Document:

[LETTERHEAD OF SAMSON]

                                February 15, 2005

Ridgewood Energy Corporation
11700 Old Katy Road
Suite 280
Houston, TX 77079
Attention: Mr. Randy A. Bennett

Re: Participation Agreement
    James Lime Prospect
    Chandeluer, Main Pass, Viosca Knoll Areas
    Offshore Louisiana

Gentlemen:

          When  executed by both Parties  hereto in the manner  provided  below,
this letter shall  evidence  the  agreement  ("the  Agreement")  between  Samson
Offshore Company ("Samson") and Ridgewood Energy Corporation  ("Ridgewood") with
respect to (1.) Ridgewood's  purchase from Samson of an undivided 37.5% interest
in and to the Oil & Gas Leases described on Exhibit "A" attached hereto and made
a part hereof (the "Leases") and (2.) Ridgewood's  participation in the drilling
of an Initial Test Well, as defined in paragraph 4 hereof,  on the Leases in the
manner  hereinafter  described.  Samson and Ridgewood are sometimes  hereinafter
referred to collectively as "Parties" or individually as "Party".

     1.   PURCHASE AND SALE

          For the consideration set forth below, Samson hereby sells and conveys
          and Ridgewood  hereby  purchases an undivided 37.5% of 8/8ths interest
          (the "Assigned Interest") in the Leases effective January 1, 2005. The
          Assigned Interest is subject to its proportionate  part of the burdens
          set forth in paragraph 6 hereof.

                                        1

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     2.   CONSIDERATION

          Within in three (3)  business  days of  execution  of this  Agreement,
          Ridgewood  shall  remit  to  Samson,  as total  consideration  for the
          Assigned  Interest the sum of $2,309,379.00  representing a portion of
          Land  and G & G  costs  paid by  Samson  as to the  Assigned  Interest
          attributable to the Leases thru January 1, 2005 ("Lease Costs").

     3.   JOINT OPERATING AGREEMENT

          Subject  to the  provisions  herein,  all  operations  on the  Leases,
          including the drilling of the Initial Test Well as provided in Section
          4  below,  will  be  governed  by the  terms  of the  Joint  Operating
          Agreement  ("JOA")  attached hereto as Exhibit "B", which names Samson
          as Operator.  Ridgewood  hereby agrees to ratify by execution said JOA
          accepting  all  rights  and  obligations  therein.  In the  event of a
          conflict  between  the JOA  and  this  Agreement,  the  terms  of this
          Agreement shall prevail.

     4.   INITIAL TEST WELL

          Ridgewood  agrees to  participate  with Samson in the  drilling of the
          Samson  OCS-G 25027 Well #1 being the Initial  Test Well on the Leases
          to be drilled to a total depth of 15,500' TVD or a depth sufficient to
          fully evaluate the entirety of the James Lime Formation,  whichever is
          less  ("Objective  Depth") with a surface and bottom hole  location of
          3665'  FNL and  4165' FWL of Main  Pass  Area,  Block  169 (the  "Test
          Well").  Ridgewood  agrees  to pay 50% of the  costs  and  expense  of
          drilling the Test Well to Casing  Point which costs shall  include the
          actual costs incurred in drilling,  logging,  and RFT testing the Test
          Well, until the earlier to occur of the following: i) the actual costs
          of such  operations  exceeds  the AFE Dry Hole Costs ; or ii) the Test
          Well reaches  Casing Point and approved  logging  operations,  and RFT
          testing if necessary have been completed, and a recommendation is made
          to complete the well by setting  production  casing,  suspend the Test
          Well, or plug and abandon same. Thereafter, Ridgewood's share of costs
          with respect to the Test Well and the Leases shall be reduced from 50%
          to 37.5%.

     5.   SUBSTITUTE WELL

          If, after  commencing the Test Well, but before reaching the Objective
          Depth, there should be encountered  conditions or formations,  whether
          natural or mechanical,  which render further drilling of the Test Well
          either  impossible or impractical,  and as a result  operations on the
          Test  Well  are  permanently  abandoned,  a  Substitute  Well  may  be
          commenced no later than 90 days following the  abandonment of the Test
          Well. A proposal to sidetrack the Test

                                        2

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          Well around an  obstruction  in the wellbore shall not be considered a
          Substitute  Well but a  continuation  of the  Test  Well,  unless  the
          targeted  bottom hole  location of the  sidetracked  well is more than
          200' from the original  proposed bottom hole location.  Any Substitute
          Well proposal  shall include the estimated  costs to drill the same to
          the original  Objective  Depth in the Test Well.  Ridgewood shall have
          the right and option to elect not to participate in a Substitute Well,
          if  proposed,  however,  failure  to  participate  shall  result  in a
          forfeiture  of  interest  in the  Leases  and the  Test  Well  without
          reimbursement  of  costs  incurred  prior to such  election.  The time
          period  during  which   Ridgewood's   election  to  participate  in  a
          Substitute  Well  must be  made  shall  be  governed  by the  election
          provisions in the Joint Operating  Agreement.  If such Substitute Well
          is timely  commenced and Ridgewood  participates,  the Substitute Well
          shall be considered  and deemed for all purposes  under this Agreement
          to be the Test Well including,  without limitation,  the apportionment
          among the Parties of the costs and  expenses  incurred  in  connection
          therewith pursuant to Section 4.

     6.   ASSIGNMENT OF INTEREST

          Samson shall  provide  Ridgewood  with an executed  assignment  of the
          Assigned Interest upon receipt by Samson of payment of the Lease Costs
          set forth above.  Said Assignment  shall be without  warranty of title
          except as to claims  by,  through  or under  Samson  and shall be made
          expressly  subject to the terms and  provisions of this  Agreement and
          the attachments  hereto.  Ridgewood shall bear its proportionate share
          of (i) the Lessor's  royalty  burdening  the Leases,  and (ii) a 2% of
          8/8ths  overriding  royalty  interest  in favor of  Samson,  provided,
          however,  the net revenue interest to be delivered in such assignments
          of  interest  shall  not be less  than  81.33%,  for a  proportionally
          reduced total net revenue interest of 30.49875% of 8/8ths.

          In the event  Ridgewood  fails to  participate  in the drilling of the
          Initial  Test  Well as set forth  above,  Ridgewood  will  immediately
          reassign  to Samson the  Assigned  Interest  and shall have no further
          rights or obligations in the Leases.

     7.   SUBSEQUENT WELL

          After the  completion or plugging and  abandonment of the Initial Test
          Well or Substitute  Well, in the event Samson proposes the drilling of
          a subsequent well on VK 339 and Ridgewood elects not to participate in
          the drilling of said well,  Ridgewood will forfeit all its interest in
          VK 338 and VK 339. All other  non-consent  operations will be governed
          by the applicable JOA provision.

                                        3

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     8.   RIGHT OF FIRST REFUSAL

          Should Samson make a decision to sell down a portion of its interest
          to a third party on any Deep Gas Prospect ("Prospect") where the
          objective target is below 15,000 in depth, Samson hereby agrees that
          Ridgewood has a Right of First Refusal to review said prospect with
          the option to participate on the same basis in which Samson is
          marketing its interest. Ridgewood will have fifteen (15) days from the
          day Samson makes a technical presentation to Ridgewood on the Prospect
          to elect to participate in the Prospect for a mutually acceptable
          working interest percentage on the same basis which Samson plans to
          market to third parties. In the event Ridgewood fails to timely elect
          or elects not to participate, Samson shall be free and clear to market
          to other parties. In the event Samson decides to accept terms less
          than those presented to Ridgewood, Ridgewood shall have ten (10) days
          to re-elect. Ridgewood's Right of First Refusal shall terminate on
          12:01am, January 1, 2006 as to all Samson Prospects.

     9.   NOTICES

          All notices provided for in this Agreement shall be in writing and
          deemed received seventy-two (72) hours after deposited in the U.S.
          Mail. Where an election is required, all notices shall be delivered by
          certified U.S. mail, return receipt requested, telecopy, or overnight
          courier or messenger with receipt confirmation, to

               SAMSON OFFSHORE COMPANY
               1301 Travis, Suite 1900
               Houston, Texas 77002
               Attention: Mr. Sonny Measley
               Phone: (713)577-2011
               Fax: (713) 577-2211

               RIDGEWOOD ENERGY CORPORATION
               11700 Old Katy Road, Suite 280
               Houston, Texas 77079
               Attention: Mr. Randy A. Bennett
               Phone: (281)293-9384
               Fax: (281)293-7391

                                        4

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          With a copy to

               SAMSON OFFSHORE COMPANY
               Two West Second Street
               Tulsa, OK
               Attention: Mr. Jack Canon
               Phone:(918) 591-1009
               Fax: (918) 591-1718

               RIDGEWOOD ENERGY CORPORATION
               11700 Old Katy Road, Suite 280
               Houston, Texas 77079
               Attention: Mr. W. Greg Tabor
               Phone: (281) 293-8449
               Fax: (281)293-7391

          Each Party shall have the right to change its address at any time, and
          from time to time, by giving written notice thereof to the other
          Parties.

     10.  SUCCESSORS AND ASSIGNS

          This  Agreement  and the transfer or  retransfer of an interest in the
          rights hereto shall inure to the to the benefit of and be binding upon
          the heirs,  successors  and assigns of the Parties  hereto;  provided,
          however, Ridgewood may not transfer or assign in whole or in part, its
          interest in this Agreement without the prior written consent of Samson
          which consent may not be unreasonably withheld.

     11.  CONFIDENTIALITY

          Ridgewood  agrees  that the  terms of this  Agreement  shall be deemed
          confidential  and shall not be revealed to any third party  except (i)
          to the extent  disclosure may be required by law,  including,  without
          limitation,  disclosures in  registration  statements or other filings
          with the Securities and Exchange  Commission;  (ii) disclosures in any
          judicial or alternative dispute resolution  proceeding  concerning the
          terms  hereof;  and (iii)  disclosures  with the  written  consent  of
          Samson, which consent shall not be unreasonably withheld.

                                        5

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     12.  INDEMNITY

          Ridgewood  agrees  to and  does  hereby  release,  indemnify  and hold
          harmless  Samson  from any  claims by third  parties  arising  from or
          related  to any  representations  made by  Ridgewood,  its  employees,
          agents or affiliates to such third  parties or others  concerning  the
          transaction evidenced by this Agreement, any estimates of the quantity
          or value of reserves that may underlie the Leases and any estimates of
          costs  that  may be  incurred  in  drilling  for  and  producing  such
          reserves.

This Participation Agreement shall be effective as of January 1, 2005 and may be
signed in counterparts  Please acknowledge your agreement of the terms herein by
executing one copy of this  Participation  Agreement  where  provided  below and
returning the same to this office.

SAMSON OFFSHORE COMPANY

/s/ Allen May
---------------------------
By: Allen May
Title: Vice President

AGREED TO AND ACCEPTED THIS ________ DAY OF FEBRUARY 2005

RIDGEWOOD ENERGY CORPORATION

---------------------------------
By: W. Greg Tabor
Title: Executive Vice President

                                        6

<PAGE>

                                   EXHIBIT "A"

       Attached to and made a part of that certain Participation Agreement
       dated February 15, 2005 by and between Samson Offshore Company and
                                Ridgewood Energy

                                    "Leases"

Oil and Gas Lease dated July 1, 2002 from the United  States  Department  of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company, as
Lessee,  covering  all  of  Block  154,  Main  Pass  Area,  Offshore  Louisiana,
approximately 4995 acres, more or less, and bearing serial Number OCS-G 23973.

Oil and Gas Lease  dated May 1, 2003 from the United  States  Department  of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company, as
Lessee,  covering  all  of  Block  155,  Main  Pass  Area,  Offshore  Louisiana,
approximately 4995 acres, more or less, and bearing serial Number OCS-G 25025

Oil and Gas Lease  dated May 1, 2002 from the United  States  Department  of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company, as
Lessee,  covering  all  of  Block  156,  Main  Pass  Area,  Offshore  Louisiana,
approximately 4995 acres, more or less, and bearing serial Number OCS-G 23974.

Oil and Gas Lease dated July 1, 2002 from the United  States  Department  of the
Interior,  Minerals Management Service,  as' Lessor, to Samson Offshore Company,
as Lessee,  covering  all of Block  157,  Main Pass  Area,  Offshore  Louisiana,
approximately 4995 acres, more or less, and bearing serial Number OCS-G 23975.

Oil and Gas Lease  dated May 1, 2003 from the United  States  Department  of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company, as
Lessee,  covering  all  of  Block  168,  Main  Pass  Area,  Offshore  Louisiana,
approximately 4995 acres, more or less, and bearing serial Number OCS-G 25026.

Oil and Gas Lease  dated May 1, 2003 from the United  States  Department  of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company, as
Lessee,  covering  all  of  Block  169,  Main  Pass  Area,  Offshore  Louisiana,
approximately 4995 acres, more or less, and bearing serial Number OCS-G 25027.

Oil and Gas Lease  dated May 1, 2003 from the United  States  Department  of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company, as
Lessee,  covering  all  of  Block  170,  Main  Pass  Area,  Offshore  Louisiana,
approximately 4995 acres, more or less, and bearing serial Number OCS-G 25028.

                                       7

<PAGE>

Oil and Gas Lease  dated May 1, 2002 from the United  States  Department  of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company, as
Lessee,  covering all of Block 338 Viosca Knoll Area,  approximately 4157 acres,
more or less, and bearing serial Number OCS-G 24010.

Oil and Gas Lease  dated May 1, 2002 from the United  States  Department  of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company, as
Lessee, covering all of Block 339, Viosca Knoll Area,  approximately 5716 acres,
more or less, and bearing serial Number OCS-G 24011.

Oil and Gas Lease dated July 1, 2002 from the United  States  Department  of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company, as
Lessee,   covering  all  of  Block  43,  Chandeluer  Area,  Offshore  Louisiana,
approximately 4995 acres, more or less, and bearing serial Number OCS-G 24003

                                       8

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     12.  INDEMNITY

          Ridgewood  agrees  to and  does  hereby  release,  indemnify  and hold
          harmless  Samson  from any  claims by third  parties  arising  from or
          related  to any  representations  made by  Ridgewood,  its  employees,
          agents or affiliates to such third  parties or others  concerning  the
          transaction evidenced by this Agreement, any estimates of the quantity
          or value of reserves that may underlie the Leases and any estimates of
          costs  that  may be  incurred  in  drilling  for  and  producing  such
          reserves.

This Participation Agreement shall be effective as of January 1, 2005 and may be
signed in counterparts  Please acknowledge your agreement of the terms herein by
executing one copy of this  Participation  Agreement  where  provided  below and
returning the same to this office.

SAMSON OFFSHORE COMPANY

/s/ Allen May
-------------------------------
By: Allen May
Title: Vice President

AGREED TO AND ACCEPTED THIS 15th DAY OF FEBRUARY 2005

RIDGEWOOD ENERGY CORPORATION

/s/ W. Greg Tabor
--------------------------------
By: W. Greg Tabor
Title: Executive Vice President

                                       6

<PAGE>

                                      JOINT

                               OPERATING AGREEMENT

                                     BETWEEN

                             SAMSON OFFSHORE COMPANY

                                   AS OPERATOR

                                       AND

                          MAGNUM HUNTER PRODUCTION, INC

                                       And

                          RIDGEWOOD ENERGY CORPORATION

                                AS NON-OPERATORS

                               COVERING OCS LEASES
                            DESCRIBED IN EXHIBIT A-1

                                 DATED EFFECTIVE
                                 January 1, 2005

<PAGE>

                            JOINT OPERATING AGREEMENT

          THIS  AGREEMENT is made  effective  the 1st day of JANUARY 2005 by the
     signers   hereof,   herein   referred  to  collectively  as  "Parties"  and
     individually as "Party".

                                   WITNESSETH:

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

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

                                    ARTICLE I

                                   APPLICATION

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

                                   ARTICLE II

                                   DEFINITIONS

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

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

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

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

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

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

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

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

                                        2

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

                                   ARTICLE III

                                    EXHIBITS

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

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

                                   ARTICLE IV

                                    OPERATOR

          4.1  OPERATOR.   Samson  Offshore  Company  is  hereby  designated  as
OPERATOR.  OPERATOR  shall not have the right to assign or transfer  any rights,
duties or  obligations  of OPERATOR to another PARTY  subject to the  provisions
herein.

          4.2  RESIGNATION.  OPERATOR may resign at any time by giving notice to
the PARTIES.

                                        3

<PAGE>

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

          4.3  REMOVAL OF  OPERATOR.  OPERATOR  may be  removed if (1)  OPERATOR
becomes  insolvent  or  unable  to pay its  debts  as they  mature  or  makes an
assignment  for the benefit of  creditors  or commits any act of  bankruptcy  or
seeks relief under laws  providing for the relief of debtors;  or (2) a receiver
is  appointed  for  OPERATOR or for  substantially  all of its  property  and/or
affairs;  or (3)  OPERATOR  or its  designee  no longer  owns an interest in the
property  or  divest  itself  of more than  fifty  percent  (50%) or more of the
interest owned by it in the Lease at the time it was designated OPERATOR; or (4)
OPERATOR has committed a material breach of any substantive  provision hereof or
fails to perform its duties  hereunder in a reasonable  and prudent  manner,  or
failed to rectify such default  within sixty (60) days after notice from another
PARTY to do so. The PARTY giving  notice to the OPERATOR of a default shall also
furnish a copy of such notice to the other PARTIES.  In such event, the OPERATOR
may be  removed  by an  affirmative  vote of two (2) or more  PARTIES  having  a
combined WORKING INTEREST of fifty percent (50%) in the LEASE.

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

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

                                    ARTICLE V

                        AUTHORITY AND DUTIES OF OPERATOR

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

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

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

                                        4

<PAGE>

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

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

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

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

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

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

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

               (b)  daily  drilling  reports by  telephone  followed  by written
                    reports (or by FACSIMILE);

               (c)  complete report of all core analyses;

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

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

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

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

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

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

                                   ARTICLE VI

                          VOTING AND VOTING PROCEDURES

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

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

                                        5

<PAGE>

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

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

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

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

                                   ARTICLE VII

                                     ACCESS

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

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

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

          7.4 LIMITED DISCLOSURE. Any PARTY may make confidential data available
to affiliates, to reputable engineering firms and gas transmission companies for
hydrocarbon  reserve and other  technical  evaluations,  to reputable  financial
institutions  for study prior to commitment of funds and to bonafide  purchasers
of

                                        6

<PAGE>

     all of a PARTY'S  interest  in the LEASE.  Any third party  permitted  such
     access shall first agree in writing neither to disclose such data to others
     nor to use such data except for the purpose for which it is disclosed. Each
     PARTY shall be  furnished  with copies of third  parties  execution  of the
     same.

                                  ARTICLE VIII

                                  EXPENDITURES

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

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

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

          8.4 COMMINGLING OF FUNDS.  OPERATOR shall establish a separate account
for the benefit of the Parties and shall  deposit  into such account all Advance
Billings  received from the Parties and  attributable to any proposed  operation
contemplated  herein.  Operator  shall  keep an  accurate  record  of all  funds
deposited and withdrawn  from the account,  including the amounts  received from
the Parties,  the Leases to which such amounts are  attributable,  account funds
expended  on  the  Leases  and  the  Leases  to  which  such   expenditures  are
attributable.

          8.5  SECURITY  RIGHTS.  In addition to any other  security  rights and
remedies  provided by law with  respect to services  rendered or  materials  and
equipment furnished under this Agreement,  OPERATOR shall have a first lien upon
each PARTY'S PARTICIPATING and/or WORKING INTEREST, including the production and
equipment  credited thereto,  in order to secure payment of charges against such
PARTY,  together with  interest  thereon at the rate set forth in Exhibit "C" or
the maximum rate allowed by law,  whichever is less, plus attorneys' fees, court
costs and other related collection costs. If any PARTY does not pay such charges
when due, OPERATOR shall have the

                                        7

<PAGE>

additional  right to collect from the  purchaser  the proceeds  from the sale of
such  PARTY'S  share of  production  until the amount  owed has been paid.  Each
purchaser  shall be  entitled to rely on  OPERATOR'S  statement  concerning  the
amount  owed.  Each  NON-OPERATOR  shall  have  comparable  security  rights  on
OPERATOR'S PARTICIPATING and/or WORKING INTEREST.

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

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

          8.8 CARVED-OUT INTERESTS. Any overriding royalty,  production payment,
net proceeds interest,  carried interest or any other interest carved-out of the
WORKING  INTEREST in the LEASE after the effective date of this Agreement  shall
be subject to the rights of the PARTIES to this  Agreement,  and any PARTY whose
WORKING INTEREST is so encumbered shall be responsible therefor. If a PARTY does
not pay its share of expenses and the proceeds from the sale of production under
Section 8.5 are insufficient for that purpose,  the security rights provided for
therein may be applied against the carved-out  interests with which such WORKING
INTEREST is burdened.  In such event, the rights of the owner of such carved-out
interest shall be subordinated to the security rights granted by Section 8.5.

                                   ARTICLE IX

                                     NOTICES

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

                                        8

<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 or Facility, the notice shall contain a description of same,
including  location and the estimated costs of fabrication,  transportation  and
installation.  If a proposal involves a well operation, the notice shall include
the estimated commencement date, the proposed depth, the objective zone or zones
to be tested,  the surface and bottom-hole  locations and the estimated costs of
the operation including all necessary  expenditures  through installation of the
wellhead.

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

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

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

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

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

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

                                    ARTICLE X

                                EXPLORATORY WELLS

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

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

                                        9

<PAGE>

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

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

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

          10.4 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH

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

                    (a)  further log or test the well,

                    (b)  complete the well as originally planned,

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

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

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

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

                    (g)  other operations in the well, or

                                       10

<PAGE>

                    (h)  plug and abandon the well.

Within  forty-eight (48) hours after receipt of OPERATOR'S  proposal,  the other
PARTIES   shall   respond   thereto   by  either   approving   it  or  making  a
counter-proposal.  If a  counter-proposal  is made,  the  PARTIES  shall have an
additional forty-eight (48) hours to respond thereto.

     If all  PARTIES  approve a proposal  or  counter-proposal,  OPERATOR  shall
conduct the operation at the PARTICIPATING  PARTIES cost and risk. A proposal to
complete, rework or recomplete a well at a particular depth will take precedence
over proposal to complete,  rework or recomplete the well above such depth, with
a deeper proposal for such operations  always taking precedence over a shallower
proposal.  Proposals for such  operations at any depth will take precedence over
proposals  to deepen the well below its  originally  proposed  total depth or to
sidetrack  the well once it has reached  such depth with a proposal to sidetrack
taking precedence over a proposal to deepen. Proposals of the same type shall be
given  precedence  in the  order in which  they are  made.  No  action  shall be
required on a proposal while there is pending a proposal,  with precedence being
on the same well on which the  parties  have not acted or on which  work has not
been completed.

     If fewer than all, but one (1) or more,  Parties having a Working  Interest
approve a proposal or counter-proposal made under Section 10.4 and agree to bear
the cost and risk thereof,  Operator  shall conduct the same pursuant to Article
12. If a proposal or  counter-proposal  made under Section.10.4 does not receive
the required approval,  and no other proposal is made and approved then the well
shall be plugged and abandoned for all PARTIES.

                                   ARTICLE XI

                          DEVELOPMENT WELL OPERATIONS

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

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

          11.3  OPERATIONS  BY FEWER THAN ALL PARTIES.  Except for a DEVELOPMENT
WELL(S)  under  Section  12.7,  if fewer than all  PARTIES,  but one (1) or more
PARTIES  having a WORKING  INTEREST  approve a DEVELOPMENT  OPERATION,  OPERATOR
shall conduct such operation  pursuant to Article XII. If such operations are to
be conducted from an existing platform, the operations participated in by all of
the PARTIES shall have  preference,  unless  otherwise  agreed to by the PARTIES
hereto.

          11.4 TIMELY  OPERATIONS.  Operations  shall be commenced within ninety
(90) days  following  the date upon which the last  applicable  election  may be
made. If no operations are begun within such time

                                       11

<PAGE>

period,  the effect shall be as if the  proposal  had not been made.  Operations
shall  be  deemed  to have  commenced  (a) on the date  the  contract  for a new
platform is let, if the notice  indicated the need for such platform;  or (b) on
the date rigging-up operations are commenced on an existing platform.

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

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

                                   ARTICLE XII

                             NON-CONSENT OPERATIONS

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

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

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

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

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

               12.1.5  Non-Consent Well.  Operations on a NON-CONSENT WELL shall
not be conducted in any producible  zone penetrated by a PRODUCIBLE WELL without
approval of each  NON-PARTICIPATING  PARTY unless; (a) such zone shall have been
designated in the notice as a completion  zone;  (b)  completion of such well in
said  zone will not  increase  the well  density  governmentally  prescribed  or
approved for such zone;  and (c) the  horizontal  distance  between the vertical
projections  of the midpoint of the zone in such well and any  existing  well in
the  same  zone  will be a  least  one  thousand  (1,000)  feet  if an  oil-well
completion or two thousand (2,000) feet if a gas-well completion. Subject to the
foregoing  provisions  of this  Article,  until the  PARTICIPATING  PARTIES in a
NON-CONSENT WELL have recouped the amount to which they are entitled  hereunder,
they may conduct  any  reworking  operation  on such well which they may desire,
including plugging back to a shallower zone but only if such

                                       12

<PAGE>

shallower zone is subject to NON-CONSENT  elections in the original proposal. In
this event, the cost of such reworking operation shall be subject to the penalty
provisions of Section 12.2.1.

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

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

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

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

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

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

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

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

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

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

          12.3  DEEPENING  OR   SIDETRACKING   OF   NON-CONSENT   WELL.  If  any
PARTICIPATING  PARTY  proposes to deepen or  sidetrack  a  NON-CONSENT  WELL,  a
NON-PARTICIPATING PARTY may participate by notifying the OPERATOR within fifteen
(15) days after  receiving the proposal (48 hours if a rig is on location)  that
it will join in the (deepening or sidetracking) operations, and by paying to the
PARTICIPATING PARTIES an amount equal to such NON-PARTICIPATING PARTY'S share of
the actual costs of drilling and casing

                                       13

<PAGE>

such well to the point at which such  deepening  or  sidetracking  operation  is
commenced. The PARTICIPATING PARTIES shall continue to be entitled to recoup the
full sum specified in Section 12.2.1  applicable to the  NON-CONSENT  WELL, less
the amount paid under this section,  out of the proceeds of production  from the
NON-CONSENT portion of the well.

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

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

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

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

                    (a)  Such  PARTICIPATING  PARTIES  shall  pay a sum equal to
                         that   portion  of  the  total  cost  of  the  platform
                         (including, but not by way of limitation, costs of

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<PAGE>

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

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

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

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

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

                                       15

<PAGE>

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

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

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

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

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

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

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

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

                                       16

<PAGE>

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

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

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

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

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

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

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

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

          12.11 INTANGIBLE DRILLING AND COMPLETION ALLOCATIONS.  For the purpose
of calculations  hereunder,  intangible drilling and completion costs, including
non-controllable material costs, shall be

                                       17

<PAGE>

allocated  between zones,  including the interval from the lower completed zones
to total  depth,  on a drilling  day ratio  basis  beginning  on the day the rig
arrives on location and terminating when the rig is released.

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

                                  ARTICLE XIII

                                   FACILITIES

          13.1 APPROVAL. Any PARTY may propose the installation of FACILITIES by
notice to the other PARTIES with  information  adequate to describe the proposed
FACILITIES  and the estimated  costs.  The  affirmative  vote of one (1) or more
PARTIES having a combined  PARTICIPATING INTEREST of fifty percent (50%) or more
in the  wells to be served  shall be  required  before  such  FACILITIES  may be
installed.  If such required  approval is obtained,  the  PARTICIPATING  PARTIES
therein shall  proceed with the  installation  of such  FACILITIES at their sole
cost,  risk and expense  and the  NON-PARTICIPATING  PARTIES in such  FACILITIES
shall have no rights with respect thereto,  subject to recoupment of amounts set
forth under Article 12.2.1 from the completions  served  thereby.  Each PARTIES'
share shall be calculated by  multiplying  the total cost of the FACILITIES by a
fraction,  the  numerator of which is that  PARTY'S  number of  PRODUCIBLE  WELL
completions  served by the FACILITIES and the  denominator of which is the total
number  of  PRODUCIBLE  WELL  completions  served  by  the  FACILITIES.  Nothing
hereunder  shall limit a PARTY'S  rights under  Section 22.1,  however,  a PARTY
acting thereunder shall not be required to pay for joint account FACILITIES that
duplicate its FACILITIES constructed pursuant to Section 22.1

                                   ARTICLE XIV

                             ABANDONMENT AND SALVAGE

          14.1  PLATFORM  SALVAGE AND  REMOVAL  COSTS.  When the PARTIES  owning
FACILITIES consisting of a platform,  mutually agree to dispose of such platform
it shall be disposed of by the OPERATOR as approved by such PARTIES.  The costs,
risks and net proceeds,  if any, resulting from such disposition shall be shared
by such PARTIES in proportion  to their  PARTICIPATING  INTEREST.  To secure the
availability  and  sufficiency  of funds for the  dismantling,  abandonment  and
removal of such platform,  the PARTICIPATING PARTIES, prior to the construction,
shall  assign to a trustee  of a bank (the  "Assignee")  an  overriding  royalty
interest equal to one-half percent (1/2%) of the whole of the oil, gas and other
minerals  produced,  saved and marketed  from the LEASE.  The Assignee  shall be
selected  by an  affirmative  vote  of two or more  parties  having  a  combined
PARTICIPATING  INTEREST of fifty percent (50%) or more. The assigned  overriding
royalty interest shall burden the interest of the PARTIES in proportion to their
participation in the platform.  The Assignee,  who shall have no interest in the
overriding  royalty  interest,  shall  receive the proceeds and place same in an
interest bearing account or in insured certificates of deposit (the "Abandonment
Fund").  If a  platform  is not  constructed  within  one  year  of the  date of
overriding royalty

                                       18

<PAGE>

interest is assigned,  the overriding  royalty shall  terminate and the Assignee
shall reassign the interest and properly  disburse the  Abandonment  Fund to the
appropriate  Parties.  Any  proposal  to  construct  a  platform  shall  provide
estimated cost of dismantling,  abandonment and removal of same. At such time as
the Abandonment Fund equals these estimated costs, the overriding  royalty shall
be assigned to the PARTICIPATING PARTIES by the Assignee.  Similarly, any excess
Abandonment Funds after complete dismantling,  abandonment and removal costs are
paid shall be  disbursed to the  PARTICIPATING  PARTIES in  proportion  to their
interest.  A PARTICIPATING  PARTY'S interest in the Abandonment Fund may only be
assigned or  transferred  in  conjunction  with an assignment or transfer of the
subject Lease(s).  In lieu of an assignment of overriding royalty interest,  any
PARTICIPATING  PARTY may elect to  furnish  an  irrevocable  letter of credit in
favor  of the  Assignee,  or proof  of  coverage  under  adequate  plugging  and
abandonment  bonds,  subrogated  in favor of the  OPERATOR,  to provide for that
PARTY'S  estimated  proportionate  share of  platform  dismantling,  removal and
abandonment  costs. The letter of credit or plugging and abandonment bonds shall
provide that either  instrument shall remain in force in the event of a transfer
or  assignment  of the PARTY'S  interest  until such time as the  transferee  or
assignee  provides  a similar  irrevocable  letter of  credit  or  plugging  and
abandonment bonds.

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

          14.3  ABANDONMENT  OF  PRODUCING  WELL.  Any  PARTY  may  propose  the
abandonment  of a well by notifying the other  PARTIES,  who shall have the time
period set forth in Section 9.3.2 from receipt  thereof within which to respond.
No well  shall be  abandoned  without  the mutual  consent of the  PARTICIPATING
PARTIES.  The PARTICIPATING  PARTIES not consenting to the abandonment shall pay
to each  PARTICIPATING  PARTY desiring to abandon its share of the current value
of the well's  salvageable  material  and  equipment as  determined  pursuant to
Exhibit "C", less the estimated  current costs of salvaging same and of plugging
and abandoning the well as determined by the  PARTICIPATING  PARTIES.  Provided,
however,  if such salvage value is less than such estimated  current costs, then
each  PARTICIPATING  PARTY  desiring to abandon  shall pay to  OPERATOR  for the
benefit of the  PARTICIPATING  PARTIES not consenting to abandonment a sum equal
to its share of such deficiency.

          14.4  ASSIGNMENT OF INTEREST.  Each  PARTICIPATING  PARTY  desiring to
abandon a well  pursuant to Section 14.3 shall  assign  effective as of the last
applicable election date, to the non-abandoning

                                       19

<PAGE>

PARTIES,  in proportion to their PARTICIPATING  INTERESTS,  its interest in such
well and the equipment therein and its ownership in the production of such well.
Any PARTY so assigning shall be relieved from any further liability with respect
to said well except as to any accrued liability.

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

                                   ARTICLE XV

                                   WITHDRAWAL

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

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

                                   ARTICLE XVI

                      RENTALS, ROYALTIES AND OTHER PAYMENTS

          16.1 CREATION OF OVERRIDING  ROYALTY.  If after the effective  date of
this Agreement, any PARTY creates any overriding royalty,  production payment or
other burden  payable out of  production  attributable  to such PARTY'S  WORKING
INTEREST in the LEASE owned and if any other PARTY(S) becomes entitled to an

                                       20

<PAGE>

assignment  pursuant to the provisions of this  Agreement  (except for Paragraph
26.2) or as a result of NON-CONSENT  OPERATIONS  hereunder  becomes  entitled to
receive the WORKING INTEREST otherwise belonging to a NON-PARTICIPATING PARTY in
such  operations,  the PARTY  entitled  to receive  the  assignment  from or the
WORKING INTEREST production of such  NON-PARTICIPATING  PARTY shall receive same
free and clear of such burdens,  and the  NON-PARTICIPATING  PARTY creating such
burdens  shall  save the  PARTICIPATING  PARTIES  harmless  with  respect to the
receipt of such assigned interest or such WORKING INTEREST production.

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

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

          16.4 ROYALTY  PAYMENTS.  Each PARTY shall pay,  deliver or cause to be
paid or delivered its pro-rata share of LEASE royalties,  overriding  royalties,
payments out of  production  or other  amounts or charges which may be or become
payable out of its share of  production  and shall hold the other  PARTIES  free
from any liability therefore. Each Party, electing to pay his share of royalties
pursuant  to the terms of the Lease,  shall  promptly  notify  Operator  of said
election  and shall  thereafter  provide to  Operator a detailed  accounting  of
revenue  received  and  value  paid to the  Lessor  for  such  Party's  share of
production  produced,  marketed and sold.  Monthly reports shall be submitted to
Operator  within  forty-five  days of actual  receipt  of the  previous  month's
production  revenue.  During  any  time  in  which  PARTICIPATING  PARIES  in  a
NON-CONSENT OPERATION are entitled to receive a NON-

                                       21

<PAGE>

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

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

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

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

                                  ARTICLE XVIII

                                    INSURANCE

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

                                   ARTICLE XIX

                         LIABILITY, CLAIMS AND LAWSUITS

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

                                       22

<PAGE>

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

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

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

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

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

                                   ARTICLE XX

                           INTERNAL REVENUE PROVISION

          20.1 INTERNAL REVENUE PROVISION. Notwithstanding any provisions herein
that  the  rights  and  liabilities  hereunder  are  several  and not  joint  or
collective  or that  this  Agreement  and the  operations  hereunder  shall  not
constitute a partnership,  if for Federal Income Tax purposes this Agreement and
the operations hereunder are regarded as a partnership,  then for Federal Income
Tax purposes  each PARTY elects to be excluded from the  application  of all the
provisions of  Subchapter  K, Chapter 1,  Subtitle A,  Internal  Revenue Code of
1954,  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  Regulations  1.761.2.  Should there be any requirement  that each PARTY
further evidence this election,  each PARTY agrees to execute such documents and
furnish such other evidence as may be required by the Federal  Internal  Revenue
Service.  Each PARTY  further  agrees not to give any  notices or take any other
action  inconsistent  with the election  made  hereby.  If any present or future
income tax law of the United States of America or any state contains  provisions
similar  to those  contained  in  Subchapter  K,  Chapter  1,  Subtitle A of the
Internal  Revenue Code of 1986, under which an election similar to that provided
by Section 761 of said Subchapter K is permitted, each PARTY makes such election
or agrees to make such election as may be permitted by such laws. In making this
election,  each PARTY states that the income  derived by it from the  operations
under this  Agreement can be adequately  determined  without the  computation of
partnership taxable income.

                                       23

<PAGE>

                                   ARTICLE XXI

                                  CONTRIBUTIONS

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

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

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

                                  ARTICLE XXII

                            DISPOSITION OF PRODUCTION

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

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

          22.3  FAILURE TO TAKE IN KIND.  If any PARTY  fails to take in kind or
dispose of its share of the oil and condensate, OPERATOR may either (a) purchase
oil or  condensate  at  OPERATOR'S  posted  price or, in the absence of a posted
price,  in no event  less than the price  prevailing  in the area for oil of the
same kind, gravity and quality,  or (b) sell such oil or condensate to others at
the best price  obtainable by OPERATOR,  subject to revocation by the non-taking
PARTY upon thirty (30) days advance notice. All contracts of sale by OPERATOR of
any PARTY'S share of oil or condensate shall be only for such reasonable periods
of time as are  consistent  with the  minimum  needs of the  industry  under the
circumstances,  but in no event shall any  contract be for a period in excess of
one (1) year.  Proceeds of all sales made by OPERATOR  pursuant to this  Section
shall be paid to the PARTIES entitled  thereto.  Unless required by governmental
authority  or judicial  process,  no PARTY shall be forced to share an available
market with any non-taking PARTY.

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

                                       24

<PAGE>

such PARTY.

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

                                  ARTICLE XXIII

                                 APPLICABLE LAW

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

                                  ARTICLE XXIV

                    LAWS, REGULATIONS AND NON-DISCRIMINATION

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

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

                                   ARTICLE XXV

                                 FORCE MAJEURE

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

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

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

                                  ARTICLE XXVI

                             SUCCESSORS AND ASSIGNS

          26.1 SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and
inure to the

                                       25

<PAGE>

benefit of the PARTIES and their respective heirs,  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 NOTICE OF TRANSFER.  Should any PARTY desire to sell,  farmout or
otherwise  dispose of all or any part of its Working Interest in the Lease, such
transfer  of interest  hereunder  shall not become  effective  as to the PARTIES
until the first day of the month  following  delivery to OPERATOR of an original
(or copies thereof)  instrument of transfer approved by the proper  governmental
authority and conforming to the  requirements of this Section.  No such transfer
shall relieve the transferring  PARTY of any obligations or liabilities  accrued
hereunder prior to such effective date.

               26.2.1 A PARTY may sell,  transfer  or assign  all or any part of
its interest in the property or this Agreement  without the consent of any other
PARTY hereto, provided that:

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

                    (b)  Such  PARTY  shall   incorporate  in  each   instrument
                         evidencing the sale, transfer or assignment a provision
                         making  the same  expressly  subject  to the  Operating
                         Agreement  and shall obtain (and  furnish to the other
                         PARTIES) such transferee's  written consent to be bound
                         by all the provisions of the Operating Agreement.

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

          26.3  ASSIGNMENTS.  Any  assignment,   vesting  or  relinquishment  of
interest  between the PARTIES shall be without  warranty of title,  except as to
overrides,  production payments,  liens,  encumbrances or similar burdens on the
interest assigned.  Any assignment to a Third Party or a Working Interest herein
shall not be effective until approved by the Minerals Management Service.

                                  ARTICLE XXVII

                                      TERM

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

                                       26

<PAGE>

                                 ARTICLE XXVIII

                             HEADINGS AND EXECUTION

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

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

                                       27

<PAGE>

SAMSON OFFSHORE COMPANY                MAGNUM HUNTER PRODUCTION, INC.

BY: /s/ Allen May                      By: /s/ Gregory L. Jessup
    --------------------------------       -------------------------------------
    Allen May                          Name: Gregory L. Jessup
    Vice President                     Title: VP Land Offshore

RIDGEWOOD ENERGY CORPORATION

BY: /s/ W. Greg Tabor
    --------------------------------
Name: W. GREG TABOR
Title: EXEC. VICE PRESIDENT

STATE OF  TEXAS

COUNTY OF Harris

ON THIS 16th day of February,  2005, before me appeared Gregory L. Jessup, to me
personally  known,  who,  being  by me duly  sworn,  did say that he is the Vice
President  Land  Offshore  for  MAGNUM  Hunter  Prod.  INC,  and  that the
foregoing  instrument  was signed in behalf of said  corporation by authority of
its Board of Directors,  and said Gregory L. Jessup acknowledges said instrument
to be a free act and deed of said corporation.

           [SEAL]

      DIANE S. COLEMAN
Notary Public, State of Texas
    My Commission Expires
      December 13, 2008

                                              /s/ Diane S. Coleman
                                              ----------------------------------
                                              Notary Public in and for

STATE OF

COUNTY OF

ON THIS  17th day of  February,  2005,  before  me  appeared  Allen  May,  to me
personally  known,  who,  being  by me duly  sworn,  did say that he is the Vice
President for Samson Offshore Co., and that the foregoing  instrument was signed
in behalf of said  corporation by authority of its Board of Directors,  and said
Allen  May  acknowledges  said  instrument  to be a free  act  and  deed of said
corporation.

           [SEAL]

      DIANE S. COLEMAN
Notary Public, State of Texas
    My Commission Expires
      December 13, 2008

                                              /s/ Diane S. Coleman
                                              ----------------------------------
                                              Notary Public in and for

STATE OF

COUNTY OF

ON THIS 22nd day of  February,  2005,  before me appeared  W. GREG TABOR,  to me
personally known, who, being by me duly sworn, did say that he is the Exec Vice
President for RIDGEWOOD ENERGY, and that the foregoing  instrument was signed in
behalf of said  corporation by authority of its Board of Directors,  and said W.
Greg  Tabor  acknowledges  said  instrument  to be a free  act and  deed of said
corporation.

           [SEAL]

         DONNA ERMIS
Notary Public, State of Texas
    My Commission Expires
      October 01, 2008

                                              /s/ Donna Ermis
                                              ----------------------------------
                                              Notary Public in and for

                                       22

<PAGE>

                                   EXHIBIT "A"

Attached to and made a part of that certain Operating Agreement, dated effective
January 1, 2005, by and between and Samson Offshore Company, as Operator, Magnum
Hunter Production, Inc. and Ridgewood Energy Corporation, as "non-operators".

I.   CONTRACT AREA:

     The lands within the blocks  described on Exhibit "A-1" attached and made a
     part hereof.

II.  RESTRICTIONS AS TO DEPTH, FORMATIONS or STRUCTURE:

     None

III. PARTIES & INTERESTS:

     Samson Offshore Company          37.5%
     Magnum Hunter Production, Inc.     25%*
     Ridgewood Energy Corporation     37.5%**

     *subject to that certain Participation Agreement dated July 23, 2004 by and
     between Samson Offshore Company and Magnum Hunter Production, Inc.

     ** subject to that certain Participation  Agreement dated February 14, 2005
     by and between Samson Offshore Company and Ridgewood Energy Corporation.

IV.  OIL, GAS & MINERAL LEASES SUBJECT TO THIS AGREEMENT:

     Those certain Oil and Gas Leases  described on Exhibit  "A-1"  attached and
     made a part hereof.

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:

          SAMSON OFFSHORE COMPANY
          1301 Travis, Suite 1900
          Houston, Texas 77002
          Attention: Mr. Sonny Measley
          Phone: (713)577-2011
          Fax: (713)577-2211

          With a copy to

          SAMSON OFFSHORE COMPANY
          Two West Second Street
          Tulsa, OK
          Attention: Mr. Jack Canon
          Phone: (918)591-1009
          Fax: (918)591-1718

          Non-operator:

          MAGNUM HUNTER PRODUCTION , INC.   RIDGEWOOD ENERGY CORPORATION
          600 East Las Colinas Blvd         11700 Old Katy Road
          Suite 1100                        Suite 280
          Irving, TX 75039                  Houston, TX 77079
          Attention: Gregory Jessup         Attention: Randy Bennett
          Phone: (972) 401-0752             Phone: (281) 293-9384
          Fax: (972)501-1760                Fax: (281)293-7391

VI.  BURDENS ON PRODUCTION:

     As more particularly set forth in Section 6 of those certain  Participation
     Agreements referenced above.

<PAGE>

                                  EXHIBIT "A-1"

               Attached to and made a part of that  certain  Offshore  Operating
          Agreement  dated  effective  January 1, 2005,  by and  between  Samson
          Offshore Company., as "Operator",  and Magnum Hunter Production,  Inc.
          and Ridgewood Energy Corporation, as "non-operators".

     Oil and Gas Lease dated July 1, 2002 from the United  States  Department of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as Lessee,  covering all of Block 154,  Main Pass Area,  Offshore
     Louisiana,  approximately  4995 acres,  more or less,  and  bearing  serial
     Number OCS-G 23973.

     Oil and Gas Lease dated May 1, 2003 from the United  States  Department  of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as Lessee,  covering all of Block 155,  Main Pass Area,  Offshore
     Louisiana,  approximately  4995 acres,  more or less,  and  bearing  serial
     Number OCS-G 25025

     Oil and Gas Lease dated May 1, 2002 from the United  States  Department  of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as Lessee,  covering all of Block 156,  Main Pass Area,  Offshore
     Louisiana,  approximately  4995 acres,  more or less,  and  bearing  serial
     Number OCS-G 23974.

     Oil and Gas Lease dated July 1, 2002 from the United  States  Department of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as Lessee,  covering all of Block 157,  Main Pass Area,  Offshore
     Louisiana,  approximately  4995 acres,  more or less,  and  bearing  serial
     Number OCS-G 23975.

     Oil and Gas Lease dated May 1, 2003 from the United  States  Department  of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as Lessee,  covering all of Block 168,  Main Pass Area,  Offshore
     Louisiana,  approximately  4995 acres,  more or less,  and  bearing  serial
     Number OCS-G 25026.

     Oil and Gas Lease dated May 1, 2003 from the United  States  Department  of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as Lessee,  covering all of Block 169,  Main Pass Area,  Offshore
     Louisiana,  approximately  4995 acres,  more or less,  and  bearing  serial
     Number OCS-G 25027.

     Oil and Gas Lease dated May 1, 2003 from the United  States  Department  of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as Lessee,  covering all of Block 170,  Main Pass Area,  Offshore
     Louisiana,  approximately  4995 acres,  more or less,  and  bearing  serial
     Number OCS-G 25028.

     Oil and Gas Lease dated May 1, 2002 from the United  States  Department  of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as  Lessee,   covering  all  of  Block  338  Viosca  Knoll  Area,
     approximately  4157 acres,  more or less,  and bearing  serial Number OCS-G
     24010.

     Oil and Gas Lease dated May 1, 2002 from the United  States  Department  of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as  Lessee,  covering  all  of  Block  339,  Viosca  Knoll  Area,
     approximately  5716 acres,  more or less,  and bearing  serial Number OCS-G
     24011.

     Oil and Gas Lease dated July 1, 2002 from the United  States  Department of
     the Interior,  Minerals  Management  Service, as Lessor, to Samson Offshore
     Company,  as Lessee,  covering all of Block 43,  Chandeleur Area,  Offshore
     Louisiana,  approximately  4995 acres,  more or less,  and  bearing  serial
     Number OCS-G 24003

<PAGE>

                                   EXHIBIT "B"

     Attached to and made a part of that certain  Offshore  Operating  Agreement
     dated effective  January 1, 2005, by and between Samson Offshore  Company.,
     as  "Operator",  and Magnum Hunter  Production,  Inc. and Ridgewood  Energy
     Corporation, as "non-operators".

                          OFFSHORE INSURANCE PROVISIONS

I.   WORKERS COMPENSATION & EMPLOYERS LIABILITY INSURANCE

Operator will carry Workers Compensation  insurance in compliance with all State
and Federal  Regulations  in the  jurisdiction  where any of the work under this
agreement  shall  be  performed,   including  the  following   special  coverage
extensions:

          1.   Employers'  Liability  coverage  with  limits  of not less than $
               1,000,000 per accident.

          2.   U. S.  Longshoremen and Harbor Workers' Act and Outer Continental
               Shelf Lands Act coverage.

          3.   Employers' Liability arising out of Maritime operations including
               coverage   for   benefits,   damages,   transportation,    wages,
               maintenance  and cure to maritime  employees  under the Jones Act
               with limits of at least $1,000,000 per occurrence.

          4.   "In Rem"  endorsement  providing  that a claim "In Rem"  shall be
               treated as a claim against the Operator.

          5.   Waiver of  Subrogation  endorsement  which  waives  the  insurers
               rights  of  subrogation  against  all  of  the  Parties  to  this
               agreement.

Premiums  for the  insurance  above  specified  shall be  charged  to the  Joint
Account.  Provided,  however,  that  if  the  Operator  either  self-insures  or
effectively  self-insures,  the Operator shall charge to the Joint  Account,  in
lieu of any  premiums  for such  insurance,  an amount not to exceed the workers
compensation   manual   rates  times  the  payroll.   Claims  under   Operator's
self-insurance program shall not be charged to the Joint Account.

Except as provided above,  Operator shall not be obligated to obtain or cause to
be carried  insurance for the benefit of the Joint  Account.  Operator shall not
obtain or cause to be carried for the benefit of the Joint  Account,  control of
well or seepage and pollution  insurance  nor  insurance  against the hazards of
fire, windstorm,  explosion, blowout, cratering,  reservoir damage, or insurance
other than specified above.

II.  INSURANCE NOT CHARGED TO THE JOINT ACCOUNT

At all times  while the  Operating  Agreement  is in  effect,  each party to the
Agreement shall insure or self-insure for their share of any liabilities assumed
under the Operating  Agreement.  The cost of these  insurance or  self-insurance
programs  shall be the  individual  responsibilities  of each of the parties and
none of the cost  associated  with these  programs shall be charged to the Joint
Account.  Each party shall insure or self-insure the following  coverage for the
minimum limits stated:

     1.   Commercial  General Liability  Insurance  covering all of the Parties'
          operations,   including  their  offshore  operations,   and  including
          contractual liability coverage with combined single limits of at least
          $10,000,000 per occurrence and in the annual aggregate.

     2.   Automobile Liability covering all owned, non-owned and leased vehicles
          with combined single limits of at least $1,000,000 per occurrence and
          in the annual aggregate.

     3.   Sudden and Accidental  Pollution Liability insurance covering offshore
          oil pollution with limits of at least $10,000,000 per occurrence.

     4.   Physical   Damage   insurance  and  coverage  for  Wreck  Removal  for
          Facilities covered by the Joint Operating  Agreement,  with limits not
          less than the Parties share of the

                                        1

<PAGE>

          replacement cost of the facility.

     5.   Control of Well and Seepage and Pollution  insurance with limits of at
          least $10,000,000 (100% interest in well) per occurrence.

     6.   Non-owned  aviation  liability  insurance in the amount of $10,000,000
          per occurrence  covering  liability arising out of any leased aircraft
          used in the  connection  with  the  work  to be  performed  under  the
          Operating Agreement.

All of the above  coverages  shall be endorsed to waive the insurers'  rights of
subrogation  against Operator and all other Parties to the Agreement.  Any Party
to the  Agreement,  at the  request of any other Party to the  Agreement,  shall
advise all of the other Parties to the Operating Agreement as to whether it will
insure or self-insure  the above mention  coverages.  If Insurance is purchased,
upon request, a Party will provide all other Parties to the Operating  Agreement
with a certificate of insurance  evidencing  that all of the above insurance and
special insuring provisions are in place.

In  the  event  a  Party  elects  to  self-insure  all  or  part  of  the  above
requirements, and if any of the other Parties to the Operating Agreement believe
or have a concern that the Party does not have the financial  capability to meet
its obligations under such self-insurance  programs,  any Party to the Agreement
may request any other Party to provide proof of its ability to self-insure these
risks.  Proof  will  consist  of  independently   audited  financial  statements
demonstrating  Net Worth and assets in the  United  States in an amount at least
equal to six (6) times the amount of the above required insurance that the Party
elects to self-insure.  If the self-insuring  Party is unable to meet that test,
the other Parties to the Agreement may, but are not required to do so,  purchase
any or all of the insurance that the Party elected to  self-insure.  The cost of
said insurance shall be for the individual  account of the Party on whose behalf
the insurance was purchased.

III. CONTRACTORS INSURANCE

Operator (including any Party conducting  Non-Consent  Operations) shall use its
best  efforts to require  each  contractor  who  performs  work on behalf of the
Operating  Agreement  to carry the  following  insurance  and  special  insuring
provisions.

          1.  Workers'   Compensation  and  Employers'  Liability  insurance  in
     accordance with all State and Federal Regulations in the jurisdiction where
     the work is to be  performed.  This  coverage  shall  contain the following
     special endorsements:

               a.   Employers'  Liability  coverage with limits of not less than
                    $1,000,000 per accident.

               b.   U.S.   Longshoremen   and  Harbor  Workers'  Act  and  Outer
                    Continental Shelf Lands Act coverage.

               c.   Employers'  Liability  arising  out of  Maritime  operations
                    including  coverage for benefits,  damages,  transportation,
                    wages,  maintenance and cure to maritime employees under the
                    Jones Act with limits of at least  $1,000,000 per person and
                    $2,000,000 for all persons for any one occurrence.

               d.   "In Rem"  endorsement  providing that a claim "In Rem" shall
                    be treated as a claim against the Contractor.

               e.   "Borrowed  Servant"  endorsement  providing  that a Workers'
                    Compensation  claim brought against Operator or any Party to
                    the Agreement,  by a Contractors employee will be treated as
                    a claim against the Contractor.

               f.   Waiver of Subrogation  endorsement which waives the insurers
                    rights of  subrogation  against  all of the  Parties to this
                    agreement.

          2. Commercial  General  Liability  insurance  and/or Excess  Liability
     insurance,   including   contractual   liability   covering  the  indemnity
     obligations  assumed in the contract with  Operator,  with combined  single
     limits of $5,000,000 per  occurrence  for injuries to or death,  of persons
     and damage to property.

                                        2

<PAGE>

          3. Automobile  Liability  Insurance covering all owned,  non-owned and
     hired  vehicles with  combined  single  limits of at least  $1,000,000  per
     occurrence for injuries to or death of persons and damage to property.

          4. In the event watercraft is used by the Contractor, contractor shall
     carry  or  require  owners  of such  watercraft  to  carry  Protection  and
     Indemnity  Insurance in the amount of not less than the market value of the
     vessel or $1,000,000, whichever is greater.

          5. If Contractor's  operations require it to use aircraft,  Contractor
     shall  carry or  require  the  owners of such  aircraft  to carry  aircraft
     liability  insurance with a combined single limit of $500,000 per passenger
     seat or $1,000,000, whichever is greater.

          6. Any other insurance that Operator deems necessary.

          7. All of the insurance carried by Contractors  pursuant to Sections 2
     through 6 above shall contain  endorsements waiving the insured's rights of
     subrogation against Operator and all other Parties to the Agreement.

Operator  shall  make a good faith  effort to obtain  all of the  above-required
insurance and special insuring provisions. Operator shall also make a good faith
effort to obtain  endorsements  naming the Operator as an Additional  Insured on
the  policies  of  insurance  where  appropriate  and to  provide  that the word
"Insured" also includes any Party, Co-Owner or Joint Venturer. However, Operator
shall not be liable to non-operators or to their parent companies,  subsidiaries
or any affiliated companies for failure to do any of the above. It is recognized
in the industry that there are certain  contractors and service  companies whose
services  are  necessary to  operations  contemplated  by the Parties,  who as a
matter of their policy refuse contractually to indemnify working interest owners
or to carry any insurance  indemnifying  Working  Interest  owners.  As to those
entities,  Operator may waive any requirement of contractual indemnity or any or
all of the insurance or special insurance provisions required above.

IV.  NOTICE

Operator shall promptly notify  Non-operators  of any loss,  damage or claim not
covered by the insurance  obtained  hereunder for the joint account.  All losses
which are not covered and all losses in excess of  insurance  coverage  shall be
borne by the Parties in  accordance  with the terms of the  Operating  Agreement
under which said operations are being conducted by the Parties.

The provision of Exhibit B shall in no way absolve any Party from its obligation
to meet any  Cost(s)  incurred  including  any Cost(s) in respect of damages and
losses  and/or the costs or  remedying  the same  (whether or not it's  insured,
self-insured, or uninsured) in accordance with the terms of this Agreement.

                                        3

<PAGE>

                                   EXHIBIT "C"

     Attached to and made a part of that certain  Offshore  Operating  Agreement
     dated effective  January 1, 2005, by and between Samson Offshore  Company.,
     as  "Operator",  and Magnum Hunter  Production,  Inc. and Ridgewood  Energy
     Corporation, as "non-operators".

                              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  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 monthly  interest  compounded  monthly using
          the U.S.  Treasury 3 month discount rate plus interest  monthly at the
          prime rate in effect at the Chase  Manhattan  Bank NY, NY 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

<PAGE>

     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.

5.   Audits

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

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

6.   Approval by Non-Operators

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

                               II. DIRECT CHARGES

Operator shall charge the Joint Account with the following items:

1.   Rentals and Royalties

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

2.   Labor

     A. (1) Salaries and wages of Operator's field employees  directly  employed
     on the Joint Property in the conduct of the 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  employee's  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 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 Joint Operations
     but subject to the following limitations:

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

<PAGE>

     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.

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, Facilities and Affiliate Services 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,  except the costs of  abandonment  and  reclamation  of the
          Operator's  Shore  Base  Facility.   Such  rates  may  include  labor,
          maintenance,  repairs,  other  operating  expense,  insurance,  taxes,
          depreciation,  abandonment  and  reclamation  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  dismantlement.  Such rates shall
          not  exceed  average  commercial  rates  currently  prevailing  in the
          immediate area of the Joint Property.

     B.   In lieu of charges in  Paragraph  7A above,  Operator may elect to use
          average commercial rates prevailing in the immediate area of the Joint
          Property  If an  average  commercial  rate is used to bill  the  Joint
          Account,  the Operator shall adequately document and support such rate
          and shall  periodically  review and update the rates.  If a prevailing
          commercial  rate is not  available,  equipment  owned by the  Operator
          shall be charged to the Joint Account at the Operator's  actual costs.
          Charges  for  depreciation  will  no  longer  be  allowable  once  the
          equipment  is fully  depreciated.  Actual  cost  shall not  exceed the
          average commercial rate.

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 the report thereof has been received by Operator.

9.   Legal Expense

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

10.  Taxes

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

11.  Insurance

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

12.  Communications

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

13.  Ecological and Environmental

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

<PAGE>

          control and cleanup and  resulting  responsibilities  of oil spills as
          required by applicable laws and regulations.

     14.  Abandonment and Reclamation

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

     15.  Other Expenditures

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

                                  III. OVERHEAD

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

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

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

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

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

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

1.   Overhead - Drilling and Producing Operations

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

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

          A.   Overhead - Fixed Rate Basis

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

                    Drilling  Well Rate $29,000  (Prorated  for less than a full
                    month)

                    Producing Well Rate $2,900

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

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

                    (b)  Charges  for wells  undergoing  any type of workover or
                         recompletion  for a period of five (5) 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  the  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.

<PAGE>

          B.   Overhead - Percentage Basis -- DELETED IN ITS ENTIRETY

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.

          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 $25,000 but
               less than $100,000; plus

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

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

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

               (1) 3% of total  costs if such  costs are more than $25,000 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  costs  shall  mean the gross cost of any one  project.  For the
          purposes 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

                    (a)  Tubular  goods,  sized 2 3/8 inches OD and larger,  and
                         line pipe,  shall be priced at the current new price in
                         effect on date of movement  from the  nearest  reliable
                         supply  store or  receiving  point  nearest  the  Joint
                         Property.

                    (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 2.A.(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 2 3/8 inch OD) shall be
                         priced  at the  lowest  published  out-of-stock  prices
                         f.o.b. the supplier plus  transportation  costs,  using
                         the Oil Field Haulers

<PAGE>

                         Association  interstate truck rate per weight of tubing
                         transferred, to the railway receiving point nearest the
                         Joint Property.

               (2)  Line Pipe -- DELETED IN ITS ENTIRETY

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

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

          B.   Good Used Material (Condition B)

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

               (1)  Material moved to the Joint Property

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

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

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

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

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

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

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

          C.   Other Used Material

               (1)  Condition C

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

               (2)  Condition D

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

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

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

               (3)  Condition E

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

          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  unusual
          causes over which the Operator has no control, the Operator may charge
          the Joint Account for the required  Material at the Operator's  actual
          cost incurred in providing  such  Material,  in making it suitable for
          use,  and in  moving  it to the  Joint  Property;  provided  notice in
          writing is furnished to  Non-Operators of the proposed charge prior to
          billing Non-Operators for such Material.  Each Non-Operator shall have
          the right, by so electing and notifying Operator within ten days after
          receiving notice from Operator,  to furnish in kind all or part of his
          share of such  Material  suitable for use and  acceptable to Operator.
          Provided  however,  if a  Non-Operator  elects to furnish  material in
          kind,  such material must (a) meet the quality  specifications  set by
          Operator, and (b) be inspected by Operator with inspection costs to be
          billed to the Joint Account.

     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.

<PAGE>

                                 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.

5.   Excess Inventory

     The Operator shall not be required to maintain  wellhead  inventory that it
     does not deem prudent;  therefore,  in the event Operator  determines  that
     wellhead  and  associated  components,  including,  but not limited to xmas
     tree,  flowline  valves and blast joints (the "excess  inventory")  have no
     further on-site utilization, Operator may ship the excess inventory, or any
     part  thereof,  to a third party  recognized  in the industry as a wellhead
     specialty company.  This company shall suggest a classification  which will
     be reviewed by the Operator to determine  future  utility and market value.
     All excess  inventory items determined by the Operator to be reusable after
     reconditioning  will be  assigned  a credit  indexed to list  price.  Items
     classified as obsolete,  or  uneconomical to repair will be sold as junk at
     current   scrap  value.   The  Operator   will  credit  the  Joint  Account
     proportionately  to each party's working  interest  ownership in any excess
     inventory sold or junked.

<PAGE>

                                   EXHIBIT "D"

     Attached to and made a part of that certain  Offshore  Operating  Agreement
     dated effective  January 1, 2005, by and between Samson Offshore  Company.,
     as  "Operator",  and Magnum Hunter  Production,  Inc. and Ridgewood  Energy
     Corporation, as "non-operators".

EQUAL EMPLOYMENT OPPORTUNITY

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

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

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

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

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

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

**   The form of the  prescribed  notice is as  follows:  NOTICE TO  PROSPECTIVE
     SUBCONTRACTORS   OF  REQUIREMENT  FOR   CERTIFICATIONS   OF   NONSEGREGATED
     FACILITIES.  A Certificate of  Nonsegregated  Facilities as required by the
     May  9,  1967,  order  on  Elimination  of  Segregated  Facilities,  by the
     Secretary of Labor (32 Fed. Reg.  7439,  May 19,  1967),  must be submitted
     prior to the award of a subcontract  exceeding  $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. O. 11701 (Employment of Veterans)

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

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

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

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

D.   E. 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.

                                       -1-

<PAGE>

A.A.P.L FORM 610-E - GAS BALANCING AGREEMENT - 1992

                                   AMERICAN [Illegible] OF PETROLEUM [Illegible]
                                   APPROVED FORM A.A.P.L. NO 610-E
                                   MAY BE ORDERED DIRECTLY FROM THE PUBLISHER
                                   KRAFTBILT . P.O. BOX 800 TUISA, OK 74101
                                   COPYRIGHT 1992 -- ALL RIGHTS RESERVED

              INSTRUCTIONS FOR USE OF GAS BALANCING AGREEMENT FORM

GENERAL

     This Gas Balancing  Agreement form is intended to be used as Exhibit "E" to
the 1977, 1982 and 1989 A.A.P.L. Form 610 Model Form Operating Agreements. It is
also  generally  suitable  for use with  other  forms of  operating  agreements.
However, before using this form, both it and the operating agreement in question
should be reviewed and revised as required to ensure consistency.

     If this form is used as an  exhibit  to an  A.A.P.L.  Form 610  Model  Form
Operating Agreement or other operating  agreement,  the provisions in Section 15
(Counterparts),  the "IN WITNESS WHEREOF"  paragraph on page 6 and the signature
lines and acknowledgments on page 7 should be omitted.

     This Gas Balancing  Agreement may also be executed as a separate  agreement
for properties covered by an existing operating  agreement where there is no gas
balancing  agreement  or where the one  employed is deemed  inadequate.  In that
event,  the  properties  subject to the form will have to be described,  and the
provisions of Section 15 (Counterparts),  the "IN WITNESS WHEREOF" on page 6 and
the signature lines and acknowledgments will have to be employed.

     The description of the area covered by the Agreement may be included in the
definition  of the  Balancing  Area in  Section  1.02.  Care  should be taken in
drafting this  description,  however,  because it may be desirable to cover more
than one Balancing Area. Such a definition might, for example, read as follows:

          Each well subject to that Operating Agreement dated  ________________,
          covering  ______________________  that  produces gas or is allocated a
          share of gas production.  If a single well is completed in two or more
          reservoirs, such well shall be considered a separate well with respect
          to,  but only with  respect  to,  each  reservoir  from  which the gas
          production is not commingled in the wellbore.

     This Gas Balancing  Agreement  contains both  "alternative"  and "optional"
provisions.  In the  case  of  alternative  provisions,  it  will  generally  be
necessary to select one alternative in order to make the Gas Balancing Agreement
effective  Provisions which are designated as optional (or as Option 1, 2, etc.)
may or may not be used.  Note that, in order for an  Alternative or Option to be
selected and effective,  it must be checked.  If, however, an Alternative is not
selected,  "Alternative  1" in each instance will be deemed to have been adopted
by the Parties, but if an Option is not selected, it will not form a part of the
Gas Balancing Agreement. See Section 12.6.

HEADING - Indicate the applicable Operating Agreement and other information.  If
the Gas Balancing  Agreement is to be used without an Operating  Agreement,  the
heading on page 1 should be modified appropriately, and the following references
to the  "Operating  Agreement"  should be  deleted  or  modified  appropriately:
Section 1.12;  Section 7.1;  Section 9; Section 12.4;  Section 13.1; and Section
13.2.

SECTION 1.02 - Select the Balancing  Area to be used, or insert a description of
the Balancing Area. As a general rule, the use of a mineral lease as a Balancing
Area will only be appropriate in certain situations involving offshore wells.

SECTION  1.16 - This  definition  should  be used  only  if one of the  optional
seasonal limitation  provisions in Section 4.2 __ employed.  The specific months
during which makeup is to be restricted should be included, e.g., "the months of
November, December, and the following January and February."

SECTION 2.1 - The parties  should  decide  whether the basis of balancing in the
Balancing Area will be in Mcfs or MMBrus One of the two Alternatives  stipulated
MUST be selected to avoid an automatic election that Alternative 1 applies.

SECTION 2.2 - Since most gas is now  decontrolled,  the primary  purpose of this
provision is to provide for separate  application of the form to different price
categories  in the event  that  price  controls  are  imposed  in the  future by
governmental entity.

SECTION 3.5 - This  provision  is intended to limit  Overproduction  in order to
keep a Party from  getting too far out of balance.  It should be noted that this
Section  will  only have an  impact  if a Party  owns  less  than a 1/3  working
interest in the  Balancing  Area,  since under it a party  owning a 1/3 interest
will be entitled to take 300% x 1/3 = 100%.

SECTION  4.1 - Select the  number of days'  notification  that an  Underproduced
Party must give prior to making up Gas.  Also,  indicate the  percentage of each
Overproduced  Parties' Gas that Underproduced Parties will be allowed to make up
The percentages should be identical.

SECTION 4.2 - The form sets out two Options for imposing seasonal limitations on
making up Gas.  It should be noted  that it is NOT  required  that any  seasonal
limitation  be included.  If Option 1 is  selected,  select the number of months
prior  to the  Winter  Period  that  will be used to  determine  how much Gas an
Underproduced  Party may make up during the Winter  Period.  This number and the
number of months in the Winter Period (as defined in Section 1.16) should add up
to  12  or  less.  If  Option  2 is  selected,  indicate  the  percentage  of an
Overproduced  Party's  Gas that an  Underproduced  Party may make up during  the
Winter Period.  This  percentage  should be lower than the percentage set out in
Section 4.1.

SECTION  4.3 - Select the  percentage  of an  Overproduced  Party's Gas which it
should be required to make available for make up once it has produced all of its
share of ultimately recoverable reserves. This percentage should be greater than
the percentage set out in Section 4.1.

SECTION  6.2 - One of the two  Alternatives  stipulated  MUST be selected as the
basis  upon  which  Royalty  is to be  calculated  and paid in order to avoid an
automatic election that Alternative 1 applies.

SECTION 7.3 - One of the two Alternatives  stipulated for payment of amounts due
under a cash settlement MUST be selected in order to avoid an automatic election
that Alternative 1 applies. Note that Section 7.3.1 is optional, and may ONLY be
used with Section 7.3, Alternative 2.

SECTION 7.4 - One of the two  alternatives  stipulated for determining  proceeds
received by an Overproduced Party for cash settlement  purposes MUST be selected
in order to avoid an automatic election that Alternative 1 applies.

SECTION  7.5.1  through 7.5.2 - Before  selecting  any of these  provisions  the
Parties  should  review the relevant gas  processing  arrangements  for the Gas.
Section 7.5.2, Option 1, contemplates that all wellhead MMBrus of Overproduction
will be valued at the gas price per MMBru  received by the  Overproduced  Party,
without regard to whether any of the gas may have been processed. Section 7.5.2,
Option 2, on the other  hand,  would  include any  enhanced  or impaired  values
resulting  from  processing in  calculating a valuation for the  Overproduction.
Note that if Section 7.5.2, Option 1, is selected, and residue gas is to be sold
on an MMBru basis, it will be necessary to measure the number of MMBrus produced
at the well (even if the

                                      -1-

<PAGE>

A.A.P.L. FORM 610-E - [Illegible] BALANCING AGREEMENT - 1992

parties have elected to balance on Mcfs),  in order to determine the total value
of Overproduction.

SECTION 7.7 - Select the interest rate payable for unpaid  amounts owed pursuant
to cash settlement.

SECTION 7.9 - In the event that the parties  anticipate that  Overproduction may
be subject to a potential refund by an appropriate  governmental authority,  the
Parties may choose this provision.

SECTION 7.10 - If the Parties adopt this provision,  an  Overproduced  Party may
make a cash settlement with Underproduced Parties for all or part of outstanding
gas imbalances as often as once every twenty-four (24) months.

SECTION 8 - Select  the number of days'  prior  notification  required  for well
tests, as well as the length of such tests.

SECTION 12.9 - Select the appropriate  method for computing and reporting income
to the Internal Revenue Service based on the "entitlements" or "sales" methods.

SECTION 13 - The purpose of this Section is to  stipulate  the rights of Parties
in the event that any Party sells, exchanges,  transfers or assigns its interest
in the Balancing Area.  Section 13.2 gives the Underproduced  Party an option to
demand a cash  settlement if an Overproduced  Party sells its interest,  and the
number of days'  notice  and  response  should be  selected  to  implement  this
procedure.

SECTION 14 - This provision is intended to provide the Parties an opportunity to
modify or supplement any of the Gas Balancing Agreement's provisions.

SECTION  15 -  This  provision  is to be  utilized  ONLY  if the  Gas  Balancing
Agreement is NOT agreed to  contemporaneously  with the execution of an A.A.P.L.
Form 610 Model Form Operating Agreement or another suitable operating agreement.
If the Gas  Balancing  Agreement  is agreed to  contemporaneously  with any such
operating agreement,  Section 15 should be omitted.  Otherwise, the Parties must
determine the  appropriate  Percentage  Interest  which must execute the form to
make it effective and the date by which such interests must execute it.

SIGNATURE  ELEMENT - The "IN  WITNESS  WHEREOF,"  signature  and  attest/witness
elements are ONLY to be utilized if the Gas Balancing Agreement is NOT agreed to
contemporaneously  with  the  execution  of an  A.A.P.L.  Form  610  Model  Form
Operating  Agreement  or  another  suitable  operating  agreement.  If  the  Gas
Balancing  Agreement  is agreed  to  contemporaneously  with any such  operating
agreement,  the "IN WITNESS  WHEREOF,"  signature  and  attest/witness  elements
should be omitted.  Otherwise, these items should be completed in an appropriate
fashion, and any appropriate  amendment made to the heading of the Gas Balancing
Agreement.

                                      -2-

<PAGE>

<TABLE>
<S>                                  <C>
A.A.P.L. FORM 610-E - GAS BALANCING  AMERICAN ASSOCIATION OF PETROLEUM [Illegible]
AGREEMENT - 1992                     APPROVED   FORM   A.A.P.L.   NO   [Illegible]
                                     MAY  BE  ORDERED  DIRECTLY FROM THE PUBLISHER
                                     [Illegible]  P.O.  BOX  800  TULSA,  OK 74101
                                     COPYRIGHT 1992 -- ALL RIGHTS RESERVED
</TABLE>

NOTE:  Instructions  For Use of Gas Balancing  Agreement MUST be reviewed before
finalizing this document.

                                   EXHIBIT "E"
                      GAS BALANCING AGREEMENT ("AGREEMENT")
                    ATTACHED TO AND MADE PART OF THAT CERTAIN
           OPERATING AGREEMENT DATED ________________________________
BY  AND  BETWEEN  __________________________,  ___________________________,  AND
____________________________________________ ("OPERATING AGREEMENT") RELATING TO
THE ______________________________________________________________________ AREA,
_______________________________ COUNTY/PARISH, STATE OF ________________________

1.   DEFINITIONS

     The following definitions shall apply to this Agreement:

     1.01 "Arm's Length  Agreement"  shall mean any gas sales  agreement with an
          unaffiliated  purchaser or any gas sales  agreement with an affiliated
          purchaser  where the sales price and  delivery  conditions  under such
          agreement  are  representative  of  prices  and  delivery   conditions
          existing   under  other   similar   agreements  in  the  area  between
          unaffiliated  parties at the same time for natural  gas of  comparable
          quality and quantity.

     1.02 "Balancing Area" shall mean (select one):

          |_|  each well subject to the Operating Agreement that produces Gas or
               is  allocated  a share of Gas  production.  If a  single  well is
               completed  in two or more  producing  intervals,  each  producing
               interval from which the Gas  production is not  commingled in the
               wellbore shall be considered a separate well.

          |_|  all of the acreage and depths subject to the Operating Agreement.

          |X|  EACH WELLBORE  SUBJECT TO THE OPERATING  AGREEMENT  THAT PRODUCES
               GAS OR IS ALLOCATED A SHARE OF GAS PRODUCTION.

     1.03 "Full Share of Current  Production" shall mean the Percentage Interest
          of each Party in the Gas actually  produced  from the  Balancing  Area
          during each month.

     1.04 "Gas"  shall mean all  hydrocarbons  produced or  producible  from the
          Balancing  Area,  whether from a well classified as an oil well or gas
          well by the  regulatory  agency having  jurisdiction  in such matters,
          which are or may be made available for sale or separate disposition by
          the Parties,  excluding oil, condensate and other liquids recovered by
          field equipment operated for the joint account. "Gas" does not include
          gas  used  in  joint  operations,  such  as  for  fuel,  recycling  or
          reinjection,  or which is vented or lost prior to its sale or delivery
          from the Balancing Area.

     1.05 "Makeup Gas" shall mean any Gas taken by an  Underproduced  Party from
          the Balancing Area in excess of its Full Share of Current  Production,
          whether pursuant to Section 3.3 or Section 4.1 hereof.

     1.06 "Mcf shall mean one  thousand  cubic  feet.  A cubic foot of Gas shall
          mean the  volume  of gas  contained  in one  cubic  foot of space at a
          standard pressure base and at a standard temperature base.

     1.07 "MMBru"  shall  mean one  million  British  Thermal  Units.  A British
          Thermal  Unit shall mean the  quantity  of heat  required to raise one
          pound  avoirdupois of pure water from 58.5 degrees  Fahrenheit to 59.5
          degrees  Fahrenheit at a constant  pressure of 14.73 pounds per square
          inch absolute.

     1.08 "Operator"  shall mean the individual or entity  designated  under the
          terms of the Operating  Agreement  or, in the event this  Agreement is
          not employed in connection with an operating agreement, the individual
          or entity  designated  as the  operator of the well(s)  located in the
          Balancing Area.

     1.09 "Overproduced  Party"  shall  mean any  Party  having  taken a greater
          quantity of Gas from the Balancing Area than the  Percentage  Interest
          of such Party in the cumulative  quantity of all Gas produced from the
          Balancing Area.

     1.10 "Overproduction"  shall mean the cumulative quantity of Gas taken by a
          Party in excess of its Percentage  Interest in the cumulative quantity
          of all Gas produced from the Balancing Area.

     1.11 "Party"  shall  mean those  individuals  or  entities  subject to this
          Agreement,  and their respective  heirs,  successors,  transferees and
          assigns.

     1.12 "Percentage Interest" shall mean the percentage or decimal interest of
          each Party in the Gas produced from the Balancing Area pursuant to the
          Operating Agreement covering the Balancing Area.

     1.13 "Royalty"  shall mean payments on production of Gas from the Balancing
          Area to all  owners of  royalties,  overriding  royalties,  production
          payments or similar interests.

     1.14 "Underproduced  Party"  shall  mean any  Party  having  taken a lesser
          quantity of Gas from the Balancing Area than the  Percentage  Interest
          of such Party in the cumulative  quantity of all Gas produced from the
          Balancing Area.

     1.15 "Underproduction"  shall mean the  deficiency  between the  cumulative
          quantity  of Gas taken by a Party and its  Percentage  Interest in the
          cumulative quantity of all Gas produced from the Balancing Area.

2.   BALANCING AREA

     2.1 If this  Agreement  covers more than one  Balancing  Area,  it shall be
applied  as if each  Balancing  Area were  covered  by  separate  but  identical
agreements.  All balancing hereunder shall be on the basis of Gas taken from the
Balancing  Area  measured in  (Alternative  1) |X| Mcfs or  (Alternative  2) |_|
MMBtus.

     2.2 In the event that all or part of the Gas  deliverable  from a Balancing
Area is or becomes  subject to one or more maximum  lawful  prices,  any Gas not
subject  to  price  controls  shall  be  considered  as  produced  from a single
Balancing  Area and Gas subject to each maximum  lawful price  category shall be
considered produced from a separate Balancing Area.

3.   RIGHT OF PARTIES TO TAKE GAS

     3.1 Each Party desiring to take Gas will notify the Operator,  or cause the
Operator to be notified of the volumes  nominated,  the name of the transporting
pipeline and the  pipeline  contract  number (if  available)  and meter  station
relating to such delivery, sufficiently in advance for the Operator, acting with
reasonable diligence, to meet all nomination and other

                                      -1-

<PAGE>

A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992

requirements.  Operator is  authorized  to deliver the volumes so nominated  and
confirmed  (if  confirmation  is  required)  to  the  transporting  pipeline  in
accordance with the terms of this Agreement.

     3.2 Each Party shall make a reasonable,  good faith effort to take its Full
Share of Current  Production  each month,  to the extent that such production is
required to maintain  leases in effect,  to protect the producing  capacity of a
well  or  reservoir,   to  preserve  correlative  rights,  or  to  maintain  oil
production.

     3.3 When a Party  fails for any  reason to take its Full  Share of  Current
Production  (as such Share may be  reduced by the right of the other  Parties to
make up for  Underproduction  as provided  herein),  the other  Parties shall be
entitled  to take  any Gas  which  such  Party  fails  to  take.  To the  extent
practicable,  such Gas shall be made available  initially to each  Underproduced
Party in the proportion that its Percentage Interest in the Balancing Area bears
to the total Percentage Interests of all Underproduced  Parties desiring to take
such Gas. If all such Gas is not taken by the Underproduced Parties, the portion
not taken shall then be made  available to the other  Parties in the  proportion
that their  respective  Percentage  Interests in the Balancing  Area bear to the
total Percentage Interests of such Parties.

     3.4 All Gas  taken by a Party in  accordance  with the  provisions  of this
Agreement,  regardless of whether such Party is  underproduced  or overproduced,
shall be regarded as Gas taken for its own account with title  thereto  being in
such taking Party.

     3.6 In the event that a Party fails to make  arrangements  to take its Full
Share of Current  Production  required  to be  produced  to  maintain  leases in
effect,  to protect the producing  capacity of a well or reservoir,  to preserve
correlative  rights,  or to maintain oil  production,  the Operator may sell any
part of such Party's Full Share of Current  Production  that such Party fails to
take for the account of such Party and render to such Party, on a current basis,
the full  proceeds  of the sale,  less any  reasonable  marketing,  compression,
treating, gathering or transportation costs incurred directly in connection with
the  sale of  such  Full  Share  of  Current  Production.  In  making  the  sale
contemplated  herein,  the Operator shall be obligated only to obtain such price
and conditions for the sale as are reasonable under the  circumstances and shall
not be obligated to share any of its  markets.  Any such sale by Operator  under
the  terms  hereof  shall  be only for such  reasonable  periods  of time as are
consistent  with  the  minimum  needs  of  the  industry  under  the  particular
circumstances,   but  in  no  event   for  a  period  in  excess  of  one  year.
Notwithstanding the provisions of Article 3.4 hereof, Gas sold by Operator for a
Party  under  the  provisions  hereof  shall be  deemed  to be Gas taken for the
account of such Party.

4.   IN-KIND BALANCING

     4.1  Effective the first day of any calender  month  following at least the
TWENTY (20) days' prior written notice to the Operator,  any Underproduced Party
may begin taking,  in addition to its Full Share of Current  Production  and any
Makeup Gas taken pursuant to Section 3.3 of this  Agreement,  a share of current
production  determined  by  multiplying  TWENTY-FIVE  percent  (25%) of the Full
Shares of Current  Production  of all  Overproduced  Parties by a fraction,  the
numerator of which is the Percentage  Interest of such  Underproduced  Party and
the  denominator  of  which  is the  total of the  Percentage  Interests  of all
Underproduced Parties desiring to take Makeup Gas.

     4.3 |_| (Optional)  Notwithstanding  any other provision of this Agreement,
at such time and for so long as Operator,  or (insofar as concerns production by
the  Operator)  any  Underproduced  Party,  determines  in  good  faith  that an
Overproduced  Party has produced all of its share of the ultimately  recoverable
reserves in the Balancing Area, such Overproduced  Party may be required to make
available for Makeup Gas,  upon the demand of the Operator or any  Underproduced
Party, up to ONE-HUNDRED percent (100%) of such Overproduced  Party's Full Share
of Current Production.

5.   STATEMENT OF GAS BALANCES

     5.1 The Operator  will  maintain  appropriate  accounting  on a monthly and
cumulative  basis of the  volumes of Gas that each Party is  entitled to receive
and the volumes of Gas actually taken or sold for each Party's  account.  Within
forty-five (45) days after the month of production,  the Operator will furnish a
statement  for  such  month  showing  (1) each  Party's  Full  Share of  Current
Production,  (2) the total volume of Gas actually taken or sold for each Party's
account,  (3) the  difference  between  the volume  taken by each Party and that
Party's  Full  Share  of  Current   Production,   (4)  the   Overproduction   or
Underproduction  of  each  Party,  and (5)  other  data  as  recommended  by the
provisions of the Council of Petroleum Accountants Societies Bulletin No. 24, as
amended or supplemented  hereafter.  Each Party taking Gas will promptly provide
to the  Operator  any data  required  by the  Operator  for  preparation  of the
statements required hereunder.

     5.2 If any Party  fails to provide  the data  required  herein for four (4)
consecutive production months, the Operator, or where the Operator has failed to
provide  data,  another  Party,  may  audit  the  production  and Gas  sales and
transportation  volumes of the non-reporting Party to provide the required data.
Such audit shall be conducted  only after  reasonable  notice and during  normal
business hours in the office of the Party whose records are being  audited.  All
costs  associated  with such audit  will be charged to the  account of the Party
failing to provide the required data.

6.   PAYMENTS ON PRODUCTION

     6.1 Each Party taking Gas shall pay or cause to be paid all  production and
severance taxes due on all volumes of Gas actually taken by such Party.

                                      -2-

<PAGE>

A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992

     6.2 |X|  (Alternative  2 - Sales)  Each Party shall pay or cause to be paid
Royalty due with respect to Royalty  owners to whom it is  accountable  based on
the volume of Gas actually taken for its account.

     6.3 In the event that any  governmental  authority  requires  that  Royalty
payments be made on any other basis than that  provided  for in this  Section 6,
each Party agrees to make such Royalty payments  accordingly,  commencing on the
effective date required by such governmental authority,  and the method provided
for herein shall be thereby superseded.

7. CASH SETTLEMENTS

     7.1 Upon the earlier of the plugging and  abandonment of the last producing
interval in the Balancing  Area, the  termination of the Operating  Agreement or
any pooling or unit agreement covering the Balancing Area, or at any time no Gas
is taken from the Balancing Area for a period of twelve (12) consecutive months,
any  Party  may give  written  notice  calling  for cash  settlement  of the Gas
production  imbalances  among the  Parties.  Such  notice  shall be given to all
Parties in the Balancing Area.

     7.2 Within  sixty (60) days after the notice  calling  for cash  settlement
under  Section  7.1,  the  Operator  will  distribute  to each Party a Final Gas
Settlement  Statement  detailing  the  quantity of  Overproduction  owed by each
Overproduced  Party to each  Underproduced  Party and  identifying  the month to
which such Overproduction is attributed,  pursuant to the methodology set out in
Section 7.4.

     7.3 |X|  (Alternative 1 - Direct  Party-to-Party  Settlement)  Within sixty
(60) days after receipt of the Final Gas Settlement Statement, each Overproduced
Party  will  pay  to  each  Underproduced   Party  entitled  to  settlement  the
appropriate cash settlement,  accompanied by appropriate  accounting  detail. At
the time of payment,  the Overproduced Party will notify the Operator of the Gas
imbalance settled by the Overproduced Party's payment.

     7.4 |X|  (Alternative  1 -  Historical  Sales Basis) The amount of the cash
settlement  will be based on the  proceeds  received by the  Overproduced  Party
under an Arm's  Length  Agreement  for the Gas  taken  from  time to time by the
Overproduced  Party in excess of the Overproduced  Party's Full Share of Current
Production.  Any Makeup Gas taken by the  Underproduced  Party prior to monetary
settlement hereunder will be applied to offset Overproduction chronologically in
the order of accrual.

     7.5 The values used for calculating  the cash settlement  under Section 7.4
will include all proceeds  received for the sale of the Gas by the  Overproduced
Party  calculated  at the Balancing  Area,  after  deducting  any  production or
severance taxes paid and any Royalty actually paid by the Overproduced  Party to
an Underproduced  Party's Royalty owner(s), to the extent said payments amounted
to a discharge of said Underproduced Party's Royalty obligation,  as well as any
reasonable marketing,  compression,  treating, gathering or transportation costs
incurred directly in connection with the sale of the Overproduction.

     7.5.1 |_| (Optional - For Valuation Under Percentage of Proceeds Contracts)
For  Overproduction  sold under a gas purchase  contract  providing  for payment
based on a percentage of the proceeds  obtained by the purchaser  upon resale of
residue gas and liquid  hydrocarbons  extracted at a gas processing  plant,  the
values used for calculating  cash settlement will include  proceeds  received by
the  Overproduced  Party for both the liquid  hydrocarbons  and the  residue gas
attributable to the Overproduction.

     7.5.2  |X|  (Optional  -  Valuation  for  Processed  Gas -  Option  1)  For
Overproduction  processed  for the  account of the  Overproduced  Party at a gas
processing plant for the extraction of liquid hydrocarbons, the full quantity of
the Overproduction  will be valued for purposes of cash settlement at the prices
received by the Overproduced  Party for the sale of the residue gas attributable
to  the  Overproduction  without  regard  to  proceeds  attributable  to  liquid
hydrocarbons which may have been extracted from the Overproduction.

     7.5.2  |_|  (Optional  -  Valuation  for  Processed  Gas -  Option  2)  For
Overproduction  processed  for the  account of the  Overproduced  Party at a gas
processing plant for the extraction of liquid hydrocarbons,  the values used for
calculating   cash  settlement  will  include  the  proceeds   received  by  the
Overproduced  Party for the sale of the liquid  hydrocarbons  extracted from the
Overproduction,  less the actual  reasonable  costs incurred by the Overproduced
Party to process the Overproduction and to transport, [Illegible] and handle the
liquid hydrocarbons extracted therefrom prior to sale.

     7.6 To the extent the  Overproduced  Party did not sell all  Overproduction
under an  Arm's  Length  Agreement,  the  cash  settlement  will be based on the
weighted average price received by the Overproduced  Party for any gas sold from
the

                                       -3-

<PAGE>

A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992

Balancing  Area under Arm's  length  Agreements  during the months to which such
Overproduction  is  attributed.  In the event that no sales under  Arm's  Length
Agreements  were made during any such month,  the cash settlement for such month
will be based on the spot sales prices  published for the applicable  geographic
area during such month in a mutually acceptable pricing bulletin.

     7.7 Interest  compounded  at the rate of TWELVE  percent (12%) per annum or
the maximum lawful rate of interest applicable to the Balancing Area,  whichever
is less, will accrue for all amounts due under Section 7.1,  beginning the first
day  following  the date payment is due pursuant to Section 7.3.  Such  interest
shall be borne by the Operator or any Overproduced  Party in the proportion that
their  respective  delays  beyond the  deadlines set out in Sections 7.2 and 7.3
contributed to the accrual of the interest.

     7.8 In lieu of the cash settlement required by Section 7.3, an Overproduced
Party  may  deliver  to  the   Underproduced   Party  an  offer  to  settle  its
Overproduction in-kind and at such rates,  quantities,  times and sources as may
be agreed upon by the  Underproduced  Party.  If the Parties are unable to agree
upon the manner in which such in-kind  settlement  gas will be furnished  within
sixty (60) days after the  Overproduced  Party's offer to settle in kind,  which
period may be extended by  agreement of said  Parties,  the  Overproduced  Party
shall  make a cash  settlement  as  provided  in Section  7.3.  The making of an
in-kind  settlement  offer under this  Section 7.8 will not delay the accrual of
interest on the cash settlement should the Parties fail to reach agreement on an
in-kind settlement.

8.   TESTING

     Notwithstanding any provision of this Agreement to the contrary,  any Party
shall have the right,  from time to time,  to produce and take up to one hundred
percent   (100%)  of  a  well's  entire  Gas  stream  to  meet  the   reasonable
deliverability test(s) required by such Party's Gas purchaser,  and the right to
take any  Makeup Gas shall be  subordinate  to the right of any Party to conduct
such tests; provided,  however, that such tests shall be conducted in accordance
with prudent  operating  practices  only after  THIRTY (30) days' prior  written
notice to the Operator and shall last no longer than SEVENTY-TWO (72) hours.

9.   OPERATING COSTS

     Nothing in this Agreement shall change or affect any Party's  obligation to
pay its proportionate share of all costs and liabilities  incurred in operations
on or in connection  with the Balancing  Area, as its share thereof is set forth
in the  Operating  Agreement,  irrespective  of whether any Party is at any time
selling  and using Gas or  whether  such sales or use are in  proportion  to its
Percentage interest in the Balancing Area.

10.  LIQUIDS

     The Parties shall share  proportionately in and own all liquid hydrocarbons
recovered  with  Gas by  field  equipment  operated  for the  joint  account  in
accordance with their Percentage Interests in the Balancing Area.

11.  AUDIT RIGHTS

     Notwithstanding  any  provision in this  Agreement  or any other  agreement
between the Parties  hereto,  and further  notwithstanding  any  termination  or
cancellation  of this  Agreement,  for a period of two (2) years from the end of
the calendar year in which any  information to be furnished under Section 5 or 7
hereof is  supplied,  any Party shall have the right to audit the records of any
other  Party  regarding  quantity,  including  but not  limited  to  information
regarding  Btu-content Any Underproduced Party shall have the right for a period
of two (2) years from the end of the calendar year in which any cash  settlement
is received pursuant to Section 7 to audit the records of any Overproduced Party
as to all matters  concerning  values,  including but not limited to information
regarding  prices and disposition of Gas from the Balancing Area. Any such audit
shall be conducted at the expense of the Party or Parties  desiring  such audit,
and shall be conducted, after reasonable notice, during normal business hours in
the office of the Party  whose  records  are being  audited.  Each Party  hereto
agrees to  maintain  records as to the volumes and prices of Gas sold each month
and the volumes of Gas used in its own  operations,  along with the Royalty paid
on any such Gas used by a Party in its own operations. The audit rights provided
for in this Section 11 shall be in addition to those provided for in Section 5.2
of this Agreement.

12.  MISCELLANEOUS

     12.1 As between  the  Parties,  in the event of any  conflict  between  the
provisions of this Agreement and the provisions of any gas sales contract, or in
the event of any  conflict  between the  provisions  of this  Agreement  and the
provisions of the Operating  Agreement,  the provisions of this Agreement  shall
govern.

     12.2 Each Party  agrees to defend,  indemnify  and hold  harmless all other
Parties  from and against  any and all  liability  for any claims,  which may be
asserted  by any third  party  which now or  hereafter  stands in a  contractual
relationship with such  indemnifying  Party and which arise out of the operation
of this  Agreement  or any  activities  of such  indemnifying  Party  under  the
provisions of this  Agreement,  and does further agree to save the other Parties
harmless  from  all  judgments  or  damages  sustained  and  costs  incurred  in
connection therewith.

     12.3 Except as otherwise provided in this Agreement, Operator is authorized
to administer the provisions of this  Agreement,  but shall have no liability to
the other Parties for losses sustained or liability  incurred which arise out of
or in connection with the  performance of Operator's  duties  hereunder,  except
such as may result  from  Operator's  gross  negligence  or willful  misconduct.
Operator shall not be liable to any  Underproduced  Party for the failure of any
Overproduced Party (other than Operator) to pay any amounts owed pursuant to the
terms hereof.

     12.4 This  Agreement  shall  remain in full force and effect for as long as
the  Operating  Agreement  shall remain in force and effect as to the  Balancing
Area, and thereafter  until the Gas accounts  between the Parties are settled in
full and shall inure to the benefit of and be binding  upon the Parties  hereto,
and their respective heirs, successors, legal representatives

                                       -4-

<PAGE>

A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992

and assigns, if any. The Parties hereto agree to give notice of the existence of
this  Agreement  to any  successor  in interest of any such Party and to provide
that any such successor shall be bound by this Agreement, and shall further make
any transfer of any interest  subject to the Operating  Agreement,  or any part
thereof, also subject to the terms of this Agreement.

     12.5  Unless the context  clearly  indicates  otherwise,  words used in the
singular  include the plural,  the plural includes the singular,  and the neuter
gender includes the masculine and the feminine.

     12.7  This  Agreement  shall  bind  the  Parties  in  accordance  with  the
provisions  hereof,  and nothing  herein shall be construed  or  interpreted  as
creating any rights in any person or entity not a signatory  hereto, or as being
a stipulation in favor of any such person or entity.

     12.8 If  contemporaneously  with  this  Agreement  becoming  effective,  or
thereafter,  any Party  requests  that any other  Party  execute an  appropriate
memorandum or notice of this  Agreement in order to give third parties notice of
record  of same  and  submits  same  for  execution  in  recordable  form,  such
memorandum  or notice shall be duly  executed by the Party to which such request
is made and delivered promptly thereafter to the Party making the request.  Upon
receipt, the Party making the request shall cause the memorandum or notice to be
duly recorded in the  appropriate  real property or other records  affecting the
Balancing Area.

     12.9 In the event Internal  Revenue Service  regulations  require a uniform
method of computing taxable income by all Parties,  each Party agrees to compute
and report income to the Internal  Revenue  Service  (select one) |_| as if such
Party were taking its Full Share of Current  Production during each relevant tax
period  in  accordance  with  such  regulations,   insofar  as  same  relate  to
entitlement  method tax computations;  or |X| based on the quantity of Gas taken
for its account in accordance with such  regulations,  insofar as same relate to
sales method tax computations.

                                       -5-

<PAGE>

A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992

15. COUNTERPARTS

     This Agreement may be executed in counterparts, each of which when taken
with all other counterparts shall constitute a binding agreement between the
Parties hereto; provided, however, that if a Party or Parties owning a
Percentage Interest in the Balancing Area equal to or greater than a
_____________ percent (______%) therein fail(s) to execute this Agreement on or
before ____________________, this Agreement shall not be binding upon any Party
and shall be of no further force and effect.

     IN WITNESS WHEREOF, this Agreement Shall be effective as of the ________
day of _________, 19_____.

ATTEST OR WITNESS:                         OPERATOR

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

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

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

                                           Type or print name

                                           Title
                                                 -------------------------------
                                           Date
                                                 -------------------------------
                                           Tax ID or S.S. No.
                                                              ------------------

                                           NON-OPERATORS

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

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

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

                                           Type or print name

                                           Title
                                                 -------------------------------
                                           Date
                                                 -------------------------------
                                           Tax ID or S.S. No.
                                                              ------------------

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

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

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

                                           Type or print name

                                           Title
                                                 -------------------------------
                                           Date
                                                 -------------------------------
                                           Tax ID or S.S. No.
                                                              ------------------

                                       -6-

<PAGE>

A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992

                                 ACKNOWLEDGMENTS

     Note: The following forms of acknowledgment are the short forms approved by
the Uniform Law on Notarial Acts. The validity and effect of these forms in any
state will depend upon the statutes of that state.

Individual acknowledgment:

State of _________ )

                   ) ss.

County of ________ )

     This instrument was acknowledged before me on _____________________________
_______________________________________ by _____________________________________

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

Acknowledgment in representative capacity:

State of _________ )

                   ) ss.

County of ________ )

     This instrument was acknowledged before me on _____________________________
______________________________________ by ___________________________________ as
____________________________ of ________________________________________________

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

                                       -7-LLC OPERATING AGREEMENT

                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                          RIDGEWOOD ENERGY M FUND, LLC

      THIS LIMITED LIABILITY  COMPANY  AGREEMENT (this  "Agreement") is made and
entered as of September 7, 2004 by and among  Ridgewood  Energy  Corporation,  a
Delaware Corporation ("Manager"), and the Investors as defined below.

      WHEREAS,  the Manager has formed and the  Investors  have agreed to become
members of RIDGEWOOD  ENERGY M FUND, LLC, a Delaware limited  liability  company
(the  "Fund")  and the  Manager  has caused a  certificate  of  formation  to be
executed  and filed with the  Delaware  Secretary  of State  pursuant to Section
18-201 of the Delaware Limited Liability Company Act ("Delaware Act").

      NOW,  THEREFORE,  in  consideration  of the mutual  terms,  covenants  and
conditions contained herein, the parties agree as follows:

                       ARTICLE 1: ORGANIZATION AND POWERS

      1.1   Name. The name of the Fund is "RIDGEWOOD  ENERGY M  FUND,  LLC". The
Manager may conduct the  business of the Fund or hold its  property  under other
names as necessary to comply with law or to further the affairs of the Fund,  as
it deems advisable in its sole discretion.  This Agreement,  the Certificate and
any other documents, and any amendments of any of the foregoing, required by law
or appropriate, shall be recorded in all offices or jurisdictions where the Fund
shall  determine  such recording to be necessary or advisable for the conduct of
the business of the Fund.

      1.2   Purpose (a) The Fund's purpose  is to acquire,  drill, construct and
develop natural gas prospects, including natural gas infrastructure projects, in
the offshore  waters of Texas and Louisiana in the Gulf of Mexico  ("Natural Gas
Projects").  In addition to these  acquisition and development  activities,  the
Fund may participate in pre-development and other preparatory activities for the
Natural Gas Projects, including without limitation,  evaluation,  investigation,
due diligence activities, permitting, and other development activities. The Fund
may effect any of these  transactions on its own,  together with Affiliates,  or
together with non-Affiliates.

                                       A-1
<PAGE>

      (b)   In carrying out its purposes, the  Fund has the power to perform any
act that is necessary, advisable, customary or incidental thereto. It may invest
in a passive or active manner in, develop,  plan,  construct,  manage,  operate,
advise,  transfer or dispose of, any  facility or interest and produce or market
products  or  services.  The  Fund  may act  independently,  through  subsidiary
organizations,  in cooperation with others or through business entities in which
others have  interests  whether as principal,  agent,  partner,  owner,  member,
associate,  joint venturer or otherwise.  When related to its purposes, the Fund
may also guarantee  obligations of other  persons,  supply  collateral for those
obligations or for the issuance of letters of credit or surety bonds  benefiting
other  persons,  enter  into  leases as lessor  or  lessee or  acquire  goods or
services for the use or benefit of other persons.

      (c)   Without the prior  affirmative vote or written consent  of Investors
whose aggregate  Capital  Contributions  constitute more than 50% of all Capital
Contributions  to the Fund at such time,  the Fund will not take any action that
would cause it to be required to register as an "investment  company" subject to
the requirements of the Investment  Company Act of 1940 and will not hold itself
out as an "investment company."

      (d)   The Fund  may make  interim  investments  of funds  and may take all
action  necessary,  advisable or appropriate to maintain its existence,  enforce
this Agreement and its rights or the rights of the  Shareholders and comply with
legal requirements.

      1.3   Relationships  among  Shareholders;  No Partnership.  As  among  the
Fund,  the  Shareholders  and the  officers  and  agents of the Fund,  a limited
liability  company and not a  partnership  is created by this  Agreement and the
Certificate  irrespective  of whether any different  status may be held to exist
for tax purposes.  The Shareholders hold only the relationship of members of the
Fund with only such rights as are  conferred on them by this  Agreement  and the
Delaware Act.

      1.4   Organization  Certificates.  The parties  hereto have or shall cause
to be executed and filed (a) the  Certificate,  (b) such  certificates as may be
required by so-called "assumed name" laws in each jurisdiction in which the Fund
has a place of business, (c) all such other certificates, notices, statements or
other instruments required by law or appropriate for the formation and operation
of a Delaware limited liability company in all jurisdictions  where the Fund may
elect to do business, and (d) any amendments of any of the foregoing required by
law or otherwise appropriate.

      1.5   Principal Place of Business. The  principal place of business of the
Fund shall be 1314 King Street, Wilmington,  Delaware 19801, or such other place

                                       A-2
<PAGE>

as the Fund may  designate  from time to time by notice.  The Fund may  maintain
such other  offices at such other places as the Fund may  determine to be in the
best interests of the Fund.

      1.6   Admission of Investors.  (a) The Fund  shall  have the  unrestricted
right at all  times  prior  to the  Termination  Date to admit to the Fund  such
Investors as it may deem  advisable.  One Investor Share will be issued for each
accepted subscription for $150,000 of Capital Contributions (before discounts or
incentives) and fractional Shares may be issued in the Manager's sole discretion
for proportional amounts of Capital Contributions.

      (b)   The  aggregate  subscriptions  received for Capital Contributions of
the Investors and accepted by the  Fund  will  not  exceed  500 Investor  Shares
($75,000,000  nominal),  immediately  following the admission of such Investors.
However,  at any time prior to the  Termination  Date,  the  Manager in its sole
discretion may increase the number of Investor  Shares to 834 Investor Shares or
more.

      (c)   (i)   If,  by the close of  business  on March  31,  2005,  Investor
Shares representing Investor Capital Contributions in the aggregate amount of at
least $1,500,000 have not been sold, the Fund shall be immediately  dissolved at
the  expense  of the  Manager  and all  subscription  funds  shall be  forthwith
returned  to the  respective  subscribers  together  with  any  interest  earned
thereon.

            (ii)  If the  Fund  withdraws  the   Offering   after  the  Fund has
received  Investor Shares  representing  Investor  Capital  Contributions in the
aggregate amount of at least  $1,500,000,  but before the Termination  Date, the
Fund  shall be  immediately  dissolved  at the  expense of the  Manager  and all
subscription funds, net of third party fees, shall be returned to the respective
subscribers  together  with any interest  earned  thereon.  For purposes of this
Section 1.6(c)(ii), third party fees do not include any fees paid to the Manager
or its affiliates.

      (d)   Each Investor shall execute a Subscription Agreement and will make a
Capital  Contribution to the Fund equal to $150,000 per Investor Share. The Fund
may  accept  or  reject  any  subscription  in  whole  or in  part  in its  sole
discretion.  Each Investor who executes an accepted Subscription Agreement shall
be  admitted  to the  Fund  as a  Shareholder.  All  Funds  received  from  such
subscriptions  until used by the Fund will be deposited in the Fund's name in an
account at a commercial bank.

      (e)   The  Capital  Contribution  for Investor Shares  must be paid to the
Fund at the time of subscription.

                                       A-3
<PAGE>

      1.7   Term  of the  Fund.  For  all  purposes,  this  Agreement  shall  be
effective on and after its date and the Fund shall  continue in existence  until
December  31,  2040,  at which  time  the Fund  shall  terminate  unless  sooner
terminated under any other provision of this Agreement.

      1.8   Powers of the Fund. Without  limiting any powers granted to the Fund
under this  Agreement or  applicable  law, in carrying out its purposes the Fund
has all  powers  granted  to a limited  liability  company  organized  under the
Delaware Act, including, without limitation:

      (a)   To borrow money or to loan money and to  pledge or mortgage any  and
all Fund Property, to execute and  provide  guarantees, to execute  conveyances,
mortgages, security agreements,  assignments and any other contract or agreement
deemed proper and in furtherance of the Fund's  purposes and affecting it or any
Fund  Property;  provided,  however,  that the Fund  shall not loan money to the
Manager, or any other Managing Person;

      (b)   To pay all indebtedness, taxes and assessments due or to be due with
regard  to Fund  Property  and to give or  receive  notices,  reports  or  other
communications  arising out of or in connection with the Fund's business or Fund
Property;

      (c)   To collect all monies due the Fund;

      (d)   To establish, maintain  and  supervise  the deposit of funds or Fund
Property  into,  and the  withdrawals  of the same from,  Fund bank  accounts or
securities accounts;

      (e)   To employ  accountants to prepare  required  tax returns and provide
other professional services and to pay their fees at the Fund's expense;

      (f)   To make any  election relating  to adjustments in basis on behalf of
the Fund or  the Shareholders  which is or  may  be permitted  under  the  Code,
particularly with respect to Sections 743, 754 and 771 of the Code;

      (g)   To employ legal  counsel for Fund  purposes or for the  Manager,  or
permit the Manager itself to employ legal  counsel,  for Fund and other purposes
permitted  hereunder  and to pay their fees and expenses at the Fund's  expense;
and

      (h)   To invest in any asset consistent with the objectives of the Fund as
described in the Memorandum.

                                       A-4
<PAGE>

                             ARTICLE 2: DEFINITIONS

      The  following  terms,  whenever  used  herein,  shall  have the  meanings
assigned  to them  in this  Article  2  unless  the  context  clearly  indicates
otherwise.  References to sections and articles  without  further  qualification
denote sections and articles of this  Agreement.  The singular shall include the
plural and the masculine  gender shall include the feminine,  and vice versa, as
the context  requires,  and the terms  "person"  and "he" and their  derivations
whenever used herein shall  include  natural  persons and  entities,  including,
without limitation, corporations,  partnerships, limited liability companies and
trusts, unless the context indicates otherwise.

      "Act"---The federal Securities Act of 1933, as amended,  and the rules and
regulations promulgated thereunder.

      "Adjusted Capital Account Deficit"--- with respect to any Shareholder, the
deficit balance, if any, in such Shareholder's  Capital Account as of the end of
the relevant Fiscal Year, with the following adjustments:

A credit to such  Capital  Account  of any  amounts  which such  Shareholder  is
obligated to restore  pursuant to any  provision of this  Agreement or is deemed
obligated  to restore  pursuant  to the  penultimate  sentences  of  Regulations
Section 1.704-2(g)(1) and 1.704-2(i)(5); and

A  debit  from  such  Capital  Account  for  the  items  described  in  Sections
1.704-1(b)(2)(ii)(d)(4),  1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.

The foregoing  definition of "Adjusted  Capital Account  Deficit" is intended to
comply with the provisions of Section  1.704-1(b)(2)(ii)(d)  of the  Regulations
and shall be interpreted consistently therewith.

      "Affiliate"---An  "Affiliate" of, or person "Affiliated" with, a specified
person  is  a  person  that  directly,   or  indirectly   through  one  or  more
intermediaries, controls, is controlled by, or is under common control with, the
person specified.

      "Agreement"---This Limited Liability Company Agreement, as further amended
from time to time.

      "Available Cash from  Dispositions"---  The amount by which (a) the sum of
(i) the  total  cash  proceeds  received  by the  Fund in  connection  with  the
transfer,  injury,  distribution,  condemnation,  or other  disposition  of Fund
Property (or interest therein) that is made other than in the ordinary course of
the  Fund's  business,  plus (ii) the  proceeds  of any  insurance  payments  or
financing  transactions  that are not otherwise  used to  construct,  replace or
repair  Fund  Property,  exceed (b) the amount that the  Manager  determines  is
necessary to be retained by the Fund (i) to satisfy any debt or other obligation
of the Fund that is secured by,  attributable to or otherwise connected with the
Fund Property

                                       A-5
<PAGE>

disposed  of  (including  Shareholder  loans,  if any)  and  (ii)  to  establish
reasonable reserves for actual or contingent obligations of the Fund.

      "Available  Cash from  Operations"---  The total cash received by the Fund
from  operation  of the  business  in the  ordinary  course (but  excluding  any
Available  Cash  Flow from  Dispositions  and  excluding  any  Investor  Capital
Contributions), less (i) all operating expenses and other cash expenditures, and
(ii) such  reserves  for  operating  expenses,  debt service and other actual or
contingent  obligations and liabilities of the Fund as the Manager may determine
are necessary or advisable.

      "Capital   Account"---The  amount  representing  a  Shareholder's  capital
interest in the Fund, as determined under Article 6 hereof.

      "Capital  Contributions"---The  aggregate  capital  contributions  of  the
Investors  accepted by the Fund in payment of the purchase  price of one or more
whole or  fractional  Investor  Shares,  minus any return of capital by the Fund
pursuant to Section 5.3.

      "Certificate"---The  Certificate of Formation of the Fund, as amended from
time to time.

      "Code"---The  United States Internal Revenue Code of 1986, as amended from
time to time, or any corresponding provision or provisions of any succeeding law
and, to the extent applicable, any rules and regulations promulgated thereunder.

      "Delaware  Act"---The  Delaware Limited  Liability Company Act, as amended
from time to time  (currently  codified as Title 6,  Chapter 18 of the  Delaware
Code).

      "Dry-Hole Costs" --- The cost of drilling a well.

      "Escrow  Date" --- The  later of the  dates on which the Fund (i)  accepts
Investor subscriptions of at least $1,500,000 in the aggregate,  and (ii) has in
deposit at least  $1,500,000 in collected  funds in escrow under Section 1.6(c),
provided, however, the Escrow Date shall not be later than March 31, 2005.

      "Fiscal Year"---The calendar year ending December 31st.

      "Fund"---Ridgewood  Energy  M Fund,  LLC,  a  Delaware  limited  liability
company.

      "Fund Property"--- All property owned or acquired by the Fund.

      "Investor"---A  purchaser of whole or  fractional  Investor  Shares (which
will include the Manager to the extent it acquires  Investor  Shares for its own
account) whose subscription is accepted by the Fund.

      "Investor Share" --- A Investor Share in the Fund  representing a required
Capital Contribution (before any discounts or waivers of fees) of $150,000.

      "Losses"---Defined at "Profits" or "Losses."

      "Management  Share" - The equity interest in the Profits and Losses of the
Fund and in  distributions  granted to Ridgewood as compensation  for organizing
and sponsoring the Fund and acting as its Manager.

      "Managing  Person"---Any  of the  following:  (a) Fund  officers,  agents,
consultants  or  Affiliates,  the  Manager  and  (b)  any  directors,  trustees,
officers,

                                       A-6
<PAGE>

agents or Affiliates of any  organizations  named in (a), above, when  acting on
behalf of the Fund.

      "Manager"-- Ridgewood Energy Corporation and any successor,  substitute or
different   Manager  under  this  Agreement.

      "Memorandum"---The  Confidential Memorandum dated September 7, 2004 of the
Fund, as the same may be amended or supplemented from time to time.

      "1940 Act"---The federal  Investment Company Act of 1940, as amended,  and
the rules and regulations promulgated thereunder.

      "Non-recourse   Deductions"---Shall   have  the   meaning   set  forth  in
Regulations Section  1.704-2(b)(1) and 1.704-2(c).

      "Non-recourse   Liability"---   Shall  have  the   meaning  set  forth  in
Regulations Section 1.752-1(a)(2).

      "Natural Gas Projects" --- The natural gas projects acquired and developed
by the Fund.

      "Partnership  Minimum  Gain"  ---  Shall  have the  meaning  set  forth in
Regulations Section 1.704-(2)(b)(2) and 1.704-2(d).

      "Placement   Agent"---Ridgewood   Securities   Corporation,   a   Delaware
corporation,  or any  successor.

      "Profits" or  "Losses"---For a given fiscal period, an amount equal to the
taxable  income or loss for such  period,  determined  in  accordance  with Code
Section  703(a) (for this purpose,  all items of income,  gain,  expense,  loss,
deduction or credit  required to be stated  separately  pursuant to Code Section
703(a)(1)  shall be  included  in taxable  income or loss),  with the  following
adjustments:

            (a)   Any  income  that is  exempt  from   federal   income  tax and
not otherwise taken into account in computing Profits or Losses pursuant to this
definition   and  any  income  and  gain   described   in   Regulation   Section
1.704-1(b)(2)(iv)(g) shall be added to such taxable income or loss;

            (b)   Any expenditures  described  in Code  Section  705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulation Section
1.704-1(b)(2)(iv)(i),  and not otherwise taken into account in computing Profits
or Losses  pursuant to this  definition  shall be  subtracted  from such taxable
income or loss;

            (c)   In the event of a distribution  in kind under Section 8.2, the
amount  of any  unrealized  gain or loss  deemed to have  been  realized  on the
property  distributed  shall be added or subtracted  from such taxable income or
loss; and

            (d)   Notwithstanding  any other  provision of this  definition, any
items that are specially  allocated  pursuant to Sections 4.3, and 7.3 shall not
be taken into account in computing Profits or Losses.

      "Regulation"---A  final or temporary Treasury regulation promulgated under
the Code.

      "Ridgewood   Energy   Corporation"  or  "Ridgewood"  --  Ridgewood  Energy
Corporation, a Delaware corporation.

                                       A-7
<PAGE>

      "Salvage  Fund"---  As used  herein  shall have the  meaning  set forth in
Section 9.7.

      "Shareholder"---  The Investors and the owner of the Management Share. The
Shareholders are the members of the Fund.

      "Share"---A Shareholder's interest as a member of the Fund.

      "Subscription  Agreement"---The form of subscription  agreement (contained
in  Exhibit  D  to  the  Memorandum,  which  is  separately  bound)  which  each
prospective  Investor  must  complete and execute in order to  subscribe  for an
interest in the Fund.

      "Supplemental  Offering"---  A  supplemental  offering  by the  Manager as
further described in Section 9.6.

      "Termination  Date" --- The date on which the initial offering of Investor
Shares is ended,  as set or  extended  from time to time by the Fund in its sole
discretion,  provided that the Termination  Date may not occur before the Escrow
Date, and that if the Offering is withdrawn,  the  Termination  Date is the date
the Fund elects to do so. In no event shall the  Termination  Date extend beyond
ninety (90) days beyond March 31, 2005.

      "Working Interest" --- For purposes of this Agreement,  a Working Interest
is an interest  under an natural gas well,  which carries with it the obligation
to pay the costs of the  operation  of such  well.  The  holders  of the  entire
Working Interest bear 100% of the costs of exploring,  drilling,  developing and
operating the well and are entitled to receive revenues derived from the natural
gas  production  of the  well  which  remain  after  deduction  of the  cost  of
processing,  transporting  and  marketing  such natural gas,  including  royalty
payments.

                             ARTICLE 3: LIABILITIES

      3.1   Liability of Investors in General. No Investor  shall be  personally
liable for any debt,  obligation,  or liability  of the Fund whether  arising in
contract,  tort or otherwise, in any amount beyond the unpaid amount, if any, of
the  Capital  Contribution  subscribed  for by him,  solely by reason of being a
Shareholder of the Fund.

      3.2   Liability of Investors to Fund and Shareholders.  No Investor in his
capacity  as such  shall be liable,  responsible  or  accountable  in damages or
otherwise to any other Shareholder or the Fund for any claim, demand, liability,
cost,  damage or cause of action of any nature  whatsoever that arises out of or
that is incidental to the management of the Fund's affairs.

      3.3   Liability   of  Managing   Persons  to  Third   Persons,   Fund  and
Shareholders.  No Managing  Person  shall be liable to any person other than the
Fund or a Shareholder  for any obligation of the Fund. No Managing  Person shall
have  liability to the Fund or to any  Shareholder  for any loss suffered by the
Fund that  arises out of any action or inaction  of the  Managing  Person if the
Managing

                                       A-8
<PAGE>

Person, in good faith,  determined that such course of conduct was in the Fund's
best  interest and such course of conduct did not  constitute  bad faith,  gross
negligence  or  willful  misconduct  of such  Managing  Person.  Nothing in this
Section 3.3, however, shall limit or supersede any contractual or other defenses
a Managing Person may have against the Fund or a Shareholder.

      3.4   Indemnification of Managing Persons.  (a) Each Managing Person shall
be indemnified  from Fund Property against any losses,  liabilities,  judgments,
expenses  and  amounts  paid in  settlement  of any claims  sustained  by him in
connection with the Fund or claims by the Fund, in right of the Fund or by or in
right of any Shareholder. The Manager shall have full and complete discretion to
authorize   indemnification   of  any  Managing   Person   consistent  with  the
requirements  of this  Agreement at any time,  regardless  of whether a claim is
pending or threatened  and  regardless  of any conflict of interest  between the
Manager  and the Fund that may arise in regard to the  decision  to  indemnify a
Managing Person.

      (b)   Expenses,  including  attorneys' fees, incurred by a Managing Person
in defending any action, suit or proceeding shall be paid by the Fund in advance
of the final  disposition of the action,  suit or proceeding  upon receipt of an
undertaking  by the  recipient  to repay such amount if it shall  ultimately  be
determined  that the Managing  Person is not entitled to be  indemnified  by the
Fund under this  Agreement  or  otherwise  and if it is  reasonable  to make the
advance.

      (c)   Rights  to indemnification  and  advances  of  expenses  under  this
Agreement are not exclusive of any other rights to  indemnification  or advances
to  which  a  Managing  Person  may  be  entitled,   both  as  to  action  in  a
representative  capacity  or  as to  action  in  another  capacity  taken  while
representing another. The restrictions of any provision of this Article 3 do not
apply  to the  purchase  of  directors  and  officers'  insurance  or any  other
insurance or bond by the Fund or by a Managing Person on behalf of the Fund, nor
do they apply to any claim against or proceeds of that insurance or bond.

      (d)   Each  Managing Person shall  be entitled to rely upon the opinion or
advice of or any statement or computation by any counsel, engineer,  accountant,
investment  banker or other person  retained by such Managing Person or the Fund
that he believes to be within such person's  professional or expert  competence.
In so doing,  he or she will be  deemed to be acting in good  faith and with the
requisite  degree of care unless he or she has actual  knowledge  concerning the
matter in question that would cause such reliance to be unwarranted.

                                       A-9
<PAGE>

                    ARTICLE 4: ALLOCATION OF PROFIT AND LOSS

      4.1   General. The rules set forth below in this Article 4 shall apply for
the purposes of determining each  Shareholder's  allocable share of the items of
income,  gain, loss and expense of the Fund comprising  Profits or Losses of the
Fund for each Fiscal Year,  determining  special  allocations  of other items of
income,  gain, loss and expense, and adjusting the balance of each Shareholder's
Capital Account to reflect the aforementioned  general and special  allocations.
For each Fiscal  Year,  the special  allocations  in Section 4.3 and Section 7.4
hereof shall be made immediately prior to the general allocations of Section 4.2
hereof.  Allocations  to the Investors  shall be made in  accordance  with their
relative Investor Shares.

      4.2   General Allocations.

      (a)   General.  Except as  provided  in Section  4.3 hereof and subject to
Article 7, 8 and 9 hereof, all items of income,  gain, expense,  loss, deduction
and  credit of the Fund shall be  allocated  15% to the  Manager  and 85% to the
Investors.

      (b)   Loss Limitation.  Notwithstanding anything to the contrary contained
in this  Section 4.2,  the amount of Fund Losses  allocated  pursuant to Section
4.2(a) to any Shareholder shall not exceed the maximum amount of such items that
can be so allocated without causing such Shareholder to have an Adjusted Capital
Account  Deficit at the end of any Fiscal Year.  All such items in excess of the
limitation  set  forth in the  previous  sentence  shall be  allocated  first to
Shareholders who would not have an Adjusted  Capital Account Deficit,  pro rata,
until no Shareholder  would be entitled to any further  allocation,  and then to
the Manager.

      (c)   No Deficit  Restoration  Obligation.  Except as  provided in Section
14.6, at no time during the term of the Fund or upon dissolution and liquidation
thereof shall a Shareholder  with a negative  balance in his, her or its Capital
Account have any  obligation  to the Fund or the other  Shareholders  to restore
such negative balance, except as may be required by law.

      (d)   Items. Except as otherwise provided in this Agreement,  all items of
Fund income, gain, expense, loss, and deduction for a particular Fiscal Year and
any other  allocations  not  otherwise  provided for shall be divided  among the
Shareholders  in the same  proportions  as they share Profits or Losses,  as the
case may be, for such Fiscal Year.

                                      A-10
<PAGE>

      (e)   Tax Reporting.  The Shareholders shall be bound by the provisions of
this Agreement in reporting their shares of Fund Profits, Losses and other items
for income tax purposes.

      (f)   Allocation  to  Fiscal  Periods.  The Fund  may use any  permissible
method under Code Section  706(d) and the  Regulations  thereunder  to determine
Profits,  Losses  and other  items on a daily,  monthly  or other  basis for any
Fiscal Year in which there is a change in a Shareholder's interest in the Fund.

      (g)   Capital Account Regulations. The definition of "Capital Account" and
certain  other  provisions  of  this  Agreement  are  intended  to  comply  with
Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and applied
in  a  manner  consistent  with  such  Regulations.  These  Regulations  contain
additional  rules  governing  maintenance of Capital  Accounts that may not have
been provided for in this Agreement because,  in part, these rules may relate to
transactions that are not expected to occur and in some instances are prohibited
by this Agreement.  If the Fund after consultation with its regular  accountants
or tax counsel  determines  that it is prudent to modify the manner in which the
Capital  Accounts,  or any debits or credits  thereto,  are computed in order to
comply with such  Regulations,  or to avoid the effects of unanticipated  events
that might otherwise  cause this Agreement not to comply with such  Regulations,
the Fund shall make such  modification  without  the need of prior  notice to or
consent of any Shareholder;  so long as no such modification is likely to have a
material effect on the amounts distributable to any Shareholder.

      4.3   Capital  Contribution  Allocations.   Subject  to  Section  1.6  and
Articles 7, 8, and 9 hereof,  all items of expense,  loss,  deduction and credit
attributable to the expenditure of any Capital  Contributions and all income and
gains derived from temporary investment of the Fund's funds prior to application
of such funds to the  business of the Fund shall be  allocated 1% to the Manager
and 99% to the Investors.

      4.4   Tax  Allocations.  The tax allocations made pursuant to this Section
4.4 shall be solely for tax  purposes  and shall not  affect  any  Shareholder's
Capital  Account or share of non-tax  allocations  or  distributions  under this
Agreement.

      (a)   Section 704(c) Allocations. In the event any property of the Fund is
credited to the Capital  Account of a Shareholder  at a value other than its tax
basis, the allocations of taxable income, gain, loss and deductions with respect
to such  property  shall be made in a manner that will comply with Code  Section
704(b) and  704(c) and the  Regulations  thereunder.  The Fund,  in the sole and
absolute  discretion  of the  Manager,  may  make,  or not make,  "curative"  or
"remedial" allocations (within the meaning of the Regulations under Code Section
704(c) including, but not limited to:

                                      A-11
<PAGE>

      (i)   "curative" allocations which offset the effect of the "ceiling rule"
for  a  prior   Fiscal  Year   (within  the  meaning  of   Regulations   Section
1.704-3(c)(3)(ii)); and

      (ii)  "curative"  allocations  from  dispositions of contributed  property
(within the meaning of Regulations Section 1.704-3(c)(3(iii)(B)).

      (b)   Depreciation Recapture. To the maximum extent permitted by the Code,
income  realized by the Fund in the nature of recapture of depreciation or other
cost recovery  allowances (other than of Non-recourse  Deductions or Shareholder
Non-recourse  Deductions)  shall  be  allocated  to  Shareholders  in  the  same
proportions  as  depreciation  allowances  were  allocated  to them  pursuant to
Section 4.3(a).

                ARTICLE 5: CAPITAL CONTRIBUTIONS OF SHAREHOLDERS

      5.1   Additional Capital  Contributions.  Other than the full payment of a
Shareholder's Capital Contribution, no Shareholder of the Fund shall be required
to make additional contributions to the Fund. However, the Manager may from time
to time and within its sole  discretion seek  additional  capital  contributions
from Shareholders,  and others, through a supplemental offering, as described in
Section 9.6 hereof.

      5.2   Manager's Capital  Contributions.  The  Manager in its  capacity  as
Manager shall only be required to make Capital  Contributions in accordance with
Section 14.6.

      5.3.  Returns of Capital.  If the Fund for any reason at any time does not
find it necessary or appropriate to retain or expend all Capital  Contributions,
the Manager in its sole  discretion may cause the Fund to return any or all such
excess  Capital  Contributions  ratably  to  Investors.  The  Investors  will be
notified of the source of the payment.  The Fund is not  obligated to return the
amount of any fees charged in connection with the Investor Capital  Contribution
and the return of a Investor Capital Contribution is net of any fees so charged.

                           ARTICLE 6: CAPITAL ACCOUNTS

      6.1   Capital  Accounts.  A  Capital  Account  shall  be  established  and
maintained for each Shareholder and shall be adjusted as follows:

      (a) The Capital Account of each Shareholder shall be increased by:

      (1) The amount of such Shareholder's Capital Contributions to the Fund;

                                      A-12
<PAGE>

      (2) The  amount of  Profits  allocated  to such  Shareholder  pursuant  to
Articles 4 and 7;

      (3) The fair market value of property  contributed  by the  Shareholder to
the Fund (net of liabilities  secured by the contributed  property that the Fund
under Code Section 752 is considered to have assumed or taken subject to);

      (4) Any items in the nature of income or gain that are specially allocated
to such Shareholder or adjusted pursuant to Sections 4.3 and 7.4; and

      (b) The Capital Account of each Shareholder shall be decreased by:

      (1) The  amount  of  Losses  allocated  to such  Shareholder  pursuant  to
Articles 4 and 7;

      (2) All  amounts of money and the fair market  value of  property  paid or
distributed  to such  Shareholder  pursuant  to the  terms  hereof  (other  than
payments made with respect to loans made by such  Shareholder to the Fund),  net
of liabilities  secured by that property that the Shareholder under Code Section
752 is considered to have assumed or taken subject to;

      (3) Any items in the  nature of  expenses  or  losses  that are  specially
allocated to such Shareholder pursuant to Sections 4.3 and 7.4; and

      (4) Any return of a Capital Contribution under Section 5.3.

      6.2   Calculation  of  Capital  Account.   Whenever  it  is  necessary  to
determine the Capital  Account of any  Shareholder,  the Capital Account of such
Shareholder  shall be  determined  in  accordance  with the rules of  Regulation
Sections  1.704-1 (b) (2) (iv) and 1.704-2  (as amended  from time to time).  If
necessary to comply with the Code, an adjusted Capital Account may be employed.

      6.3   Effect of Loans.  Loans by any  Shareholder to the Fund shall not be
considered contributions to the capital of the Fund.

      6.4   Withdrawal of Capital.  No Shareholder shall be entitled to withdraw
any part of his Capital  Account or to receive any  distribution  from the Fund,
except as specifically provided herein.

      6.5   Capital Accounts of New  Shareholders.  Any person who shall acquire
Shares in  accordance  with the  terms  and  conditions  of  Article  13 of this

                                      A-13
<PAGE>

Agreement  shall have the Capital  Account of his transferor  after  adjustments
reflecting the transfer, if any, except as specifically provided herein.

      6.6   Limitation.  Neither the Manager nor any other Managing Person shall
be  required  or shall  have any  personal  liability  to fund any or all of any
negative Capital Account of any Investor,  including without limitation Investor
Capital Contributions.

           ARTICLE 7: ADDITIONAL PROVISIONS APPLICABLE TO ALLOCATIONS

      7.1   Determination  of Income and Loss.  At the end of each Fiscal  Year,
and at such other times as the Fund shall deem  necessary or  appropriate,  each
item of Fund  income,  gain,  expense,  loss,  deduction  and  credit  shall  be
determined  for the period  then  ending and shall be  allocated  to the Capital
Account of each  Shareholder in accordance with this Agreement.  With respect to
the  admission of  Shareholders,  the Fund will use the "interim  closing  date"
method of accounting as permitted by the Regulations.

      7.2   Determination  of Income and Loss in the Event of  Transfer.  In the
event that a Shareholder  transfers his interest in the Fund in accordance  with
the terms of this  Agreement,  the  determination  and  allocation  described in
Section 7.1 shall be made as of the date of such  transfer  and  thereafter  all
such  allocations  shall  be  made  to the  account  of the  transferee  of such
interest; provided, however, that the Fund may determine that such determination
and  allocation  shall be pro rata to the  Shareholders  based  upon the  actual
number of days in such Fiscal Year that each such  Shareholder  held an interest
in the  Fund.  In the  event of a pro rata  determination  and  allocation,  the
foregoing  provisions of this Section relating to a pro rata  determination  and
allocation will not be applicable to the  distributive  shares,  with respect to
the Shares transferred,  of items of Fund income, gain, expense, loss, deduction
and  credit  arising  out  of  (a)  the  sale  or  other  disposition  of all or
substantially all Fund Property, or (b) other extraordinary  nonrecurring items,
all of which will be allocated to the holder of such Trust  interest on the date
such items of Fund income, gain, expense,  loss, deduction and credit are earned
or incurred.

      7.3   Allocation of Net Income and Net Losses. All items of income,  gain,
expense,  loss,  deduction  and  credit of the Fund from  operations  and in the
ordinary  course of operation  of Fund  Property  shall be  allocated  among the
Shareholders in accordance with Article 4.

      7.4   Qualified  Income  Offset and Other  Allocation  Provisions.  (a) If
there is a net decrease in  "partnership  minimum  gain"  (within the meaning of
Regulation  Section  1.704-2(d))  during a fiscal  period,  then there  shall be
allocated to each  Shareholder  items of income and gain for such fiscal  period
(and, if

                                      A-14
<PAGE>

necessary, subsequent fiscal periods) in proportion to, and to the extent of, an
amount equal to the portion of such  Shareholder's  share of the net decrease in
partnership  minimum  gain during such fiscal  period that is  allocable  to the
disposition of Fund Property subject to one or more Non-recourse  liabilities of
the Fund.  However,  such  allocation  shall be  reduced  to the  extent (i) the
Shareholder  contributes  capital  to  the  Fund  that  is  used  to  repay  the
Non-recourse  liability and (ii) the Shareholder's  share of the net decrease in
partnership  minimum gain is caused by the repayment.  The foregoing is intended
to be a "minimum gain chargeback"  provision as described in Regulation  Section
1.704-2(f),  and shall be interpreted  and applied in all respects in accordance
with  such  Regulation.  If  there  is  a  net  decrease  in  the  minimum  gain
attributable to a "partner  non-recourse debt" (as defined in Regulation Section
1.704-2(b) (4)) for a fiscal period,  then, in addition to the amounts,  if any,
allocated pursuant to the first sentence of this Subsection 7.4(a),  there shall
be allocated to each Shareholder with a share of such minimum gain  attributable
to a "partner non-recourse debt" items of income and gain for such fiscal period
(and,  if necessary,  subsequent  fiscal  periods) in proportion  to, and to the
extent of, an amount equal to the portion of such Shareholder's share of the net
decrease in the minimum gain attributable to a partner  non-recourse debt during
such fiscal  period  that is  allocable  to the  disposition  of Trust  Property
subject  to one or more  non-recourse  liabilities  of the Fund.  However,  such
amount shall be reduced to the extent (i) the Shareholder contributes capital to
the  Fund  that is  used to  repay  the  Non-recourse  liability  and  (ii)  the
Shareholder's  share of the net decrease in the minimum gain  attributable  to a
partner non-recourse debt is caused by the repayment.

      (b)   If during any fiscal period of the Fund a  Shareholder  unexpectedly
receives an  adjustment,  allocation  or  distribution  described in  Regulation
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), which causes or increases a deficit
balance in the  Shareholder's  Capital Account,  there shall be allocated to the
Shareholder  items of income and gain  (consisting of a pro rata portion of each
item of Fund income,  including  gross  income,  and gain for such period) in an
amount and manner  sufficient  to eliminate  such deficit  balance as quickly as
possible.  The foregoing is intended to be a "qualified income offset" provision
as  described  in  Regulation   Section   1.704-1(b)(2)(ii)(d),   and  shall  be
interpreted and applied in all respects in accordance with such Regulation.

      (c)   Notwithstanding  anything  to the  contrary  in  Article  4  or this
Article 7, any item of deduction,  loss or Code Section 705(a)(2)(B) expenditure
that is  attributable  to  "partner  non-recourse  debt" shall be  allocated  in
accordance with the manner in which the  Shareholders  bear the economic risk of
loss  for  such  debt   (determined  in  accordance  with   Regulation   Section
1.704-2(i)).

      (d)   To the extent that any item of income,  gain,  loss or deduction has
been specially  allocated  pursuant to paragraph (a), (b) or (c) of this Section
7.4

                                      A-15
<PAGE>

("Required  Allocations")  and such allocation is inconsistent with how the same
amount  otherwise  would  have  been  allocated  under  Sections  4.1  and  4.2,
subsequent  allocations  under Sections 4.1 and 4.2 shall be made, to the extent
possible,  in a  manner  consistent  with  paragraphs  (a),  (b) and (c) of this
Section  7.4 which  negates as rapidly as  possible  the effect of all  previous
Required Allocations.

      (e)   Solely  for  federal,  state  and local  income  and  franchise  tax
purposes and not for book or Capital Account  purposes,  income,  gain, loss and
deduction with respect to property  carried on the Fund's books at a value other
than its tax basis shall be allocated (i) in the case of property contributed in
kind,  in  accordance  with the  requirements  of Code  Section  704(c) and such
Regulations as may be promulgated  thereunder from time to time, and (ii) in the
case of other property, in accordance with the principles of Code Section 704(c)
and the  Regulations  thereunder,  in  each  case,  as  incorporated  among  the
requirements of the relevant  provisions of the  Regulations  under Code Section
704(b).

                    ARTICLE 8: DISTRIBUTIONS TO SHAREHOLDERS

      8.1   Distributions  of  Available  Cash from  Operations.  Subject to the
terms of this Agreement,  the Fund shall make  distributions  to Shareholders of
Available  Cash from  Operations  with respect to each Fiscal Year in the manner
and at the time  determined  by the Manager.  The amount of Available  Cash From
Operations  determined to be available,  if any, will be distributed  15% to the
Manager and 85% to the Investors.

      8.2   Distribution  of Available  Cash from  Dispositions.  Subject to the
terms of this  Agreement,  the Fund shall make  distribution  to Shareholders of
Available Cash from Dispositions with respect to each Fiscal Year, in the manner
and at the times determined by the Manager, as follows:

      (i)   Before  Investors  have  received  total  distributions   (including
      distributions  from Available Cash From Operations) equal to their Capital
      Contributions, 99% of Available Cash From Dispositions will be distributed
      to Investors and 1% to the Manager.

      (ii)  After  Investors  have  received  total   distributions   (including
      Available  Cash From  Operations and any  distributions  of Available Cash
      From Dispositions) equal to their Capital Contributions,  85% of Available
      Cash From  Dispositions  will be  distributed  to Investors and 15% to the
      Manager.

      8.3   Interim  Distributions  Based on  Estimates.  To the extent that the
Fund makes interim distributions prior to the end of any Fiscal Year, such

                                      A-16
<PAGE>

distributions  are  provisional  and may be made  based  upon  estimates  of the
Manager of the results of  operations  of the Fund for the balance of the Fiscal
Year,  subject to a true-up at the end of such Fiscal  Year.  To the extent that
the Fund subsequently  determines that any amounts were improperly  distributed,
and not repaid to the Fund by any Shareholder,  the Fund may take such action as
the  Manager  shall  determine  to  recover  such  amounts,  including,  without
limitation,  the offset any amounts of future  distributions to such Shareholder
to satisfy such repayment obligation.

      8.4   Distribution  in Kind.  If the Fund elects to make  distribution  in
kind of any of the assets of the Fund,  it shall give notice of its  election to
each  Shareholder,  specifying  the  nature  and value of all such  assets to be
distributed  in kind,  the  deadline  for  giving  notice of refusal to accept a
distribution in kind and to the extent  advisable,  the estimated time necessary
for the Fund to liquidate  assets if those assets are not  distributed and other
information as required. In making such election, the Fund shall not arbitrarily
value  assets  to be  distributed  in kind nor  shall it  specify  assets  to be
distributed  in  kind  in  such  a  manner  as  to  unreasonably   advantage  or
disadvantage any Shareholder.  A Shareholder may refuse to accept a distribution
in kind by giving  written  notice to the Fund not later  than 30 days after the
effective date of the Fund's notice of  distribution.  If a Shareholder  refuses
distribution  in kind,  the Fund shall  retain in the Fund's name the portion of
the assets which were to be  distributed  in kind and which were to be allocated
to the refusing  Shareholder  (the  "Retained  Assets") and shall  liquidate the
Retained  Assets in accordance  with this  Agreement.  Upon  liquidation  of the
Retained  Assets,  the sum  realized  shall be  distributed  to the  Shareholder
refusing  distribution  in kind in full  discharge of the Fund's  obligation  to
distribute  the Retained  Assets.  In  determining  the Capital  Accounts of the
Shareholders, a distribution of assets in kind shall be considered a sale of the
property  distributed so that any  unrealized  gain or loss with respect to such
property  shall  be  deemed  to have  been  realized  and  allocated  among  the
Shareholders in accordance with Article 4.

      8.5   Amounts  Withheld.  All amounts withheld pursuant to the Code or any
provision  of any  state  or  local  tax law  with  respect  to any  payment  or
distribution  to the  Fund or the  Shareholders  shall  be  treated  as  amounts
distributed  to the  Shareholders  pursuant to this  Article 8 for all  purposes
under  this  Agreement.  The  Fund  may  allocate  any such  amounts  among  the
Shareholders in any manner that is in accordance with applicable law.

      8.6   Limitations.  Distributions to Shareholders shall not be made to the
extent they are  prohibited  by  restrictions  contained  in the Delaware Act or
other provisions of this Agreement.  Further,  distribution shall not be made to
any Investor to the extent that the effect of such distributions would cause the
balance of such Investor's Capital Account to be below zero unless such Investor

                                      A-17
<PAGE>

undertakes an affirmative  obligation to make a cash contribution to the Fund in
the amount of any negative balance in such Investor's  Capital Account and posts
security satisfactory to the Manager to satisfy such restoration obligation.

                          ARTICLE 9: OPERATION OF FUND

      9.1   Investment Fee. The Fund shall pay Ridgewood out of Fund Property an
investment  fee in an amount  equal to 4.5% of the base  amount of each  Capital
Contribution  per Investor  Share.  The base amounts are computed at the rate of
$150,000 of Capital  Contributions per Investor Share,  without  considering any
discounts or waivers of fees. The investment fee payable in respect of Investors
whose  subscriptions  for  Shares  are  accepted  by the Fund in 2004 is for the
Manager's  services provided in that year and the fee payable by Investors whose
subscriptions  for Shares are  accepted by the Fund in a later year is for those
services for capital  contributed  in that year.  The fee in respect of services
performed  by the  Manager  during any year in which such  additional  Funds are
received by the Fund under  Section 9.5 shall be payable  upon the later of each
date  on  which  payment  is  accepted  by the  Fund or the  fulfillment  of any
applicable escrow conditions.

      9.2   Placement  Agent and other Selling  Commissions.  (a) The Fund shall
pay  out  of  Fund  Property  to  Ridgewood  Securities  Corporation  or to  any
broker-dealer  who effects the sale of one or more whole or  fractional  Shares,
cash selling  commissions in an aggregate  amount equal to 8% of the base amount
of each  Capital  Contribution.  The base  amounts  are  computed at the rate of
$150,000 of Capital  Contributions per Investor Share,  without  considering any
discounts  or  waivers  of fees.  For  serving  as  Placement  Agent,  Ridgewood
Securities  Corporation  shall in  addition  be  entitled to receive out of Fund
Property  a fee in an  amount  equal to 1% of each  Capital  Contribution.  Such
commissions  payable on each Capital  Contribution in respect of sales of Shares
prior to the  Termination  Date and shall be due and payable  promptly after the
latest to occur of (i)  acceptance  by the Fund of an  Investor's  subscription,
(ii) the Escrow Date, or (iii) the receipt by the Fund of the Investor's Capital
Contribution. Except as set forth in this Section 9.2(a), the Placement Agent is
not entitled to any other fee or reimbursement from the Fund.

      (b)   Ridgewood   may   pay   additional    compensation   to   registered
broker-dealers  assisting  in the sale of Investor  Shares out of its own funds,
including a portion of the cash otherwise distributable to the Manager hereunder
or the fees  payable  to it by the Fund.  In  addition,  Ridgewood,  in its sole
discretion,   may  waive  or  pay  over  to  certain   Investors  a  portion  of
distributions or fees from the Fund otherwise payable to it.

                                      A-18
<PAGE>

      9.3   Other Expenses.

      (a)   Subject  to  Sections  9.3(b)  and  (c),  the Fund  shall  reimburse
Ridgewood  for all actual and  necessary  direct  expenses  paid or  incurred in
connection  with the operation of the Fund,  including but not limited to travel
expenses and third party  accounting,  legal and consulting  fees, to the extent
that those expenses were incurred by Ridgewood in carrying out  responsibilities
assigned to it by this Agreement and were consistent with such Agreement.

      (b)   The  Fund  shall  pay  the   Manager   out  of  Fund   Property   an
organizational, distribution and offering fee in an amount equal to 3.5% of each
Capital  Contribution  to cover all  expenses  incurred in the offer and sale of
Shares,  including legal,  accounting,  and consulting fees,  printing,  filing,
postage and other  expenses of  organizing  the Fund,  distribution  and selling
costs and closing costs for the offering. The fee shall be payable on the Escrow
Date as to Shares  purchased  through that date and on each date  thereafter  on
which the Fund  receives  and  collects  full  payment for  additional  accepted
subscriptions for Shares. If these expenses exceed 3.5% of the aggregate Capital
Contributions, the Manager shall pay such excess.

      (c)   The Fund shall  reimburse  Ridgewood  for direct  expenses  actually
incurred for operational or project  development  services provided by Ridgewood
to the extent (i) the charges for the services do not exceed  amounts that would
be charged by unrelated firms offering similar services and (ii) the Natural Gas
Projects do not reimburse the Manager for those expenses.

      (d)   In respect of the  acquisition or disposition of all or a portion of
the Fund Property,  the Fund may be required to or may find it  advantageous  to
and is authorized to, engage a broker or similar  adviser and to pay a brokerage
fee to the broker or other persons  responsible  for bringing the acquisition or
disposition opportunity to the Fund's attention or for investigating, evaluating
or negotiating the acquisition or disposition of the Fund's interest therein.

      9.4   Management Fee. For each 12-month  period  beginning on the date the
offering of Investor Shares is commenced,  and ending upon the winding up of the
Fund's business,  the Fund shall pay the Manager from Fund Property a Management
Fee,  payable in advance in equal  monthly  installments,  at the annual rate of
2.5% of the aggregate of Capital Contributions.

      9.4.1. The fee will be payable by the Fund in equal monthly  installments
in advance  beginning  on the date the offering  commences,  and is payable from
Fund cash flow, if any, or from other Fund assets, including without limitation,
contributed capital and interest earned on interim investments.

      9.4.2 The  Management  Fee shall be in lieu of any  reimbursement  to the
Manager for administrative  and overhead expenses,  including without limitation

                                      A-19
<PAGE>

postage, communication,  computer service, accounting,  regulatory reporting and
compensation costs of the Manager allocable to the Fund.

      9.4.3 The Management Fee does not defray fees,  expenses and payments such
as legal, outside accounting and consulting expenses,  including amounts paid by
the Fund to persons other than Ridgewood or any Affiliate of Ridgewood, the Fund
or Robert E. Swanson for  performing  due  diligence or  identifying  investment
opportunities   for  the  Fund.   The   Management  Fee  also  does  not  defray
extraordinary  expenses  incurred by  Ridgewood  or any  expenses  described  in
Section 9.3(a). Amounts not defrayed by the Management Fee shall be borne by the
Fund or Ridgewood under Section 9.3.

      9.5   Payment and  Recoupment of Fees. As soon as funds have been released
to the Fund from the escrow account  referred to in Section 1.6(c),  they may be
used to pay the fees  referred to in Sections  9.1, 9.2 and 9.4 then due. If the
Manager  withdraws  the  offering  of Shares,  or rejects any  subscription  for
Shares,  any person that has received payments from the proceeds of the offering
shall return such payments to the Fund upon demand by the Manager.

      9.6   Supplemental  Offering  of  Shares.  The Fund  from time to time may
create and sell additional  shares or additional  classes or series of shares if
the Manager in its sole  discretion  determines  that the best  interests of the
Fund so require.  The Manager is  authorized to determine or alter any or all of
the powers,  rights,  qualifications,  limitations  or  restrictions  granted or
imposed upon any such series or supplemental shares or the offering thereof, and
to fix,  alter or  reduce  the  number of shares  comprising  any such  class or
series,  and to provide for the rights and terms of  redemption or conversion of
the shares of any such class or series.  Any such  shares may be offered to such
persons  and on  such  terms  and  conditions  as the  Fund  may  determine.  No
Shareholder shall be required to participate in such  supplemental  offering and
the  failure  to do so shall  have no  impact,  adverse  or  otherwise,  on such
Shareholder's rights and obligations under this Agreement.

      9.7   Salvage Fund.  The Fund will (and may be required by the operator of
any  Natural  Gas  Project  to)  reserve  and set aside each month in a separate
interest-bearing  account  ("Salvage Fund") a portion of the Fund's net revenue,
if any,  that the Fund may receive form the  production  and sale of natural gas
from each Natural Gas Project in which the Fund has invested  until such time as
the Salvage  Fund  contains an amount  equal to the Fund's  anticipated  salvage
value of dismantling production platforms,  plugging and abandoning the platform
wells,  and removing the  platforms  and platform  wells in respect of each such
Natural Gas Project after its useful life, in accordance with applicable federal
and state law and  regulations.  Any  portion of the Salvage  Fund that  remains
after the Fund pays its share of the salvage  costs will be  distributed  to the
Investors in accordance with the provisions of Section 8.1.

                                      A-20
<PAGE>

                             ARTICLE 10: ACCOUNTING

      10.1  Elections.  The Fund  shall  elect the  calendar  year as its Fiscal
Year. The Fund shall adopt the accrual method of accounting or such other method
of accounting as the Fund shall determine. The Fund shall elect to be taxed only
as a partnership  unless this provision is amended with the consent of Investors
whose aggregate  Capital  Contributions  constitute more than 50% of all Capital
Contributions  to the Fund.  The Fund may but shall not be  required  to make an
election under Section 754 of the Code or corresponding state taxation laws. The
Manager is empowered  to make any other  election  permitted  by law,  including
without  limitation an election under Code Section 771,  without prior notice to
or consent by any other Shareholder.

      10.2  Books and Records. The Fund's books and records shall be kept at the
principal  place of business of the Fund and shall be  maintained  in accordance
with generally accepted accounting  principles,  consistently  applied. The Fund
shall  maintain  supplemental  records on the basis  utilized in  preparing  the
Fund's  federal  income tax return with such  adjustments  in  accounting as are
required  by this  Agreement  or as the  Fund  determines  would  be in the best
interests of the Fund.

      10.3  Reports.  The Fund will keep each Shareholder and assignee complying
with Article 13 currently advised as to activities of the Fund by communications
furnished at least quarterly.  An independent  certified public  accounting firm
selected by the Fund will prepare the Fund's  federal  income tax return as soon
as practicable  after the conclusion of each year and each  Shareholder  will be
furnished,  at that time,  with the necessary  accounting  information  for each
Shareholder  to take into  account  and  report  separately  such  Shareholder's
distributive  share of the income and  deductions of the Fund. The Fund will use
its  reasonable  best  efforts  to  obtain  the  information  necessary  for the
accounting firm as soon as practicable and to transmit the resulting  accounting
and tax  information to the  Shareholders as soon as possible after receipt from
the accounting firm.

      10.4  Bank Accounts.  The Fund shall maintain separate segregated accounts
in its name at one or more commercial  banks,  and the cash of the Fund shall be
kept in any of those accounts as determined by the Fund.

      10.5  Interim  Assets.  To the  extent the  Fund's  liquid  capital is not
otherwise committed to transactions or required for other purposes, the Fund may
invest such liquid  capital in any manner it deems prudent,  including,  but not
limited to, the following:

            (a)   Obligations of banks or savings and loan associations that are
insured in their entirety by agencies of the United States government;

                                      A-21
<PAGE>

            (b)   Obligations  of or guaranteed  by the United States government
or its agencies; and

            (c)   Money  market  or  other  short-term  obligations or financial
instruments (having a maturity of one year or less).

                 ARTICLE 11: RIGHTS AND OBLIGATIONS OF INVESTORS

      11.1  Participation in Management.  No Shareholder (other than the Manager
acting in its  capacity  as such)  shall have the  right,  power,  authority  or
responsibility  to  participate  in the ordinary and routine  management  of the
Fund's affairs or to bind the Fund in any manner.

      11.2  Rights to Engage in Other  Ventures.  No  Investor  or any  officer,
director,  shareholder or other person holding a legal or beneficial interest in
any Investor shall, by virtue of his ownership of a direct or indirect  interest
in the Fund,  be in any way  prohibited  from or  restricted  in engaging in, or
possessing  an  interest  in,  any other  business  venture of a like or similar
nature including any other natural gas fund, project or property.

      11.3  Limitations  on  Transferability.  The interest of an Investor shall
not be transferable except under the conditions set forth in Article 13 hereof.

      11.4  Information.  (a) In addition to  information  to be provided  under
Section 10.3, the Fund will provide each Investor with  information as specified
in this Section  11.4. No Investor has any rights to  information  from the Fund
except as provided in this Section 11.4 and Section 10.3.

      (b)   No  Investor  or  other  person  acting  in the  right of or for the
benefit of an Investor  is entitled to receive  from the Fund or its Manager any
information  concerning any other Investor or offeree of the Fund's  securities,
without the prior written consent of the other Investor or offeree.

      (c)   The  Fund  may  withhold,   redact  or  summarize   other  types  of
information  so as to  prevent  Investor  information  from being  disclosed  in
violation of Section 11.4(b).

      (d)   Each Investor is entitled to obtain the following  information  from
the Fund upon reasonable written demand stating the purpose of the demand (which
purpose must be reasonably related to the Investor's interest in the Fund):

      (i)   True  and  full  information   regarding  the  Fund's  business  and
financial  condition and the  contributions  to the Fund, as such information is
reasonably related to the Investor's stated purpose;

      (ii)  Promptly after  becoming  available,  a copy of the Fund's  federal,
state and local income tax returns or information returns for the preceding year
and

                                      A-22
<PAGE>

prior  years  to  the  extent  reasonably  available,   provided  however,  that
information that would otherwise not be available to an Investor hereunder shall
not become  available  by reason of it being  appended or attached to or part of
such tax returns;

      (iii) A copy of the  Certificate  and this  Agreement  and all  amendments
thereto; and

      (iv)  Copies of material  agreements between the Fund and Ridgewood Energy
Corporation  or other  Ridgewood  Programs,  if such  agreements,  or provisions
thereof, are reasonably related to the Investor's stated purpose.

      (e)   Investors  are not entitled to  agreements,  technical  information,
trade  secrets  and  other  confidential  information  relating  to  the  Fund's
development  of the Natural Gas Projects,  or to the  acquisition or transaction
documents  related  thereto,   unless  the  Manager,  in  its  sole  discretion,
determines that disclosure will not harm the Fund or the Natural Gas Projects.

      (f)   Notwithstanding Section 11.4(d), the Fund may keep confidential from
Investors for such period of time as it deems  reasonable any other  information
that it  reasonably  believes  to be in the  nature  of trade  secrets  or other
information  that  the  Fund in good  faith  believes  would  not be in the best
interests  of the Fund to disclose or that could damage the Fund or its business
or that the Fund is required by law or by  agreement  with a third party to keep
confidential.

      (g)   The Fund  may  establish  reasonable  standards  governing,  without
limitation,  the  information and documents to be furnished and the time and the
location, if appropriate, of furnishing that information and documents. Costs of
providing  information and documents  shall be borne by the requesting  Investor
except for de minimis amounts consistent with the Fund's ordinary practices. The
Fund shall be entitled to reimbursement for its direct,  out-of-pocket  expenses
incurred  in  declining   unreasonable  requests  (in  whole  or  in  part)  for
information.

      (h)   Providing information to one Investor or to persons outside the Fund
does not act as a waiver of the Fund's rights to withhold information to another
Investor.

      (i)   The Fund may keep its records in other than  written form if capable
of conversion into written form within a reasonable time.

                                   ARTICLE 12:
                    POWERS, DUTIES AND LIMITATIONS OF MANAGER

      12.1  Management of the Fund.  The Manager shall have full,  exclusive and
complete  discretion  in the  management  and  control of the Fund.  The Manager
agrees to manage and  control the affairs of the Fund to the best of its ability
and

                                      A-23
<PAGE>

to conduct the  operations  contemplated  under this  Agreement in a careful and
prudent manner and in accordance  with good industry  practice.  The Manager may
bind the Fund.

      12.2  Acceptance of Subscriptions. The Manager shall not cause the Fund to
accept any subscription for Shares except as provided in Article 1 or in Section
9.6, as the case may be.

      12.3  Specific  Limitations.  (a) The  Manager  shall  not take any of the
following  actions without the affirmative  vote or written consent of Investors
pursuant to the procedures set forth in Article 15 of this Agreement:

      (1)   Any act  that  would  make it  impossible  to  carry  on the  Fund's
ordinary business;

      (2)   Causing the  dissolution  or  termination  of  the Fund prior to the
expiration of its term, except as provided under Article 14;

      (3)   Possessing  Fund  Property  or  assigning  rights in  specific  Fund
Property for other than a Fund purpose; or

      (4)   Constituting  any other person as a Manager,  except as  provided in
Article 14.

      (b)   The  Manager  shall not take any action that would cause the Fund to
be regulated as an "investment company" under the 1940 Act, nor will the Manager
take any action  that would cause the Fund to change its  investment  objectives
and  policies  without  the  approval  of  Investors  whose  aggregate   Capital
Contributions  constitute more than 50% of all Capital Contributions to the Fund
at such time.

      (c)   The Manager shall not sell,  exchange,  lease,  mortgage,  pledge or
transfer all or a substantially  all of the Fund's assets if not in the ordinary
course of  operation  of Fund  Property  without  the  approval  of a 50% of all
Capital Contributions to the Fund at such time.

      12.4  Specific  Powers.  In  addition  to the powers and duties  otherwise
provided for in this Agreement, the Manager has the following powers and duties:

      (a)   To  direct  or  supervise  the Fund  and the  Fund's  agents  in the
exercise  of any  action  relating  to the  Fund's  affairs,  including  without
limitation the powers described in Section 1.8;

      (b)   To take the actions  specified  in Section 12.3 or elsewhere in this
Agreement if the approvals specified therein are obtained;

      (c)   To amend this  Agreement as  specified  in Section  15.8(a) or other
provisions of this Agreement;

                                      A-24
<PAGE>

      (d)   To lend money to the Fund or request the Investment Adviser to do so
(without  being  obligated to do so) if such loan bears interest at a reasonable
rate not  exceeding the interest cost to the Manager or the amount that would be
charged to the Fund by an  unrelated  lender on a  comparable  loan for the same
purpose  (without  reference to the  financial  abilities or  guarantees  of the
Manager or the Investment  Adviser).  The Manager or the Investment  Adviser may
not receive points or other  financing  charges or fees regardless of the amount
loaned to the Fund.  Before the Manager makes any loans to the Fund, the Manager
will attempt to obtain a loan from an unrelated lender secured,  if at all, only
by Fund Property;

      (e)   To approve in its sole discretion any transfer of Investor Shares;

      (f)   To  terminate  the  offering  of  Shares  at any  time  prior to the
Termination Date;

      (g)   To withdraw  the  offering of Shares at any time as provided  for in
this Agreement;

      (h)   To acquire  such  assets or  properties,  real or  personal,  as the
Manager in its sole discretion deems necessary or appropriate for the conduct of
the Fund's business and to sell,  exchange,  hedge or distribute to Shareholders
in kind or otherwise dispose of any part of the Fund Property;

      (i)   To operate any Natural Gas Project or other Fund  Property  acquired
by the Fund,  or to contract for  operation  under  Section  12.5,  or to engage
non-Affiliates  to operate any  Project or other Fund  Property on such terms as
they may determine in their sole discretion;

      (j)   To waive any fees or  compensation  payable to it and to credit such
waived  amount  in  its  discretion  against  any  obligations  it may  have  to
contribute capital under Section 14.6;

      (k)   To provide,  or arrange for the provision of, managerial  assistance
to the Natural Gas Projects in which the Fund invests;

      (l)   To retain and own Working Interests in natural gas wells that are in
the same lease block as, but are not part of, Fund  Property  and to own Working
Interests in natural gas wells that may be part of Fund Property; and

      (m)   To establish valuation  principles  and to  periodically  apply such
principles to the Fund's investment portfolio.

                                      A-25
<PAGE>

      12.5  Operation by an Affiliate.  The Fund, by action of the Manager,  may
engage  an  Affiliate  of the  Manager  to  provide  development,  construction,
operating, management,  purchasing, planning and administrative services for any
or all Natural Gas Projects operated by the Fund. Any such Affiliate may be paid
for its  services,  provided  that  the  cost of such  services  to the Fund are
generally  within  the range of costs the Fund  would  have been  charged  by an
unrelated  thirds-party.  Such  Affiliate of the Manager under this Section 12.5
shall act under the  supervision  and direction of the Manager and does not have
the  authority to bind the Fund or act directly in its name except as authorized
by the Manager or an officer of the Fund.  The Manager  under this  Section 12.5
shall be reimbursed  for all costs  incurred by it as provided in Section 9.3(c)
but shall not  receive  any  compensation  in excess of its costs.  The Fund may
enter into an Operation  Agreement or other agreements to implement this Section
12.5. The Manager under this Section 12.5 shall not be compensated or reimbursed
for any  services  related  to the  administration  of the Fund as a  whole,  to
relations  with  Investors or the  offering of Shares or to the  identification,
acquisition or disposition of Natural Gas Projects.

      12.6  Officers of Fund. (a) The Manager shall appoint a President,  one or
more Vice Presidents, a Secretary and such other officers and agents of the Fund
as the Manager may from time to time consider appropriate, none of who need be a
Shareholder.  Each officer shall have the powers and duties usually appertaining
to a similar  officer of any similar  limited  liability  company or alternative
entity under the  direction of the Manager and shall hold office at the pleasure
of the Manager.  Unless otherwise specified by the Manager, the President of the
Fund shall be its chief executive  officer.  The same person may hold any two or
more offices.  Any officer may resign by delivering a written resignation to the
Manager and such  resignation  shall take effect upon  delivery or as  otherwise
specified therein.

      (b)   All conveyances of real property or any interest therein by the Fund
may be made by the  Manager,  which  shall  execute  on  behalf  of the Fund any
instruments  necessary to effect the conveyance.  A certificate of the Secretary
of the Fund stating  compliance with this Section 12.6(b) shall be conclusive in
favor of any person relying thereon.

      (c)   All other documents,  agreements,  instruments and certificates that
are to be made,  executed  or  endorsed  on  behalf  of the Fund  shall be made,
executed or endorsed by such officers of the Fund, the Manager or persons as the
Manager shall from time to time  authorize and such  authority may be general or
confined  to  specific  instances.  In the  absence  of  other  provisions,  the
President is authorized to execute any document, to take any action on behalf of
the Fund within this Section 12.6(c), and to authorize other officers to execute
confirmatory documents or certificates.

                                      A-26
<PAGE>

      12.7  Presumption  of Power.  The  execution  by the Manager or the Fund's
officers of leases,  assignments,  conveyances,  contracts or  agreements of any
kind whatsoever shall be sufficient to bind the Fund. No person dealing with the
Manager or the Fund's officers shall be required to determine their authority to
make or execute any undertaking on behalf of the Fund, nor to determine any fact
or  circumstances  bearing upon the existence of their  authority nor to see the
application or distribution of revenues or proceeds  derived  therefrom,  unless
and until such person has received written notice to the contrary.

      12.8  Obligations Not Exclusive.  The Manager and the officers of the Fund
shall be required to devote only such part of their time as is reasonably needed
to  manage  the  business  of the  Fund or  discharge  their  duties,  it  being
understood  that  Ridgewood,  as Manager,  and the officers of the Fund have and
shall have other  business  interests  and  therefore  shall not be  required to
devote their time exclusively to the Fund.  Ridgewood Energy Corporation and the
officers  of the  Fund  shall  in no way be  prohibited  from or  restricted  in
engaging in, or possessing an interest in, any other business  venture of a like
or similar nature.  Nothing in this Section 12.8 shall relieve  Ridgewood Energy
Corporation  of  its  or  their  fiduciary  or  contractual  obligations  to the
Investors,  except as  limited in Article  3.  Notwithstanding  anything  to the
contrary  contained in this Article or  elsewhere in this  Agreement,  Ridgewood
Energy  Corporation has no duty to take any  affirmative  action with respect to
management  of the Fund's  business or Fund  Property  which  might  require the
expenditure  of monies by the Fund or Ridgewood  Energy  Corporation  unless the
Fund is then  possessed of such monies  available for the proposed  expenditure.
Except as otherwise  provided in this Agreement,  under no  circumstances  shall
Ridgewood  Energy  Corporation be required to expend its own funds in connection
with the day to day operation of Fund business.

      12.9  Removal or Incapacity of a Manager. (a)  Investors  whose  aggregate
Capital  Contributions  constitute at least 25% of all Capital  Contributions to
the Fund at such time may propose the removal of the Manager,  either by calling
a meeting or soliciting consents in accordance with the terms of this Agreement.
On the  affirmative  vote of Investors  whose  aggregate  Capital  Contributions
constitute more than 50% of all Capital  Contributions  to the Fund at such time
the Manager shall be removed effective as of the date the vote is completed.

      (b)   If  Ridgewood  is removed as  Manager or is  incapable  of acting as
Manager as enumerated in Section 14.1(c),  or it resigns for cause, it may elect
in its  sole  discretion  to take  and to  cause  the  Fund  to take  one of the
following courses of action:

                                      A-27
<PAGE>

      (1)   The former Manager may elect to exchange its Management  Share for a
series of cash payments from the Fund to the former  Manager in amounts equal to
the amounts of  distributions  to which the former Manager would  otherwise have
been entitled under this  Agreement in respect of  investments  made by the Fund
prior to the date of the removal or other  incapacity.  Such  payments  shall be
payable out of the Fund's  available cash before any  distributions  are made to
the  Investors  pursuant  to  this  Agreement.  For  purposes  of  this  Section
12.9(b)(1), from and after the date of any such removal or other incapacity: (i)
the former Manager's  interest in the Fund  attributable to its Management Share
shall be terminated and its Capital Account shall be reduced by the amount which
is  attributable  to its  Management  Share and (ii) the  former  Manager  shall
continue to receive its pro rata share of all allocations to Investors  provided
in this  Agreement  that are  attributable  to Investor  Shares  acquired by the
Manager.

      (2)   In the  alternative,  the  former  Manager  may  engage a  qualified
independent  appraiser  and  cause  the  Fund to  engage  a  separate  qualified
independent  appraiser (at the Fund's expense in each case),  who together shall
value the Fund Property as of the date of such removal or other incapacity as if
the Fund  Property  had been sold at its fair market  value so as to include all
unrecognized  gains or losses.  If the two  appraisers  cannot agree on a value,
they shall appoint a third  independent  appraiser (whose cost shall be borne by
the  Fund)  whose  determination,  made on the same  basis,  shall be final  and
binding.  Based on the appraisal,  the Fund shall make allocations to the former
Manager's  Capital Account of Profits,  Losses and other items as of the date of
such removal or other incapacity as if the Fund's Fiscal Year had ended,  solely
for the purpose of determining  the former  Manager's  Capital  Account.  If the
former Manager has a positive  Capital Account after such  allocation,  the Fund
shall  deliver  a  promissory  note of the Fund to the  former  Manager,  with a
principal  amount equal to the balance in that  Capital  Account and which shall
bear  interest  at a rate per annum  equal to the prime  rate in effect at Chase
Manhattan Bank, N.A. on the date of removal or other  incapacity,  with interest
payable annually and principal payable annually only to the extent of 25% of any
available cash before any distributions  thereof are made to the Investors under
this  Agreement.  If the  Capital  Account of the former  Manager has a negative
balance  after such  allocation,  the former  Manager  shall  contribute  to the
capital of the Fund,  in its  discretion,  either cash in an amount equal to the
negative balance in its Capital Account or a promissory note to the Fund in such
principal  amount  maturing  five years after the date of such  removal or other
incapacity,  bearing  interest payable annually at the rate specified above. For
purposes of this Section 12.9(b)(2), from and after the date of any such removal
or other incapacity,  the former Manager's Management Share in the Fund shall be
terminated  and the former Manager shall no longer have any interest in the Fund
other than the right to receive the promissory  note and payments  thereunder as
provided above.

                                      A-28
<PAGE>

      (c)   In the event that the  Manager  is removed or no longer  serves as a
Manager due to an incapacity  enumerated in Section 14.1(c),  the former Manager
shall not be  entitled to any  uncollected  fees  specified  in Article 9 to the
extent not accrued before the date of such removal or other incapacity.

      (d)   Notwithstanding  anything else contrary contained herein, removal of
the Manager shall only be effective  upon the selection and  engagement of a new
manager, pursuant to the terms set forth herein

      12.10 Indemnification   of Placement  Agent. (a) The Placement Agent shall
not have any duty,  responsibility  or obligation to the Fund or any Shareholder
as a consequence  of its right to receive any selling  commissions  or placement
agent fees from the Fund in  connection  with any offering of Shares,  except to
the extent provided under applicable  Federal and State law. The Placement Agent
has not assumed,  and will not assume,  any  responsibility  with respect to the
Fund nor will it be permitted by the Fund to assume any duties, responsibilities
or  obligations  regarding  the  management,  operations  or any of the business
affairs of the Fund, subsequent to any offering of Shares.

      (b)   The Placement  Agent shall be  indemnified  and held harmless by the
Fund against any losses,  damages,  liabilities or costs  (including  reasonable
attorneys' fees) arising from any threatened, pending or completed action, suit,
claim or proceeding by any  Shareholder  against the Placement  Agent (except as
may be  limited  by the  Act or  applicable  state  statutes),  based  upon  the
assertion  that the  Placement  Agent  has any  continuing  duty or  obligation,
subsequent  to any  offering  of  Shares,  to the  Fund  or any  Shareholder  or
otherwise to monitor Fund  operations  or report to  Investors  concerning  Fund
operations.

      12.11 Potential  Conflicts of Interest.  (a) There are potential conflicts
of interest involved in the operation of the Fund, including but not limited to:

      (i)   competing demands for  management  resources of Ridgewood  and other
Affiliates;

      (ii)  conflicts  between the interests of Ridgewood and its  Affiliates in
receiving  compensation  from  the  Fund for  investment  activities,  operating
activities,  and divestitures,  as well as reimbursement  for expenses,  and the
interests of the Investors;

      (iii) conflicts  relating  to the  allocation of costs and expenses  among
Ridgewood's other investment programs;

      (iv)  conflicts  arising  from the  fact  that  Ridgewood  will not make a
capital contribution in respect of its interest as such in the Fund and that the
Investors will supply all of the capital of the Fund;

                                      A-29
<PAGE>

      (v)   conflicts caused by the fact that Ridgewood shares in gains realized
from the  Natural  Gas  Projects  but does not share in losses  realized on such
projects;

      (vi)  conflicts caused by the fact that Ridgewood has broad  discretion to
determine distributions, allocations of profit and loss and other items and that
the  entitlements  of  Ridgewood to fees,  distributions  and other items can be
increased or decreased as a result of the use of that discretion;

      (vii) conflicts  caused by  the fact that  Ridgewood  may make  subjective
determinations  of the value of the Fund's  assets,  and any such  determination
affects the performance record of the Fund;

      (viii) conflicts  between  the interests of the Fund and of other programs
when Ridgewood allocates favorable or unfavorable investment opportunities among
them,  and  conflicts  arising if one  program or Fund  supplies  capital for an
investment  and  another  program or Fund later is  allocated  a portion of that
investment and returns a proportionate amount of capital to the first;

      (ix)  conflicts  between  the  interests  of the Fund and  other  programs
sponsored by Ridgewood and its Affiliates;

      (x)   potential interests  of  Ridgewood  or its  Affiliates  in competing
investment programs;

      (xi)  conflicts that may arise because the Fund may effect acquisition and
development activities on its own or together with Affiliates;

      (xii) the lack of independent  representation  of Investors in structuring
this  offering  and in  determining  compensation  or with  respect to  material
transactions  between the Fund and other programs sponsored by Ridgewood,  which
would require only the approval of Ridgewood for authorization; and

      (xiii) the Fund's  Natural  Gas  Projects  may be  competing  against  the
projects of other programs sponsored by Ridgewood and, additionally, officers of
Ridgewood and of the Fund may be directors or advisers to competing projects.

      (b)   In  determining  a  course  of  action  or  deciding  among  various
alternatives, the Manager will consider these and other conflicts that may exist
and  exercise  reasonable  business  judgment  when  determining  such action or
choosing  among  various  alternatives.  The  Manager  shall  not be  liable  to
Shareholders  hereunder  regarding such action unless the Manager  exercised bad
faith, gross negligence or willful misconduct.

                         ARTICLE 13: TRANSFERS OF SHARES

      13.1  Transfer  or  Resignation  by a Manager.  A Manager  shall not sell,
assign or  otherwise  transfer  its  Management  Share or resign  without  first
obtaining  the  consent of a Majority  of the Voting  Shares,  except that (i) a
Manager may pledge its  Management  Share for a loan;  provided that such pledge
does not reduce the cash flow of the Fund  distributable  to other  Shareholders
and (ii) a Manager may waive or assign compensation or fees payable to it.

                                      A-30
<PAGE>

      13.2  Transfers by Investors.  An Investor may sell,  exchange or transfer
his Shares except as restricted by and upon  compliance with all applicable laws
and all of the following provisions of this Section 13.2:

      (a)   Shares  may not be  transferred  to any  person  or  entity  if,  as
determined  by  the  Fund,  such  assignment   would  have  adverse   regulatory
consequences to the Fund or any Fund Property.

      (b)   Within 30 days after written notice of a proposed sale or assignment
is  received  by the Fund from an  Investor,  the Fund may  request  in its sole
discretion  an  opinion  of  counsel  acceptable  to the Fund that the  proposed
transfer (i) would not invalidate the exemption  afforded by Section 4(2) of the
Act or by Regulation D promulgated  under the Act and the exemption  afforded by
any applicable state securities laws as to any offering of interests in the Fund
and (ii)  complies  with the  exemption  afforded by Section 4(1) of the Act and
qualifies  for  an  exemption  from  registration  under  any  applicable  state
securities laws (including any investor  suitability  standard applicable to the
transferee or the Fund).

      (c)   The written  approval of the Manager must be obtained,  the granting
or denial of which shall be within its sole and absolute  discretion  and may be
denied for any reason including,  without limitation,  that the admission of the
proposed  transferee  or  the  transfer  may  be  harmful  to  the  Fund  or its
operations.

      (d)   The transferor and transferee must deliver a dated notice in writing
signed by each,  confirming that (i) the transferee accepts and agrees to comply
with  all the  terms  of this  Agreement  and  (ii)  the  transfer  was  made in
compliance with this Agreement and all applicable laws and regulations.

      (e)   The  transferor,  transferee  and the Fund  must  execute  all other
certificates,  instruments and documents and take all such additional  action as
the Fund may deem appropriate.

      (f)   The Fund may require as a condition to any transfer  that may create
a future interest that an opinion of counsel acceptable to the Fund be delivered
to the Fund confirming that the proposed  transfer does not have adverse effects
on the Fund under the rule against  perpetuities  or similar  provisions of law.
Transfers shall be effective and recognized upon fulfillment of the requirements
of clauses (a) through (f) above and the transferee  shall be an Investor owning
Investor  Shares  with the same rights as  appertained  to the  transferor.  Any
purported sale or transfer consummated without first complying with this Section
13.2 shall be void.

                                      A-31
<PAGE>

      13.3  Assignments  by Operation of Law. If any Investor shall die, with or
without leaving a will, or become non compos mentis,  bankrupt or insolvent,  or
if a corporate,  partnership or trust Investor dissolves during the Fund term or
if any other  involuntary  transfer of an Investor's  Shares is made,  the legal
representatives,  heirs  and  legatees  (and  spouse,  if the  Shares  have been
community  property  of  such  Investor  and  his  or  her  spouse),  bankruptcy
assignees,  successors, assigns and corporate, partnership or trust distributees
or such other  involuntary  transferees  shall not become  transferees but shall
have  (subject  to the other  terms and  provisions  hereof)  such rights as are
provided with respect to such persons  under the law;  provided,  however,  that
such legal representatives,  heirs and legatees,  spouse,  bankruptcy assignees,
successors,  assigns  and  corporate,   partnership  or  trust  distributees  or
involuntary transferees may become transferees in accordance with the provisions
of Section 13.2.

      13.4  Expenses of Transfer. In the sole discretion of the Fund, the person
acquiring  Shares  pursuant to any of the  provisions  of this Article 13 may be
required to bear all costs and  expenses  necessary to effect a transfer of such
Shares including,  without  limitation,  reasonable  attorney's fees incurred in
preparing any required  amendments  to this  Agreement  and the  Certificate  to
reflect such transfer or acquisition and the cost of filing such amendments with
the appropriate governmental officials.

      13.5  Survival  of  Liabilities.  No sale or  assignment  of Shares  shall
release the transferor  from those  liabilities to the Fund,  which survive such
assignment, or sale as a matter of law or that are imposed under Section 3.4.

      13.6  No Accounting. No transfer of Shares, whether voluntary, involuntary
or by operation of law,  shall entitle the transferor or transferee to demand or
obtain immediate valuation, accounting or payment of the transferred Shares.

                                   ARTICLE 14
                    DISSOLUTION, TERMINATION AND LIQUIDATION

      14.1  Dissolution.  Unless the provisions of Section 14.2 are elected, the
Fund shall be dissolved and its business  shall be wound up upon the decision of
the Manager to withdraw the offering of Shares  described in the  Memorandum  in
accordance with Section 12.4(g) or on the earliest to occur of:

      (a)   December 31, 2040;

      (b)   The sale of all or substantially all of the Fund Property;

                                      A-32
<PAGE>

      (c)   The death, removal, dissolution, resignation, insolvency, bankruptcy
or other legal  incapacity of the Manager or any other event which would legally
disqualify the Manager from acting hereunder;

      (d)   The decision  of all  Investors  or the Manager  and a  Majority  of
Investors; or

      (e)   The occurrence of any other event,  which, by law, would require the
Fund to be dissolved.

      14.2  Continuation  of the  Fund.  Upon  the  occurrence  of any  event of
dissolution  described  in Sections  14.1 (a) through (e),  inclusive,  the Fund
shall be  dissolved  and wound up unless (i) the  Manager  and a Majority of the
Voting  Shares  within  90 days  after  the  occurrence  of any  such  event  of
dissolution  elect  to  continue  the Fund or,  (ii) if there  are no  remaining
Manager  within 90 days after the  occurrence of any such event of  dissolution,
holders of a Majority of the Voting  Shares  shall elect,  in writing,  that the
Fund shall be continued on the terms and conditions  herein  contained and shall
designate one or more persons  willing to be  substituted  as a Manager.  In the
event there is no remaining  Manager and a Majority of the Voting  Shares elects
to continue the Fund, it shall be continued  with the new Manager or Manager who
shall succeed to and assume all of the powers, privileges and obligations of the
previous Manager  hereunder except as specified in Section 12.9. In the event of
a dissolution  under this Section 14.2, the former Manager shall have the rights
specified in Section 12.9.

      14.3  Liquidation Procedure. Upon dissolution of the Fund for any reason:

      (a)   A reasonable  time shall be allowed for the orderly  liquidation  of
the assets of the Fund and the  discharge of  liabilities  to creditors so as to
enable the Fund to minimize the losses normally attendant to a liquidation;

      (b)   The Shareholders  shall continue to receive Available Cash Flow from
Operations or Available Cash From  Dispositions,  as the case may be, subject to
the other  provisions of this  Agreement and to the provisions of subsection (c)
hereof, and shall share Profits and Losses for all tax and other purposes during
the period of liquidation; and

      (c)   The Manager  shall act as  liquidating  Manager and shall proceed to
liquidate  the Fund  Properties  to the extent that they have not  already  been
reduced to cash unless the liquidating  Manager elects to make  distributions in
kind to the extent and in the manner herein  provided and such cash, if any, and
property in kind,  shall be applied and  distributed to the  Shareholders to the
extent of, and in proportion to, the positive balances of their Capital Accounts
and then in accordance with Article 8.

                                      A-33
<PAGE>

      14.4  Liquidating Trustee. (a) If the dissolution of the Fund is caused by
circumstances  under which no Manager is available to act as liquidating Manager
or if all  liquidating  Manager  are unable or refuse to act,  the  holders of a
Majority of the Voting  Shares  shall  appoint a  liquidating  trustee who shall
proceed to wind up the business  affairs of the Fund. If no liquidating  trustee
is appointed within 180 days after the event of dissolution, any Shareholder may
petition the Court of Chancery of Delaware to appoint a liquidating trustee. The
liquidating  trustee  shall have no liability to the Fund or to any  Shareholder
for any loss  suffered by the Fund which arises out of any action or inaction of
the liquidating trustee if the liquidating  trustee,  in good faith,  determined
that such course of conduct was in the best  interests of the  Shareholders  and
such  course of conduct  did not  constitute  negligence  or  misconduct  of the
liquidating  trustee.  The liquidating  trustee shall be indemnified by the Fund
against  any  losses,  judgments,  liabilities,  expenses  and  amounts  paid in
settlement of any claims  sustained by it in connection with the Fund,  provided
that the same were not the result of negligence or misconduct of the liquidating
trustee.

      (b)   Notwithstanding  the  above, the  liquidating  trustee  shall not be
indemnified  and no  expenses  shall be  advanced  on its behalf for any losses,
liabilities or expenses  arising from or out of an alleged  violation of federal
or state securities laws, unless (1) there has been a successful adjudication on
the merits of each count involving  alleged  securities law violations as to the
particular indemnitee,  or (2) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee,
or (3) a court of competent  jurisdiction  approves a  settlement  of the claims
against a particular indemnitee.

      14.5  Death,  Insanity,  Dissolution  or  Insolvency  of an Investor.  The
death, insanity, dissolution, winding up, insolvency,  bankruptcy,  receivership
or other legal  termination  of an Investor  who is not a Manager  shall have no
effect on the life of the Fund and the Fund shall not be dissolved thereby.

      14.6  Manager's  Capital  Contributions.   Upon  or  prior  to  the  first
distribution in liquidation,  the Manager shall contribute to the capital of the
Fund an amount  equal to any  deficit in the  Capital  Account  of such  Manager
calculated  just  prior  to the date of such  distribution,  to the  extent  not
previously  contributed.  The Manager,  in its discretion,  may comply with this
Section  14.6  by  waiving  all or a  portion  of a  distribution  or any  other
compensation to which it is entitled under this Agreement.

      14.7  Withdrawal  of  Offering.  Dissolution  of the Fund  resulting  from
withdrawal  of the offering of Shares is governed by Section  1.6(c) and Section
12.4(g).

                                      A-34
<PAGE>

                                   ARTICLE 15
                                  MISCELLANEOUS

      15.1  Notices.  Notices  or  instruments  of any kind  which may be or are
required to be given  hereunder by any person to another shall be in writing and
deposited in the United States Mail,  certified or registered,  postage prepaid,
or delivered  overnight  and addressed to the  respective  person at the address
appearing  in the records of the Fund.  Any  Investor  may change his address by
giving notice in writing, stating his new address, to the Fund. Any notice shall
be deemed to have been  given  effective  as of 72 hours,  excluding  Saturdays,
Sundays and holidays,  after the depositing of such notice in an official United
States Mail  receptacle.  Notice to the Fund may be addressed  to its  principal
office.

      15.2  Meetings  of  Shareholders.  (a)  Meetings.  The  Manager  may  call
meetings of the Shareholders,  the Investors or any subgroup thereof  concerning
any matter on which they may vote as provided by this  Agreement or by law or to
receive and act upon a report of the Manager on matters pertaining to the Fund's
business  and  activities.  Investors  holding  25% or more  of the  outstanding
securities  or Shares  entitled to vote on the matter may also call  meetings by
giving  notice  to the  Fund  demanding  a  meeting  and  stating  the  purposes
therefore.  After calling a meeting or within 20 days after receipt of a written
request or requests meeting the requirements of the preceding sentence, the Fund
shall mail to all Shareholders  entitled to vote on the matter written notice of
the place and  purposes of the  meeting,  which shall be held on a date not less
than 15 days nor more than 45 days after the Fund mails the notice of meeting to
the Shareholders.  Any Shareholder entitled to vote on the matter may appear and
vote or consent at a meeting by proxy,  provided that such  authority is granted
by a writing signed by the  Shareholder and delivered to the Fund at or prior to
the meeting.

      (b)   Consents.  Any  consent  required by this  Agreement  or any vote or
action by the  Shareholders  or any subgroup  thereof may be effected  without a
meeting by a consent or  consents in writing  signed by the persons  required to
give such consent,  to vote or to take action.  The Manager may solicit consents
or  Investors  holding  25% or  more of the  outstanding  securities  or  Shares
entitled to vote on the matter may demand a  solicitation  of consents by giving
notice to the Fund  stating the  purpose of the consent and  including a form of
consent.  The Fund shall  effect a  solicitation  of  consents  by giving  those
Shareholders  who may vote a notice of  solicitation  stating the purpose of the
consent,  a form  of  consent  and the  date on  which  the  consents  are to be
tabulated,  which shall be not less than 15 days nor more than 45 days after the
Fund transmits the notice of solicitation for consents. If Investors holding 25%
or more of the  outstanding  securities or Shares entitled to vote on the matter
demand a solicitation, the Fund

                                      A-35
<PAGE>

shall transmit the notice  of solicitation not later  than 20 days after receipt
of the demand.

      (c)   General.  To  the  extent  not  inconsistent  with  this  Agreement,
Delaware law  governing  meetings,  proxies and  consents for limited  liability
companies shall apply as to the procedure, validity and use of meetings, proxies
and consents.  Any  Shareholder may waive notice of or attendance at any meeting
or notice of any consent,  whether before or after any action is taken. The date
on which the Fund transmits the notice of meeting or notice soliciting  consents
shall be the record date for determining the right to vote or consent. A list of
the names,  addresses and shareholdings of all Shareholders  shall be maintained
as part of the Fund's books and records.

      (d)   Interested Parties. A Shareholder may vote Shares owned by it on any
question permitted under this Agreement  regardless of whether that Shareholder,
Affiliates of that  Shareholder or other persons  associated  with or related to
that  Shareholder  have  a  personal  interest  in  the  subject  matter  of the
transaction.  Delaware law governing the voting of shares in a corporation shall
determine  the  legal  effect  of a vote by a  Shareholder  having  an  interest
described in the preceding sentence.

      15.3  Loan to Fund by Shareholder.  If any Shareholder  shall, in addition
to his Capital Contribution to the Fund, lend any monies to the Fund, the amount
of any such loan shall not increase his Capital Account nor shall it entitle him
to any increase in his share of the distributions of the Fund, but the amount of
any such loan shall be an obligation on the part of the Fund to such Shareholder
and shall be repaid to him on the terms and at the interest  rate  negotiated at
the time of the loan,  and the loan  shall be  evidenced  by a  promissory  note
executed by the Fund except that no Shareholder shall be personally obligated to
repay the loan, which shall be payable and collectible only out of the assets of
the Fund.

      15.4  Delaware Laws Govern. This Agreement shall be governed and construed
in accordance  with the laws of the State of Delaware.  Each Party hereto agrees
and consents (i) to be subject to the personal jurisdiction of the courts of the
State of Delaware,  (ii) that venue for any litigation between or against any of
the parties hereto may be maintained in New Castle County,  Delaware,  and (iii)
that  service of process  may be  achieved  by mail  return  receipt  requested,
overnight delivery or personal hand delivery.

      15.5  Arbitration.

            (a)   Binding  Arbitration.  (1)  Except  as set  forth  in  Section
15.5(b), any individual claim or dispute  (collectively  "Claims") of every type
(whether under statute, in contract, tort or otherwise and whether for money

                                      A-36
<PAGE>

damages,  penalties or declaratory or equitable  relief) arising from or related
in any way to this  Agreement,  including any question  regarding its existence,
validity or termination, or the operation and management of the Fund by the Fund
or the Manager,  or their  employees,  officers,  directors,  agents or assigns,
shall be resolved by binding arbitration governed by the Federal Arbitration Act
and conducted in accordance with rules of the American Arbitration  Association,
provided  however,   that  if  the  Federal   Arbitration  Act  should  be  held
inapplicable for any reason,  including the ruling of a court,  then the laws of
the State of Delaware shall apply to such  arbitration  hearing and  proceeding.
The number of  arbitrators  shall be three (3), with each Party having the right
to  appoint  one  arbitrator,   who  shall  together  appoint  a  third  neutral
arbitrator,  each such  arbitrator  having at least ten years  experience in the
field of securities law and offerings,  including private securities  offerings.
Such  arbitration  hearing and  proceedings  shall be conducted in New York, New
York.

            (ii)  The Parties hereby  expressly waive any right of appeal to any
court.  There  will  be no  written  record  or  transcript  of the  proceedings
required,  unless otherwise  requested by the Parties or a Party, who shall bear
the  costs  thereof.  All  of  the  Arbitrators'  orders  and  decisions  may be
enforceable  in, and judgment upon any award may be rendered in the  arbitration
proceeding  may be  confirmed  and entered by, a Delaware  court  having  proper
jurisdiction.  The  Parties  agree that all  arbitration  proceedings  concluded
hereunder and the decision of the Arbitrators shall be kept confidential and not
disclosed to any third party, except for a Party's  affiliates,  accountants and
lawyers.

            (iii) Notwithstanding  anything else contrary  contained herein, the
Arbitrators  shall have no authority or power to award  consequential,  special,
indirect,  treble, exemplary or punitive damages of any type, the Parties hereby
waiving  their  rights,  if any, to recover  consequential,  special,  indirect,
treble, exemplary or punitive damages with respect to this Agreement.

            (b)   No Class Action. The Parties expressly agree that no Claim may
be  brought  or  submitted  to  arbitration  or heard by any  arbitration  panel
pursuant to this Section 15.5 as a class action,  or consolidated with any other
Claims and the  arbitrators  or  arbitration  panel shall have no  authority  to
consolidate  claims or certify a class of  Claims.  Each  Shareholder  expressly
waives any right it may have to submit or consolidate  their Claim with those of
other  Shareholders and shall be limited to submitting their individual claim to
arbitration.  No  arbitrator  or  arbitration  panel  shall  have  the  power or
authority to interpret the legality or  enforceability  of this Section  15.5(b)
and any such dispute regarding the applicability,  legality or enforceability of
this Section 15.5(b) shall be submitted to and exclusively determined by a court
of law in  accordance  with the  requirements  of Section  15.4. If this Section
15.5(b) is found by a court of law to be invalid or unenforceable  under any law
or statute, then the entirety of Section

                                      A-37
<PAGE>

15.5  shall be null and void with  respect to any Claims  and,  thereafter,  all
Claims  shall  only be  resolved  by  filing  an  action  in a  court  of law in
accordance  with  Section 15.4 hereof.  The Parties  agree that any  arbitration
shall be  postponed  during  the  pendenacy  of any  appeal of a court's  ruling
regarding the legality or enforceability of this Section 15.5(b).

      15.6  Limited Power of Attorney. Each Investor irrevocably constitutes and
appoints  the  Manager  as his true and  lawful  attorney-in-fact  and agents to
effectuate and to act in his name, place and stead, in effectuating the purposes
of the Fund including the  execution,  verification,  acknowledgment,  delivery,
filing and  recording  of this  Agreement as well as all  authorized  amendments
thereto and hereto, all assumed name and doing business certificates, documents,
bills of  sale,  assignments  and  other  instruments  of  conveyances,  leases,
contracts,  loan documents and  counterparts  thereof,  and all other  documents
which may be  required to effect a  continuation  of the Fund and which the Fund
deems necessary or reasonably  appropriate,  including  documents required to be
executed  in order to  correct  typographical  errors  in  documents  previously
executed by such Investor and all  conveyances  and other  instruments  or other
certificates  necessary or appropriate to effect an authorized  dissolution  and
liquidation of the Fund. The power of attorney granted herein shall be deemed to
be coupled with an interest,  shall be irrevocable  and shall survive the death,
incompetency or legal disability of an Investor.

      15.7  Disclaimer.  In forming this Fund, all Investors  recognize that the
Fund's  businesses  are highly  speculative  and that  neither  the Fund nor the
Manager nor any other Managing  Person makes any guaranty or  representation  to
any Investor as to the probability or amount of gain or loss from the conduct of
Fund business.

      15.8  Amendment and  Construction  of Agreement. (a) This Agreement may be
amended by the Manager, without notice to or the approval of the Investors, from
time to time  for the  following  purposes:  (1) to cure any  ambiguity,  formal
defect or omission or to correct or supplement any provision  herein that may be
inconsistent  with any other provision  contained herein or in the Memorandum or
to effect any amendment without notice to or approval by Investors, as specified
in other  provisions  of this  Agreement;  (2) to make  such  other  changes  or
provisions in regard to matters or questions  arising under this  Agreement that
will not  materially and adversely  affect the interest of any Investor;  (3) to
otherwise  equitably  resolve  issues  arising  under  the  Memorandum  or  this
Agreement,  so long as similarly  situated  Investors are not treated materially
differently;  (4) to maintain  the federal tax status of the Fund and any of its
Shareholders (so long as no Investor's liability is materially increased without
his consent) or as provided in Section 4.3(d); (5) as otherwise provided in this
Agreement or (6) to comply with law.

                                      A-38
<PAGE>

      (b)   Other amendments to this  Agreement  may be  proposed  by either the
Manager or Investors whose  aggregate  Capital  Contributions  constitute 10% or
more  of the  Capital  Contributions,  in each  case by  calling  a  meeting  or
requesting  consents under Section 15.2 and specifying the text of the amendment
and the  reasons  therefore.  No  amendment  under  this  Section  15.7(b)  that
increases  any  Shareholder's  liability,   changes  the  Capital  Contributions
required of him or his rights in interest in the  Profits,  Losses,  deductions,
credits, revenues or distributions of the Fund in more than a de minimis manner,
his rights on dissolution,  or any voting or management rights set forth in this
Agreement  shall  become  effective as to that  Shareholder  without his written
approval thereof. Unless otherwise provided herein, all other amendments must be
approved by the holders of a Majority of the  outstanding  Voting Shares and, if
the terms of a series of Shares or  securities  so  require,  by the vote of the
holders of such class, series or group specified therein.

      (c)   The Manager has power to construe this Agreement and to act upon any
such  construction.  Its  construction of the same and any action taken pursuant
thereto  by the Fund or a  Managing  Person  in good  faith  shall be final  and
conclusive.

      15.9  Bonds and Accounting. The Manager shall not be required to give bond
or  otherwise  post  security for the  performance  of their duties and the Fund
waives all  provisions of law requiring or permitting  the same. No person shall
be entitled at any time to require  the Fund or any  Shareholder  to submit to a
judicial or other accounting or otherwise elect any judicial,  administrative or
executive supervisory proceeding applicable to non-business trusts.

      15.10 Binding Effect. This Agreement shall be binding upon and shall inure
to the  benefit of the  Shareholders  (and  their  spouses if the Shares of such
Shareholders  shall be community  property) as well as their  respective  heirs,
legal  representatives,  successors and assigns.  This Agreement constitutes the
entire  agreement  between  the Fund and the  Shareholders  with  respect to the
formation  and  operation  of the Fund,  other than the  Subscription  Agreement
entered into between the Fund and each Investor and the Management Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      A-39
<PAGE>

      15.11 Headings.  Headings of  Articles  and  Sections  used herein are for
descriptive  purposes  only and shall not  control or alter the  meaning of this
Agreement as set forth in the text.

      15.12 Tax Matters  Partner.  The Manager is the tax matters partner of the
Fund under Code Section 6221.

RIDGEWOOD ENERGY CORPORATION
Initial Manager

By:   _______________________________
      Robert E. Swanson, President

                                      A-40

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