or have
     low permeabilities in the downthrown wells.

3.   Stratigraphy

     The West Cameron 76 MA sands were  deposited  during a drop in sea level in
     the Lower Miocene (17.8 mmyrs ago) by shelf edge deltas The large expansion
     fault which divides the MA3 Reservoir into upthrown and downthrown segments
     was active  near the shelf edge  during MA  deposition.  Deposition  on the
     upthrown shelf side was controlled by wave and deltaic erosion.  Deposition
     on the downthrown basin side was controlled by space being maintained below
     erosional base by the continuous downward movement of the fault block. This
     resulted in a massive  stacked  downthrown  sand section as compared to the
     thinner, but cleaner winnowed upthrown sands.

     Transgressive  marine  shale  and  sands  covered  the MA  sands  during  a
     subsequent  rise in sea  level.  The top of the  transgressive  section  is
     capped by the Rob C reservoir and unconformity. This erosional unconformity
     was  created  in  shallow   shelf   waters  by  wave   action   during  the
     transgression.  A sand "lag" deposit covered it and the Rob C reservoir was
     created  from a buildup  of the sand into a bar or shoal  during a pause in
     the transgression.

4.   MA 3 Production History

     The MA3  downthrown  (MA3D) has produced 177 Bscf, 1.1 MM Bc and 3 MM Bw as
     of January 1, 2005. Of the six producers, 3 are now offline. The B2, B3 and
     B4 wells  located on the eastern  side of the  reservoir  have  watered out
     leaving the  remaining  three wells,  A1, B5 and A5  producing.  The B5 has
     recently started making  significant  water heralding the onset of water in
     it's drainage area. The A5 is the western most well and is producing  water
     free.  All wells  except the Al have been  drilled and  completed  over the
     entire  interval.  This tends to suggest there is more lateral  movement of
     the water versus vertical due to the lack of water influx into the A5.

     The water  movement is  consistent  with the mapped water  contact which is
     located on the eastern side of the accumulation  (Attachment 7). The north,
     south and west are bounded by faults.  Water underlies the gas accumulation
     and is  moving  vertically  and  laterally  (east to  west) as a result  of
     pressure depletion due to production.

     The reservoir is very  heterogeneous  with  permeability  ranging from 1 to
     1,000 md. Well tests support lower  permeability  than the log and sidewall
     core data.  Vertical  permeability  is probably  greatly reduced due to the
     depositional  model  placing  interbedded  shales over the sand  deposition
     without amalgamation.

     Average porosity is estimated to be 20% with a water saturation of 35%. The
     net to gross ratio of the MA3D is not well defined.  Estimates ranging from
     44% to 66% based on different permeability cutoffs have been reported.

     The gas is 89%  methane  with a  condensate  yield of 6 barrels per million
     cubic feet of 42 API degree  condensate.  A possible dew point of 4,000 psi
     has been estimated based on the gas analysis  performed on the MA1 sand gas
     sample from the B4 well,  which appears  similar to the  composition of the
     MA3D.

<PAGE>

     The initial  reservoir  pressure  was measured in well A1 to be 11,436 psi.
     Current pressure is estimated to be approximately 6,000 psi.

     Existing  MA3D wells have been  completed  without the use of sand control.
     Well  production  rates of ~ 20 MMscfpd were obtained on most  completions,
     the B5 obtained a maximum rate of ~30 mmscfpd in 2001.  Sand production has
     occurred and is presumed to emanate from the less cemented  sand  stringers
     which  are  typically  the  highest  permeability.   Water  production  has
     typically exacerbated sand production under high flow rates.

     In 2003 BHP Billiton  under took internal  studies to identify  options for
     increasing the offtake rate of the MA3D to improve recovery. A new well was
     proposed  but before  investing in this option it was decided to attempt to
     increase  the existing  flow rates to the maximum  sand free rate.  Surface
     sand detectors were installed and calibrated. Increases of ~ 5 MMscfpd were
     obtained  in the A5 and B5  wells  from  the  winter  of 2003 to  mid-2004.
     Declining   reservoir   pressure  made   maintenance  of  sustained   rates
     impossible.  A "flux"  based  maximum  flow rate  model was  developed  and
     calibrated  to sand  production  events.  This model is used today for rate
     management.

     Without  sand  control  the MA3D  completions  cannot be produced at higher
     rates than they are currently.  The A5 and B5 completions currently produce
     a combined  rate of ~ 42 MMscfpd.  The  offtake  rate peaked in 2000 at 102
     MMscfpd from all wells combined.

     It  is  proposed  to  significantly   increase  the  offtake  rate  by  the
     installation of the B6 well.

5.   Gas in Place Estimate

     The MA3D  reservoir has an estimated  gross rock volume range of 300,000 to
     325,000 acft. The well averages for porosity,  water  saturation and net to
     gross are 0.20,  0.35 and 0.44 to 0.66 (n/g).  The FVF is  estimated  to be
     ~360  scf/rcf.  Given  these  parameters,  the  original  gas in  place  is
     estimated to be between 269 and 437 Bscf. This range is primarily driven by
     the net to gross  ratio.  A most likely net to gross of 53% yields a gas in
     place of 324 to 351 Bscf.

6.   Remaining Recoverable Reserves

     Decline curve  modeling  suggests  that without  additional  drilling,  the
     reservoir will deplete with an ultimate  recovery of 233 Bscf which equates
     to a recovery factor of 66% to 71% based on the most likely GIP range.

     The addition of the B6 well is proposed to lower the  abandonment  pressure
     approximately  1,000 to 2,000  psi and  increase  the  recovery  factor  by
     approximately 5% to 20%. This would yield incremental  recovery of 15 to 70
     Bscf. Attachment 8 shows the comparison of production rate predictions with
     and  without  the B6  well.  Attachment  9  shows  the  yearly  incremental
     production associated with the B6 for a 15 Bscf uplift in recovery.

7.   B6 Well Objective

     The primary objective of the B6 well is to increase the voidage rate of the
     reservoir  and  improve  ultimate  recovery  by  lowering  the  abandonment
     pressure.

<PAGE>

     The  secondary  objective of the B6 well is to appraise the location in the
     Rob C reservoir.  Logs and pressures will be obtained in this interval. Due
     to the casing design,  the B6 cannot be used for a completion in the Rob C.
     It is proposed to sidetrack the A4 in this area if proven to be productive.

     It is proposed to install  sand  control in the well which will enable much
     higher  production  rates than  previously  obtained  with past  completion
     techniques.

     The  well  location  objective  is to  place  the  perforations  updip  and
     laterally  west in the  reservoir  to  avoid  water  influx.  Modeling  has
     concluded that the well can lift  significant  water volumes  maintain high
     rates  sufficient  for economic  success.  The "B" platform has ~3,000 bwpd
     processing  capacity.  It is  anticipated  the well will  produce  30 to 60
     mmscpd.  The  quality of the  section  found in the well and the  resultant
     completion skin will dictate the rate potential.

     The B6 well location co-ordinates are shown in Attachment 5.

     The proposed completion is envisioned to be up to 300' and will extend from
     the top of the reservoir down (Attachment 1). It is not planned to drill to
     the water contact to eliminate  potential water breakthrough behind pipe. A
     special well design to provide 9 5/8" casing on bottom has been  developed.
     The larger  casing will  assist in the sand  control  installation  that is
     planned to use shunt tube  technology.  A 300' frac pack or gravel  pack is
     technically  challenging  but has been performed  recently in the industry.
     BHP  Billiton  is  partner  in one  recent  installation  and  is  actively
     participating  in the technology  and techniques  required for the scope of
     this  completion.  While a  "Fracpack"  is  desirable  for reduced skin and
     improved  performance,  the  possibility  of wet  stringers  in the drilled
     section might make this application undesirable. A more conventional "water
     pack" coupled with  selective  perforations  may provide  better water free
     production.  Both  techniques  are  under  consideration  and the  ultimate
     decision will be made when the section is logged.

     The drilling program for the well has been developed  considering the risks
     associated  with drilling  through the depleted sands above and in the MA3D
     (Attachment 2 Pore Pressure  Plot and  Attachment 3 Casing Seat Depths).  A
     large bore  wellhead  has been  obtained  to provide an  additional  casing
     string  enabling  the  installation  of  9  5/8"  casing  in  the  MA3D.  A
     geomechanical   study  by  GMI  was  conducted  in  2004  to  evaluate  the
     recommended maximum hole angle. Hole stability is a primary risk due to the
     pore  pressure  differences  between the  depleted  sands and  shales.  The
     maximum hole angle for the B6 is 47 degress.

8.   Risk Issues and Mitigation

     Primary risk issues  associated  with this project have been  identified to
     be:

          a.   Potential pore pressure problems in the Rob C section.

          b.   Successfully getting the well down and 9 5/8" on bottom.

          c.   Realizing a reservoir section that has suitable Kh to provide the
               well rates expected.

          d.   Finding  wet sand  stringers  in the  section  high  permeability
               layers.

          e.   Installation of a 300' long gravel pack.

          f.   Inducing  water  encroachment  and  production in the well due to
               high withdrawal rates.

<PAGE>

     Mitigation or acceptance of these risks has been evaluated as:

          a.   The area to be  penetrated  by the B6 may not connect to the area
               drained by the A4 based on the recovery and  performance  of that
               well.  In the event it is  depleted,  a scenario  exists  where a
               casing string may be required.

          b.   The A-5  well was  successful  drilled  with  similar  levels  of
               depletion in the sands  overlaying  the MA3D.  The A-5 program is
               being used as a template for this plan.

          c.   The B-6  location  is  projected  to be between the A1 and the B5
               wells. The A1 section is very condensed and multiple scenarios of
               how  the  section  will  change  between  A1  and B5  exist.  Our
               expectation  is an  acceptable  section will be found at the well
               location.

          d.   If the section found  contains wet sands,  a high rate water pack
               is being  evaluated  as the  completion  technique  coupled  with
               selective   perforation   of   only   the  gas   bearing   sands.
               Additionally,  there is sufficient water handling capacity on the
               facility  to manage a high rate gas well with  significant  water
               production.  Nodal modeling  suggests the gas production  rate is
               robust with high water yields.

          e.   BHP  Billiton is  technically  prepared  to execute  this type of
               completion and has experience with recent similar jobs.

          f.   The project is  economically  viable in the event of  significant
               water production.

<PAGE>

[LOGO]

[GRAPHIC]

--------------------------------------------------------------------------------
                                 WEST CAM 76 #B6
                            WELL COMPLETION DIAGRAM
                               ACTUAL o PROPOSED
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
FIELD   West Cameron 76
--------------------------------------------------------------------------------
WELL #  B6
--------------------------------------------------------------------------------
LEASE   OCS-G-9386
--------------------------------------------------------------------------------
RKB TO WL       RKB TO CHF
--------------------------------------------------------------------------------
RKB TO ML       WATER DEPTH   40'
--------------------------------------------------------------------------------
ANNULAR FLUID   8.3 ppg KCL
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                DIRECTIONAL DATA
--------------------------------------------------------------------------------
MAX ANGLE   47   THRU ZONE    47
--------------------------------------------------------------------------------
KOP       8084   HOLE TYPE Build & hold
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                               SURFACE EQUIPMENT
--------------------------------------------------------------------------------
TREE   4 1/16" x 10 M
--------------------------------------------------------------------------------
SWAB CAP SIZE & THRD
--------------------------------------------------------------------------------
TOP TREE PLANGE
--------------------------------------------------------------------------------
TUBING SPOOL FLANGE
--------------------------------------------------------------------------------
NOTE  Tree Tto be rated for PSL 3 Service
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                               RISER DESCRIPTION
--------------------------------------------------------------------------------
#     SIZE     WGHT   GRADE     THRD     DEPTH
--------------------------------------------------------------------------------
I
--------------------------------------------------------------------------------
II
--------------------------------------------------------------------------------
III
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                 TUBING DETAIL
--------------------------------------------------------------------------------
             Production Tbg.
--------------------------------------------------------------------------------
SIZE              4-1/2"
--------------------------------------------------------------------------------
WEIGHT            13.5#
--------------------------------------------------------------------------------
GRADE            13 Cr 80
--------------------------------------------------------------------------------
DEPTH
--------------------------------------------------------------------------------
THREAD
--------------------------------------------------------------------------------
NEW/USED           NEW
--------------------------------------------------------------------------------
COATING
--------------------------------------------------------------------------------
SCSSV
--------------------------------------------------------------------------------
MIN. I.D.'s       3.812"
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                           PRODUCTION ASSEMBLY DETAIL
--------------------------------------------------------------------------------
#     O.D.   I.D.   LENGTH   DESCRIPTION
--------------------------------------------------------------------------------
       (")    (")     (")
--------------------------------------------------------------------------------
1.
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2.
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3.
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4.
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5.
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6.
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7.
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8.
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9.
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10.
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11.
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12.
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13.
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14.
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15.
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16.
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17.
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18.
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19.
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20.
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21.
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22.
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23.
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24.
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25.
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26.
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27.
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28.
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29.
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30.
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31.
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32.
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33.
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34.
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                 CASING DETAIL
--------------------------------------------------------------------------------
#     SIZE     WGHT   GRADE     THRD     DEPTH
--------------------------------------------------------------------------------
A     30"       1"      DP                370'
--------------------------------------------------------------------------------
B     20"      133#    N-80     BTC      4500'
--------------------------------------------------------------------------------
C   13 3/8"    72#    P-110     SLIJ    13,380'
--------------------------------------------------------------------------------
D   11 7/8"   71.8#   Q-125     SLX     14,380'
--------------------------------------------------------------------------------
E    9 5/8"   53.5#   Q-125   SLIJ II   15,800'
--------------------------------------------------------------------------------
F
--------------------------------------------------------------------------------
G
--------------------------------------------------------------------------------
H
--------------------------------------------------------------------------------
I
--------------------------------------------------------------------------------
J
--------------------------------------------------------------------------------
K
--------------------------------------------------------------------------------
L
--------------------------------------------------------------------------------
                                TIE BACK DETAIL
--------------------------------------------------------------------------------
M
--------------------------------------------------------------------------------
N
--------------------------------------------------------------------------------
O
--------------------------------------------------------------------------------
P
--------------------------------------------------------------------------------
Q
--------------------------------------------------------------------------------
R
--------------------------------------------------------------------------------
S
--------------------------------------------------------------------------------
Completed:                      Workovers:                      none
--------------------------------------------------------------------------------

                                  Attachment 1

<PAGE>

[LOGO]

                                   WC 76 - B6
                         Pre-Drill Estimated PPFG Plot

                                      ppge

                                   [GRAPHIC]

                                  Attachment 2

<PAGE>

--------------------------------------------------------------------------------
                            WC 77 B-6 Proposed Casing
                          Relative to Formation Picks
--------------------------------------------------------------------------------

                                   [GRAPHIC]

                                  Attachment 3

<PAGE>

                                    [GRAPHIC]

        Surface Location
-------------------------------
WC 76 A001 -93.382591 29.621445
WC 60 A002 -93.382613 29.621442
WC 61 A003 -93.382628 29.621445
WC 77 A004 -33.382644 29.621459
WC 77 A005 -93.382631 29.621475

      Bottom Hole Location
-------------------------------
WC 76 A001 -93.380664 29.609126
WC 60 A002 -93.391250 29.616684
WC 61 A003 -93.381961 29,616386
WC 77 A004 -93.392145 29.607277
WC 77 A005 -93.393643 29.600839

                                    [GRAPHIC]

        Surface Location
-------------------------------
WC 60 B001 -93.382353 29.621078
WC 76 B002 -93.382318 29.621048
WC 76 B003 -93.382299 29.621062
WC 76 B004 -93.382337 29.621062
WC 77 B005 -93.382322 29.621079

      Bottom Hole Location
-------------------------------
WC 60 B001 -93.398225 29.614423
WC 76 B002 -93.379251 29.601585
WC 76 B003 -83.379281 29.595382
WC 76 B004 -93.377252 29.608954
WC 77 B005 -93.387986 29.600287
WC 76 B006 -93.38243  29.621090

                                    [GRAPHIC]

        Surface Location
-------------------------------
WC 76 A001 3507' FSL & 1727 FWL
WC 60 A002 3506' FSL & 1720' FWL
WC 61 A003 3507' FSL & 1715' FWL
WC 77 A004 3512' FSL & 1710' FWL
WC 77 A005 3518' FSL S 1715' FWL
WC 60 B001 3372' FSL & 1800' FWL
WC 76 B002 3361' FSL & 1811' FWL
WC 76 B003 3366' FSL & 1817' FWL
WC 76 B004 3366" FSL & 1805' FWL
WC 77 B005 3372' FSL & 1811' FWL
WC 76 B006 3378' FSL & 1805' FWL
    X = 1,348,982.768
    Y = 352,893.696
    Lat 29(DEG.) 37' 15.937" N
    Lon 93(DEG.) 22' 56,413" W

                                     [LOGO]

                           Federal Offshore Louisiana
                               West Cameron Area
                              West Cameron 76 B006

                                SCALE 1" = 2000'
                                  UTM, Zone 16

                                  Attachment 5

<PAGE>

--------------------------------------------------------------------------------

                                   WC76_Field

                                    [GRAPHIC]

                                Rob C1 Structure

                                   [GRAPHIC]

--------------------------------------------------------------------------------

                                     [LOGO]

                           WEST CAMERON BLOCK 76 FIELD

                                   ROB C1 SAND
                                TOP OF STRUCTURE

--------------------------------------------------------------------------------
[Illegible]
--------------------------------------------------------------------------------
[Illegible]
--------------------------------------------------------------------------------
[Illegible]
--------------------------------------------------------------------------------

                                  Attachment 6

<PAGE>

--------------------------------------------------------------------------------

                                    [GRAPHIC]

                             MA-3U Top of Structure

                                    [GRAPHIC]

--------------------------------------------------------------------------------

                                     [LOGO]

                           WEST CAMERON BLOCK 76 FIELD

                                 MA-3 UpperBand
                                TOP OF STRUCTURE

--------------------------------------------------------------------------------
[Illegible]
--------------------------------------------------------------------------------
[Illegible]
--------------------------------------------------------------------------------
[Illegible]
--------------------------------------------------------------------------------

                                  Attachment 7

<PAGE>

                            MA3D Forecast Comparison
                             Eclipse 050203C Series

                                    [GRAPHIC]

                                  Attachment 8

<PAGE>

------------------------
MA3D Production Forecast
------------------------

           W/OB6        W/B6
Year     MMscf/Yr     MMscf/Yr
----     --------     --------
2005       2,985        4,291
2006      10,498       15,280
2007       8,944       12,502
2008       7,878       10,849
2009       7,359        9,381
2010       7,020        8,366
2011       6,245        6,095
         -------      -------
          50,927       66,764
     Incremental    15,836.80 MMscf Gross

                                  Attachment 9

<PAGE>

                           AUTHORITY FOR EXPENDITURE
                    Americas Operating and Development Team

<TABLE>
<S>                         <C>             <C>                <C>
                                  [Illegible]
Contract/Agreement No.      _____________   Budget Year        2005
                                                               Yes     Amount      No
Operator AFE #              _____________
Estimated Start Date        May 1, 2005     Budget             |_|   $8,096,943   |x|
Estimated Completion Date   July 23, 2005   Current Forecast   |x|   $8,096,943   |_|

============================================================================================================
Lease Name & Well No.      County and State: Offshore Louisiana   Region: Gulf of Mexico OCA
                           ---------------------------------------------------------------------------------
OCSG 9386 B6               Location (Sec-Twn-Rng): West Cameron Blk 76 - OCS-G 09386 B6
------------------------------------------------------------------------------------------------------------
Field or Area              Prospect Name (Exploration Only)                   Last Well on Lease
                           ---------------------------------------------------------------------------------
West Cameron               Prospect#                                         Yes   |_|   No   |x|
------------------------------------------------------------------------------------------------------------
Type of AFE:               Formation                        Yes    No                   [Illegible]
[Illegible]          |_|   [Illegible]                      |X|   |_|               [Illegible]  [Illegible]
Development          |X|                 [Illegible]
Exploratory          |_|   Marg A3                                       Working
   Class Inventory         [Illegible]                                   Interest        [Illegible]
------------------------------------------------------------------------------------------------------------

                                  [Illegible]

================================================================================
                                  [Illegible]
--------------------------------------------------------------------------------
                                  [Illegible]
--------------------------------------------------------------------------------
      Company                             Drilling      Completion    Total Cost
--------------------------------------------------------------------------------
BHP Billiton            33.76%            $4,536,101    $3,560,843    $8,096,943
--------------------------------------------------------------------------------
Dominion                40.00%            $5,374,527    $4,219,008    $9,593,535
--------------------------------------------------------------------------------
                                  [Illegible]
</TABLE>Exhbibit 10.4

                                   Exhibit "B"
  Attached to and made a part of that certain Participation Agreement covering
 High Island Block 53 Prospect, dated August 25, 2004, by and between Millennium
             Offshore Group, Inc., and Ridgewood Energy Corporation.

                          OFFSHORE OPERATING AGREEMENT
                          High Island Block 53 Prospect

Section                                                                     Page
-------                                                                     ----
                               TABLE OF CONTENTS
Table of Contents                                                           1-4

                                    ARTICLE 1
                                  APPLICATIONS
Preliminary Recitals                                                          5
1.1     Application to Each Lease                                             5

                                    ARTICLE 2
                                   DEFINITIONS
2.0A    AFE                                                                   5
2.0B    Casing Point Election                                                 5
2.1     Development Operations                                                5
2.2     Development Well                                                      5
2.3     Exploratory Operations                                                5
2.4     Exploratory Well                                                      5
2.5     Facilities                                                            5
2.6     Lease                                                                 5
2.7     Non-Consent Operations                                                5
2.8     Non-Consent Platform                                                  5
2.9     Non-Consent Well                                                      5
2.10    Non-Operator                                                          5
2.11    Non-Participating Party                                               6
2.12    Non-Participating Party's Share                                       6
2.13    Operator                                                              6
2.14    Participating Interest                                                6
2.15    Participating Party                                                   6
2.16    Producible Well                                                       6
2.18    Working Interest                                                      6
2.18    Affiliate                                                             6
2.19    Sidetrack or Sidetracking                                             6
2.20    Platform                                                              6
2.21    Reservoir                                                             6

                                    ARTICLE 3
                                    EXHIBITS
3.1     Exhibits                                                              6
        3.1.1    Exhibit "A" Leases, Parties, Working Interests,
                 Addresses & Representatives                                  6
        3.1.2    Exhibit "B" Insurance Provisions                             6
        3.1.3    Exhibit "C" Accounting Procedure                             6
        3.1.4    Exhibit "D" Non-Discrimination                               6
        3.1.5    Exhibit "E" Gas Balancing Agreement                          6
        3.1.6    Exhibit "F" Memorandum of Operating Agreement &
                 Financing Statement                                          6

                                    ARTICLE 4
                                    OPERATOR
4.1     Operator                                                              6
4.2     Resignation                                                           7
4.3     Removal of Operator                                                   7
4.4     Selection of Successor                                                7
4.5     Delivery of Property                                                  7

                                    ARTICLE 5
                        AUTHORITY AND DUTIES OF OPERATOR
5.1     Exclusive Right to Operate                                            7
5.2     Workmanlike Conduct                                                   7
5.3     Liens and Encumbrances                                                7
5.4     Employees                                                             7
5.5     Records                                                               7
5.6     Compliance                                                            7
5.7     Drilling                                                              7
5.8     Reports                                                               7
5.9     Permits and Licenses                                                  8

                                        1

<PAGE>

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

                                    ARTICLE 6
                          VOTING AND VOTING PROCEDURES
6.1     Designation of Representatives                                        8
6.2     Voting Procedures                                                     8
        6.2.1    Voting Interest                                              8
        6.2.2    Vote Required                                                8
        6.2.3    Votes                                                        8
        6.2.4    Meetings                                                     9
                                    ARTICLE 7
                                     ACCESS
7.1     Access to Lease                                                       9
7.2     Reports                                                               9
7.3     Confidentiality                                                       9
7.4     Limited Disclosure                                                    9
7.5     Press Releases                                                        9
7.6     Media Releases                                                        9

                                    ARTICLE 8
                                  EXPENDITURES

8.1     Basis of Charge to the Parties                                       10
8.2     Authorization                                                        10
8.3     Advance Billings                                                     10
8.4     Failure to Commence Operations Timely                                10
8.5     Refund of Excess Funds                                               10
8.6     Commingling Funds                                                    10
8.7     Security Rights                                                      10
8.8     Unpaid Charges                                                       11
8.9     Default                                                              11
8.10    Carved-Out Interests                                                 11

                                    ARTICLE 9
                                     NOTICES
9.1     Giving and Receiving Notices                                         11
9.2     Content of Notice                                                    11
9.3     Response of Notices                                                  12
        9.3.1    Platform Construction                                       12
        9.3.2    Proposal Without Platform                                   12
        9.3.3    Other Matters                                               12
9.4     Failure to Respond                                                   12
9.5     Timely Operations                                                    12
9.6     Restrictions on Multiple Well Proposals                              12

                                   ARTICLE 10
                                EXPLORATORY WELLS
10.1    Operations by All Parties                                            12
10.2    Second Opportunity to Participate                                    12
10.3    Operations by Fewer Than All Parties                                 13
        10.3.1   Subsequent Exploratory Wells                                13
        10.3.2   Subsequent Exploratory Wells/Non-Production Reversion       14
10.4    Course of Action After Drilling to the Initial Objective Depth       14

                                   ARTICLE II
                             DEVELOPMENT OPERATIONS
11.1    Operations By All Parties                                            15
11.2    Second Opportunity to Participate                                    15
11.3    Operations By Fewer Than All Parties                                 15
11.4    Timely Operations                                                    16
11.5    Course of Action After Drilling to Initial Objective Depth           16
11.6    Deeper Drilling                                                      16

                                   ARTICLE 12
                             NON-CONSENT OPERATIONS
12.1    Non-Consent Operations                                               16
        12.1.1   Non-Interference                                            16
        12.1.2   Multiple Completion Limitation                              16
        12.1.3   Liens                                                       16
        12.3.4   Metering                                                    16
        12.1.5   Platform Salvage                                            16
        12.1.6   Non-Consent Well                                            16
        12.1.7   Cost Information                                            17
12.2    Penalties                                                            17

                                        2

<PAGE>

Section                                                                     Page
-------                                                                     ----
12.3    Recoupment and Salvage                                               18
12.4    Deepening of Non-Consent Wells                                       18
12.5    Operations from Non-Consent Platform                                 18
12.6    Discovery of Extension from Mobile Drilling Operations               18
12.7    Allocation of Platform Costs to Non-Consent Operations               18
        12.7.1   Charges                                                     19
        12.7.2   Operating and Maintenance Charges                           19
        12.7.3   Payments                                                    19
12.8    Retention of Lease by Non-Consent Well                               19
12.9    Non-Consent Drilling to Maintain Lease                               19
12.10   Allocation of Costs (Single Completion)                              20
12.11   Allocation of Costs Between Zones (Multiple Completions)             20
12.12   Allocation of Costs Between Zones (Dry Hole)                         20
12.13   Intangible Drilling and Completion Allocations                       21

                                   ARTICLE 13
                                   FACILITIES
13.1    Approval                                                             21
13.2    Ownership                                                            21
13.3    Contracts                                                            21
13.2    Other Facilities                                                     21

                                   ARTICLE 14
                            ABANDONMENT AND SALVAGE
14.1    Platform Salvage and Removal Costs                                   21
14.2    Abandonment of Producible Well                                       21
14.3    Assignment of Interest                                               22
14.4    Abandonment Operations Required by Governmental Authority            22
14.5    Operator Purchase of Salvage Materials                               22
14.6    Non-Operator Purchase of Salvage Materials                           22

                                   ARTICLE 15
                                   WITHDRAWAL
15.1    Withdrawal                                                           22
15.2    Limitations of Withdrawal                                            23

                                   ARTICLE 16
                     RENTALS, ROYALTIES, AND OTHER PAYMENTS
16.1    Creation of Overriding Royalty                                       23
16.2    Payment of Rentals and Minimum Royalties                             23
16.3    Non-Participation in Payments                                        23
16.4    Royalty Payments                                                     23

                                   ARTICLE 17
                                      TAXES
17.1    Property Taxes                                                       24
17.2    Contest of Property Tax Valuation                                    24
17.3    Production and Severance Taxes                                       24
17.4    Other Taxes and Assessments                                          24

                                   ARTICLE 18
                                    INSURANCE
18.1    Insurance                                                            24

                                   ARTICLE 19
                         LIABILITY, CLAIMS AND LAWSUITS
19.1    Individual Obligations                                               24
19.2    Notice of Claim or Lawsuit                                           24
19.3    Settlements                                                          24
19.4    Legal Expense                                                        24
19.5    Liability for Losses, Damages, Injury or Death                       24
19.6    Indemnification                                                      24

                                   ARTICLE 20
                           INTERNAL REVENUE PROVISIONS
20.1    Election of Partnership Provisions                                   25

                                        3

<PAGE>

Section                                                                     Page
-------                                                                     ----
                                   ARTICLE 21
                                  CONTRIBUTIONS
21.1    Notice of Contributions Other Than Advances for Sale of
        Production                                                           25
21.2    Cash Contributions                                                   25
21.3    Acreage Contributions                                                25

                                   ARTICLE 22
                             DISPOSAL OF PRODUCTION
22.1    Facilities to Take In Kind                                           26
22.2    Duty to Take In Kind                                                 26
22.3    Failure to Take In Kind                                              26
22.4    Expenses of Delivery In Kind                                         26
22.5    Gas Balancing Agreement                                              26

                                   ARTICLE 23
                                 APPLICABLE LAW
23.1    Applicable Law                                                       26

                                   ARTICLE 24
                    LAWS, REGULATIONS AND NON-DISCRIMINATION
24.1    Laws and Regulations                                                 26
24.2    Non-Discrimination                                                   26

                                   ARTICLE 25
                                  FORCE MAJEURE
25.1    Force Majeure                                                        26
25.2    Notice                                                               26

                                   ARTICLE 26
                SUCCESSORS, ASSIGNS AND AREA OF MUTUAL INTEREST
26.1    Successors and Assigns                                               27
26.2    Area of Mutual Interest                                              27
26.3    Transfer of Interest                                                 27
26.4    Assignments                                                          27

                                   ARTICLE 27
                                      TERM
27.1    Term 27                                                              27

                                   ARTICLE 28
                                    EXECUTION
28.1    Counterpart Execution                                                28

        Signatures                                                           28

                                        4

<PAGE>

                          OFFSHORE OPERATING AGREEMENT

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

                                   WITNESSETH:

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

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

                                    ARTICLE 1
                                  APPLICATIONS

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

                                    ARTICLE 2
                                   DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

                                        5

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                    ARTICLE 3
                                    EXHIBITS

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

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

          3.1.2 Exhibit "B". Insurance Provisions.

          3.1.3 Exhibit "C". Accounting Procedure.

          3.1.4 Exhibit "D". Non-Discrimination Provisions.

          3.1.5 Exhibit "E". Gas Balancing Agreement.

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

                                    ARTICLE 4
                                    OPERATOR

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

                                        6

<PAGE>

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

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

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

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

                                    ARTICLE 5
                        AUTHORITY AND DUTIES OF OPERATOR

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

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

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

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

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

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

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

                                        7

<PAGE>

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

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

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

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

          b) copy of plat of well location;

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

          d) complete report of all core analysis;

          e) copies of any logs or surveys as run;

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

          g) copies of reports made to regulatory agencies; and

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

          i) upon written request, any other pertinent  information available to
     Operator and relative thereto.

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

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

                                    ARTICLE 6
                          VOTING AND VOTING PROCEDURES

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

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

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

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

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

                                        8

<PAGE>

          6.2.4 Meetings. Meetings of the Parties may be called by Operator upon
its own motion or at the  request of one (1) or more  Parties  having a combined
voting  interest  of not less than ten percent  (10%).  Except in the case of an
emergency, no meeting shall be called on less than ten (10) days advance notice,
with meeting agenda attached.  The  representative of Operator shall be chairman
of each meeting.

                                    ARTICLE 7
                                     ACCESS

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

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

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

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

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

          a) name of the well;

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

          c) date the Lease was acquired and bonus paid;

          d) intervals tested;

          e) test results;

          f) development or confirmation plans; and

          g) Participating Parties and their Participating Interests.

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

     7.6  Media  Releases.  Except as agreed  by all  Participating  Parties  or
otherwise  permitted  by this  Article,  no  party  shall  issue a news or media
release  about  operations  on the Lease.  In an emergency  involving  extensive
property or environmental  damage,  operations  failure,  loss of human life, or
other clear emergency,

                                        9

<PAGE>

and for which  there is  sufficient  time to obtain  the prior  approval  of the
Parties,  Operator  may  furnish  the  minimum,  strictly  factual,  information
necessary to satisfy the legitimate public interest of the media, the rules of a
stock exchange on which a Party's or it's Affiliate's shares or other securities
are traded and governmental authorities having jurisdiction. Operator shall then
promptly  advise the other Parties of the  information  furnished in response to
the emergency. Any Party shall always have the right to remove its name from any
proposed press release.

                                    ARTICLE 8
                                  EXPENDITURES

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

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

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

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

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

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

     8.7 Security Rights.  In addition to any other security rights and remedies
provided by law with  respect to services  rendered or materials  and  equipment
furnished under this Agreement, for and in

                                       10

<PAGE>

consideration  of the covenants and mutual  undertakings of the Operator and the
Non-Operators herein, the Parties shall have the following security rights:

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

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

                                       11

<PAGE>

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

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

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

               (3) all of its rights,  titles, and interests,  whether now owned
               and existing or hereafter

                                       12

<PAGE>

               acquired  or  arising,  in,  to,  and under or  derived  from all
               existing and future permits, licenses, rights-of-way, and similar
               rights and  privileges  that relate to or are  appurtenant to the
               Lease.

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

          8.7.4 Security Interest in Favor of the  Non-Operators.  To secure the
complete  and  timely  performance  of  and  payment  by  the  Operator  of  all
obligations and  indebtedness of every kind and nature,  whether now owed by the
Operator or hereafter arising,  pursuant to this Agreement,  the Operator hereby
grants to each Non-Operator a continuing  security interest in and to all of its
rights, titles, interests,  claims, general intangibles,  proceeds, and products
thereof,  whether  now  existing  or  hereafter  acquired,  in and  to  (a)  all
hydrocarbons produced from the lands

                                       13

<PAGE>

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

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

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

                                       14

<PAGE>

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

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

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

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

                                       15

<PAGE>

such disputed charges.

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

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

                                    ARTICLE 9
                                     NOTICES

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

                                       16

<PAGE>

     9.2 Content of Notice.  Any notice which requires a response shall indicate
the maximum  response  time  specified in Section 9.3. If a proposal  involves a
Platform, Pipeline, or Facility, the notice shall contain a description of same,
including  location and the estimated costs of fabrication,  transportation  and
installation.  If a proposal involves a well operation, the notice shall include
the  proposed  depth,  the  objective  zone or zones to be tested,  the surface,
objective and bottom-hole  locations,  applicable details regarding  directional
drilling,  the type of  equipment  to be used (such as a mobile  drilling  unit,
floating drilling vessel, or platform), and the estimated costs of the operation
including all necessary expenditures through installation of the wellhead.

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

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

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

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

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

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

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

                                   ARTICLE 10
                                EXPLORATORY WELLS

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

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

                                       17

<PAGE>

participate  in the drilling of the proposed  well,  Operator  shall  proceed to
drill such well for the account of all Parties.

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

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

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

          12.2a) Eight Hundred Percent (800%)

          12.2b) Three Hundred Percent (300%)

          12.2c) Three Hundred Percent (300%)

          12.2d) Two Hundred Percent (200%)

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

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

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

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<PAGE>

               Party's  operating  rights and  production  shall also apply with
               respect  to  such  fifty   percent   (50%)   interest,   to  said
               subsequently drilled well or wells.

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

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

          10.4.1 Casing Point Election.

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

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

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

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

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

               4) proposals to deepen the well.

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

               6) proposals to perform other operations.

               7) proposals to temporarily abandon the well.

               8) proposals to plug and abandon the well.

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

          If the decision as to the further  operation is other than to plug and
     abandon the well, any Party  electing not to  participate  therein shall be
     relieved of any further  obligations  and liabilities as to such operation,
     but shall pay to Operator its proportionate  part of the cost, as estimated
     by Operator, of plugging

                                       19

<PAGE>

     and  abandoning  the  well at the  initial  objective  depth.  The  Parties
     participating in such further  operations shall be entitled to recover from
     any Parties  not  participating  therein,  the amounts set forth in Section
     10.3.2 as to costs  incurred  subsequent  to the  initial  objective  depth
     having  been  reached  and  after  the  decision  respecting  such  further
     operations is made. Furthermore,  the amounts to be recouped by the Parties
     participating in such further operations shall also be recoverable out of a
     Non-Participating   Party's  share  of  production   attributable   to  the
     productive  reservoir(s)  encountered in such further operations in any and
     all  wells  subsequently  drilled  on  the  Lease  and  completed  in  such
     reservoir(s)  or qualifying as  producible  under Section  10.3.2i) and ii)
     above.

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

                                   ARTICLE 11
                             DEVELOPMENT OPERATIONS

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

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

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

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

                                       20

<PAGE>

Non-Consent Operations,  and the notice so indicated that necessity,  operations
shall be deemed to have  commenced  on the date the  contract  for design of the
Platform  is let,  or on the date  rigging-up  operations  are  commenced  on an
existing Platform.

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

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

                                   ARTICLE 12
                             NON-CONSENT OPERATIONS

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

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

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

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

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

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

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

                                       21

<PAGE>

the same  meaning  as those  terms are  defined  in 30 CFR  250.170  Gulf  Coast
approved by the Chief,  Conservation Division,  Geological Survey, United States
Department  of the  Interior,  effective  July 1, 1993, as same may from time to
time be amended.  Subject to the foregoing provisions of this Article, until the
Party(ies)  participating  in  a  Non-Consent  Well  has  recouped  out  of  the
production  therefrom  the  amounts  to  which  it is  entitled  hereunder,  the
Participating  Party(ies) shall be entitled to conduct any reworking  operations
in the well which it may desire, including plugging back the hole to a shallower
reservoir.  The cost of such  reworking  operations  shall not be subject to the
penalty provisions provided in Section 12.2 or Section 10.3, as the case may be.

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

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

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

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

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

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

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

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

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

     12.4 Deepening of Non-Consent Wells. If any Participating Party proposes to
deepen a Non-Consent  Well,  except for a Non-Consent Well drilled under Section
12.9 or the first Exploratory Well as contemplated in

                                       22

<PAGE>

Section  10.3.1,  a  Non-Participating  Party may  participate  in the  proposed
deepening  operation by notifying the Operator within thirty (30) days (48 hours
if a rig is on location)  after  receiving the proposal that it will join in the
deepening  operation and by paying to the Participating  Parties an amount equal
to such  Non-Participating  Party's  share of the actual  costs  incurred in the
drilling and casing of such well to the point at which such deepening  operation
is commenced.  The Participating Parties shall continue to be entitled to recoup
the full sum provided for in Section  10.3.2 or Section 12.2  applicable  to the
non-consent  portion  of the well,  less the amount  paid  under  this  Section.
Provided, however, in the event the payment specified in this Section 12.4 would
then cause the amount of money recouped by the  Participating  Parties to exceed
the full sum  provided  for in Section  10.3.2 or  Section  12.2,  whichever  is
applicable,  then such  payment  shall be reduced by an amount so that such full
sum shall not then be exceeded.

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

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

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

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

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

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

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

                                       23

<PAGE>

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

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

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

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

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

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

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

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

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

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

                                       24

<PAGE>

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

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

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

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

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

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

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

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

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

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

                                   ARTICLE 13
                                   FACILITIES

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

                                       25

<PAGE>

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

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

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

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

                                   ARTICLE 14
                             ABANDONMENT AND SALVAGE

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

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

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

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

                                       26

<PAGE>

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

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

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

                                   ARTICLE 15
                                   WITHDRAWAL

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

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

                                       27

<PAGE>

                                   ARTICLE 16
                      RENTALS, ROYALTIES AND OTHER PAYMENTS

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

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

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

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

                                   ARTICLE 17
                                      TAXES

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

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

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

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

                                       28

<PAGE>

                                   ARTICLE 18
                                    INSURANCE

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

                                   ARTICLE 19
                         LIABILITY, CLAIMS, AND LAWSUITS

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

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

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

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

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

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

                                   ARTICLE 20
                           INTERNAL REVENUE PROVISIONS

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

                                       29

<PAGE>

states that the income  derived by it from the  operations  under this Agreement
can be adequately  determined  without the  computation of  partnership  taxable
income.

                                   ARTICLE 21
                                  CONTRIBUTIONS

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

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

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

                                   ARTICLE 22
                            DISPOSITION OF PRODUCTION

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

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

     22.3 Failure to Take in Kind. If any Party fails to take in kind or dispose
of its  share of the oil and gas,  Operator  may,  at any time and from  time to
time,  either (a)  purchase oil or gas at  Operator's  posted  price,  or in the
absence of a posted price, at the price prevailing in the area for oil or gas of
the same kind, gravity, an quality; or (b) sell such oil or gas to others at the
best  price  obtainable  by  Operator,  subject  to  revocation  at  will by the
non-taking Party upon thirty (30) days advance written notice.  All contracts of
sale by  Operator  of any  Party's  share  of oil or gas  shall be only for such
reasonable  periods  of time as are  consistent  with the  minimum  needs of the
industry  under the  circumstances,  but in no event shall any contract be for a
period in excess of one (1) year. Notwithstanding the foregoing,  Operator shall
not make a sale of any Party's share of gas production without giving such Party
at least thirty (30) days' prior written notice of the intended  sale.  Proceeds
of all sales made by  Operator  pursuant  to this  Section  shall be paid to the
Parties entitled thereto.

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

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

                                       30

<PAGE>

                                   ARTICLE 23
                                 APPLICABLE LAW

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

                                   ARTICLE 24
                    LAWS, REGULATIONS AND NON-DISCRIMINATION

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

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

                                   ARTICLE 25
                                  FORCE MAJEURE

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

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

                                   ARTICLE 26
          SUCCESSORS AND ASSIGNS, AREA OF MUTUAL INTEREST AND TRANSFERS

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

     26.2 Area of Mutual Interest. - None

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

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

                                   ARTICLE 27
                                      TERM

     27.1 Term. This Agreement shall remain in effect so long as the Lease shall
remain in effect;  however,  all  property  belonging  to the  Parties  shall be
disposed  of and final  settlement  shall be made  under  this  Agreement.  This
Agreement  shall remain in effect from the effective date and for so long as the
Lease shall remain

                                       31

<PAGE>

in effect as to any acreage covered thereby, whether by production or otherwise,
or until all assets and  Operations  have been turned  over to a single  Working
Interest  owner.  Termination of this Agreement shall not relieve any Party from
any costs or  liability  accrued or incurred  prior to the  termination  of this
Agreement, and the provisions of this Agreement shall continue in force for such
additional time as necessary until:

          (a) all wells have been plugged and abandoned;

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

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

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

                                   ARTICLE 28
                                    EXECUTION

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

WITNESSES:                               OPERATOR:
                                         Millennium Offshore Group, Inc.

/s/ Illegible                            By: /s/ Illegible
--------------------------------------       -----------------------------------
[Illegible]                              Its: Executive Vice President
--------------------------------------

WITNESSES:                               NON-OPERATORS:
                                         Ridgewood Energy Corporation

/s/ Illegible                            By: /s/ Illegible
--------------------------------------       -----------------------------------
[Illegible]                              Its: EXEC. VICE PRESIDENT
--------------------------------------

                                       32

<PAGE>

STATE OF TEXAS

COUNTY OF HARRIS

     On this 3rd day of September,  2004, before me, appeared, D. Kent Singleton
to me  personally  known,  who,  being by me duly sworn,  did say that he is the
Executive V.P. of Millennium Qffshore Group, Inc., a Texas corporation, and that
the foregoing instrument was signed on behalf of the corporation by authority of
its Board of Directors,  and that he acknowledged  the instrument to be the free
act and deed of the corporation.

                                    /s/ Jerry D. Niekamp
                                    --------------------------------------------
                                    Notary Public, State of Texas

                                    My Commission Expires: _____________________

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

STATE OF TEXAS

COUNTY OF HARRIS

     On this 3rd day of September,  2004, before me, appeared,  W. Greg Tabor to
me  personally  known,  who,  being  by me duly  sworn,  did say  that he is the
Executive V.P. of Ridgewood Energy Corporation, a Delaware corporation, and that
the foregoing instrument was signed on behalf of the corporation by authority of
its Board of Directors,  and that he acknowledged  the instrument to be the free
act and deed of the corporation.

                                    /s/ Jerry D. Niekamp
                                    --------------------------------------------
                                    Notary Public in and for the State of Texas

                                    My Commission Expires: _____________________

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

                                       33

<PAGE>

                                   EXHIBIT "A"

     Attached to and made a part of that certain  Offshore  Operating  Agreement
covering  High Island Block 53 Prospect,  dated August 25, 2004,  by and between
Millennium Offshore Group, Inc., as Operator,  and Ridgewood Energy Corporation,
as Non-Operator.

I.   CONTRACT AREA: The lands and waterbottoms  within the High Island Block 53,
     insofar as same covers the lands subject to the lease described below, less
     and except the W/2 of the W/2 of the SW/4.

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

III. PARTIES & OWNERSHIP INTERESTS:

                         Test Well and Subsequent Wells

Ridgewood Energy Corporation       72.00000%
Millennium Offshore Group, Inc.    28.00000%
                                  ---------
                                  100.00000%

IV.  OIL, GAS & MINERAL LEASES SUBJECT TO THIS  AGREEMENT:  Oil and Gas Lease of
     Submerged Lands bearing Serial No. OCS-G 20658 dated effective  December 1,
     1998,  by and between the United States of America,  as Lessor,  and Forest
     Oil Corporation,  as Lessee, covering the portions of Block 53, High Island
     Area, OCS Leasing Map, TX 7.

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

     OPERATOR:

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

     NON-OPERATORS:

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

VI.  BURDENS ON PRODUCTION:

     The total  burdens on  production  affecting  the  interests of the Parties
     equals 28.00000% of 6/6ths and consist of the following burdens:  16.66667%
     Royalty,  13.33333%  of 6/6ths  Overriding  Royalty  in favor of Forest Oil
     Corporation, et al created under the Farmout Agreement dated effective July
     10,  2004,  between  Forest  Oil  Corporation,  as Farmor,  and  Millennium
     Offshore Group, Inc., as Farmee.

                                       34

<PAGE>

                                   EXHIBIT "B"

     Attached to and made a part of that certain  Offshore  Operating  Agreement
covering  High Island Block 53 Prospect,  dated August 25, 2004,  by and between
Millennium Offshore Group, Inc., as Operator,  and Ridgewood Energy Corporation,
as Non-Operator.

                                    INSURANCE

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

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

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

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

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

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

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

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

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

<PAGE>

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

                                                                 [LOGO OF COPAS]

                                   EXHIBIT "C"

     Attached to and made a part of that certain  Offshore  Operating  Agreement
covering  High Island Block 53 Prospect,  dated August 25, 2004,  by and between
Millennium Offshore Group, Inc., as Operator,  and Ridgewood Energy Corporation,
as Non-Operator.

                              ACCOUNTING PROCEDURE
                            OFFSHORE JOINT OPERATIONS

                              I. GENERAL PROVISIONS

1.   Definitions:

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

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

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

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

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

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

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

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

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

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

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

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

2.   Statements and Billings

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

3.   Advances and Payments by Non-Operators

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

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

4.   Adjustments

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

<PAGE>

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

5.   Audits

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

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

6.   Approval by Non-Operators

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

                               II. DIRECT CHARGES

Operator shall charge the Joint Account with the following items:

1.   Rentals and Royalties

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

2.   Labor

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

          (2)  Salaries and wages of Operator's  employees  directly employed on
               Shore Base  Facilities or other Offshore  Facilities  serving the
               Joint Property if such costs are not charged under Paragraph 7 of
               this Section II.

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

          (4)  Salaries and wages of Technical  Employees  directly  employed on
               the Joint Property if such charges are excluded from the Overhead
               rates.

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

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

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

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

3.   Employee Benefits

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

4.   Material

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

5.   Transportation

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

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

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

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

<PAGE>

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

6.   Services

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

7.   Equipment and Facilities Furnished by Operator

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

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

8.   Damages and Losses to Joint Property

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

9.   Legal Expense

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

10.  Taxes

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

11.  Insurance

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

12.  Communications

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

13.  Ecological and Environmental

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

14.  Abandonment and Reclamation

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

15.  Other Expenditures

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

<PAGE>

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

                                  III. OVERHEAD

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

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

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

          ( ) shall be  covered  by the  overhead  rates.
          (X) shall not be covered by the overhead rates.

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

          (X) shall be covered  by the  overhead  rates.
          ( ) shall  not be  covered  by the overhead rates.

1.   Overhead - Drilling and Producing Operations

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

          (X) Fixed Rate Basis, Paragraph 1A, or
          ( ) Percentage Basis, Paragraph IB

     A.   Overhead - Fixed Rate Basis

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

               Drilling  Well  Rate  $29.000.00  (Prorated  for less than a full
               month)

               Producing Well Rate $2.900.00

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

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

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

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

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

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

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

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

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

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

     B.   Overhead - Percentage Basis

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

               (a)  Development

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

               (b)  Operating

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

<PAGE>

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

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

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

2.   Overhead - Major Construction

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

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

          (1)  5% of total  costs if such  costs are more than  $10,000.00;  but
               less than $100,000; plus

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

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

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

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

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

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

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

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

3.   Overhead - Catastrophe

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

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

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

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

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

4.   Amendment of Rates

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

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

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

1.   Purchases

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

2.   Transfers and Dispositions

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

     A.   New Material (Condition A)

          (1)  Tubular Goods Other than Line Pipe

<PAGE>

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

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

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

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

               (d)  Macaroni  tubing  (size  less  than  23/8  inch OD) shall be
                    priced at the lowest  published  out-of-stock  prices f.o.b.
                    the supplier plus transportation  costs, using the Oil Field
                    Haulers  Association  interstate  truck  rate per  weight of
                    tubing  transferred,  to the railway receiving point nearest
                    the Joint Property.

          (2)  Line Pipe

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

               (b)  Line pipe movements  (except size 24 inch OD and larger with
                    walls 3/4 inch and over) less than  30,000  pounds  shall be
                    priced  at  Eastern  mill  published   carload  base  prices
                    effective  as of date of  shipment,  plus 20  percent,  plus
                    transportation  costs  based on  freight  rates as set forth
                    under  provisions  of tubular  goods  pricing  in  Paragraph
                    A.(l)(a)  as  provided  above.   Freight  charges  shall  be
                    calculated from Lorain, Ohio.

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

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

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

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

     B.   Good Used Material (Condition B)

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

          (1)  Material  moved to the Joint  Property

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

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

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

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

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

               At seventy-five  percent (75%) of current new price as determined
               by  Paragraph  A. The cost of  reconditioning,  if any,  shall be
               absorbed by the transferring property.

     C.   Other Used Material

          (1)  Condition C

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

          (2)  Condition D

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

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

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

          (3)  Condition E

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

<PAGE>

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

     D.   Obsolete Material

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

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

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

3.   Premium Prices

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

4.   Warranty of Material Furnished By Operator

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

                                 V. INVENTORIES

The Operator shall maintain detailed records of Controllable Material.

1.   Periodic Inventories, Notice and Representation

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

2.   Reconciliation and Adjustment of Inventories

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

3.   Special Inventories

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

4.   Expense of Conducting Inventories

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

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

<PAGE>

                                   EXHIBIT "D"

    Attached to and made a part of that certain Offshore Operating Agreement
 covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
                                as Non-Operator.

EQUAL EMPLOYMENT OPPORTUNITY

While  performing  under  this  Agreement,  Operator  agrees  to  the  following
additional terms and conditions to the extent they may be applicable to the work
to be performed  under such Farmout  Agreement in accordance with the provisions
of the following described Executive Orders:

A.   E.0. 11246,  as amended  by  E.0. 11375  (Race,  Color,  Religion,  Sex and
     National Origin):

     1.   If the  contract is in excess of $10,000,  Operator  agrees to comply
          with  the  provisions  of  Section  202  of  such  Order  (the  "Equal
          Opportunity Clause"), which Clause is incorporated herein by reference
          pursuant to the  regulations  promulgated  under such Order [41 C.F.R.
          Sec. 60-1.4(d)].

     2.   If the contract is in excess of $10,000,  the  certifies  that it does
          not  maintain  or provide  nor will it  maintain  or  provide  for its
          employees any segregated facilities at any of its establishments,  and
          that it does not permit nor will it permit  its  employees  to perform
          their services at any location,  under its control,  where  segregated
          facilities  are  maintained.*  OPERATOR  agrees  that a breach of this
          certification  is a  violation  of the  Equal  Opportunity  Clause  of
          Executive Order 11246.  Operator  further agrees that (except where it
          has obtained identical certifications from proposed subcontractors for
          specific time periods) it will obtain  identical  certifications  from
          proposed  subcontractors prior to the award of subcontracts  exceeding
          $10,000  which  are  not  exempt  from  the  provisions  of the  Equal
          Opportunity  Clause;  that it will retain such  certifications  in its
          files; and that it will forward the prescribed notice to such proposed
          subcontractors   (except  where  the  proposed   subcontractors   have
          submitted identical certifications for specific time periods).**

     3.   If the  contract is in excess of $50,000 and Operator has more than 50
          employees, Operator agrees (a) to file annually, on or before March 31
          of each year,  (or within 30 days after the award of such  contract if
          not filed within 12 months preceding the date of the award),  complete
          and accurate reports on Standard Form 100 (EEO-1) with the appropriate
          governmental  agency, in accordance with the regulations issued by the
          Secretary  of Labor (41  C.F.R.  Sec.  60-1.7),  and (b) to  develop a
          written   affirmative  action  compliance  program  for  each  of  its
          establishments  in  accordance  with  the  regulations  issued  by the
          Secretary of Labor (41 C.F.R. Sec. 60-1.40).

*    As used in this certification,  the term "segregated  facilities" means any
     waiting rooms, work areas, rest rooms and wash rooms, restaurants and other
     eating  areas,  time  clocks,  locker  rooms and other  storage or dressing
     areas, parking lots, drinking fountains, recreation or entertainment areas,
     transportation  and housing  facilities  provided for  employees  which are
     segregated by explicit  directive or are in fact segregated on the basis of
     race, color or national origin because of habit, local custom or otherwise.

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

B.   E. 0. 11701 (Employment of Veterans)

          If the  contract  is in excess of $10,000,  Operator  agrees to comply
     with the affirmative  action clause and regulations  promulgated under such
     Order (41  C.F.R.  Part  60-250)  which  clause is  incorporated  herein by
     reference pursuant to Section 60-250.22 of such regulations.

C.   E.0. 11625 (Minority Business Enterprises)

     1.   If the  contract is in excess of $10,000,  Operator  agrees to use its
          best efforts to provide minority business enterprises with the maximum
          practicable  opportunity  to  participate  in the  performance of such
          contract  to  the  fullest  extent   consistent   with  the  efficient
          performance thereof [41 C.F.R. Sec. 1-1.1310-2(a)].

     2.   If the  contract is in excess of $500,000,  Operator  agrees to comply
          with the Minority Business Enterprises  Subcontracting  Program Clause
          promulgated  under such Order [41 C.F.R.  Sec.  l-1.1310-2(b)],  which
          clause is incorporated herein by reference.

D.   E.O. 11758 (Employment of Handicapped Persons)

          If the contract is in excess of $2,500, Operator agrees to comply with
     the affirmative  action clause and the regulations  promulgated  under such
     Order (41 C.F.R.  Part  60-741),  which  clause is  incorporated  herein by
     reference pursuant to Section 60-741.22 of such regulations.

<PAGE>

                                   EXHIBIT "E"

    Attached to and made a part of that certain Offshore Operating Agreement
 covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
                                as Non-Operator.

                       GAS BALANCING AND STORAGE AGREEMENT

               The Parties  hereto own and are  entitled to share in the oil and
gas production from the Lease in accordance with their  respective  interests as
set forth in the Operating  Agreement,  dated March 15, 2003, by and between the
signatories  hereof  ("Party  or  Parties").  Each  Party  has made or will make
arrangements to sell or utilize its share of the gas production  however,  it is
recognized  that one or more of the  Parties  may be unable from time to time to
take in kind or  otherwise  dispose of its  interest in the gas  production.  In
order to permit  each party to produce  and  dispose of its  interest in the gas
production  with as much  flexibility as possible,  the Parties hereto agree as
follows:

     1. From and  after  the date of  initial  delivery  of gas from the  Lease,
     during  any period  when a Party is taking  less than its full share of the
     gas  production,  any other  Party may  produce  from the Lease and take or
     deliver to a  purchaser,  each month,  all or a part of that portion of the
     allowable gas production  which is not produced by a Party taking less than
     its full  share.  The  Parties  hereto  shall  share in and own the  liquid
     hydrocarbons  recovered from such gas in accordance  with their  respective
     interests in the Lease as set forth in said Operating Agreement, whether or
     not such Parties are taking their full share of gas.

     2. On a  cumulative  basis,  a Party taking less than its full share of the
     gas produced  shall be credited with gas in storage equal to its full share
     of the  total gas  produced,  less  such  Party's  share of the gas used in
     operations on the Lease or vented or lost, and less that portion of the gas
     such Party took or delivered to its  purchaser.  Operator  will maintain an
     account of the gas balance between the Parties hereto and will furnish each
     Party monthly  statements  showing the total quantity of gas produced,  the
     portion thereof used in operations on the Lease,  vented or lost, the total
     quantity  of gas  taken  by each  Party,  and the  monthly  and  cumulative
     over-and-under delivery of each Party, within sixty (60) days of the end of
     each month of production.

     3. After written notice to the Operator,  a Party may begin taking its full
     share  of the gas  produced  (less  such  Party's  share of the gas used in
     operations on the Lease,  vented or lost).  To allow the recovery of gas in
     storage and to balance the gas account of the Parties,  a Party with gas in
     storage  shall be entitled to take its  current  share of the gas  produced
     (less such Party's share of the gas used in operations on the Lease, vented
     or lost),  plus a share of gas not to exceed its gas in storage  determined
     by multiplying (i) fifty percent (50%) by (ii) the interest of the Party or
     Parties  having taken more than their share of  cumulative  gas  production
     from the Lease by (iii) a fraction,  the numerator of which is the interest
     in the Lease of such Party with gas in storage and the denominator of which
     is the total  percentage  interest  in the Lease of all  Parties  currently
     recovering gas in storage.  Makeup volumes of gas produced shall be applied
     against  the gas  balance  account of the  Parties on a  first-in-first-out
     basis.  It is  specifically  agreed  that no  underproduced  Party  will be
     allowed  to take  make-up  gas during  the  months of  November,  December,
     January or February  ("The Winter  Period").  However,  gas make-up will be
     allowed  during The Winter Period if the  underproduced  Party has taken at
     least  eighty  percent  (80%) of the  make-up  gas to which it is  entitled
     during  the six (6)  consecutive  months  immediately  prior to The  Winter
     Period.

     4. Upon written notice to Operator,  any Party may deliver to its purchaser
     its full share of the allowable gas  production to meet the  deliverability
     tests required by its purchaser;  provided that such tests shall not exceed
     seventy-two (72) hours duration.

     5. Each Party shall pay all  production or severance  taxes,  excise taxes,
     royalties,   overriding  royalties,  production  payments  and  other  such
     payments  for  which it is  obligated  by law or by  lease  or by  contract
     (including  other provisions of said Operating  Agreement),  and nothing in
     these  gas  balancing  provisions  shall be  construed  as  affecting  such
     obligations.  Each Party hereto shall indemnify and hold harmless the other
     Parties hereto against all claims, losses or liabilities arising out of its
     failure to fulfill such obligations.

     6.  Should  production  of gas from the Lease be  permanently  discontinued
     before the gas account is balanced or if  sufficient  reserves do not exist
     to  physically  balance  the gas  account  of the  Parties  or if no gas is
     produced  from the Lease for six (6)  months,  a cash  settlement  (without
     interest) will be made between the underproduced and overproduced  Parties.
     Such  settlement  shall  be  coordinated  by  Operator.  Underproduced  and
     overproduced  Parties  are those  Parties  who have  received  credit for a
     lesser  and a  greater  quantity,  respectively,  than  their  share of the
     cumulative unit gas production  (less such Party's share of the gas used in
     operations  on the  Lease,  vented or lost) at such time as  production  is
     permanently  discontinued  or  at  such  time  as  it  is  determined  that
     sufficient  reserves do not exist to physically  balance the gas account of
     the Parties. In making such settlement,  the underproduced Party or Parties
     will  be  paid  a sum  of  money  by  the  overproduced  Party  or  Parties
     attributable to the overproduction which said overproduced Party or Parties
     received,  at the weighted average price, subject to the further provisions
     of this Paragraph 6, received by the  overproduced  Party or Parties at the
     time and from time to time when the overproduced Party or Parties delivered
     and  sold  that  portion  of  gas  production   from  the  Lease  that  was
     attributable to the interest of the underproduced  Party or Parties,  minus
     payments made by the overproduced  Party or Parties for Lessor's  royalties
     and  production   taxes  on  such   overproduction.   In  determining   the
     overproduced  volumes for which settlement is due, the following rule shall
     be used: When an  overproduced  party takes less gas than its current share
     of production, only the volume less than its current share shall be applied
     to  reduce  prior   overproduction,   in  the  order  of  accrual  of  such
     overproduction.  In the event the  overproduced  Party or Parties took such
     gas in kind or sold or transferred such gas to

<PAGE>

     an affiliate, the price basis shall be the prevailing wellhead price in the
     field of the gas utilized by the overproduced  Party or Parties at the time
     when gas was so utilized, sold or transferred.  As used herein, "affiliate"
     means an entity which controls, is controlled by or is under common control
     with the Party selling or transferring gas to it. For gas sold subject to a
     contingent refund obligation,  the price shall be the rate collected,  from
     time to time,  which is not subject to  possible  refund as provided by the
     FERC (or its  successor) or any other  governmental  authority  pursuant to
     final order or settlement applicable to the gas produced from the Lease and
     sold by the overproduced Party, plus any additional  collected amount which
     is not  ultimately  required  to be  refunded  by order of the FERC (or its
     successor) or any other governmental  authority having  jurisdiction in the
     premises, such additional collected amount to be accounted for at such time
     as final determination is made with respect thereto.

          Notwithstanding the foregoing, should the underproduced Party elect to
     receive  such  additional  collected  amount  which is subject to  possible
     refund pending the issuance of such final order, such  underproduced  Party
     shall be entitled to the payment of such additional  collected  amount from
     the  overproduced  Party upon the  underproduced  Party  delivering to such
     overproduced  Party a bond or  irrevocable  letter of credit (or such other
     assurances  as may be  required  by such  overproduced  Party) in which the
     underproduced  Party agrees to repay the  overproduced  Party the amount so
     paid that is  required by said final order to be  refunded,  plus  interest
     thereon  as  specified  by order of the  FERC (or its  successor)  or other
     governmental authority having jurisdiction.

     7.  This  Agreement  shall  remain  in full  force  and  effect  for a term
     concurrent with the term of the Operating Agreement to which this Agreement
     is attached and as long  thereafter  as is necessary to carry out the final
     settlement of the gas account of the Parties hereto.

     8.  This  Agreement  shall be deemed to be a  separate  agreement  for each
     separate  category of gas  produced  and sold from the Lease as  determined
     under the  provisions of the Natural Gas Policy Act of 1978 and  applicable
     regulations thereunder.

     9. Nothing herein shall change or affect each Party's obligation to pay its
     proportionate share of all costs and liabilities  incurred in operations on
     the Lease, as its share thereof is set forth in the Operating  Agreement to
     which this Agreement is attached.

<PAGE>

                                   EXHIBIT "F"

    Attached to and made a part of that certain Offshore Operating Agreement
 covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
                                as Non-Operator.

                        MEMORANDUM OF OPERATING AGREEMENT
                             AND FINANCING STATEMENT

   To be filed in the conveyance records and in the mortgage records and as a
    non-standard financing statement in accordance with Paragraph 6.0 herein.

1.0 This  Memorandum  of  Operating  Agreement  and  Financing  Statement  (this
"Memorandum")  is effective as of the effective date of the Operating  Agreement
referred to in Paragraph 2.0 below and is executed by the following  undersigned
duly authorized  representative  of Millennium  Offshore  Group,  Inc., a ______
Texas  corporation,  whose taxpayer  identification  number is _____________ and
whose  address is 5300 Memorial  Drive,  Suite 1070,  Houston,  Texas 77007 (the
"Operator");  and the undersigned  duly authorized  representative  of Ridgewood
Energy Corporation,  a ___________  corporation,  whose taxpayer  identification
number is ______________ and whose address is 947 Linwood Avenue, Ridgewood, New
Jersey 07450,  (individually  "Non-Operator" and collectively  "Non-Operators").
The Operator and the Non-Operators  may be referred to herein  individually as a
"Party" and collectively as the "Parties".

2.0 The Parties have entered into that certain Operating  Agreement dated August
25,  2004  (the  "Operating  Agreement")  which  provides  for the  exploration,
development and production of crude oil,  natural gas and associated  substances
from the OCS  blocks,  or  portions  thereof,  described  in Exhibit  "A" of the
Operating Agreement and in Attachment "1" to this Memorandum,  or covered by the
Lease (hereinafter  called the "Contract Area") and which designates  Millennium
Offshore Group, Inc., as the Operator of certain wells located in OCS blocks, or
portions  thereof,  described in Exhibit "A" of the  Operating  Agreement and in
Attachment  "1"  hereof,   to  conduct  such   operations  for  itself  and  the
Non-Operators  as permitted or required by and within the terms of the Operating
Agreement. All OCS federal oil and gas leases (or portions thereof) described in
Exhibit "A" of the Operating  Agreement and in Attachment "1" to this Memorandum
are  hereinafter  called the  "Lease." The  liability  of the Parties  under the
Operating  Agreement  shall be several and not joint or  collective.  Each Party
shall only be responsible  for its  obligations and shall only be liable for its
proportionate share of costs and expenses.

As used in this Memorandum, the following terms have the following meanings:

     a.   "Costs"  shall  mean  the  monetary  amount  of all  expenditures  (or
          indebtedness)  incurred by the Operator and the  Non-Operators for (or
          on  account  of) any  and all  operations  conducted  pursuant  to the
          Operating   Agreement  and   determined   pursuant  to  the  Operating
          Agreement, including the Accounting Procedure.

     b.   "Development Systems" means:

          (i)  systems  to  develop  and  produce  Hydrocarbons,  including  (1)
          offshore surface structures, whether fixed, compliant or floating, (2)
          offshore   subsea   structures  or  templates,   whether   capable  of
          accommodating  one or multiple  wells,  (3) any combination of (1) and
          (2),  (4) any other type of system  designed  to develop  and  produce
          Hydrocarbons,  and (5) all associated  components of any of the above;
          and

          (ii) associated  production  equipment beyond the wellhead connections
          that is  installed  on or outside the  Contract  Area  pursuant to the
          Operating   Agreement  in  order  to  handle  or  process  Hydrocarbon
          production,  including, but not limited to, injection and disposal and
          disposal  wells and the flowlines and gathering  lines that  transport
          Hydrocarbons from the wellhead.

     c.   "Hydrocarbon(s)"  means oil and gas and associated  liquid and gaseous
          by-products  (except  helium) from a wellbore  located on the Contract
          Area.

          Unless otherwise  defined herein,  all other  capitalized  terms shall
          have the meaning ascribed to them in the Operating Agreement.

<PAGE>

3.0 Among other  provisions,  the  Operating  Agreement (a) provides for certain
liens,  mortgages,   pledges  and  security  interests  (collectively  "Security
Rights") to secure payment by the parties of their respective share of costs and
performance of other obligations under the Operating Agreement,  (b) contains an
"Accounting  Procedure",  which establishes,  among other things, interest to be
charged on  indebtedness,  certain costs, and other expenses under the Operating
Agreement at the rate set forth therein,  (c) includes non-consent clauses which
establish that parties who elect not to participate in certain  operations shall
(i) be  deemed to have  relinquished  their  interest  in  production  until the
consenting  parties  recover  their  costs of such  operations  plus a specified
amount or (ii)  forfeit  their  interest in certain  Lease or  portions  thereof
involved in such  operations,  (d) grants each party to the Operating  Agreement
the right to take in kind its  proportionate  share of all oil and gas  produced
from the Contract Area,  and (e) includes a volumetric  Gas Balancing  Agreement
which is attached as Exhibit "D" to the Operating Agreement.

4.0 The Operator hereby  certifies that a true and correct copy of the Operating
Agreement is on file and is available  for  inspection  by third  parties at the
offices of the Operator at the address set forth in paragraph 1.0 and Attachment
"1" of this Memorandum.

5.0 In addition to any other  security  rights and remedies  provided for by law
with respect to services rendered or materials and equipment furnished under the
Operating Agreement and/or this Memorandum, for good and valuable consideration,
the  receipt  and  sufficiency  of  which  are  hereby   acknowledged,   and  in
consideration  of the covenants and mutual  undertakings of the Operator and the
Non-Operators herein, the Parties hereby agree as follows:

5.1 Mortgage and Pledge:  Each Non-Operator  mortgages,  pledges,  affects,  and
hypothecates  to  Operator,  and  Operator  mortgages,   pledges,  affects,  and
hypothecates to each  Non-Operator,  all of its respective  rights,  title,  and
interest in and to the following:

     (a)  the Lease and any interest  therein,  and all accounts,  gas imbalance
          accounts, contract rights, inventory, and general intangibles relating
          thereto or arising therefrom;

     (b)  all  property  and  fixtures,  moveable  or  immovable,  corporeal  or
          incorporeal, attached to or located on or off the Contract Area, which
          are acquired by the Parties pursuant to the Operating Agreement and/or
          this Memorandum;

     (c)  all of the oil,  gas and  associated  substances  in, on, or under the
          Lease  and  that  may be  produced  from the  Lease  and the  proceeds
          attributable  to the sale of such oil, gas and associated  substances;
          and

     (d)  all property, moveable or immovable, corporeal or incorporeal, that is
          used,  obtained or  constructed  (or under  construction)  for use, in
          connection  with the  Lease and  operations  thereon  pursuant  to the
          Operating Agreement and/or this Memorandum.

5.2 Security Interests. Each Non-Operator hereby grants to the Operator, and the
Operator hereby grants to each Non-Operator,  a continuing  security interest in
and  to all  of  its  respective  rights,  titles,  interests,  claims,  general
intangibles,  proceeds, and products thereof,  whether now existing or hereafter
acquired,  in and to (a) all  oil and gas  produced  from  the  offshore  blocks
covered by the Lease or the Contract  Area or  attributable  to the Lease or the
Contract Area when produced,  (b) all accounts receivable accruing or arising as
a  result  of the  sale of such  oil and  gas  (including,  without  limitation,
accounts  arising  from  gas  imbalances  or from the sale of oil and gas at the
wellhead), (c) all cash or other proceeds from the sale of such oil and gas once
produced,  and  (d)  all  Development  Systems,  platforms,  wells,  facilities,
fixtures, tools, tubular goods and other corporeal property,  whether movable or
immovable, whether now or hereafter placed on the offshore blocks covered by the
Lease  or the  Contract  Area  or  maintained  or used in  connection  with  the
ownership,  use, or  exploitation  of the Lease or the Contract  Area, and other
surface  and  sub-surface  equipment  of any  kind or  character  located  on or
attributable  to the Lease or the Contract  Area, and the cash or other proceeds
realized  from the  sale,  transfer,  disposition  or  conversion  thereof.  The
interest of the Parties in and to the oil and gas produced from or  attributable
to the Lease or the Contract  Area when  extracted  and the accounts  receivable
accruing or arising as the result of the sale  thereof  shall be financed at the
wellhead of the well or wells located on the Lease or the Contract  Area. To the
extent  susceptible  under applicable law, the security interest granted by each
Party hereunder covers (i) all  substitutions,  replacements,  and accessions to
the property of such Party described  herein and is intended to cover all of the
rights,  titles,  and  interests  of such Party in all movable  property  now or
hereafter  located upon or used in connection  with the Contract  Area,  whether
corporeal or  incorporeal,  (ii) all rights under any gas  balancing  agreement,
farmout  rights,  option farmout  rights,  acreage and cash  contributions,  and
conversion  rights of such Party in  connection  with the Lease or the  Contract
Area,  or the  Hydrocarbons  produced from or  attributable  to the Lease or the
Contract Area,  whether now owned and existing or hereafter acquired or arising,
including,  without limitation,  all interests of each Party in any partnership,
tax partnership,

<PAGE>

limited partnership,  association,  joint venture, or other entity or enterprise
that holds,  owns, or controls any interest in the Contract  Area, and (iii) all
rights,  claims,  general  intangibles,  and  proceeds,  whether now existing or
hereafter acquired, of each Party in and to the contracts,  agreements, permits,
licenses,  rights-of-way,  servitudes  and similar  rights and  privileges  that
relate to or are  appurtenant to the Lease and/or the Contract  Area,  including
the following:

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

     (b)  all of its  rights,  titles,  and  interests,  whether  now  owned and
          existing  or  hereafter  acquired  or  arising,  in,  to, and under or
          derived  from  all  presently  existing  and  future  advance  payment
          agreements,  and oil,  casinghead  gas, and gas sales,  exchange,  and
          processing  contracts and agreements,  including,  without limitation,
          those  contracts and agreements  that are described on Attachment "1,"
          to the extent, and only to the extent,  those contracts and agreements
          cover or include all or any portion of the Lease  and/or the  Contract
          Area; and

     (c)  all of its  rights,  titles,  and  interests,  whether  now  owned and
          existing  or  hereafter  acquired  or  arising,  in,  to, and under or
          derived from all existing and future permits, licenses, rights-of-way,
          servitudes  and similar  rights and  privileges  that relate to or are
          appurtenant to any of the Lease and/or the Contract Area.

5.3 The  Security  Rights  granted  herein are given to secure the  complete and
timely  performance of and payment by each Party of all of its  obligations  and
indebtedness  of  every  kind and  nature,  whether  now  owed by such  Party or
hereafter  arising pursuant to the Operating  Agreement and this Memorandum.  To
the extent  susceptible  under  applicable  law,  the  mortgage and the security
interest  granted  herein shall  secure the payment of Costs and other  expenses
properly charged to such Party together with (a) interest on such  indebtedness,
Costs,  and other expenses at the rate set forth in the Accounting  Procedure or
the  maximum  rate  allowed by law,  whichever  is the  lesser,  (b)  reasonable
attorneys'  fees,  (c) court costs,  and (d) other directly  related  collection
costs.

5.4  The  maximum  amount  for  which  the  mortgage   herein  granted  by  each
Non-Operator  shall be deemed to secure the obligations and indebtedness of such
Non-Operator  to the Operator as stipulated  herein is hereby fixed in an amount
equal to $25,000,000.00 (the "Limit of the Mortgage of each Non-Operator"),  and
the maximum  amount for which the mortgage  herein granted by the Operator shall
be deemed to secure the  obligations  and  indebtedness  of the  Operator to all
Non-Operators  as  stipulated  herein  is  hereby  fixed in an  amount  equal to
$25,000,000.00  in the aggregate (the "Limit of the Mortgage of the Operator")..
Except as provided in the  preceding  sentence (and then only to the extent such
limitations  are  required  by  law),  the  entire  amount  of  obligations  and
indebtedness of each Party is secured hereby without limitation. Notwithstanding
the  foregoing  Limit of the  Mortgage  of each  Non-Operator  and  Limit of the
Mortgage of the  Operator,  the  liability  of each Party and the  mortgage  and
security  interest  granted  hereby  shall be limited to (and no Party  shall be
entitled to enforce the same against another Party for an amount  exceeding) the
actual  obligations and  indebtedness  (including all interest  charges,  Costs,
attorneys'  fees,  and other charges  provided for in this  Memorandum or in the
Operating  Agreement)  outstanding  and unpaid and that are  attributable  to or
charged  against the interest of such Party pursuant to the Operating  Agreement
and/or this Memorandum.

5.5 If Operator  seeks to enforce the mortgage  granted it  hereunder  against a
Non-Operator,  Operator  shall  have the  right  to  appoint  a  keeper  of such
Non-Operator's  property,  or any part  thereof.  If any  Non-Operator  seeks to
enforce the mortgage granted it hereunder  against  Operator,  such Non-Operator
shall  have the right to  appoint a keeper of  Operator's  property  or any part
thereof.

5.6 Each Party  represents  and  warrants to the other  Parties  hereto that the
mortgage,  pledge  and  security  interests  granted  by such Party to the other
Parties  in this  Agreement  shall be a first and  prior  mortgage,  pledge  and
security interest, and each Party hereby agrees to maintain the priority of said
mortgage, pledge and security interest against all persons acquiring an interest
in the Lease or the Contract Area by,  through or under such Party.  All Parties
acquiring an interest in the Lease or the Contract Area,  whether by assignment,
merger, mortgage,  operation of law, or otherwise, shall be deemed to have taken
subject to the mortgages,  pledge rights and security interests  hereunder as to
all  obligations  attributable  to such interest  hereunder  whether or not such
obligations arise before or after such interest is acquired.

<PAGE>

5.7 If performance of any obligation under the Operating Agreement or payment of
any indebtedness created thereunder does not occur or is not made when due under
the  Operating  Agreement  or upon  default of any  covenant or condition of the
Operating Agreement, in addition to any other remedy afforded by law, each Party
to the  Operating  Agreement  and any  successor  to such  party by  assignment,
operation of law, or otherwise, shall have, and is hereby given and vested with,
the power and authority to foreclose the mortgage, pledge, and security interest
established  in its favor  herein and in the  Operating  Agreement in the manner
provided by law and to exercise all rights of a secured  party under the Uniform
Commercial  Code.  If any Party  does not pay such Costs and other  expenses  or
perform its obligations under the Operating Agreement when due, the Operator (or
the  Non-Operators  if the  defaulting  Party is the  Operator)  shall  have the
additional right to notify the purchaser or purchasers of the defaulting Party's
Hydrocarbon(s)  production  and collect such Costs and other expenses out of the
proceeds  from  the  sale of the  defaulting  Party's  share  of  Hydrocarbon(s)
production.  Any purchaser of such  production  shall be entitled to rely on the
Operator's  (or the  Non-Operators  if the  defaulting  Party  is the  Operator)
statement  concerning  the  amount  of  Costs  and  other  expenses  owed by the
defaulting  Party and payment made to the Operator (or the  Non-Operators if the
defaulting  Party  is the  Operator)  by any  purchaser  shall  be  binding  and
conclusive as between such purchaser and such defaulting Party.

5.8 If any Party does not  perform  all of its  obligations  hereunder,  and the
failure to perform  subjects such Party to foreclosure or execution  proceedings
pursuant to the provisions  herein,  to the extent allowed by governing law, the
defaulting  Party waives any available  right of  redemption  from and after the
date of judgment, any required valuation or appraisement of the property covered
by the mortgage,  pledge and security  interest created hereunder prior to sale,
any available right to stay execution or to require a marshalling of assets, and
any required bond in the event a receiver is appointed.

5.9 Each Party  agrees that the other  Parties  shall be entitled to utilize the
provisions  of oil and gas lien law or  privilege or other lien law or privilege
of any state adjacent to the Contract Area, or that is otherwise applicable,  to
enforce the rights and remedies of each Party  hereunder.  Without  limiting the
generality  of the  foregoing,  to the extent  allowed by  applicable  law,  the
Operator may invoke and use the mechanics' and materialmens'  lien law to secure
the payment to the Operator of any sum due hereunder  for services  performed or
materials supplied by the Operator.

5.10 To the extent  permitted by applicable law, each Party hereby grants to the
other Parties a power of sale as to any property that is subject to the Security
Rights granted  hereunder,  such power to be exercised in the manner provided by
applicable  law or  otherwise  in a  commercially  reasonable  manner  and  upon
reasonable notice.

6.0 Recording/Filing.  To provide notice of, and to further perfect the Parties'
Security  Rights  created  hereunder,   this  Memorandum  (including  a  carbon,
photographic,  or other  reproduction  thereof and hereof)  shall  constitute  a
non-standard  form of  financing  statement  under the terms of the U.C.C.  (the
"Uniform  Commercial  Code," as adopted in the State of Texas) and, as such, may
be filed by any Party for record in the office of the County Clerk of any county
in the State of Texas,  with the filing  Party being the  secured  Party and the
other Parties  being the debtors with respect to such filing.  Each Party filing
this  Memorandum  may attach  thereto,  or file  separately,  any  standard  UCC
financing statement necessary to effectuate perfection of the security interests
described  herein.  Upon request,  each debtor Party hereunder agrees to execute
and  deliver  to each  secured  Party a UCC-1 or other UCC form  reflecting  the
Security Rights granted herein.

7.0 Upon  expiration of the  Operating  Agreement  and the  satisfaction  of all
obligations and  indebtedness  arising  thereunder,  the Party(ies)  filing this
Memorandum  shall file of record an appropriate  release and  termination of all
security  and other  rights  created  under  the  Operating  Agreement  and this
Memorandum executed by all parties to the Operating  Agreement.  Upon the filing
of such release and termination  instrument,  all benefits and obligations under
this Memorandum  shall terminate as to all parties who have executed or ratified
this  Memorandum.  In addition,  at any time prior to the filing of such release
and termination  instrument,  each of the Operator and the  Non-Operators  shall
have the right to (i) file a  continuation  statement  pursuant  to the  Uniform
Commercial  Code with respect to any  financing  statement  filed in their favor
under  the  terms  of  this  Memorandum  and  (ii)  reinscribe  this  act in the
appropriate mortgage records.

8.0 It is understood and agreed by the Parties hereto that if any part, term, or
provision of this  Memorandum is held by the courts to be illegal or in conflict
with any law of the state where made, the validity of the remaining  portions or
provisions shall not be affected,  and the rights and obligations of the Parties
shall be  construed  and  enforced  as if the  Memorandum  did not  contain  the
particular part, term, or provision held to be invalid.

9.0 This Memorandum  shall be binding upon and shall inure to the benefit of the
Parties  hereto  and their  respective  legal  representatives,  successors  and
permitted assigns.  The failure of one or more persons owning an interest in the
Contract  Area to execute  this  Memorandum  shall not in any manner  affect the
validity of the Memorandum as to those persons who execute this Memorandum.

10.0 A party having an interest in the Contract Area may ratify this  Memorandum
by  execution  and  delivery of an  instrument  of  ratification,  adopting  and
entering into this Memorandum, and such ratification shall have

<PAGE>

the same effect as if the  ratifying  party had executed  this  Memorandum  or a
counterpart thereof. By execution or ratification of this Memorandum, such Party
hereby  consents to its  ratification  and adoption by any party who acquires or
may acquire any interest in the Contract Area.

11.0 This Memorandum may be executed or ratified in one or more counterparts and
all of the  executed or ratified  counterparts  shall  together  constitute  one
instrument.  The respective addresses of the Operator, as both secured Party and
debtor,  and the  Non-Operators,  as both debtors and secured Parties,  at which
information  with respect to the  security  interests  created in the  Operating
Agreement and this  Memorandum  may be obtained,  are set forth in Paragraph 1.0
and Attachment "1" of this Memorandum.

12.0 The Operator and the Non-Operators hereby agree to execute, acknowledge and
deliver or cause to be executed,  acknowledged and delivered,  any instrument or
take  any  action  necessary  or  appropriate  to  effectuate  the  terms of the
Operating Agreement, this Memorandum, and any Exhibit,  instrument,  certificate
or other document pursuant thereto.

13.0 Whenever the context  requires,  reference herein made to the single number
shall be  understood  to include the plural,  and the plural  shall  likewise be
understood to include the singular,  and specific  enumeration shall not exclude
the general, but shall be construed as cumulative.

EXECUTED on the dates set forth below each  signature  but  effective  as of the
25th day of August, 2004.

                                       OPERATOR:
                                       Millennium Offshore Group, Inc.

WITNESSES:

                                       By:
------------------------------------       -------------------------------------
(Printed Name of Witness)              Printed Name:
                                                     ---------------------------
                                       Title:
                                              ----------------------------------
                                       Date:
------------------------------------         -----------------------------------
(Printed Name of Witness)

                           ACKNOWLEDGMENT - OPERATOR:

STATE OF TEXAS

COUNTY OF HARRIS

     On this  _________________ day of _________,  _________ before me, appeared
_______________________________  to me personally  known,  who, being by me duly
sworn, did say that he is the  _____________________________________________  of
Millennium  Offshore Group,  Inc., a Texas  corporation,  and that the foregoing
instrument was signed on behalf of the  corporation by authority of its Board of
Directors and that _________________________________ acknowledged the instrument
to be the free act and deed of the corporation.

                                       -----------------------------------------
                                       NOTARY PUBLIC in and for the
                                       State of Texas
                                       My Commission expires:

                                       NON-OPERATOR:
                                       Ridgewood Energy Corporation

WITNESSES:

                                       By:
------------------------------------       -------------------------------------
(Printed Name of Witness)              Printed Name:
                                                     ---------------------------
                                       Title:
                                              ----------------------------------
                                       Date:
------------------------------------         -----------------------------------
(Printed Name of Witness)

<PAGE>

                         ACKNOWLEDGMENT - NON-OPERATOR:

STATE OF ___________

COUNTY OF __________

     On this  ___________  day of __________,  __________,  before me,  appeared
__________________________________ to me personally known, who, being by me duly
sworn, did say that he is the  ______________________________________________ of
Ridgewood Energy Corporation, a ____________ corporation, and that the foregoing
instrument was signed on behalf of the  corporation by authority of its Board of
Directors and that  ____________________________  acknowledged the instrument to
be the free act and deed of the corporation.

                                       -----------------------------------------
                                       NOTARY PUBLIC in and for the
                                       State of ___________
                                       My Commission expires:

<PAGE>

                          ATTACHMENT "1" TO EXHIBIT "F"

    Attached to and made a part of the Memorandum of Operating Agreement and
Financing Statement, dated effective August 25, 2004, by and between Millennium
     Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation, as
                                  Non-Operator.

I.   DESCRIPTION OF LANDS AND LEASES WITHIN THE CONTRACT AREA:

     Oil and Gas Lease of Submerged  Lands bearing  Serial No. OCS-G 20658 dated
     effective December 1, 1998, by and between the United States of America, as
     Lessor,  and Forest Oil  Corporation,  as Lessee,  covering the portions of
     Block 53, High Island Area, OCS Leasing Map, TX 7

     The mortgage, pledge and security rights created in the Operating Agreement
     and this Memorandum do not apply to the Parties' interest and rights in the
     existing  platform  and  production  facilities  on  the  Lease  as of  the
     effective date of the Operating Agreement. Subsequent to the effective date
     of the Operating Agreement, such mortgage, pledge and security rights shall
     apply to the Parties'  interests and rights in such  existing  platform and
     production facilities only to the extent such interest and rights arise out
     of the Operating Agreement.

II.  OPERATOR:

     Millennium Offshore Group, Inc.

III. PARTIES, REPRESENTATIVES. ADDRESSES, AND INTERESTS CONTRIBUTED:

     Millennium Offshore Group, Inc.
     5300 Memorial, Ste. 1070
     Houston, TX 77007
     Attn: Mr. Kent Singleton
     Telephone: (713) 652-0137
     Fax:(713)652-0482
     28.00000% WI, 19.60000% NRI

     Ridgewood Energy Corporation      Ridgewood Energy Corporation
     947 Linwood Avenue                5300 Memorial, Suite 1070
     Ridgewood, New Jersey 07450       Houston, Texas 77007
     Attn: Mr. Robert Swanson          Attn: Mr. W. Greg Tabor
     Telephone: (201) 447-9000         Telephone: (713) 862-9856
     Fax: (201)447-0474                Fax:(713)802-9734
     72.00000% WI, 50.40000% NRI

<PAGE>

                                   Exhibit "C"

       Attached to and made a part of that certain Participation Agreement
      covering High Island Block 53 Prospect, dated August 25, 2004, by and
    between Millennium Offshore Group, Inc. and Ridgewood Energy Corporation.

                         ASSIGNMENT OF OPERATING RIGHTS

OFFSHORE TEXAS             }
                           }
OUTER CONTINENTAL SHELF    }   KNOW BY ALL THESE PRESENTS:
                           }
UNITED STATES OF AMERICA   }

     THAT,  Millennium Offshore Group, Inc., 5300 Memorial,  Ste. 1070, Houston,
Texas 77007, hereinafter called "Assignor",  for and in consideration of the sum
of Ten Dollars ($10.00) and other good and valuable  consideration to it paid by
Ridgewood Energy  Corporation,  whose address is 947 Linwood Avenue,  Ridgewood,
New  Jersey  07450,   hereinafter  called  "Assignee",   the  receipt  and  full
sufficiency of which is hereby acknowledged, does hereby grant, convey, transfer
and assign unto  Assignee,  its heirs,  successors  and  assigns,  an  undivided
72.00000%  operating  rights  interest in and to the oil and gas  mineral  lease
identified below (hereafter called "Subject Lease"), to wit:

     That certain Oil and Gas Lease of Submerged  Lands bearing Serial No. OCS-G
     20658 dated effective December 1, 1998, by and between the United States of
     America,  as Lessor,  and Forest Oil Corporation,  as Lessee,  covering the
     portions of Block 53, High Island Area,  OCS Leasing Map, TX 7, INSOFAR AND
     ONLY  INSOFAR as said OCS-G 20658 covers the depths from the surface of the
     earth down to the  stratigraphic  equivalent of the base of the  __________
     sand  found  at  _________  feet in the  electric  log  for the  Millennium
     Offshore Group OCS-G 20658 No. _____________ Well.

     This  assignment is made subject to all of the terms of express and implied
covenants  and  conditions of the Subject  Lease,  the Lessor's  royalties  and,
further,  shall  bear  and  assume  its  proportionate  share  of  that  certain
overriding  royalties  interest affecting the Subject Lease as set forth in that
certain  Participation  Agreement,   dated  August  25,  2004,  by  and  between
Millennium   Offshore  Group,   Inc.  and  Ridgewood  Energy   Corporation  (the
"Participation Agreement").

     This  assignment  is also made  subject  to and shall  bear and  assume its
proportionate  share  of any  and  all  burdens,  obligations,  limitations  and
responsibilities created by the following listed agreements, of which all terms,
conditions  and  reservations  of said  agreements  are  incorporated  herein by
reference:

     (a)  The Participation  Agreement dated August 25, 2004, between Millennium
          Offshore Group, Inc. and Ridgewood Energy Corporation.

     (b)  The Farmout  Agreement dated  effective July 10, 2004,  between Forest
          Oil Corporation,  as Farmor,  and Millennium  Offshore Group, Inc., as
          Farmee.

     Further, Assignee hereby agrees to be bound by all the terms and conditions
of the Participation Agreement and the said Farmout Agreement.

     THIS  ASSIGNMENT  OF  OPERATING  RIGHTS IS  EXECUTED  BY  ASSIGNOR  WITHOUT
WARRANTY OF TITLE,  EITHER  EXPRESSED OR IMPLIED,  EXCEPT AS TO ACTS BY, THROUGH
AND UNDER ASSIGNOR.

<PAGE>

IN WITNESS WHEREOF,  this assignment is executed  effective as of _____________,
2004, subject to approval by the Minerals Management Service.

WITNESSES:                              ASSIGNOR:
                                        Millennium Offshore Group, Inc. (2383)

-------------------------------------

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

WITNESSES:                              ASSIGNEE:
                                        Ridgewood Energy Corporation (1308)

-------------------------------------

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

STATE OF TEXAS

COUNTY OF HARRIS

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

                                        ----------------------------------------
                                        Notary Public, State of Texas

                                        My Commission Expires: __________

STATE OF __________

COUNTY OF _________

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

                                        ----------------------------------------
                                        Notary Public, State of ______________

                                        My Commission Expires: _____________

<PAGE>

                                   EXHIBIT "D"

    Attached to and Illegible a part of that certain Participation Agreement
  covering High Island Block 53 Prospect, dated August 25, 2004, by and between
        Millennium Offshore Group, Inc. and Ridgewood Energy Corporation.

                                FARMOUT AGREEMENT

UNITED STATES OF AMERICA        Section

OUTER CONTINENTAL SHELF LANDS   Section

OFFSHORE GULF OF MEXICO         Section

     EFFECTIVE the 10th day of July, 2004,  FOREST OIL  CORPORATION,  a Colorado
corporation,  ("Forest")  whose address is 1600  Broadway,  Suite 2200,  Denver,
Colorado  80202  (hereinafter  referred to as  "Farmor")  as owner of the record
title interest in the following  described Oil and Gas Lease of submerged lands,
and MILLENNIUM OFFSHORE GROUP, INC., a Texas corporation,  ("Millennium")  whose
address is 5300 Memorial, Suite 1070, Houston, Texas 77007 (hereinafter referred
to as  "Farmee"),  hereby  enter  into  this  Farmout  Agreement  ("Agreement"),
covering the following described Oil and Gas Lease, and agree as hereinafter set
forth, to-wit:

                                        I

                                     LEASES

1.1  Lease.  This Agreement  shall cover Farmor's  Operating  Rights interest as
     hereinafter defined in the following described Oil and Gas Lease:

     Oil and Gas Lease of Submerged  Lands bearing  Serial No. OCS-G 20658 dated
     effective December 1, 1998, by and between the United States of America, as
     Lessor, and Forest Oil Corporation,  as Lessee,  covering the whole area of
     Block 53, High Island Area, OCS Leasing Map, TX 7, hereinafter  referred to
     as the "Lease".

1.2  Operating Rights.  "Operating Rights" as the term is used in this Agreement
     shall mean full and  complete  right to explore  for oil and gas in, on and
     under the Lease and to develop, produce, own, transport and market said oil
     and gas, in  accordance  with and pursuant to the terms and  provisions  of
     said Lease.

                                       II

                         FARMOUT AREA AND FARMOUT WELL

2.1  Area. The area covered by this Agreement, herein called the "Farmout Area",
     shall  consist of the lands  covered by OCS-G 20658,  High Island Block 53,
     LESS AND EXCEPT the W/2W/2SW/4.

2.2  Initial Well. Farmee, on or before October 5, 2004, shall commence or cause
     to be commenced  operations  for the drilling of a test well herein  called
     the  "Initial  Well".  The  Initial  Well will be drilled at a location  of
     Farmee's choice. The Initial Well shall be

<PAGE>

     drilled  to a depth of  13,600'  or  depth  sufficient  to test the  Lentic
     hanseni sand whichever is the lesser ("Contract  Depth").  It is understood
     and agreed by the parties  hereto that Farmee may apply for a Suspension of
     Operations  ("SOO") or a Suspension of Production ("SOP") from the Minerals
     Management  Service ("MMS") in an effort to obtain additional time in which
     to  commence  the  Initial  Well  hereunder.  Farmor  agrees to support any
     application  made by Farmee for an SOO or SOP and  further  agrees that the
     commencement  date  cited  above may be  changed to a later date due to the
     granting  of an SOO or SOP by the MMS and such  change of the  commencement
     date for the Initial  Well,  if granted by the MMS,  is hereby  approved by
     Farmor.

     Farmee's  only  penalty  for  not  timely  commencing,  or  causing  to  be
     commenced,  the  Initial  Well  will be the loss of its  rights  to earn an
     assignment under this Agreement.  However, except as expressly provided for
     herein, nothing shall absolve Farmee from Farmee's complete  responsibility
     for any  damage,  claim  or  cause  of  action  arising  out of  operations
     hereunder, and Farmee shall indemnify and hold Farmor harmless therefrom.

2.3  Substitute Well. If the Initial Well results in a dry hole or, if, prior to
     reaching  Contract Depth,  Farmee  encounters a formation or other physical
     condition in the well which renders further drilling impractical, so called
     "Gulf Coast" conditions, Farmee shall have the option to drill a substitute
     well subject to the provisions of this Agreement  applicable to the Initial
     Well, as follows:

     (a) Farmee shall give Farmor  written  notice  describing the status of the
     well and stating  whether or not Farmee elects to drill a substitute  well.
     Such notice shall be given while the drilling rig or completion  unit is on
     the well, or within ten days after its release. Failure to timely make such
     an  election  shall be deemed to be an  election  by Farmee  not to drill a
     substitute  well.  Farmee's  only  penalty  for  not  electing  to  drill a
     substitute well will be the loss of its rights to earn an assignment.

     (b) If Farmee elects to drill a substitute well, Farmor shall advise Farmee
     in writing within 24 hours after receipt of Farmee's  notice to either plug
     the  original  well or turn it over to Farmor as  provided  in Section  9.1
     below,  and to proceed with the substitute  well, it is provided,  however,
     that Farmor shall not be required to make a takeover  election until all of
     the notices  and  information,  including  but not limited to logs and test
     data,  have been  received as provided in Exhibit "A" attached  hereto.  If
     Farmor  elects  not to take  over the  well or  fails to make an  election,
     Farmee shall promptly plug and abandon the well.

     (c) If Farmee  elects  not to drill a  substitute  well,  or if Farmee  has
     waived its right to do so as  hereinabove  provided,  Farmor  shall  advise
     Farmee in writing within 24 hours after receipt of Farmee's  notice whether
     or not Farmor  elects to take over the well  pursuant to Section 9.1 below;
     it is  provided,  however,  that  Farmor  shall not be  required  to make a
     takeover  election until all of the notices and information,  including but
     not  limited to logs and test  data,  have been  received  as  provided  in
     Exhibit "A" attached hereto.  If Farmor elects not to take over the well or
     fails to make an election,  Farmee shall promptly plug and abandon the well
     and  restore  the  surface.  In the  event  Farmee  elects  not to  drill a
     substitute  well,  Farmee shall have no right to drill a substitute well in
     order to earn an assignment hereunder.

     (d) A substitute  well drilled  hereunder  shall be spudded  within 90 days
     after Farmee's  election to drill it and the well shall be drilled,  tested
     and  completed  or plugged  and  abandoned  in  accordance  with all of the
     requirements specified herein for the Initial Well

                                        2

<PAGE>

     and with the same  consequences.  In like  manner,  Farmee  shall  have the
     continuing right to drill substitute wells in accordance with the foregoing
     terms,  conditions  and  provisions  in order to earn an  assignment of the
     Farmout  Area.  Reference  herein to the  Initial  Well shall  include  its
     substitute well(s).

2.4  Commencement of Operations. Operations for drilling shall be deemed to have
     commenced  on the  date,  and not  earlier  than  such  date,  on which the
     drilling rig arrives on location.

2.5  Completion or Abandonment. After timely commencement, the Initial Well will
     be drilled to Contract Depth in a workmanlike  manner and without cessation
     of  operations  until it is  completed or  temporarily  abandoned as a well
     capable of producing oil and/or gas in paying  quantities (as determined by
     the application of 30 CFR Section  250.116 or any successor  regulation) or
     until Farmee  plugs and  abandons  the well as a dry or lost hole,  subject
     however  to  Farmor's  right to take over said  well as  described  in this
     Article II and in Article IX.

2.6  Shallower Completion.  In the event Farmee encounters Gulf Coast conditions
     in the Initial  Well and is unable to reach  Contract  Depth,  Farmee shall
     have the right,  but not the  obligation,  to complete such well at a depth
     shallower  ("shallower   completion")  than  Contract  Depth.  Should  such
     shallower  completion satisfy the requirements of 30 CFR Section 250.116 or
     any  successor  regulation,  Farmee shall earn an  Assignment  of Operating
     Rights in the  Farmout  Area  from the  surface  down to the  stratigraphic
     equivalent  of the total depth  drilled  and logged plus one hundred  feet.
     Farmee  shall have the right to drill a substitute  well to Contract  Depth
     pursuant to the provisions of Section 2.3 to earn additional  rights in the
     Farmout Area.

2.7  Cost and Liabilities. All operations conducted or caused to be conducted by
     Farmee shall be conducted at Farmee's sole cost, risk and expense and shall
     be subject to the indemnity  provisions of Article VII below.  Farmor shall
     not be liable for any costs,  expenses or damages accrued,  relating to, or
     in any way arising out of this Agreement or operations hereunder.

2.8  Farmout  Wells.  The Initial Well and any other wells  drilled  pursuant to
     this Agreement may be referred to herein collectively as "Farmout Wells" or
     individually as "Farmout Well".

                                       III

                     DRILLING, WELL DATA AND CONFIDENTIALITY

3.1  Access.  Farmor shall have access at its sole cost, risk and expense to the
     rig floor at all times and shall be  entitled  to all  information  free of
     cost relative to the drilling, testing, completing, equipping and operating
     of all wells, to include the Initial Well drilled by

                                        3

<PAGE>

     Farmee pursuant to the terms of this Agreement. It is understood and agreed
     that in  connection  with the  drilling of wells by Farmee  pursuant to the
     terms of this  Agreement,  Farmee shall furnish Farmor with the notices and
     information  listed on Exhibit "A", which notices and information  shall be
     promptly  furnished to Farmor free of cost and shall become the property of
     Farmor in sufficient time for its representatives to be present at the well
     when such operations are conducted.

3.2  Performance  Standards.  During the  drilling of any well  pursuant to this
     Agreement,  Farmee shall conduct its operations hereunder in a diligent and
     workmanlike manner as would a reasonably prudent operator under the same or
     similar circumstances, and in accordance with all applicable federal, state
     and local laws,  regulations,  rules and orders.  Farmee shall evaluate all
     oil and/or gas shows  encountered  in any well drilled  hereunder and shall
     use its best  efforts to complete  the well as a producer of oil and/or gas
     in paying  quantities.  If any well is not capable of producing  oil and/or
     gas (as  determined  by the  application  of 30 CFR Section  250.116 or any
     successor  regulation),  Farmee  agrees,  subject to  Farmor's  election as
     provided in Articles II and IX, to plug and abandon same in accordance with
     the laws,  regulations,  rules and orders of the regulatory authorities and
     to promptly  furnish  Farmor a copy of the plugging  report filed with such
     authorities.

                                       IV

                             ASSIGNMENT OF INTEREST

4.1  Prerequisites  to  Assignment  of  Interest in the Lease.  Farmee  shall be
     entitled to an  Assignment of Operating  Rights,  down to and including the
     Contract Depth, upon fulfilling the following to Farmor's satisfaction:

     (a)  Qualifying the Initial Well, to include a substitute  therefore,  as a
          well capable of producing  oil and/or gas in paying  quantities  under
          OCS  regulations  found  in 30 CFR  Section  250.116,  Gulf of  Mexico
          determination  of  well   producibility,   to  include  any  successor
          regulation;  or mutual  agreement  of the parties in writing  that the
          Initial Well is a well which would satisfy the criteria of said 30 CFR
          Section 250.116; and

     (b)  Furnishing  Farmor  copies  of  any  completion   reports  filed  with
          governmental  agencies  and all  reports  and other data  required  by
          Exhibit "A" and

     (c)  Compliance with all other provisions of this Agreement.

     In the event the Initial  Well,  to include its  substitute,  satisfies and
     fulfills the  conditions as set forth above,  it shall be termed and deemed
     the "Earning Well" for the Farmout Area.

                                        4

<PAGE>

4.2  Preparation of Assignment. Farmor shall prepare any assignment of Operating
     Rights in the Farmout Area within  thirty (30) days after receipt by Farmor
     of written notice from Farmee that the Earning Well has been  determined by
     the Minerals  Management  Service ("MMS") to be a well capable of producing
     oil and/or gas in paying quantities under 30 CFR Section 250.116. or within
     thirty (30) days from the date that the parties  agree in writing  that the
     Earning  Well is capable  of  satisfying  the  criteria  of 30 CFR  Section
     250.116.

4.3  Effective  Date. The effective  date of any assignment of Operating  Rights
     made hereunder  shall be the date the Earning Well is determined by the MMS
     to be qualified  as a well  capable of  producing  oil and/or gas in paying
     quantities  under 30 CFR  Section  250.116 or the date on which the parties
     agree in  writing  that the  Earning  Well is  capable  of  satisfying  the
     criteria of 30 CFR Section 250.116.

4.4  Warranty. Any assignment made by Farmor pursuant to this Agreement shall be
     without  warranty of title,  express or implied,  except that Farmor  shall
     warrant title to the Lease to Farmee against anyone claiming an interest in
     the Lease by, through or under Farmor, but not otherwise.

4.5  Depth  Limitation.  Notwithstanding  anything  to  the  contrary  contained
     herein,  unless the  Initial  Well is drilled to the  Contract  Depth,  any
     assignment of Operating Rights made hereunder as a result of having drilled
     and completed the Initial Well, to include its substitute, as a producer of
     oil and/or gas in paying quantities,  shall be limited to 50,000' below the
     surface of the earth.

4.6  Liens.  It is  understood  and  agreed  that prior to the  delivery  of the
     assignment described herein,  Farmor shall be furnished sufficient evidence
     by Farmee that no liens or other  encumbrances  exist  against  Lease OCS-G
     20658 for unpaid  mechanic's  and  materialmen's  services or for any other
     outstanding  obligations or expenditures as a result of Farmee's operations
     pursuant to this Agreement  except for liens and/or  security  interests to
     financial  institutions as part of a financing  arrangement.  It is further
     understood  and agreed  that if any such  liens are  attached  against  the
     Lease,  Farmee will  indemnify  Farmor  therefrom,  including all costs and
     expenses, and promptly discharge and pay same to the satisfaction of Farmor
     before such assignment is executed and delivered to Farmee.

4.7  Reassignment:

     If production in paying  quantities  (subsequent  to initial  production to
     sales) ceases from all of Farmee's  completions  for 120  consecutive  days
     during  which  period of time Farmee has not (i)  conducted  operations  in
     pursuit  of  reestablishing  production  (such as  workover,  recompletion,
     drilling, construction, repair or other operations) or notified

                                        5

<PAGE>

     Farmor  that it intends to  commence  operations  within 180 days,  or (ii)
     applied for a lease protective order by the MMS (SOO, SOP, etc.),  prior to
     termination  of this  Agreement,  Farmee will  endeavor to notify Farmor of
     said termination, and upon Farmee's receipt of Farmor's written request for
     a reassignment (at Farmor's sole election) within thirty (30) days thereof,
     and prior to lease  termination,  Farmee  will assign or reconvey to Farmor
     all  rights  in and to the  Farmout  Lands.  Farmee  shall not be liable to
     Farmor for lost income,  punitive damages, lost production or lost reserves
     in the event Farmee fails to notify Farmor. Such reassignment shall be free
     and clear of all liens,  claims,  mortgages and other encumbrances  against
     the Lease  created by Farmee and shall be free and clear of any  overriding
     royalty interest, production payment and other similar burdens of any kind,
     created by Farmee,  with the exception of lessor's  royalty pursuant to the
     Lease terms covering such Farmout Lands and such other burdens that existed
     at the  time  Farmee  earned  an  assignment  of the  Farmout  Lands.  This
     provision  regarding the reassignment of the Farmout Lands to Farmor in the
     event of cessation of production as described above shall apply for as long
     as Farmee,  its  successors  and  assigns,  owns an interest in the Farmout
     Lands pursuant to this Agreement.

                                        V

                             ELECTION AND INTEREST

5.1  Reservation  of Overriding  Royalty in Farmout  Area. In any  assignment of
     Operating  Rights  made  hereunder,   Farmor  will  reserve  the  following
     overriding  royalty  interest in  production  attributable  to the assigned
     interests and renewals and extensions thereof:

     (a)  On  oil,  including  condensate  and  other  liquid  hydrocarbons,  an
          overriding  royalty equal to the  difference  between  thirty  percent
          (30%) and existing  leasehold burdens as of the date of this agreement
          of that  produced  and  saved  from or  attributable  to the  assigned
          interests,  to be  delivered  free of costs at the  well(s)  or to the
          credit  for  Farmor  into the  pipeline  to which the  well(s)  may be
          connected.

     (b)  On all  gas,  including  casinghead  gas or other  gaseous  substance,
          produced from or  attributable  to the assigned  interests and sold or
          used for  purposes  other than the  exercise  of  Operating  Rights in
          connection  with  the  well(s)  (including  any  gas  utilized  in the
          manufacture  of gasoline or other  products),  an  overriding  royalty
          equal to the  difference  between  thirty  percent  (30%) and existing
          leasehold burdens as of the date of this agreement.

     (c)  On sulfur produced with oil and/or gas, an overriding royalty equal to
          the difference  between  thirty  percent (30%) and existing  leasehold
          burdens as of the date of this agreement.

     In the event that the Farmor,  at any time,  declines or otherwise fails to
     take its  overriding  royalty  interest  share of the  production  in kind,
     Farmee shall be obligated as a reasonable

                                        6

<PAGE>

     and  prudent  operator  to  market  Farmor's  overriding  royalty  share of
     production.  Said overriding royalty interest shall be computed and paid at
     the same time and in the same manner as royalties  are computed and paid to
     the Lessor under the terms of the Lease.  Such overriding  royalty interest
     shall be free and clear of all other royalty,  overriding royalty and other
     burdens  affecting  said Lease and shall be free of all costs of exploring,
     operating,  developing,  producing, marketing and maintaining said Lease in
     force and effect,  except the proportionate share of severance,  production
     and other like taxes applicable to such overriding royalty interest.

                                       VI
                         LEASES OBLIGATIONS AND PERMITS

6.1  Assumption of  Obligations.  Farmee shall assume all  obligations of Lessee
     under the Lease and any other  agreement  which  affects the  Farmout  Area
     insofar  as the  Farmout  Area  is  covered,  and  shall  comply  with  all
     provisions of said Lease or other agreement,  express or implied, and shall
     conduct Farmee's operations as would a reasonably prudent operator.

6.2  Permits and Reports. As between Farmor and Farmee,  Farmee shall assume all
     duties,  responsibilities,  and liabilities in connection with securing and
     complying  with the terms of all necessary  permits,  and Farmee shall file
     any information and shall make any and all reports  necessary in connection
     with the drilling,  completing  and the plugging and abandoning of any well
     or wells drilled under the terms of this Agreement.

6.3  Subsequently Created Burdens.  Farmee, its successors and assigns, shall be
     solely  responsible  for  bearing and paying:  (a) all  overriding  royalty
     interests,  production payments, liens, and other burdens and encumbrances,
     if any,  that affect the Lease and are created or claimed by,  through,  or
     under Farmee; and (b) the overriding royalty interest reserved by Farmor in
     this Agreement.

6.4  Payment  of  Royalty.  As  between  Farmor  and  Farmee,  Farmee  shall  be
     responsible  for the payment of all royalties (to include  minimum  royalty
     payments)  and  overriding   royalties  due  from  production  obtained  or
     attributable to the assigned  rights and within  forty-five (45) days prior
     to the  anniversary  date of the Lease shall provide  Farmor with notice of
     the amount of royalty  actually  paid  during the prior  twelve  (12) month
     period.

6.5  Pipelines  and  Facilities.  Farmor  currently  has a pipeline on the Lease
     under  Right-of-Way OCS-G  25263,  Segment No. 14221 which ties in to the
     High Island 52 "A"  Platform.  Should Farmee earn as assignment as provided
     herein, Farmee shall have the right to tie-in to Farmors' pipeline if it so
     desires.  Should Farmee tie-in to said pipeline, then Farmor shall have the
     option to assign said  Right-of-Way  OCS-G 25263 to Farmee and Farmee shall
     have the responsibility and liability to abandon said pipeline. Farmor

                                        7

<PAGE>

     shall also have the  option to assign  and convey to Farmee any  facilities
     owned by Farmor on the High Island 52 "A"  Platform  and Farmee  shall have
     the responsibility and liability to abandon said facilities.

                                       VII
                            INDEMNITY AND INSURANCE

7.1  INDEMNITY.  FARMEE AGREES TO ASSUME RESPONSIBILITY FOR AND INDEMNIFY,  HOLD
     HARMLESS AND DEFEND FARMOR,  ITS  SUCCESSORS AND ASSIGNS,  FROM AND AGAINST
     ANY OBLIGATIONS,  LOSSES, DAMAGES, CLAIMS, DEMANDS, SUITS, COSTS, EXPENSES,
     PENALTIES,  FINES, LIENS AND LIABILITIES  WHATSOEVER  (INCLUDING REASONABLE
     ATTORNEY'S  FEES AND  EXPENSES),  ACCRUING  OR IN ANY WAY  RELATING  TO THE
     OWNERSHIP, DEVELOPMENT, EXPLORATION, OPERATION AND MAINTENANCE OF THE LEASE
     AS TO THE FARMOUT AREA (A  "LIABILITY"),  INCLUDING  BUT NOT LIMITED TO ANY
     LIABILITY  ASSOCIATED  WITH  OIL  AND  GAS  WELLS,  EQUIPMENT,   PLATFORMS,
     FACILITIES,  PIPELINES, FIXTURES AND OTHER APPURTENANCES (COLLECTIVELY, THE
     "FACILITIES")  LOCATED  THEREON WHICH FARMEE  INSTALLED OR USED TO PRODUCE,
     PROCESS,  TRANSPORT  OR OTHERWISE  HANDLE  HYDROCARBONS  PRODUCED  FROM THE
     FARMOUT AREA AND INCLUDING ANY LIABILITY WHETHER DIRECT OR INDIRECT,  KNOWN
     OR  UNFORESEEN,  THAT MAY  ARISE  UNDER  ANY LAW OR  REGULATION  APPLICABLE
     THERETO INCLUDING,  WITHOUT LIMITATION,  THE OIL POLLUTION ACT OF 1990, THE
     COMPREHENSIVE  ENVIRONMENTAL  RESPONSE,  COMPENSATION  AND LIABILITY ACT OF
     1980,  AS  AMENDED  (42  U.S.C.   Sections  6901  ET  SEQ.),  THE  RESOURCE
     CONSERVATION  AND RECOVERY ACT OF 1976, (42 U.S.C.  Sections 6901 ET SEQ.),
     THE CLEAN WATER ACT (33 U.S.C.  Sections  466 ET SEQ.),  THE SAFE  DRINKING
     WATER  ACT  (14  U.S.C.   Sections   1401-1450),   THE  HAZARDOUS  MINERALS
     TRANSPORTATION  ACT (49 U.S.C.  Sections 1801 ET SEQ.), THE TOXIC SUBSTANCE
     CONTROL ACT (15 U.S.C.  Sections 2601-2629),  THE CLEAN AIR ACT, AS AMENDED
     (49 U.S.C. Sections 7401 ET SEQ.), THE CLEAN AIR ACT AMENDMENTS OF 1990 AND
     ANY OTHER APPLICABLE FEDERAL, STATE OR LOCAL LAW..

7.2  Abandonment.  If Farmee  elects to abandon any well  drilled on the Farmout
     Area and Farmor does not  exercise  its  takeover  option as  described  in
     Article II and Article IX, Farmee shall remain  responsible  for all costs,
     risks,  expenses  and  other  liabilities   associated  with  plugging  and
     abandonment of the well and  restoration  of the premises.  Notwithstanding
     anything found in this  Agreement to the contrary,  other than with respect
     to a well conveyed to Farmor  pursuant to Article II and Article IX, Farmee
     agrees to assume all plugging, abandonment and restoration obligations with
     regard to its  operations  on the Farmout  Area,  including  any  platforms
     and/or  facilities it has installed on the Farmout Area,  and Farmee agrees
     to indemnify, defend and hold Farmor harmless

                                        8

<PAGE>

     from any and all costs, expenses,  liabilities,  claims, demands, or causes
     of action of every kind or character  brought by or on behalf of any person
     or entity  with  respect  to such  plugging,  abandonment  and  restoration
     obligations.

7.3  Insurance.  Farmee shall, at all times while this Agreement is in force and
     effect, carry insurance set forth on Exhibit "B" attached hereto and made a
     part  hereof and shall  include  coverage  for all claims  under the United
     States Longshoremen's and Harbor Workers' Act, the Jones Act, and the Outer
     Continental   Shelf  Lands  Act.  All  such   policies   (except   Worker's
     Compensation   coverage)  shall  name  Farmor,  its  officers,   directors,
     employees  and agents,  as  additional  insureds  and to waive its right of
     subrogation,   and  to  cause  its   insurers  to  waive  their  rights  of
     subrogation, against the Farmor and others noted above.

                                      VIII

                               FAILURE TO PERFORM

8.1  Reports and  Information.  In the event of Farmee's failure to make reports
     and/or furnish  information as required by this Agreement or to comply with
     the other covenants and conditions of this  Agreement,  Farmor shall notify
     Farmee in writing of such failure, and Farmee shall have fifteen (15) days,
     exclusive of Saturdays,  Sundays,  and federal  holidays,  from the receipt
     thereof to comply with this  Agreement.  If Farmee  fails to timely  comply
     with respect to such reports and  information  after receipt of the notice,
     Farmor shall,  in addition to other legal remedies it may have, be relieved
     of its  obligation  to make an assignment to Farmee and may, at its option,
     terminate this Agreement,  however, Farmee shall continue to be responsible
     for all obligations accrued or assumed by Farmee prior to such default.

8.2  Operations.  In the event of  Farmee's  failure to  commence or cause to be
     commenced  and  complete  the  drilling of the Initial Well or a substitute
     therefore in the time and manner  herein  provided,  this  Agreement  shall
     terminate;  however,  Farmee  shall  continue  to be  responsible  for  all
     obligations accrued or assumed by Farmee prior to such default.

8.3  Notice  of  Termination.   Farmor  shall  give  Farmee  written  notice  of
     termination;  however,  in the event  Farmee fails to commence and complete
     the drilling of the Initial  Well or  substitute  therefor  within the time
     frame herein provided,  termination  shall occur  automatically and no such
     notice shall be required to effectuate the termination.

                                       IX

                            OPTION TO TAKE OVER WELL

9.1  Option to Take Over Well.  If the Initial Well results in a dry hole, or if
     prior to reaching  Contract Depth Farmee  encounters Gulf Coast  Conditions
     and elects to abandon the well,

                                        9

<PAGE>

     Farmor  will have the right and  option as set out in  Article  II above to
     take over said well, at its sole cost, risk, expense and liability,  and to
     perform  such  additional  tests and/or  drilling as it chooses.  If Farmor
     performs  additional  tests or performs any operation in the well, the cost
     of plugging and  abandoning  the well and restoring  the premises  shall be
     borne by Farmor.

                                        X

                                     NOTICES

10.1 Notices.  Unless  otherwise  provided  for,  all  notices  and  information
     provided for herein shall be delivered to the following addresses:

     (a)  if to Farmor:
          Forest Oil Corporation
          1600 Broadway, Suite 2200
          Denver, Colorado, 80202
          Attn: Gulf Region Land Manager
          Telephone: (303)812-1400
          Telecopier: (303)812-1454

     (b)  if to Farmee
          Millennium Offshore Group, Inc.
          5300 Memorial, Suite 1070
          Houston, Texas 77007
          Attn: Mr. Jerry Niekamp
          Ph. #: (713)652-0137
          Fax #: (713)652-0482

     Notices and  information  shall be deemed  delivered  when deposited in the
     United States Mail or at the office of a courier or telegraph  service,  or
     upon  transmittal  by telex,  telecopy  or  facsimile,  or when  personally
     delivered to the party notified.

                                       XI

                           INTERNAL REVENUE PROVISION

11.1 Internal Revenue Provision.  Notwithstanding any provisions herein that the
     rights and liabilities hereunder are several and not joint or collective or
     that the  Agreement and the  operations  hereunder  shall not  constitute a
     partnership,  each party elects to be excluded from the  application of all
     or any part of the  provisions  of  Subchapter  K Chapter  1,  Subtitle  A,
     Internal  revenue Code of 1986,  as amended,  or similar  provisions of any
     applicable state laws.

                                       10

<PAGE>

                                      XII

                                      LAW

12.1 Law. The Agreement and the legal relationship  between the parties shall be
     interpreted  and  construed  under the laws of the  State of Texas  without
     regard to  principles  of  choice  of laws,  unless  Federal  Maritime  Law
     applies,  in which case Federal  Maritime Laws shall govern.  All terms and
     provisions  of this  Agreement  are hereby  expressly  made  subject to all
     applicable Federal and State Laws and to all orders, rules, and regulations
     of any duly constituted  authority having jurisdiction over the premise. It
     is the  intent  of the  parties  that  the  provisions  contained  in  this
     Agreement  be  severable.  Should  the whole or any  portion  of an Article
     hereof be held void or  invalid,  such  holding  shall not affect the other
     portions which can be given effect without the invalid or void portion.

12.2 Compliance.  All the terms and  provisions  of this  Agreement  are  hereby
     expressly made subject to all applicable  Federal and State Laws and to all
     orders,  rules and  regulations of any duly  constituted  authority  having
     jurisdiction  over the premises.  No party shall suffer a forfeiture and be
     liable in damages for failure to comply with any of the  provisions of this
     Agreement if such  compliance  is  prevented by or if such failure  results
     from compliance with any such law, order, rule, or regulation.

                                      XIII

                                   EMPLOYMENT

13.1 Equal  Opportunity  Employment.  Farmor and  Farmee  are Equal  Opportunity
     Employers.  To the extent that this  Agreement  may be subject to Executive
     Order 11246, as amended,  the equal  opportunity  provisions at 41 CFR 60-1
     are incorporated herein by reference. If the provisions of 30 CFR 271 apply
     to this  Agreement,  these  provisions  are  also  incorporated  herein  by
     reference.

13.2 Affirmative   Action.  To  the  extent  required  by  applicable  laws  and
     regulations, this Agreement also includes and is subject to the affirmative
     action clauses concerning disabled veterans and veterans of the Vietnam era
     (41 CFR 60-250) and the affirmative action clauses concerning employment of
     the handicapped (41 CRF 60-741),  which clauses are incorporated  herein by
     reference.

13.3 Non-Segregated Facilities. In the performance of work under this Agreement,
     Farmor and Farmee shall comply, and Operator shall require each independent
     contractor  to  comply,  with the  governmental  requirements  set forth in
     Exhibit "C" attached hereto, pertaining to non-segregated facilities.

                                      XIV

                        ASSIGNMENT OF FARMOUT AGREEMENT

                                       11

<PAGE>

14.1 Consent.   This  Agreement  is  binding  upon  the  parties  hereto,  their
     successors,  and assigns,  provided no assignment of this  Agreement or the
     rights and  interests  that are earned and assigned  hereunder,  except for
     assignments to Affiliates (hereafter defined), may be made without Farmor's
     prior written  consent,  which shall not be  unreasonably  withheld.  It is
     specifically  provided  hereunder  that  Farmee may assign a portion of its
     rights  hereunder to Ridgewood  Energy  Corporation  and  Ridgewood  Energy
     Corporation will be subject to all of the terms,  provisions and conditions
     contained herein.  Any assignment which is not in compliance with the terms
     of this Article shall be voidable at Farmor's option.  Consent by Farmor to
     any such  assignment  shall not relieve  Farmee nor any  assignee  from the
     timely and proper performance of any of Farmee's obligations hereunder.  In
     the event of an  assignment,  Farmee and any  assignee  shall be bound with
     said third person for all obligations  that may arise out of this Agreement
     including any assignment  earned  hereunder,  and Farmor may hold Farmee or
     any assignee liable for full and complete compliance and performance of all
     of the obligations of Farmee under this Agreement.  For the purpose of this
     provision,  an  "Affiliate"  shall refer to any  corporation,  partnership,
     joint venture or other entity that is directly or  indirectly  controlling,
     controlled by, or under common control with, Farmee.

                                       XV

                                    EXHIBITS

15.1 Exhibits.  The exhibits  referred to in this Agreement are attached  hereto
     and made a part hereof for all purposes.

                                       XVI

                                      TERM

16.1 Term.  This  Agreement  shall  terminate  when and if the Initial Well or a
     substitute  therefore is not drilled and  completed and qualified as a well
     capable of  producing  oil and/or gas in paying  quantities  as provided in
     Section 4.1 (a);  otherwise  this  Agreement,  unless sooner  terminated by
     agreement of the parties or as provided  elsewhere herein,  shall remain in
     full force and effect so long as the  Operating  Rights  are  continued  in
     force  and  until  all  obligations  under  Article  VII  have  been  fully
     satisfied.  In all cases, Farmee's obligations under or arising out of this
     Agreement shall survive the termination of this Agreement.

                                      XVII

                                ARTICLE HEADINGS

17.1 Article  Headings.  The underlined  headings in this Agreement are used for
     convenience and shall not be considered in construing this Agreement.

                                       12

<PAGE>

                                       XIX

                       AGREEMENT AND COUNTERPART EXECUTION

18.1 Agreement.  This  Agreement is not intended to benefit or create any rights
     in any entity not a party to this Agreement.  This instrument  contains the
     final and entire  agreement  of the  parties  with  respect to the  matters
     covered by this Agreement and as such  supersedes all prior written or oral
     communications  and  agreements  in his regard.  This  Agreement may not be
     modified  or  changed  except  by  written  amendment  signed by all of the
     parties.

18.2 Timely Execution. If the terms,  provisions,  conditions,  reservations and
     elections   set  forth  and   contained   herein   correctly   reflect  the
     understanding of our agreement,  please so indicate Farmee's  acceptance of
     same by signing in the space provided and returning an executed original of
     this  Agreement to Farmor within  twenty (20) days of your receipt.  Should
     you fail to sign and return within the time period so provided, Farmor may,
     at its sole  option,  grant you  additional  time in which to  execute  and
     return this Agreement, or this offer shall automatically terminate.

18.3 Counterpart Execution.  This Agreement may be executed in counterparts,  no
     one of which needs to be executed  by all parties to this  Agreement.  When
     all parties have  executed a  counterpart  of this  Agreement,  it shall be
     binding  upon all parties  with the same force and effect as if all parties
     had signed the same document.

     This  Agreement is executed  the 24th day of August  2004,  effective as of
     July 10, 2004.

FARMOR:

Forest Oil Corporate

By: /s/ J. C. Ridens                   Date: 8/24/04
    --------------------------------
Name: J. C. Ridens
Title: Senior Vice President
       Gulf Coast Region

FARMEE:

Millennium Offshore Group, Inc.

By: /s/ D. Kent Singleton              Date: 8/25/04
    --------------------------------
Name: D. Kent Singleton
Title: Executive Vice President

                                       13

<PAGE>

                                 ACKNOWLEDGMENTS

STATE OF TEXAS

COUNTY OF HARRIS

     On this 25th day of August, 2004, before me, appeared D. Kent Singleton, to
me  personally  known,  who,  being  by me duly  sworn,  did say  that he is the
Executive  Vice  President  of  Millennium  Offshore  Group,  Inc.  and that the
foregoing  instrument  was signed on behalf of that  corporation by authority of
its Board of Directors and  acknowledged  the  instrument to be the free act and
deed of that corporation.

                                       /s/ Jerry D. Niekamp
                                       -----------------------------------------
                                       Notary Public, State of Texas

My Commission expires:

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

STATE OF COLORADO

COUNTY OF DENVER

     On this 24th day August,  2004,  before me,  appeared J. C.  Ridens,  to me
personally  known,  who, being by me duly sworn, did say that he/she is the Gulf
Region Vice President of Forest Oil Corporation, a New York corporation and that
the  foregoing  instrument  was signed on behalf of that company by authority of
its Board of Directors and  acknowledged  the  instrument to be the free act and
deed of that company.

                                       /s/ Karen Aspinwall
                                       -----------------------------------------
                                       Notary Public, State of Colorado

My Commission expires:

My Commission expires Nov. 14, 2005

     [SEAL]
 KAREN ASPINWALL
  NOTARY PUBLIC
STATE OF COLORADO

                                       14

<PAGE>

                                   EXHIBIT "A"

     Attached  to and  made a part  of  that  certain  Farmout  Agreement  dated
effective  July 10,  2004 and between  Forest Oil  Corporation,  as Farmor,  and
Millennium Offshore Group, Inc. as Farmee.

      FOREST OIL CORPORATION                    HIGH ISALND BLOCK 53
    1600 BROADWAY, SUITE 2200                       OCS-G 20658
        DENVER, CO 80202
         (303) 812-1400

    FOREST OIL'S DISTRIBUTION                GEOLOGY FAX # (303) 812-1722
       REPORTS AND LOGS                      GEOLOGY OFF # (303) 812-1400

3 Copies                               1.   Final Drilling Reports.
ATTN: Heather Hamit

3 Copies                               2.   Drilling  &  Production  items (ie.
ATTN: Heather Hamit                         Production     reports,     summary
                                            reports, gov't forms files pursuant
                                            to  USGS   regs,   well   programs,
                                            workover  recommendations  spill or
                                            blowout notices, formation tests.)

ATTN: Jack Slechta                     3.   Plans   of    Exploration    and/or
                                            Development  with any  accompanying
                                            geological or geophysical  maps and
                                            sections.

1 Copy
ATTN: Jack Slechta                     4.   Daily Mud Logs.

3 Copies
ATTN: Jack Slechta                     5.   Final Mud Logs.

3 Copies                               6.   Paleo  Reports,  Core Reports,  and
ATTN: JackSlechta                           Directional Surveys.

1 Copy
ATTN: Jack Slechta                     7.   LOGNET/DATREX/TELECOPY LOGS.

3 Copies                               8.   Field  Copies  of  Wireline   Logs,
ATTN: Jack Slechta                          and/or LWD (Open & Cased hole).

5 Copies                               9.   Final  Copies  of  Wireline   Logs,
ATTN: Jack Slechta                          and/or LWD (Open & Cased hole).

3 Copies
ATTN: Jack Slechta                     10.  Velocity Survey.

1 Copy
ATTN: Jack Slechta                     11.  3  1/2"   Diskette  LAS  format  of
                                            wireline logs.

I.   LOGNET/DATREX NOTIFICATIONS:

          1)   Jack Slechta:  Office: (303)812-1570
                              Fax: (303)812-1722
               Office e-mail: jjslechta@forestoil.com

          or
          Alternate

               Peter Guynn:   Office: (303)812-1421
                              Fax: (303)812-1722
               Office e-mail: pcguynn@forestoil.com

II.  DAILY DRILLING REPORTS:

          1)   Heather Hamit: Office: (303)812-1665
                              Fax: (303)812-1722
                              Office e-mail: hlhamit@forestoil.com

                                       15

<PAGE>

                                   EXHIBIT "B"

Prior to commencing operations, Farmee shall procure at its expense insurance as
set forth below to cover all operations performed under this Agreement:

A.   Worker's  compensation  Insurance to comply with all applicable laws of the
     jurisdiction  where  operations  are  conducted  and  Employers'  Liability
     Insurance of not less than  $1,000,000  any one  accident.  This  insurance
     shall include:

     1.   Coverage   under  the  U.S.   Longshoremen's   and   Harbor   Workers'
          Compensation Act,  including its extension for Outer Continental Shelf
          Lands Operations;

     2.   Extension   of  coverage   to  include   liability   under   Admiralty
          Jurisdiction,  including  the Jones Act,  with  Marine  and  Voluntary
          Compensation   Endorsement  and  an  Endorsement  for  Transportation,
          Maintenance,  Wages and Cure with a limit of not less than  $1,000,000
          any one accident;

     3.   Endorsement  to provide that a claim "in rem" will be treated the same
          as a claim "in personam".

     If, under the laws of the  jurisdiction in which  operations are conducted,
     Farmee is authorized to be a self-insurer as to the above coverage,  Farmee
     may elect to be a self-insurer under such laws.

B.   Comprehensive General Liability Insurance (including  Contractual Liability
     Coverage  to insure the  indemnity  and hold  harmless  provisions  of this
     Agreement) with a combined single limit of not less than $1,000,000 any one
     occurrence  for bodily injury  and/or  property  damage.  This policy shall
     contain an "In Rem Endorsement" for offshore operations.

C.   Automobile Liability Insurance covering all automotive  equipment,  if any,
     used in performing  operations  under this Agreement with a combined single
     limit of  $1,000,000  any one accident for bodily  injury  and/or  property
     damage.

D.   Umbrella Liability Insurance in the minimum amount of $25,000,000 excess of
     all primary limits.

E.   As required by the OCS Lands Act of 1978,  insurance  coverage  required to
     meet the $35,000,000 net worth (Financial Responsibility) requirement under
     said Act. This  coverage will be amended as necessary  upon issuance of the
     regulations of the Oil Pollution Act of 1990.

     All of the above  policies  to the extent  permitted  by law shall  contain
     provisions  whereby Farmee and its insurers waive all rights of subrogation
     against Farmors. Farmee shall furnish Farmors a Certificate of Insurance as
     evidence of such coverage and containing the following statement:

          "Farmee  shall  endeavor  in good faith to provide  written  notice to
          Farmors   thirty  (30)  days  prior  to  the  effective  date  of  the
          cancellation of or reduction in any coverage".

     Farmee,  at its  option,  may  elect to be a  self-insurer  as to the above
     coverage. For any or all of the above coverage, it is understood and agreed
     that Farmee will  indemnify and hold harmless  Farmors from and against any
     and all claims to the extent Farmors would have been protected if insurance
     had been purchased.

                                       16

<PAGE>

                                   EXHIBIT "C"

          EXECUTIVE ORDER NO, 11246 AS AMENDED BY EXECUTIVE ORDER 11375

                        NONDISCRIMINATION IN EMPLOYMENT

Attached to and made a part of that certain  Farmout  Agreement  dated effective
________________, 2004, by and between Noble Energy, Inc., as Farmor, and Forest
Oil Corporation, as Farmee.

     During the  performance  of this  Contract,  the  CONTRACTOR  (meaning  and
referring separately to each party hereto) agrees as follows:

     (1) The Contractor will not discriminate  against any employee or applicant
for employment because of race,  religion,  color, sex,  disability or perceived
disability or national origin.  The Contractor will take  affirmative  action to
ensure that  applicants  are  employed,  and the  employees  are treated  during
employment,  without regard to their race,  religion,  color, sex, disability or
perceived disability,  or national origin, such action shall include, but not be
limited  to  the  following:  employment,   upgrading,  demotion,  or  transfer;
recruitment or recruitment advertising;  layoff or termination;  rates of pay or
other  forms  of   compensation;   and   selection   for   training,   including
apprenticeship.  The Contractor agrees to post in conspicuous places,  available
to  employees  and  applicants  for  employment,  notices to be  provided by the
contracting  officer  setting  forth  the  provision  of this  nondiscrimination
clause.

     (2)  The  Contractor  will,  in all  solicitations  or  advertisements  for
employees  placed by or on behalf of the  Contractor,  state that all  qualified
applicants  will receive  consideration  for employment  without regard to race,
religion, color, sex, disability or perceived disability, or national origin.

     (3) The  Contractor  will send to each  labor  union or  representative  or
workers with which he has a collective bargaining Agreement or other contract or
understanding,  a notice  to be  provided  by the  agency  contracting  officer,
advising  the  labor  union  or  worker's  representative  of  the  Contractor's
commitments  under Executive Order 11246 as amended by Executive Order 11375 and
shall post copies of the notice in conspicuous places available to employees and
applicants for employment.

     (4) The Contractor will comply with all provisions of Executive Order 11246
as amended by Executive Order 11375 and of the rules, regulations,  and relevant
orders of the Secretary of Labor.

     (5) The Contractor  will furnish all  information  and reports  required by
Executive  Order 11246 as amended by Executive  Order  11375,  and by the rules,
regulations and orders of the Secretary of Labor, or pursuant thereto,  and will
permit access to his books,  records, and accounts by the contracting agency and
the Secretary of Labor for the purposes of investigation to ascertain compliance
with such rules, regulations and orders.

     (6)  In   the   event   of  the   Contractor's   noncompliance   with   the
nondiscrimination  clauses of this Contract or with any such rules, regulations,
or orders, this Contract may be canceled,  terminated,  or suspended in whole or
in part, and the Contractor  may be declared  ineligible for further  Government
contracts in accordance with  procedures  authorized in Executive Order 11246 as
amended by  Executive  Order 11375 and such other  sanctions  may be imposed and
remedies invoked, or by rules, regulations, or orders of the Secretary of Labor,
or as otherwise provided by law.

     (7) The  Contractor  will include the  provisions of Paragraphs (1) through
(7)  in  every   subcontract  or  purchase  order  unless   exempted  by  rules,
regulations,  or orders of the Secretary of Labor issued pursuant to Section 204
of  Executive  Order  11246 so that such  provisions  will be binding  upon each
subcontractor  or vendor.  The Contractor  will take such action with respect to
any  subcontract  or purchase  order as the  contracting  agency may direct as a
means of  enforcing  such  provisions  including  sanctions  for  noncompliance:
provided,  however, that in the event that Contractor becomes involved in, or is
threatened with, litigation with a subcontractor or vendor

                                       17

<PAGE>

as a result of such  direction by the  contracting  agency,  the  Contractor may
request the United States to enter into such litigation to protect the interests
of the United States.

     Contractor  acknowledges  that it may be required to file Standard Form 100
(EEO-1)  promulgated jointly by the Office of Federal Contract  Compliance,  the
Equal  Employment  Opportunity  Commission,  and Plans for  Progress  with Joint
Reporting Committee, Federal Depot, Jeffersonville,  Indiana, within thirty (30)
days of the date of  contract  award if such  report  has not been filed for the
current year and otherwise comply with or file such other compliance  reports as
may be required under Executive Order 11246 as amended by Executive Order 11375.

     Contractor  further  acknowledges  that it may be  required  to  develop  a
written  affirmative  action  compliance  program as  required  by the Rules and
Regulations  approved by the  Secretary  of Labor under  authority  of Executive
Order  11246 as  amended by  Executive  Order  11375 and supply the other  party
hereto with a copy of such program if such party so requests.

     The provisions  hereof are subject to the  exemptions,  qualifications  and
limitations contained in and which Contractor may claim under 41 CFR Chapter 60,
and such  provisions  are qualified to the extent and so that  Contractor  shall
have the full  benefit  thereof.  The terms used herein  shall have the meanings
specified in 41 CFR Section 1 -12, 802.

                   AFFIRMATIVE ACTION FOR HANDICAPPED WORKERS

     The regulations  issued under the  Rehabilitation  Act of 1973 in Title 41,
Chapter  60,  Part 60-741 of the Code of Federal  Regulations  are  incorporated
herein by  reference  unless this  Agreement  is exempt by Federal  law,  rules,
regulations  or  orders  of the  Secretary  of  Labor  issued  pursuant  to said
Rehabilitation  Act of 1973. The provisions for the Americans with  Disabilities
Act  of  1990,  42  U.S.C.A.   Section  12101  et  seq.,  and  the  implementing
regulations, are incorporated herein by reference.

    AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA

     The  regulations  issued  under  the  Vietnam  Era  Veterans   Readjustment
Assistance  Act of 1971 in Title 41,  Chapter 60, part 60-250 of the Code of the
Federal  Regulations are incorporated  herein by reference unless this Agreement
is exempted by Federal law,  rules,  regulations  or orders of the  Secretary of
Labor issued pursuant to said Vietnam Era Veterans  Readjustment  Assistance Act
of 1974.

                          MINORITY BUSINESS ENTERPRISES

     The regulations issued under C41 CFR 1-1.1310-2; Executive Order 11625, are
incorporated  herein by reference  unless this  Agreement is exempted by Federal
law,  rules,  regulations or orders of the Secretary of Labor issued pursuant to
said Executive Order.

                                       18

<PAGE>

                    CERTIFICATE OF NON-SEGREGATED FACILITIES

     Each of the parties to the Contract to which this  Certificate  is attached
as an Exhibit do hereby  assure the other (the  "assured")  that it does not and
will not maintain or provide for its employees any segregated  facilities at any
of its establishments, and that it does not and will not permit its employees to
perform  their  service at any  location,  under its control,  where  segregated
facilities are maintained.  For this purpose,  it its understood that the phrase
"segregated  facilities"  includes  facilities which are in fact segregated on a
basis of race,  color,  religion,  or national origin,  because of habit,  local
custom,  or otherwise.  It is further  understood and agreed that maintaining or
providing segregated facilities for its employees or permitting its employees to
perform  their  services  at any  location  under its control  where  segregated
facilities  are  maintained  is a  violation  of the  equal  opportunity  clause
required by Executive Order 11246 of September 24, 1965.

     Each of the  parties  further  understands  and agrees that a breach of the
assurance  herein  contained  subjects to the  provisions of the Order at 41 CFR
Chapter 60 of the Secretary of Labor dated May 21, 1968,  and the  provisions of
the equal  opportunity  clause enumerated in contracts between the United States
of America and the assured.

     Whoever knowingly and willfully makes any false, fictitious,  or fraudulent
representation may be liable to criminal prosecution under 18 U.S.C. Par. 1001.

     Each of the  parties  reserves  to itself the  benefit  of all  exemptions,
qualifications and limitations  contained in and which it may claim under 41 CFR
Chapter 60 and this  certification  is  qualified  to the extent and so that the
undersigned shall have the full benefit thereof.

                                       19

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