Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - MegaWest Energy Corp. - Exhibit 10.29

Exhibit 10.29 

AGREEMENT OF PURCHASE AND SALE 

  
    
      THIS AGREEMENT made as of the 15 day of October, 2007.
      

    

  

BETWEEN: 

  
    
      ARMONT ENERGY INC., a body corporate, having offices
        in the Town of Somers, in Flathead County in the State of Montana, one
        of the United States of America (hereinafter referred to as "Armont")
      

      - and - 

      BS OIL COMPANY LTD., a body corporate, having offices
        in the City of Calgary, in the Province of Alberta (hereinafter referred
        to as "BS") 

      - and - 

      LONGSHOT OIL COMPANY, a body corporate, having offices
        in the Town of Somers, in Flathead County in the State of Montana, one
        of the United States of America (hereinafter referred to as "Longshot")
      

      (Armont, Longshot and BS hereinafter collectively referred
        to as "Vendor") 

      - and - 

      MEGAWEST ENERGY CORP., a body corporate, having offices
        in the City of Calgary, in the Province of Alberta (hereinafter referred
        to as "MegaWest") 

    

  

- and - 

  
    
      MEGAWEST ENERGY MONTANA CORP., a body corporate, having
        offices in the City of Calgary, in the Province of Alberta (hereinafter
        referred to as "MegaWest Montana") 

      (MegaWest and MegaWest Montana hereinafter collectively
        referred to as "Purchaser") 

    

  

          WHEREAS
Vendor wishes to sell and Purchaser wishes to purchase a portion of the interest
of Vendor in and to the Assets, subject to and in accordance with the terms and
conditions hereof; 

          NOW
THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises and
the mutual covenants and agreements hereinafter set forth, the Parties have
agreed as follows: 

- 2 - 

ARTICLE 1 
INTERPRETATION 

	1.1 	
      Definitions

	 	 	 
		
      In this Agreement, unless the context otherwise
      requires:

	 	 	 
		(a) 	
      "Assets" means the Petroleum and Natural Gas
      Rights and the Miscellaneous Interests;

	 	 	 
		(b) 	
      "Business Day" means a day other than a Saturday,
      a Sunday or a statutory holiday in Calgary, Alberta;

	 	 	 
		(c) 	
      "Certificate" means a written certification of a
      matter or matters of fact which, if required from a corporation, shall be
      made by an officer of the corporation, on behalf of the corporation and
      not in any personal capacity;

	 	 	 
		(d) 	
      "Closing" means the closing of the purchase and
      sale herein provided for;

	 	 	 
		(e) 	
      "Closing Place" means the offices of Purchaser, or
      such other place as may be agreed upon in writing by Vendor and
      Purchaser;

	 	 	 
		(f) 	
      "Closing Time" means the hour of 10:00 a.m. on
      October 23, 2007 or such other date as may be agreed upon in writing by
      the Sellers and the Purchaser;

	 	 	 
		(g) 	
      "Lands" means the lands set out in Schedule "A"
      under the heading "Lands";

	 	 	 
		(h) 	
      "Leased Substances" means all Petroleum
      Substances, rights to or in respect of which are granted, reserved or
      otherwise conferred by or under the Unit Agreements, or by or under the
      Title Documents (but only to the extent that the Title Documents pertain
      to the Lands);

	 	 	 
		(i) 	
      "Leases" means the leases set forth and described
      in Schedule "A" hereto;

	 	 	 
		(j) 	
      "Loma Area Farmout Agreement" means the formal
      agreement in the form attached as Schedule "C" hereto, to be executed and
      delivered by the Parties in accordance with section 2.8 hereof;

	 	 	 
		(k) 	
      "Miscellaneous Interests" means, subject to any
      and all limitations and exclusions provided for in this definition, all
      property, assets, interests and rights pertaining to the Petroleum and
      Natural Gas Rights, but only to the extent that such property, assets,
      interests and rights pertain to the Petroleum and Natural Gas
    Rights;

	 	 	 
		(l) 	
      "Operational Agreements" means, collectively, the
      Teton Area Operating and Farmout Agreement, the Loma Area Operating and
      Farmout Agreement and the Regional AMI Agreement;

	 	 	 
		(m) 	
      "Party" means a party to this
  Agreement;

- 3 - 

	 	(n) 	
      "Petroleum and Natural Gas Rights" means all
      rights to and in respect of the Leased Substances and the Title Documents
      (but only to the extent that the Title Documents pertain to the Lands),
      including without limitation the interests set out in Schedule "A" under
      the heading "Petroleum and Natural Gas Rights";

	 	 	 
	 	(o) 	
      "Petroleum Substances" means any of crude oil,
      crude bitumen and products derived therefrom, synthetic crude oil,
      petroleum, natural gas, natural gas liquids, and any and all other
      substances related to any of the foregoing, whether liquid, solid or
      gaseous, and whether hydrocarbons or not, including without limitation
      sulphur;

	 	 	 
	 	(p) 	
      "Privacy Law" means the Personal Information
      Protection and Electronic Documents Act (Canada), Personal
      Information Protection Act (Alberta), Freedom of Information and
      Protection of Privacy Act (Alberta), the Health Information Act
      (Alberta), equivalent legislation in other Provinces and Territories,
      all regulations thereunder, and all Commissioner orders issued pursuant
      thereto;

	 	 	 
	 	(q) 	
      "Purchase Price" means the sum of money, Shares
      and Warrants set out in section 2.6;

	 	 	 
	 	(r) 	
      "Regional AMI Agreement" means the formal
      agreement in the form attached as Schedule "D" hereto, to be executed and
      delivered by certain of the Parties in accordance with section 2.8
      hereof;

	 	 	 
	 	(s) 	
      “Share” means one share of common stock in the
      capital of MegaWest

	 	 	 
	 	(t) 	
      “Warrant” means one non-transferable common share
      purchase warrant entitling the holder thereof to purchase one Share (each
      a “Warrant Share”) at a price per Warrant Share of $2.50 for a period of
      18 months commencing on the date of Closing;

	 	 	 
	 	(u) 	
      "Specific Conveyances" means all conveyances,
      assignments, transfers, novations and other documents or instruments that
      are reasonably required or desirable to convey, assign and transfer the
      interest of Vendor in and to the Assets to MegaWest Montana and to see
      MegaWest Montana recognized in the place and stead of Vendor with respect
      to an undivided forty percent (40%) working interest in and to the
      Assets;

	 	 	 
	 	(v) 	
      "Take or Pay Obligations" means obligations to
      sell or deliver Petroleum Substances or any of them, rights to which are
      granted, reserved or otherwise conferred pursuant to the Title Documents,
      without being entitled in due course to receive and retain full payment
      for such Petroleum Substances;

	 	 	 
	 	(w) 	
      "Teton Area Farmout Agreement" means the formal
      agreement in the form attached as Schedule "B" hereto, to be executed and
      delivered by the Parties in accordance with section 2.8 hereof;

	 	 	 
	 	(x) 	
      "Third Party" means any individual or entity other
      than Vendor and Purchaser, including without limitation any partnership,
      corporation, trust, unincorporated organization, union, government and any
      department and agency thereof and any heir, executor, administrator or
      other legal representative of an individual;

- 4 - 

	 	(y) 	
      "this Agreement", "herein", "hereto", "hereof" and
      similar expressions mean and refer to this Agreement of Purchase and Sale;
      and

	 	 	 
	 	(z) 	
      "Title Documents" means, collectively, any and all
      certificates of title, leases, reservations, permits, licences,
      assignments, trust declarations, operating agreements, royalty agreements,
      gross overriding royalty agreements, participation agreements, farm-in
      agreements, sale and purchase agreements, pooling agreements and any other
      documents and agreements granting, reserving or otherwise conferring
      rights to (i) explore for, drill for, produce, take, use or market
      Petroleum Substances, (ii) share in the production of Petroleum
      Substances, (iii) share in the proceeds from, or measured or calculated by
      reference to the value or quantity of, Petroleum Substances which are
      produced, and (iv) rights to acquire any of the rights described in items
      (i) to (iii) of this definition; but only if the foregoing pertain in
      whole or in part to Petroleum Substances within, upon or under the Lands;
      including without limitation those, if any, set out in Schedule "A" under
      the heading "Title Document(s)".

1.2      Headings 

          The
expressions "Article", "section", "subsection", "clause", "subclause",
"paragraph" and "Schedule" followed by a number or letter or combination thereof
mean and refer to the specified article, section, subsection, clause, subclause,
paragraph and schedule of or to this Agreement. 

1.3      Interpretation Not
Affected by Headings 

          The
division of this Agreement into Articles, sections, subsections, clauses,
subclauses and paragraphs and the provision of headings for all or any thereof
are for convenience and reference only and shall not affect the construction or
interpretation of this Agreement. 

1.4      Included Words

          When
the context reasonably permits, words suggesting the singular shall be construed
as suggesting the plural and vice versa, and words suggesting gender or gender
neutrality shall be construed as suggesting the masculine, feminine and neutral
genders. 

1.5      Schedules 

          There
are appended to this Agreement the following schedules pertaining to the
following matters: 

	 	Schedule "A" 	- 	Lands 
	 	  	- 	Petroleum and Natural Gas Rights
    
	 	 	 	 
	 	Schedule "B" 	- 	Form of Teton Area Operating and
      Farmout Agreement 
	 	 	 	 
	 	Schedule "C" 	- 	Form of Loma Area Operating and
      Farmout Agreement 
	 	 	 	 
	 	Schedule "D" 	- 	Form of Regional AMI Agreement
  

- 5 - 

	 	Schedule "E" 	- 	Form of Regulation S Certificate
    
	 	 	 	 
	 	Schedule "F" 	- 	Form of Rule 506 Certificate
  
	 	 	 	 
	 	Schedule "G" 	- 	Form of Questionnaire
  

          Such
schedules are incorporated herein by reference as though contained in the body
hereof. Wherever any term or condition of such schedules conflicts or is at
variance with any term or condition in the body of this Agreement, such term or
condition in the body of this Agreement shall prevail. 

1.6      Damages 

          All
losses, costs, claims, damages, expenses and liabilities in respect of which a
Party has a claim pursuant to this Agreement include without limitation
reasonable legal fees and disbursements on a solicitor and client basis. 

ARTICLE 2
PURCHASE AND SALE AND CLOSING 

2.1      Purchase and Sale

          Vendor
hereby agrees to sell, assign, transfer, convey and set over to Purchaser, and
Purchaser hereby agrees to purchase from Vendor, an undivided forty percent
(40%) interest in and to the Assets subject to and in accordance with the terms
of this Agreement. 

2.2      Closing 

          Closing
shall take place at the Closing Place at the Closing Time if there has been
satisfaction or waiver of the conditions of Closing herein contained. Subject to
all other provisions of this Agreement, possession, risk and beneficial
ownership of an undivided forty percent (40%) interest in and to the Assets
shall pass from Vendor to MegaWest Montana at the Closing Time. 

2.3      Specific Conveyances

          Purchaser
shall prepare the Specific Conveyances at its cost and as required, none of
which shall confer or impose upon a Party any greater right or obligation than
contemplated in this Agreement. All Specific Conveyances that are prepared and
circulated to Vendor a reasonable time prior to the Closing Time shall be
executed and delivered by the Parties at Closing. Forthwith after Closing,
Purchaser shall at its cost record all Specific Conveyances that by their nature
may be recorded. 

2.4      Title Documents and
Miscellaneous Interests 

          Vendor
shall deliver to Purchaser at Closing the original copies of the Title Documents
and any other agreements and documents to which the Assets are subject and the
original copies of contracts, agreements, records, books, documents, licences,
reports and data comprising Miscellaneous Interests which are now in the
possession of Vendor or of which it gains possession prior to Closing.
Notwithstanding the foregoing, if and to the extent such Title 

- 6 - 

Documents, contracts, agreements, records, books, documents,
licences, reports and data also pertain to interests other than the Assets,
photocopies or other copies may be provided to Purchaser in lieu of original
copies. 

2.5      Form of Payment 

          All
cash payments to be made pursuant to this Agreement shall be in American funds.
All cash payments to be made at Closing shall be made by certified cheque or
bank draft. 

2.6      Purchase Price

          The
aggregate consideration to be paid by Purchaser to Vendor for an undivided forty
percent (40%) interest in and to the Assets shall be $300,000.00 USD,
certificates representing 500,000 Shares and certificates representing 250,000
Warrants. At Closing, Purchaser shall pay the Purchase Price to the various
parties comprising Vendor or to their respective designates, all as, and in the
proportions, directed by Vendor. In the event that Vendor fails to designate
such payees and proportions of the Purchase Price at least three (3) days prior
to Closing, the Purchasers shall satisfy their obligations under this section
2.6 by paying the Purchase Price to Longshot Oil Company, as agent for the
Vendors. 

2.7      Registration Rights

	 	(a) 	
      Subsequent to and in addition to any Registration
      Statement currently in existence or in progress, MegaWest shall use
      commercially reasonable efforts to file with the SEC as soon as is
      commercially reasonable after the latter of Closing and the current
      registration statement going effective and thereafter use commercially
      reasonable efforts to cause to be declared effective, a registration
      statement (the "Registration Statement") (on Form F-1, Form S-1, Form SB-2
      or such other form that it is eligible to use) in order to register not
      less than the total Shares and the Warrant Shares (together the
      “Registrable Securities”) for resale and distribution under the 1933
      Act.

	 	 	 	 
	 	(b) 	
      The Purchaser will use its commercially reasonable
      efforts to:

	 	 	 	 
	 		(i) 	
      cause the Registration Statement to become and remain
      effective for the period of eighteen (18) months from Closing and promptly
      provide to the holders of Registrable Securities (the "Sellers") copies of
      all filings and letters of comment from the SEC;

	 	 	 	 
	 		(ii) 	
      prepare and file with the SEC such amendments and
      supplements to such Registration Statement and the prospectus used in
      connection therewith as may be necessary to keep such Registration
      Statement effective and comply with the provisions of the 1933 Act with
      respect to the disposition of all of the Registrable Securities covered by
      such Registration Statement in accordance with Sellers intended method of
      disposition set forth in such Registration Statement for such
    period;

	 	 	 	 
	 		(iii) 	
      furnish to the Sellers, at Purchaser's expense, such
      number of copies of the Registration Statement and the prospectus included
      therein (including each preliminary prospectus) as the Sellers reasonably
      may request in

- 7 - 

	 		
      order to facilitate the public sale or their disposition
      of the securities covered by such Registration Statement;

	 	 	 
	 	(iv) 	
      to register or qualify the Registrable Securities covered
      by such Registration Statement under the securities or "blue sky" laws of
      such jurisdictions as reasonably requested by the Sellers, provided,
      however, that Purchaser shall not for any such purpose be required to
      qualify generally to transact business as a foreign corporation in any
      jurisdiction where it is not so qualified or to consent to general service
      of process in any such jurisdiction;

	 	 	 
	 	(v) 	
      immediately notify the Seller when a prospectus relating
      thereto is required to be delivered under the 1933 Act, of the happening
      of any event of which Purchaser has knowledge as a result of which the
      prospectus contained in such Registration Statement, as then in effect,
      includes an untrue statement of a material fact or omits to state a
      material fact required to be stated therein or necessary to make the
      statements therein not misleading in light of the circumstances then
      existing; and

	 	 	 
	 	(vi) 	
      provided same would not be in violation of the provision
      of Regulation FD under the Securities Exchange Act of 1934, make available
      for inspection by the Seller, and any attorney, accountant or other agent
      retained by the Seller, all publicly available, non-confidential financial
      and other records, pertinent corporate documents and properties of
      Purchaser, and cause the Purchaser’s officers, directors and employees to
      supply all publicly available, non-confidential information reasonably
      requested by the Seller, attorney, accountant or agent in connection with
      such Registration Statement.

	 	(c) 	
      In connection with each Registration Statement described
      in this section 2.7, the Seller shall furnish to the Purchaser in writing
      such information and representation letters with respect to itself and the
      proposed distribution by it as reasonably shall be necessary in order to
      assure compliance with federal and applicable state securities
  laws.

	 	 	 	 
	 	(d) 	
      In conjunction with the issuance of the Shares and
      Warrants the Selling Shareholder agrees to provide the
following:

	 	 	 	 
	 		(i) 	
      if the Selling Shareholder is not resident in the United
      States, a Certificate of Non-U.S. Shareholder (the “Regulation S
      Certificate”), a copy of which is set out in Schedule "E"
hereto;

	 	 	 	 
	 		(ii) 	
      if the Selling Shareholder is resident in the United
      States, a Certificate of U.S. Shareholder (the “Rule 506 Certificate”), a
      copy of which is set out in Schedule "F" hereto;
and

	 	(iii) 	a National Instrument 45-106
      Investor Questionnaire (the “Questionnaire”), a copy of which is set out
      in Schedule "G" hereto. 

- 8 - 

	2.8 	
      Operational Agreements

	 	 	 
		
      At Closing, the Parties shall execute and
  deliver:

	 	 	 
		(a) 	
      the Teton Area Operating and Farmout Agreement;

	 	 	 
		(b) 	
      the Loma Area Operating and Farmout Agreement;
  and

	 	 	 
		(c) 	
      the Regional AMI Agreement;

Notwithstanding anything to the contrary in this Agreement, the
execution and delivery of the Operational Agreements in no way affects any
representations, warranties, covenants or indemnities set out in this Agreement.

ARTICLE 3 
CONDITIONS OF CLOSING 

3.1      Purchaser's
Conditions 

          The
obligation of Purchaser to purchase Vendor's interest in and to the Assets is
subject to the following conditions precedent, which are inserted herein and
made part hereof for the exclusive benefit of Purchaser and may be waived by
Purchaser: 

	 	(a) 	
      the representations and warranties of Vendor herein
      contained shall be true in all material respects when made and as of the
      Closing Time, and a Certificate to that effect shall have been delivered
      by Vendor to Purchaser at Closing;

	 	 	 
	 	(b) 	
      all obligations of Vendor contained in this Agreement to
      be performed prior to or at Closing shall have been timely performed in
      all material respects, and a Certificate to that effect shall have been
      delivered by Vendor to Purchaser at Closing;

	 	 	 
	 	(c) 	
      from the date hereof to the Closing Time, the Assets
      shall have suffered no material, adverse damage or change, and a
      Certificate to that effect shall have been delivered by Vendor to
      Purchaser at Closing;

	 	 	 
	 	(d) 	
      prior to the Closing Time, any and all preferential,
      pre-emptive or first purchase rights of Third Parties that become
      operative by virtue of this Agreement or the transaction to be effected by
      it shall have been exercised or waived by the holders thereof or all time
      periods within which such rights may be exercised shall have
    expired;

	 	 	 
	 	(e) 	
      Vendor shall have delivered to Purchaser at or prior to
      Closing discharges of any security held by any Third Party encumbering
      Vendor's interest in and to the Assets or any part or portion thereof,
      which discharges are requested by Purchaser a reasonable time prior to
      Closing;

	 	 	 
	 	(f) 	
      prior to the Closing Time, Purchaser shall have satisfied
      itself (in its sole discretion) as to Vendor's title to the
  Assets;

- 9 - 

	 	(g) 	
      prior to the Closing Time, Purchaser shall have satisfied
      itself that there is no material environmental damage or contamination or
      other environmental problems pertaining to or caused by the Assets or
      operations thereon or related thereto; and

	 	 	 
	 	(h) 	
      prior to the Closing Time, Purchaser shall have satisfied
      itself that there exist no existing contractual arrangements for the (i)
      transportation, processing and sale of the Leased Substances or (ii)
      provision of transportation, processing or disposal capacity or service to
      any Third Party.

If any one or more of the foregoing conditions precedent has or
have not been satisfied, complied with, or waived by Purchaser, at or before the
Closing Time, Purchaser may in addition to any other remedies which it may have
available to it, rescind this Agreement by written notice to Vendor. If
Purchaser rescinds this Agreement, Purchaser and Vendor shall be released and
discharged from all obligations hereunder except as provided in sections 3.3 and
10.13. 

3.2      Vendor's
Conditions 

          The
obligation of Vendor to sell its interest in and to the Assets is subject to the
following conditions precedent, which are inserted herein and made part hereof
for the exclusive benefit of Vendor and may be waived by Vendor: 

	 	(a) 	
      the representations and warranties of Purchaser herein
      contained shall be true in all material respects when made and as of the
      Closing Time, and a Certificate to that effect shall have been delivered
      by Purchaser to Vendor at Closing;

	 	 	 
	 	(b) 	
      all obligations of Purchaser contained in this Agreement
      to be performed prior to or at Closing shall have been timely performed in
      all material respects, and a Certificate to that effect shall have been
      delivered by Purchaser to Vendor at Closing; and

	 	 	 
	 	(c) 	
      all amounts to be paid by Purchaser to Vendor at Closing
      shall have been paid to Vendor in the form stipulated in this
      Agreement.

If any one or more of the foregoing conditions precedent has or
have not been satisfied, complied with, or waived by Vendor, at or before the
Closing Time, Vendor may in addition to any other remedies which it may have
available to it, rescind this Agreement by written notice to Purchaser. If
Vendor rescinds this Agreement, Purchaser and Vendor shall be released and
discharged from all obligations hereunder except as provided in sections 3.3 and
10.13. 

3.3      Efforts to Fulfill
Conditions Precedent 

          Purchaser
and Vendor shall proceed diligently and in good faith and use best efforts to
satisfy and comply with and assist in the satisfaction and compliance with the
conditions precedent. If there is a condition precedent that is to be satisfied
or complied with prior to the Closing Time, and if, by the time the condition
precedent is to be satisfied or complied with, the Party for whose benefit the
condition precedent exists fails to notify the other Party whether or not the
condition precedent has been satisfied or complied with, the condition precedent
shall be conclusively deemed to have been satisfied or complied with. 

- 10 - 

ARTICLE 4 
REPRESENTATIONS AND WARRANTIES 

4.1      Representations and
Warranties of Vendor 

          Purchaser
acknowledges that it is purchasing Vendor's interest in and to the Assets on an
"as is, where is" basis, without representation and warranty and without
reliance on any information provided to or on behalf of Purchaser by Vendor or
any Third Party, except that Vendor makes the following representations and
warranties to Purchaser, no claim in respect of which shall be made or be
enforceable by Purchaser unless written notice of such claim, with reasonable
particulars, is given by Purchaser to Vendor within a period of two (2) years
from the Closing Time: 

	 	(a) 	
      each Party comprising Vendor is a corporation duly
      organized and validly existing under the laws of the jurisdiction of
      incorporation of such Party, is authorized to carry on business in the
      State in which the Lands are located, and now has good right, full power
      and absolute authority to sell, assign, transfer, convey and set over the
      interest of Vendor in and to the Assets according to the true intent and
      meaning of this Agreement;

	 	 	 
	 	(b) 	
      the execution, delivery and performance of this Agreement
      has been duly and validly authorized by any and all requisite corporate
      and directors' actions and will not result in any violation of, be in
      conflict with or constitute a default under any articles, charter, bylaw
      or other governing document to which any Party comprising Vendor is
      bound;

	 	 	 
	 	(c) 	
      the execution, delivery and performance of this Agreement
      will not result in any violation of, be in conflict with or constitute a
      default under any term or provision of any agreement or document to which
      any Party comprising Vendor is party or by which any Party comprising
      Vendor is bound, nor under any judgment, decree, order, statute,
      regulation, rule or license applicable to any Party comprising
    Vendor;

	 	 	 
	 	(d) 	
      this Agreement and any other agreements delivered in
      connection herewith constitute valid and binding obligations of each Party
      comprising Vendor enforceable against each Party comprising Vendor in
      accordance with their terms;

	 	 	 
	 	(e) 	
      no authorization or approval or other action by, and no
      notice to or filing with, any governmental authority or regulatory body
      exercising jurisdiction over the Assets is required for the due execution,
      delivery and performance of this Agreement by each Party comprising
      Vendor, other than authorizations, approvals or exemptions from
      requirement therefor, previously obtained and currently in
force;

	 	 	 
	 	(f) 	
      Vendor has not incurred any obligation or liability,
      contingent or otherwise, for brokers' or finders' fees in respect of this
      Agreement or the transaction to be effected by it for which Purchaser
      shall have any obligation or liability;

	 	 	 
	 	(g) 	
      each Party comprising Vendor is sophisticated in the
      evaluation, purchase, and ownership of securities for investment, and in
      making its decision to enter into this Agreement and to consummate the
      transactions contemplated herein, each

- 11 - 

	 		
      Party comprising Vendor (i) has relied or shall rely on
      its own independent investigation and evaluation of the Shares and
      Warrants and MegaWest, and (ii) has satisfied itself as to the investment
      in the Shares;

	 	 	 
	 	(h) 	
      Vendor has not alienated or encumbered the Assets or any
      part or portion thereof, Vendor has not committed and is not aware of
      there having been committed any act or omission whereby the interest of
      Vendor in and to the Assets or any part or portion thereof may be
      cancelled or determined, and the Assets are now free and clear of all
      liens, royalties, conversion rights and other claims of Third Parties,
      created by, through or under Vendor or of which Vendor has
    knowledge;

	 	 	 
	 	(i) 	
      none of the interest of Vendor in and to the Assets is
      subject to any preferential, pre-emptive or first purchase rights, created
      by, through or under Vendor or of which Vendor is aware, that become
      operative by virtue of this Agreement or the transaction to be effected by
      it;

	 	 	 
	 	(j) 	
      Vendor has not received notice from any Third Party
      claiming an interest in and to the Assets adverse to the interest of
      Vendor and Vendor has no reason to believe that any such claim may be
      made;

	 	 	 
	 	(k) 	
      Vendor has not failed to comply with, perform, observe or
      satisfy any term, condition, obligation or liability which has heretofore
      arisen under the provisions of any of the Title Documents or any other
      agreements and documents to which the Assets are subject;

	 	 	 
	 	(l) 	
      Vendor has not received notice of default and is not, to
      the knowledge, information and belief of Vendor, in any default under any
      obligation, agreement, document, order, writ, injunction or decree of any
      court or of any commission or administrative agency, which might result in
      impairment or loss of the interest of Vendor in and to the Assets or which
      might otherwise adversely affect the Assets;

	 	 	 
	 	(m) 	
      no suit, action or other proceeding before any court or
      governmental agency has been commenced against Vendor or, to the
      knowledge, information and belief of Vendor, has been threatened against
      Vendor or any Third Party, which might result in impairment or loss of the
      interest of Vendor in and to the Assets or which might otherwise adversely
      affect the Assets or any rights to, and rights to enter upon, use or
      occupy the surface of any lands which are or may be used to gain access to
      or otherwise use the Petroleum and Natural Gas Rights and the Tangibles,
      or either of them;

	 	 	 
	 	(n) 	
      all amounts due and payable to Third Parties prior to the
      date hereof and pertaining to the Assets have been fully paid, including
      without limitation (i) any and all ad valorem and property taxes, (ii) any
      and all production, severance and similar taxes, charges and assessments
      based upon or measured by the ownership or production of the Leased
      Substances or any of them or the receipt of proceeds therefor, and (iii)
      all amounts due and payable in connection with Permitted
      Encumbrances;

- 12 - 

	 	(o) 	
      in respect of the Assets, there are no financial
      commitments of Vendor which are due as of the date hereof or which may
      become due by virtue of matters occurring or arising prior to the date
      hereof;

	 	 	 	 
	 	(p) 	
      in respect of the Assets that are operated by Vendor, if
      any, Vendor holds all valid licenses, permits and similar rights and
      privileges that are required and necessary under applicable law to operate
      the Assets as presently operated;

	 	 	 	 
	 	(q) 	
      any and all operations of Vendor, and to the knowledge,
      information and belief of Vendor, any and all operations by Third Parties,
      on or in respect of the Assets, have been conducted in accordance with
      good oil and gas industry practices and in material compliance with all
      applicable laws, rules, regulations, orders and directions of governmental
      and other competent authorities;

	 	 	 	 
	 	(r) 	
      no obligations have accrued pursuant to the Title
      Documents that may be satisfied by the drilling of a well, the payment of
      compensatory royalty or the surrender of some or all of the interests
      granted, reserved or otherwise conferred pursuant to the Title Documents,
      other than obligations that have been satisfied (by means other than by
      the payment of compensatory royalties) or have been permanently
    waived;

	 	 	 	 
	 	(s) 	
      there are no active area of mutual interest provisions in
      any of the Title Documents or other agreements or documents to which the
      Assets are subject;

	 	 	 	 
	 	(t) 	
      Vendor is not aware of and has not received:

	 	 	 	 
	 		(i) 	
      any orders or directives which relate to environmental
      matters and which require any work, repairs, construction or capital
      expenditures with respect to the Assets, where such orders or directives
      have not been complied with in all material respects; or

	 	 	 	 
	 		(ii) 	
      any demand or notice issued with respect to the breach of
      any environmental, health or safety law applicable to the Assets,
      including without limitation, respecting the use, storage, treatment,
      transportation or disposition of environmental contaminants, which demand
      or notice remains outstanding on the date hereof;

	 	 	 	 
	 	(u) 	
      Vendor is not a party to and Vendor's interest in and to
      the Assets is not otherwise bound or affected by any (i) production sales
      contracts pertaining to the Leased Substances or any of them that cannot
      be terminated on notice of 31 days or less (without an early termination
      penalty or other cost), (ii) gas balancing or similar agreements
      pertaining to the Leased Substances or any of them, (iii) agreements for
      the transportation, processing or disposal of the Leased Substances or any
      of them or substances produced in connection with the Leased Substances or
      any of them, (iv) agreements for the contract operation by a Third Party
      of the Assets or any of them, and (v) agreements to provide
      transportation, processing or disposal capacity or service to any Third
      Party;

	 	 	 	 
	 	(v) 	
      there are no Take or Pay Obligations;
  and

- 13 - 

	 	(w) 	
      Vendor has made diligent inquiries and searches for
      material documents and information relating to the Assets and for all
      information reasonably required to make the representations and warranties
      contained in this Agreement not misleading in light of the
      circumstances.

4.2      Representations and
Warranties of Purchaser 

          Purchaser
makes the following representations and warranties to Vendor, no claim in
respect of which shall be made or be enforceable by Vendor unless written notice
of such claim, with reasonable particulars, is given by Vendor to Purchaser
within a period of two (2) years from the Closing Time: 

	 	(a) 	
      each Party comprising Purchaser is a corporation duly
      organized and validly existing under the laws of the jurisdiction of
      incorporation of such Party, is authorized to carry on business in the
      State in which the Lands are located, and now has good right, full power
      and absolute authority to purchase the interest of Vendor in and to the
      Assets according to the true intent and meaning of this
  Agreement;

	 	 	 
	 	(b) 	
      the execution, delivery and performance of this Agreement
      has been duly and validly authorized by any and all requisite corporate
      and directors' actions and will not result in any violation of, be in
      conflict with or constitute a default under any articles, charter, bylaw
      or other governing document to which any Party comprising Purchaser is
      bound;

	 	 	 
	 	(c) 	
      the execution, delivery and performance of this Agreement
      will not result in any violation of, be in conflict with or constitute a
      default under any term or provision of any agreement or document to which
      Purchaser is party or by which any Party comprising Purchaser is bound,
      nor under any judgment, decree, order, statute, regulation, rule or
      license applicable to any Party comprising Purchaser;

	 	 	 
	 	(d) 	
      this Agreement and any other agreements delivered in
      connection herewith constitute valid and binding obligations of each Party
      comprising Purchaser enforceable against each Party comprising Purchaser
      in accordance with their terms;

	 	 	 
	 	(e) 	
      no authorization or approval or other action by, and no
      notice to or filing with, any governmental authority or regulatory body
      exercising jurisdiction over the Assets is required for the due execution,
      delivery and performance of this Agreement by each Party comprising
      Purchaser, other than authorizations, approvals or exemptions from
      requirement therefor, previously obtained and currently in
force;

	 	 	 
	 	(f) 	
      Purchaser has not incurred any obligation or liability,
      contingent or otherwise, for brokers' or finders' fees in respect of this
      Agreement or the transaction to be effected by it for which Vendor shall
      have any obligation or liability; and

	 	 	 
	 	(g) 	
      there is and, unless otherwise agreed between the Parties
      prior to the issuance thereof, there shall at the time of the issuance of
      the Shares to the Sellers be issued and outstanding no more than one
      hundred eighty million (180,000,000) Shares of MegaWest, subject further
      to outstanding options, warrants, convertible preferred stock, or
      convertible debt, which, if fully exercised or

- 14 - 

converted would mean that there would be a total of
  not more than two hundred million (200,000,000) Shares of MegaWest outstanding.

ARTICLE 5
INDEMNITIES FOR REPRESENTATIONS AND
WARRANTIES 

5.1      Vendor's Indemnities
for Representations and Warranties 

          Vendor
shall be liable to Purchaser for and shall, in addition, indemnify Purchaser
from and against, all losses, costs, claims, damages, expenses and liabilities
suffered, sustained, paid or incurred by Purchaser which would not have been
suffered, sustained, paid or incurred had all of the representations and
warranties contained in section 4.1 been accurate and truthful, provided however
that nothing in this section 5.1 shall be construed so as to cause Vendor to be
liable to or indemnify Purchaser in connection with any representation or
warranty contained in section 4.1 if and to the extent that Purchaser did not
rely upon such representation or warranty. All such liabilities and indemnities
of Vendor pursuant to this section 5.1 shall be joint and several liabilities
and indemnities given by each of the Parties comprising Vendor. 

5.2      Purchaser's Indemnities
for Representations and Warranties 

          Purchaser
shall be liable to Vendor for and shall, in addition, indemnify Vendor from and
against, all losses, costs, claims, damages, expenses and liabilities suffered,
sustained, paid or incurred by Vendor which would not have been suffered,
sustained, paid or incurred had all of the representations and warranties
contained in section 4.2 been accurate and truthful, provided however that
nothing in this section 5.2 shall be construed so as to cause Purchaser to be
liable to or indemnify Vendor in connection with any representation or warranty
contained in section 4.2 if and to the extent that Vendor did not rely upon such
representation or warranty. All such liabilities and indemnities of Purchaser
pursuant to this section 5.2 shall be joint and several liabilities and
indemnities given by each of the Parties comprising Purchaser. 

5.3      Time Limitation

          No
claim under this Article 5 shall be made or be enforceable by a Party unless
written notice of such claim, with reasonable particulars, is given by such
Party to the Party against whom the claim is made within a period of two (2)
years from the Closing Time. 

ARTICLE 6 
PURCHASER'S INDEMNITIES 

6.1      General Indemnity

          Purchaser
shall, to the extent of the interest in and to the Assets acquired by Purchaser
pursuant to the terms of this Agreement, be liable to Vendor for and shall, in
addition, indemnify Vendor from and against, all losses, costs, claims, damages,
expenses and liabilities suffered, sustained, paid or incurred by Vendor which
arise out of any matter or thing occurring or arising from and after the Closing
Time and which relates to the Assets, provided however that Purchaser shall not
be liable to nor be required to indemnify Vendor in respect of any losses,
costs, claims, damages, expenses and liabilities suffered, sustained, paid or
incurred by Vendor which arise out of acts or omissions of Vendor. All such
liabilities and indemnities of Purchaser 

- 15 - 

pursuant to this section 6.1 shall be joint and several
liabilities and indemnities given by each of the Parties comprising Purchaser.

6.2      Abandonment and
Reclamation 

          Purchaser
shall, to the extent of the interest in and to the Assets acquired by Purchaser
pursuant to the terms of this Agreement, see to the timely performance of all
abandonment and reclamation obligations pertaining to the Assets which in the
absence of this Agreement would be the responsibility of Vendor. Purchaser shall
be liable to Vendor for and shall, in addition, indemnify Vendor from and
against, all losses, costs, claims, damages, expenses and liabilities suffered,
sustained, paid or incurred by Vendor should Purchaser fail to timely perform
such obligations. All such liabilities and indemnities of Purchaser pursuant to
this section 6.2 shall be joint and several liabilities and indemnities given by
each of the Parties comprising Purchaser. 

6.3      Environmental Matters

          Purchaser
shall, to the extent of the interest in and to the Assets acquired by Purchaser
pursuant to the terms of this Agreement, be liable to Vendor for and shall, in
addition, indemnify Vendor from and against, all losses, costs, claims, damages,
expenses and liabilities suffered, sustained, paid or incurred by Vendor which
pertain to environmental damage or contamination or other environmental problems
pertaining to or caused by the Assets or operations thereon or related thereto,
however and by whomsoever caused, and whether such environmental damage or
contamination or other environmental problems occur or arise in whole or in part
prior to, at or subsequent to the Closing Time. Purchaser shall not be entitled
to exercise and hereby waives any rights or remedies Purchaser may now or in the
future have against Vendor in respect of such environmental damage or
contamination or other environmental problems, whether such rights and remedies
are pursuant to the common law or statute or otherwise, including without
limitation, the right to name Vendor as a third party to any action commenced by
any Third Party against Purchaser. Without limiting the generality of the
foregoing, such environmental damage or contamination or other environmental
problems shall include (i) surface, underground, air, ground water or surface
water contamination, (ii) the abandonment or plugging of or failure to abandon
or plug any of the Wells, (iii) the restoration or reclamation of or failure to
restore or reclaim any part of the Assets, (iv) the breach of applicable
government rules and regulations in effect at any time, and (v) the removal of
or failure to remove foundations, structures or equipment. All such liabilities
and indemnities of Purchaser pursuant to this section 6.3 shall be joint and
several liabilities and indemnities given by each of the Parties comprising
Purchaser. 

6.4      Limitation 

          Notwithstanding
any other provision in this Agreement, Purchaser shall not be liable to nor be
required to indemnify Vendor in respect of any losses, costs, claims, damages,
expenses and liabilities suffered, sustained, paid or incurred by Vendor in
respect of which Vendor is liable to and has indemnified Purchaser pursuant to
section 5.1, and Vendor shall not be liable to nor be required to indemnify
Purchaser in respect of any losses, costs, claims, damages, expenses and
liabilities suffered, sustained, paid or incurred by Purchaser in respect of
which Purchaser is liable to and has indemnified Vendor pursuant to section 5.2,
in both cases disregarding the time limit set out in section 5.3. 

- 16 - 

ARTICLE 7 
OPERATING ADJUSTMENTS 

7.1      No Adjustments

          Notwithstanding
any other provision in this Agreement, there shall be no adjustments made
between the Parties in respect of benefits and obligations of any kind and
nature relating to the operation of the Assets conveyed pursuant to this
Agreement, including without limitation maintenance, development, operating and
capital costs, government incentives and administration fees, royalties and
other burdens, and proceeds from the sale of production, whether accruing,
payable or paid and received or receivable; provided, however, that Purchaser
shall be responsible to pay to Vendor all lease rentals paid by Vendor from and
after September 1, 2007until such time as Payout is achieved as set forth in the
respective applicable Operating and Farmin Agreements attached hereto as
Schedules “B” and “C”. 

ARTICLE 8 
MAINTENANCE OF ASSETS 

8.1      Maintenance of
Assets 

          Until
the Closing Time, Vendor shall, to the extent that the nature of its interest
permits, and subject to the Title Documents and any other agreements and
documents to which the Assets are subject: 

	 	(a) 	
      maintain the Assets in a proper and prudent manner in
      accordance with good oil and gas industry practices and in material
      compliance with all applicable laws, rules, regulations, orders and
      directions of governmental and other competent authorities;

	 	 	 
	 	(b) 	
      pay or cause to be paid all costs and expenses relating
      to the Assets which become due from the date hereof to the Closing Time;
      and

	 	 	 
	 	(c) 	
      perform and comply with all covenants and conditions
      contained in the Title Documents and any other agreements and documents to
      which the Assets are subject.

8.2      Consent of
Purchaser 

          Notwithstanding
section 8.1, Vendor shall not, without the written consent of Purchaser, which
consent shall not be unreasonably withheld by Purchaser and which, if provided,
shall be provided in a timely manner: 

	 	(a) 	
      make any commitment or propose, initiate or authorize any
      capital expenditure with respect to the Assets of which Vendor's share is
      in excess of $10,000.00, except in case of an emergency or in respect of
      amounts which Vendor may be committed to expend or be deemed to authorize
      for expenditure without its consent;

	 	 	 
	 	(b) 	
      surrender or abandon any of the
Assets;

- 17 - 

	 	(c) 	
      amend or terminate any Title Document or any other
      agreement or document to which the Assets are subject, or enter into any
      new agreement or commitment relating to the Assets; or

	 	 	 
	 	(d) 	
      sell, encumber or otherwise dispose of any of the Assets
      or any part or portion thereof excepting sales of the Leased Substances or
      any of them in the normal course of business.

ARTICLE 9
PRE-CLOSING INFORMATION 

9.1      Production of
Documents 

          At
all reasonable times from the date hereof until the Closing Time, Vendor shall
make available to Purchaser and Purchaser's Counsel in Vendor's offices the
following information pertaining to the Assets to which Vendor has possession or
to which it has access: 

	 	(a) 	
      all title opinions and reports;

	 	 	 
	 	(b) 	
      all of the Title Documents and any other agreements and
      documents to which the Assets are subject including without limitation (i)
      production sales contracts pertaining to the Leased Substances or any of
      them, (ii) gas balancing or similar agreements pertaining to the Leased
      Substances or any of them, (iii) agreements for the transportation,
      processing or disposal of the Leased Substances or any of them or
      substances produced in connection with the Leased Substances or any of
      them, (iv) agreements for the contract operation by a Third Party of the
      Assets or any of them, and (v) agreements to provide transportation,
      processing or disposal capacity or service to any Third Party;

	 	 	 
	 	(c) 	
      mortgages, deeds of trust, security agreements, chattel
      mortgages and other encumbrances affecting the Assets;

	 	 	 
	 	(d) 	
      evidence with respect to the payment of all bonuses,
      rentals, royalties and other payments due under the Title Documents and
      any other agreements and documents to which the Assets are
  subject;

	 	 	 
	 	(e) 	
      evidence with respect to the payment of all taxes,
      charges and assessments pertaining to the Assets;

	 	 	 
	 	(f) 	
      lease records, data sheets, production records, ownership
      maps and surveys;

	 	 	 
	 	(g) 	
      permits, easements, licenses and orders;

	 	 	 
	 	(h) 	
      all documents and information relevant to environmental
      damage or contamination or other environmental problems pertaining to the
      Assets; and

	 	 	 
	 	(i) 	
      accounting records, policies of insurance, consulting
      agreements, field contracts and other agreements relating to the operation
      of the Assets.

- 18 - 

ARTICLE 10 
GENERAL 

10.1    Further Assurances 

          Each
Party will, from time to time and at all times after Closing, without further
consideration, do such further acts and deliver all such further assurances,
deeds and documents as shall be reasonably required in order to fully perform
and carry out the terms of this Agreement. Until Purchaser becomes recognized as
the owner of the interest acquired from Vendor in and to the Assets pursuant to
the terms of this Agreement, into the Title Documents and any other agreements
and documents to which the Assets are subject, Vendor shall act as Purchaser's
agent (including without limitation to serve operation notices and
authorizations for expenditure) as Purchaser reasonably and lawfully directs.
Purchaser shall, to the extent of the interest in and to the Assets acquired by
Purchaser pursuant to the terms of this Agreement, be liable to Vendor and
shall, in addition, to the extent of the interest in and to the Assets acquired
by Purchaser pursuant to the terms of this Agreement, indemnify Vendor from and
against, all losses, costs, claims, damages, expenses and liabilities suffered,
sustained, paid or incurred by Vendor arising in connection with all acts or
omissions of Vendor in its capacity as agent of Purchaser to the extent such
acts and omissions were expressly or impliedly authorized by Purchaser. 

10.2    No Merger 

          The
covenants, representations, warranties and indemnities contained in this
Agreement shall be deemed to be restated in any and all assignments,
conveyances, transfers and other documents conveying the interests of Vendor in
and to the Assets to Purchaser, subject to any and all time and other
limitations contained in this Agreement. There shall not be any merger of any
covenant, representation, warranty or indemnity in such assignments,
conveyances, transfers and other documents notwithstanding any rule of law,
equity or statute to the contrary and such rules are hereby waived. 

10.3    Entire Agreement 

          The
provisions contained in any and all documents and agreements collateral hereto
shall at all times be read subject to the provisions of this Agreement and, in
the event of conflict, the provisions of this Agreement shall prevail. No
amendments shall be made to this Agreement unless in writing, executed by the
Parties. This Agreement supersedes all other agreements, documents, writings and
verbal understandings among the Parties relating to the subject matter hereof
and expresses the entire agreement of the Parties with respect to the subject
matter hereof. 

10.4    Subrogation 

          The
assignment and conveyance to be effected by this Agreement is made with full
right of substitution and subrogation of Purchaser in and to all covenants,
representations, warranties and indemnities previously given or made by others
in respect of the Assets or any part or portion thereof. 

- 19 - 

10.5    Governing Law 

          This
Agreement shall, in all respects, be subject to, interpreted, construed and
enforced in accordance with and under the laws of the Province of Alberta and
applicable laws of Canada and shall, in all respects, be treated as a contract
made in the Province of Alberta. The Parties irrevocably attorn and submit to
the exclusive jurisdiction of the courts of the Province of Alberta and courts
of appeal therefrom in respect of all matters arising out of or in connection
with this Agreement. 

10.6    Enurement 

          This
Agreement may not be assigned by a Party without the prior written consent of
the other Party, which consent may be unreasonably and arbitrarily withheld.
This Agreement shall be binding upon and shall enure to the benefit of the
Parties and their respective administrators, trustees, receivers, successors and
permitted assigns. 

10.7    Time of Essence 

          Time
shall be of the essence in this Agreement. 

10.8    Notices 

          The
addresses for service and the fax numbers of the Parties shall be as follows:

	 	Vendor - 	Armont Energy Inc. 
	 	  	BS Oil Company Ltd. 
	 	  	Longshot Oil Company 
	 	  	c/o 
	 	 	Armont Energy Inc.
    
	 	  	P.O. Box 397 
	 	 	Somers, MT, USA
  
	 	  	59932 
	 	  	  
	 	  	Attention: Land Department
    
	 	  	Fax: (406) 756-8126 
	 	  	  
	 	Purchaser - 	Megawest Energy Corp. 
	 	  	Megawest Energy Montana Corp.
  
	 	  	c/o 
	 	  	Megawest Energy Corp. 
	 	  	800, 926 - 5th Ave. SW 
	 	  	Calgary, AB, Canada 
	 	  	T2P 0N7 
	 	  	  
	 	  	Attention: Land Department
    
	 	  	Fax: (403) 984-6343

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

- 20 - 

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

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

	 	 	 
	 	(c) 	
      except in the event of an actual or threatened postal
      strike or other labour disruption that may affect mail service, by mailing
      first class registered post, postage prepaid, to a Party at the address of
      such Party set out above, in which case the item so mailed shall be deemed
      to have been received by that Party on the third Business Day following
      the date of mailing (the date of mailing being the Business Day
      immediately prior to the postmarked date of the envelope containing the
      notice, communication or statement or if the subject envelope has been
      lost or destroyed, the date of such notice, communication or statement or
      if undated the date of the transmittal letter accompanying the
    same).

A Party may from time to time change its address for service or
its fax number or both by giving written notice of such change to the other
Party. 

10.9    Invalidity of Provisions 

          In
case any of the provisions of this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. 

10.10 Waiver 

          No
failure on the part of any Party in exercising any right or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or remedy preclude any other or further exercise thereof or the
exercise of any right or remedy in law or in equity or by statute or otherwise
conferred. No waiver of any provision of this Agreement, including without
limitation, this section, shall be effective otherwise than by an instrument in
writing dated subsequent to the date hereof, executed by a duly authorized
representative of the Party making such waiver. 

10.11 Amendment 

          This
Agreement shall not be varied in its terms or amended by oral agreement or by
representations or otherwise other than by an instrument in writing dated
subsequent to the date hereof, executed by a duly authorized representative of
each Party. 

10.12 Agreement not Severable 

          This
Agreement extends to the whole of the Assets and is not severable without
Purchaser's express written consent or as otherwise herein provided. 

- 21 - 

10.13 Confidentiality and Public Announcements 

          Until
Closing has occurred, each Party shall keep confidential all information
obtained from the other Party in connection with the Assets and shall not
release any information concerning this Agreement and the transactions herein
provided for, without the prior written consent of the other Party, which
consent shall not be unreasonably withheld. Nothing contained herein shall
prevent a Party at any time from furnishing information (i) to any governmental
agency or regulatory authority or to the public if required by applicable law,
provided that the Parties shall advise each other in advance of any public
statement which they propose to make, (ii) in connection with obtaining consents
or complying with preferential, preemptive or first purchase rights contained in
Title Documents and any other agreements and documents to which the Assets are
subject, or (iii) to procure the consent of Vendor's lenders. 

10.14 Privacy Laws 

          All
disclosures of "personal information" pursuant to this Agreement shall only be
carried out in compliance with applicable Privacy Laws. The Parties agree that
the transaction proposed by this Agreement constitutes a "business transaction"
within the meaning of Privacy Laws. Each Party agrees only to request from the
other Party and each Party agrees only to provide to the other Party, "personal
information" which is necessary: (a) for the Parties to determine whether to
proceed with the transaction contemplated by this Agreement; and (b) if the
Closing is to occur, for the Parties to carry out and complete the Closing. The
Parties agree that the collection, use and disclosure of "personal information"
is restricted to the purposes that relate to the transaction contemplated by
this Agreement. 

          If
Closing occurs, Purchaser hereby undertakes to use and disclose the "personal
information" about Third Parties that is obtained from Vendor only for those
purposes for which the information was initially collected from or in respect of
such Third Parties. The Parties acknowledge and agree that the "personal
information" which is provided by Vendor to Purchaser shall be: (a) information
that relates solely to the Assets; and (b) information that relates solely to
carrying out the objects for which the Closing occurs. 

          If
Closing does not occur, Purchaser shall destroy or turn over (at the option of
Vendor) to Vendor all of the "personal information" obtained in contemplation of
Closing and still in the custody of (or under the control of) Purchaser. 

10.15 Securities Act Disclosure 

          Vendor
covenants and agrees to provide Purchaser, its personnel and advisors
(including, without limitation, any auditors, accountants, legal, engineering
and environmental advisors engaged by Purchaser) such information and to make
available such of Vendor's personnel as may be reasonably required by Purchaser
to satisfy the disclosure obligations of Purchaser relating to the Assets and
now or hereafter arising under any national instrument or local securities
commission rule. 

10.16 Infrastructure 

          Following
the Closing Time, where Purchaser determines that it is in the best interests of
the Parties to construct and install transmission pipelines, up-grader plants,
or other such infrastructure, it shall deliver to Vendor a plan for development
and AFE in respect of such infrastructure project. Vendor shall have the option
to participate in the ownership and costs of 

- 22 - 

such infrastructure project. Should Vendor determine not to
participate in such project, Purchaser may assess a reasonable fee against the
revenue generated by the Vendor's working interest in the lands serviced by such
infrastructure project. 

10.17 Limitation on Damages 

          For
  the breach or non-performance by any Party of any representation, warranty,
  covenant, or agreement contained in this Agreement, the liability of the obligor
  shall be limited to direct actual damages only, except to the extent that the
  obligee is entitled to specific performance or injunctive relief. AS BETWEEN
  THE PARTIES, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NO
  PARTY SHALL BE LIABLE TO ANY OTHER PARTY AS THE RESULT OF A BREACH OR A VIOLATION
  OF ANY REPRESENTATION, WARRANTY, COVENANT, AGREEMENT, OR CONDITION CONTAINED
  IN THIS AGREEMENT FOR SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY,
  OR INDIRECT DAMAGES, LOST PROFITS, OR OTHER BUSINESS INTERRUPTION DAMAGES, IN
  TORT, IN CONTRACT, UNDER ANY INDEMNITY PROVISION, ARISING BY OPERATION OF LAW
  (INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY), OR OTHERWISE. WITH RESPECT
  TO CLAIMS BY THIRD PERSONS, A PARTY MAY RECOVER FROM THE OTHER PARTY ALL COSTS,
  EXPENSES, OR DAMAGES (INCLUDING, WITHOUT LIMITATION, SPECIAL, CONSEQUENTIAL,
  INCIDENTAL, PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES), LOST PROFITS, AND OTHER
  BUSINESS INTERRUPTION DAMAGES IN ADDITION TO ACTUAL DIRECT DAMAGES PAID OR OWED
  TO ANY SUCH THIRD PERSON IN SETTLEMENT OR SATISFACTION OF CLAIMS AS TO WHICH
  THE RELEVANT PARTY IS ENTITLED TO INDEMNIFICATION HEREUNDER.

10.18 Counterpart Execution 

          This
Agreement may be executed in counterpart, no one copy of which need be executed
by Vendor and Purchaser. A valid and binding contract shall arise if and when
counterpart execution pages are executed and delivered by Vendor and Purchaser.

          IN
WITNESS WHEREOF the Parties have executed this Agreement as of the day and year
first above written. 

	ARMONT ENERGY INC. 	 	BS OIL COMPANY LTD. 
	 	 	 	 	 
	Per: 	/s/ signed
    	 	Per: 	/s/ Geoffrey
      Say 
	 	 	 	 	 
	Per: 		 	Per: 	
	 	 	 	 	 
	LONGSHOT OIL COMPANY. 	 	MEGAWEST ENERGY CORP. 
	 	 	 	 	 
	Per: 	/s/ signed
    	 	Per: 	/s/ George
      Stapleton, II 
	 	 	 	 	 
	Per: 		 	Per: 	

- 23 - 

	MEGAWEST ENERGY MONTANA CORP. 	 	 	 
	 	 	 	 	 
	Per: 	/s/ George
      Stapleton, II 	 	 	 
	 	 	 	 	 
	Per: 	  	 	 	 

THE FOLLOWING 5 PAGES COMPRISE SCHEDULE "A" ATTACHED TO AND FORMING
  PART OF AN AGREEMENT OF PURCHASE AND SALE MADE AS OF THE 15 DAY OF OCTOBER,
  2007 BETWEEN ARMONT ENERGY INC., BS OIL COMPANY LTD., LONGSHOT OIL COMPANY,
  MEGAWEST ENERGY CORP. AND MEGAWEST ENERGY MONTANA CORP. 

Loma Area 

	Lease Date

	Lease/Acreage 
	Land
      Description 
	Assigned
      
Interest 
	January 14, 2007
      

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

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

	October 11, 2006 

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

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

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

- 2 - 

Teton Area 

	Lease Date

	Lease/Acreage 
	Land
      Description 
	Assigned
      
Interest 
	September 16, 2007
      

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

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

	September 22, 2005 

	Mark N. Squires 
Revocable Living Trust
      
(880 acres) 

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

	September 22, 2005 

	Helen Van Horn 
(2160 acres)
    

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

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

	September 23, 2005 

	James Olson 
(1720 acres)
      

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

- 3 - 

	Lease Date

	Lease/Acreage 
	Land
      Description 
	Assigned
      
Interest 
	September 24, 2005 

	Terry Jewell 
(1320 acres) 

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

	October 12, 2005

	Gary Argenbright & 
Argenbright Farms
      
(2120 acres) 

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

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

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

	October 13, 2005 

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

	October 14, 2005
      

	Martin & Toni 
Molinario 
(2275.04
      acres) 

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

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

	November 2, 2005 

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

	40%

- 4 - 

	Lease Date

	Lease/Acreage 
	Land
      Description 
	Assigned
      
Interest 
	November 12, 2005 

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

	November 15, 2005 

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

	December 6, 2005 

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

	December 6, 2005 

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

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

	June 6, 2006 

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

	June 6, 2006 

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

	40% 

	March 6, 2007 

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

	March 6, 2007 

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

	March 6, 2007 

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

	March 6, 2007 

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

	March 6, 2007 

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

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

- 5 - 

	Lease Date

	Lease/Acreage 
	Land
      Description 
	Assigned
      
Interest 
	April 18, 2007
    

	Kalanick Ranch, 
Incorporated 
(2,720
      acres) 

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

THE FOLLOWING 55 PAGES COMPRISE SCHEDULE "B" ATTACHED TO AND
  FORMING PART OF AN AGREEMENT OF PURCHASE AND SALE MADE AS OF THE 15 DAY OF OCTOBER,
  2007 BETWEEN ARMONT ENERGY INC., BS OIL COMPANY LTD., LONGSHOT OIL COMPANY,
  MEGAWEST ENERGY CORP. AND MEGAWEST ENERGY MONTANA CORP. 

 THE FOLLOWING 51 PAGES COMPRISE SCHEDULE "C" ATTACHED TO AND
  FORMING PART OF AN AGREEMENT OF PURCHASE AND SALE MADE AS OF THE 15 DAY OF OCTOBER,
  2007 BETWEEN ARMONT ENERGY INC., BS OIL COMPANY LTD., LONGSHOT OIL COMPANY,
  MEGAWEST ENERGY CORP. AND MEGAWEST ENERGY MONTANA CORP. 

 THE FOLLOWING 48 PAGES COMPRISE SCHEDULE "D" ATTACHED TO AND
  FORMING PART OF AN AGREEMENT OF PURCHASE AND SALE MADE AS OF THE 15 DAY OF OCTOBER,
  2007 BETWEEN ARMONT ENERGY INC., BS OIL COMPANY LTD., LONGSHOT OIL COMPANY,
  MEGAWEST ENERGY CORP. AND MEGAWEST ENERGY MONTANA CORP. 

THE FOLLOWING 5 PAGES COMPRISE SCHEDULE "E" ATTACHED TO AND FORMING
  PART OF AN AGREEMENT OF PURCHASE AND SALE MADE AS OF THE 15 DAY OF OCTOBER,
  2007 BETWEEN ARMONT ENERGY INC., BS OIL COMPANY LTD., LONGSHOT OIL COMPANY,
  MEGAWEST ENERGY CORP. AND MEGAWEST ENERGY MONTANA CORP. 

CERTIFICATE OF NON-U.S. SHAREHOLDER 

In connection with the issuance of common stock (the “Pubco
Shares”) of MEGAWEST ENERGY CORP., a British Columbia corporation (“Pubco”), to
the undersigned, pursuant to that certain Agreement of Purchase and Sale dated
October *, 2007 (the “Agreement”), among Pubco, MegaWest Energy Montana Corp.,
Armont Energy Inc., BS Oil Company Ltd. and Longsghot Oil Company (each, a
“Selling Shareholder”), the undersigned Selling Shareholder hereby agrees,
acknowledges, represents and warrants that: 

          1.      the
undersigned is not a “U.S. Person” as such term is defined by Rule 902 of
Regulation S under the United States Securities Act of 1933, as amended (“U.S.
Securities Act”) (the definition of which includes, but is not limited to, an
individual resident in the U.S. and an estate or trust of which any executor or
administrator or trust, respectively is a U.S. Person and any partnership or
corporation organized or incorporated under the laws of the U.S.); 

          2.      none
of the Pubco Shares have been or will be registered under the U.S. Securities
Act, or under any state securities or “blue sky” laws of any state of the United
States, and may not be offered or sold in the United States or, directly or
indirectly, to U.S. Persons, as that term is defined in Regulation S, except in
accordance with the provisions of Regulation S or pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the U.S.
Securities Act and in compliance with any applicable state and foreign
securities laws; 

          3.      the
Selling Shareholder understands and agrees that offers and sales of any of the
Pubco Shares prior to the expiration of a period of one year after the date of
original issuance of the Pubco Shares (the one year period hereinafter referred
to as the “Distribution Compliance Period”) shall only be made in compliance
with the safe harbor provisions set forth in Regulation S, pursuant to the
registration provisions of the U.S. Securities Act or an exemption therefrom,
and that all offers and sales after the Distribution Compliance Period shall be
made only in compliance with the registration provisions of the U.S. Securities
Act or an exemption therefrom and in each case only in accordance with
applicable state and foreign securities laws; 

          4.      the
Selling Shareholder understands and agrees not to engage in any hedging
transactions involving any of the Pubco Shares unless such transactions are in
compliance with the provisions of the U.S. Securities Act and in each case only
in accordance with applicable state and provincial securities laws; 

          5.      the
Selling Shareholder is acquiring the Pubco Shares for investment only and not
with a view to resale or distribution and, in particular, it has no intention to
distribute either directly or indirectly any of the Pubco Shares in the United
States or to U.S. Persons; 

          6.      the
Selling Shareholder has not acquired the Pubco Shares as a result of, and will
not itself engage in, any directed selling efforts (as defined in Regulation S
under the U.S. 

- 2 - 

Securities Act) in the United States in respect of the Pubco
Shares which would include any activities undertaken for the purpose of, or that
could reasonably be expected to have the effect of, conditioning the market in
the United States for the resale of any of the Pubco Shares; provided, however,
that the Selling Shareholder may sell or otherwise dispose of the Pubco Shares
pursuant to registration thereof under the U.S. Securities Act and any
applicable state and provincial securities laws or under an exemption from such
registration requirements; 

          7.      the
statutory and regulatory basis for the exemption claimed for the sale of the
Pubco Shares, although in technical compliance with Regulation S, would not be
available if the offering is part of a plan or scheme to evade the registration
provisions of the U.S. Securities Act or any applicable state and provincial
securities laws; 

          8.     
Pubco has not undertaken, and will have no obligation (expect as provided for
pursuant to the agreement to which this Schedule is made a part of), to register
any of the Pubco Shares under the U.S. Securities Act; 

          9.      Pubco
is entitled to rely on the acknowledgements, agreements, representations and
warranties and the statements and answers of the Selling Shareholder contained
in the Agreement and this Certificate, and the Selling Shareholder will hold
harmless Pubco from any loss or damage either one may suffer as a result of any
such acknowledgements, agreements, representations and/or warranties made by the
Selling Shareholder not being true and correct; 

          10.      the
undersigned has been advised to consult their own respective legal, tax and
other advisors with respect to the merits and risks of an investment in the
Pubco Shares and, with respect to applicable resale restrictions, is solely
responsible (and Pubco is not in any way responsible) for compliance with
applicable resale restrictions; 

          11.      the
undersigned and the undersigned’s advisor(s) have had a reasonable opportunity
to ask questions of and receive answers from Pubco in connection with the
acquisition of the Pubco Shares under the Agreement, and to obtain additional
information, to the extent possessed or obtainable by Pubco without unreasonable
effort or expense; 

          12.      the
books and records of Pubco were available upon reasonable notice for inspection,
subject to certain confidentiality restrictions, by the undersigned during
reasonable business hours at its principal place of business and that all
documents, records and books in connection with the acquisition of the Pubco
Shares under the Agreement have been made available for inspection by the
undersigned, the undersigned’s attorney and/or advisor(s); 

          13.      the
undersigned: 

	 	(a) 	
      is knowledgeable of, or has been independently advised as
      to, the applicable securities laws of the securities regulators having
      application in the jurisdiction in which the undersigned is resident (the
      “International Jurisdiction”) which would apply to the acquisition of the
      Pubco Shares;

	 	 	 
	 	(b) 	
      the undersigned is acquiring the Pubco Shares pursuant to
      exemptions from prospectus or equivalent requirements under applicable
      securities laws or, if such is not applicable, the undersigned is
      permitted to acquire the Pubco Shares under the applicable securities laws
      of the securities regulators in the International Jurisdiction without the
      need to rely on any exemptions;

- 3 - 

	 	(c) 	
      the applicable securities laws of the authorities in the
      International Jurisdiction do not require Pubco to make any filings or
      seek any approvals of any kind whatsoever from any securities regulator of
      any kind whatsoever in the International Jurisdiction in connection with
      the issue and sale or resale of the Pubco Shares; and

	 	 	 	 
	 	(d) 	
      the acquisition of the Pubco Shares by the undersigned
      does not trigger:

	 	 	 	 
	 		(i) 	
      any obligation to prepare and file a prospectus or
      similar document, or any other report with respect to such purchase in the
      International Jurisdiction; or

	 	 	 	 
	 		(ii) 	
      any continuous disclosure reporting obligation of Pubco
      in the International Jurisdiction; and

the undersigned will, if requested by
Pubco, deliver to Pubco a certificate or opinion of local counsel from the
International Jurisdiction which will confirm the matters referred to in
Sections 13(c) and 13(d) above to the satisfaction of Pubco, acting reasonably;

          14.     
the undersigned (i) is able to fend for itself in connection with the
acquisition of the Pubco Shares; (ii) has such knowledge and experience in
business matters as to be capable of evaluating the merits and risks of its
prospective investment in the Pubco Shares; and (iii) has the ability to bear
the economic risks of its prospective investment and can afford the complete
loss of such investment; 

          15.      the
undersigned is not aware of any advertisement of any of the Pubco Shares and is
not acquiring the Pubco Shares as a result of any form of general solicitation
or general advertising including advertisements, articles, notices or other
communications published in any newspaper, magazine or similar media or
broadcast over radio or television, or any seminar or meeting whose attendees
have been invited by general solicitation or general advertising; 

          16.      no
person has made to the undersigned any written or oral representations: 

	 	(a) 	
      that any person will resell or repurchase any of the
      Pubco Shares;

	 	 	 
	 	(b) 	
      that any person will refund the purchase price of any of
      the Pubco Shares;

	 	 	 
	 	(c) 	
      as to the future price or value of any of the Pubco
      Shares; or

	 	 	 
	 	(d) 	
      that any of the Pubco Shares will be listed and posted
      for trading on any stock exchange or automated dealer quotation system or
      that application has been made to list and post any of the Pubco Shares on
      any stock exchange or automated dealer quotation system, except that
      currently certain market makers make market in the common shares of Pubco
      on the OTC Bulletin Board;

          17.     
none of the Pubco Shares are listed on any stock exchange or automated dealer
quotation system and no representation has been made to the undersigned that any
of the Pubco Shares will become listed on any stock exchange or automated dealer
quotation system, 

- 4 - 

except that currently certain market makers make market in the
common shares of Pubco on the OTC Bulletin Board; 

          18.      the
undersigned is outside the United States when receiving and executing this
Agreement and is acquiring the Pubco Shares as principal for their own account,
for investment purposes only, and not with a view to, or for, resale,
distribution or fractionalization thereof, in whole or in part, and no other
person has a direct or indirect beneficial interest in the Pubco Shares;

          19.      neither
the SEC nor any other securities commission or similar regulatory authority has
reviewed or passed on the merits of the Pubco Shares; 

          20.      the
Pubco Shares are not being acquired, directly or indirectly, for the account or
benefit of a U.S. Person or a person in the United States; 

          21.      the
undersigned acknowledges and agrees that Pubco shall refuse to register any
transfer of Pubco Shares not made in accordance with the provisions of
Regulation S, pursuant to registration under the U.S. Securities Act, or
pursuant to an available exemption from registration under the U.S. Securities
Act; 

          22.      the
undersigned understands and agrees that the Pubco Shares will bear the following
legend: 

  
    
      “THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED
        IN AN OFFSHORE TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED
        HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT
        OF 1933, AS AMENDED (THE “1933 ACT”). 

      NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED
        UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO
        REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE
        UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE
        WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN
        EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN
        AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
        REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH
        APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING
        THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933
        ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED
        BY REGULATION S UNDER THE 1933 ACT.” 

    

  

- 5 - 

          23.      the
address of the undersigned included herein is the sole address of the
undersigned as of the date of this certificate. 

IN WITNESS WHEREOF, I have executed this Certificate of
Non-U.S. Shareholder. 

		           Date:_______________________________,
      2007 
	 	 
	Signature 	  
	 	 
	Print Name 	  
	 	 
	Title (if applicable) 	  
	 	 
	Address 	  
	 	 

THIS AND THE FOLLOWING 5 PAGES COMPRISE SCHEDULE "F" ATTACHED
  TO AND FORMING PART OF AN AGREEMENT OF PURCHASE AND SALE MADE AS OF THE 15 DAY
  OF OCTOBER, 2007 BETWEEN ARMONT ENERGY INC., BS OIL COMPANY LTD., LONGSHOT OIL
  COMPANY, MEGAWEST ENERGY CORP. AND MEGAWEST ENERGY MONTANA CORP. 

CERTIFICATE OF U.S. SHAREHOLDER 

In connection with the issuance of common stock (the “Pubco
Shares”) of MEGAWEST ENERGY CORP., a British Columbia corporation (“Pubco”), to
the undersigned, pursuant to that certain Agreement of Purchase and Sale dated
October *, 2007 (the “Agreement”), among Pubco, MegaWest Energy Montana Corp.,
Armont Energy Inc., BS Oil Company Ltd. and Longshot Oil Company (each, a
“Selling Shareholder”), the undersigned Selling Shareholder hereby agrees,
acknowledges, represents and warrants that: 

          1.     
the undersigned satisfies one or more of the categories of "Accredited
Investors", as defined by Regulation D promulgated under the United States
Securities Act of 1933, as amended (the “U.S. Securities Act”), as indicated
below: (Please initial in the space provide those categories, if any, of an
"Accredited Investor" which the undersigned satisfies.) 

	 	______	Category 1 	
      An organization described in Section 501(c)(3) of the
      United States Internal Revenue Code, a corporation, a Massachusetts or
      similar business trust or partnership, not formed for the specific purpose
      of acquiring the Shares, with total assets in excess of US $5,000,000.
    

	 	 	  	
       

	 	______	Category 2 	
      A natural person whose individual net worth, or joint net
      worth with that person's spouse, on the date of purchase exceeds US
      $1,000,000. 

	 	 	  	
       

	 	______	Category 3 	
      A natural person who had an individual income in excess
      of US $200,000 in each of the two most recent years or joint income with
      that person's spouse in excess of US $300,000 in each of those years and
      has a reasonable expectation of reaching the same income level in the
      current year. 

	 	 	  	
       

	 	______	Category 4 	
      A "bank" as defined under Section (3)(a)(2) of the 1933
      Act or savings and loan association or other institution as defined in
      Section 3(a)(5)(A) of the Securities Act acting in its individual or
      fiduciary capacity; a broker dealer registered pursuant to Section 15 of
      the Securities Exchange Act of 1934 (United States); an insurance
      company as defined in Section 2(13) of the 1933 Act; an investment company
      registered under the Investment Company Act of 1940 (United States)
      or a business development company as defined in Section 2(a)(48) of such
      Act; a Small Business Investment Company licensed by the U.S. Small
      Business Administration under Section 301(c) or (d) of the Small
      Business Investment Act of 1958 (United States); a plan with total
      assets in excess of $5,000,000 established and maintained by a state, a
      political subdivision thereof, or an agency or

- 2 - 

	 			
      instrumentality of a state or a political subdivision
      thereof, for the benefit of its employees; an employee benefit plan within
      the meaning of the Employee Retirement Income Security Act of 1974
      (United States) whose investment decisions are made by a plan fiduciary,
      as defined in Section 3(21) of such Act, which is either a bank, savings
      and loan association, insurance company or registered investment adviser,
      or if the employee benefit plan has total assets in excess of $5,000,000,
      or, if a self-directed plan, whose investment decisions are made solely by
      persons that are accredited investors. 

	 	 	  	
       

	 	______	Category 5 	
      A private business development company as defined in
      Section 202(a)(22) of the Investment Advisers Act of 1940 (United
      States). 

	 	 	  	
       

	 	______	Category 6 	
      A director or executive officer of the Company.

	 	 	  	
       

	 	______	Category 7 	
      A trust with total assets in excess of $5,000,000, not
      formed for the specific purpose of acquiring the Shares, whose purchase is
      directed by a sophisticated person as described in Rule 506(b)(2)(ii)
      under the 1933 Act. 

	 	 	  	
       

	 	______	Category 8 	
      An entity in which all of the equity owners satisfy the
      requirements of one or more of the foregoing categories.

Note that for any of the Selling
Shareholders claiming to satisfy one of the above categories of Accredited
Investor may be required to supply the Company with a balance sheet, prior
years' federal income tax returns or other appropriate documentation to verify
and substantiate the Subscriber's status as an Accredited Investor. 

If the Selling Shareholder is an entity
which initialled Category 8 in reliance upon the Accredited Investor categories
above, state the name, address, total personal income from all sources for the
previous calendar year, and the net worth (exclusive of home, home furnishings
and personal automobiles) for each equity owner of the said entity:

______________________________________________________________________

          2.      none
of the Pubco Shares have been or will be registered under the U.S. Securities
Act, or under any state securities or “blue sky” laws of any state of the United
States, and may not be offered or sold in the United States or, directly or
indirectly, to U.S. Persons, as that term is defined in Regulation S, except in
accordance with the provisions of Regulation S or pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the U.S.
Securities Act and in compliance with any applicable state and foreign
securities laws; 

          3.      the
Selling Shareholder understands and agrees that offers and sales of any of the
Pubco Shares shall be made only in compliance with the registration provisions
of the U.S. Securities Act or an exemption therefrom and in each case only in
accordance with applicable state and foreign securities laws; 

          4.      the
Selling Shareholder understands and agrees not to engage in any hedging
transactions involving any of the Pubco Shares unless such transactions are in
compliance with the provisions of the U.S. Securities Act and in each case only
in accordance with applicable state and provincial securities laws; 

          5.      the
Selling Shareholder is acquiring the Pubco Shares for investment only and not
with a view to resale or distribution and, in particular, it has no intention to
distribute either directly or indirectly any of the Pubco Shares in the United
States or to U.S. Persons; 

          6.      Pubco
has not undertaken, and will have no obligation (expect as provided for pursuant
to the agreement to which this Schedule is made a part of), to register any of
the Pubco Shares under the U.S. Securities Act; 

          7.      Pubco
is entitled to rely on the acknowledgements, agreements, representations and
warranties and the statements and answers of the Selling Shareholder contained
in the Agreement and this Certificate, and the Selling Shareholder will hold
harmless Pubco from any loss or damage either one may suffer as a result of any
such acknowledgements, agreements, representations and/or warranties made by the
Selling Shareholder not being true and correct; 

          8.      the
undersigned has been advised to consult their own respective legal, tax and
other advisors with respect to the merits and risks of an investment in the
Pubco Shares and, with respect to applicable resale restrictions, is solely
responsible (and Pubco is not in any way responsible) for compliance with
applicable resale restrictions; 

          9.      the
undersigned and the undersigned’s advisor(s) have had a reasonable opportunity
to ask questions of and receive answers from Pubco in connection with the
acquisition of the Pubco Shares under the Agreement, and to obtain additional
information, to the extent possessed or obtainable by Pubco without unreasonable
effort or expense; 

          10.     
the books and records of Pubco were available upon reasonable notice for
inspection, subject to certain confidentiality restrictions, by the undersigned
during reasonable business hours at its principal place of business and that all
documents, records and books in connection with the acquisition of the Pubco
Shares under the Agreement have been made available for inspection by the
undersigned, the undersigned’s attorney and/or advisor(s); 

          11.      the
undersigned: 

	 	(a) 	
      is knowledgeable of, or has been independently advised as
      to, the applicable securities laws of the securities regulators having
      application in the jurisdiction in which the undersigned is resident (the
      “International Jurisdiction”) which would apply to the acquisition of the
      Pubco Shares;

	 	 	 
	 	(b) 	
      the undersigned is acquiring the Pubco Shares pursuant to
      exemptions from prospectus or equivalent requirements under applicable
      securities laws or, if such is not applicable, the undersigned is
      permitted to acquire the Pubco Shares under the applicable securities laws
      of the securities regulators in the International Jurisdiction without the
      need to rely on any exemptions;

	 	 	 
	 	(c) 	
      the applicable securities laws of the authorities in the
      International Jurisdiction do not require Pubco to make any filings or
      seek any

- 4 - 

	 		
      approvals of any kind whatsoever from any securities
      regulator of any kind whatsoever in the International Jurisdiction in
      connection with the issue and sale or resale of the Pubco Shares;
    and

	 	 	 	 
	 	(d) 	
      the acquisition of the Pubco Shares by the undersigned
      does not trigger:

	 	 	 	 
	 		(i) 	
      any obligation to prepare and file a prospectus or
      similar document, or any other report with respect to such purchase in the
      International Jurisdiction; or

	 	 	 	 
	 		(ii) 	
      any continuous disclosure reporting obligation of Pubco
      in the International Jurisdiction; and

the undersigned will, if requested by Pubco, deliver to Pubco a
certificate or opinion of local counsel from the International Jurisdiction
which will confirm the matters referred to in Sections 11(c) and 11(d) above to
the satisfaction of Pubco, acting reasonably; 

          12.      the
undersigned (i) is able to fend for itself in connection with the acquisition of
the Pubco Shares; (ii) has such knowledge and experience in business matters as
to be capable of evaluating the merits and risks of its prospective investment
in the Pubco Shares; and (iii) has the ability to bear the economic risks of its
prospective investment and can afford the complete loss of such investment; 

          13.     
the undersigned is not aware of any advertisement of any of the Pubco Shares and
is not acquiring the Pubco Shares as a result of any form of general
solicitation or general advertising including advertisements, articles, notices
or other communications published in any newspaper, magazine or similar media or
broadcast over radio or television, or any seminar or meeting whose attendees
have been invited by general solicitation or general advertising; 

          14.      no
person has made to the undersigned any written or oral representations: 

	 	(a) 	
      that any person will resell or repurchase any of the
      Pubco Shares;

	 	 	 
	 	(b) 	
      that any person will refund the purchase price of any of
      the Pubco Shares;

	 	 	 
	 	(c) 	
      as to the future price or value of any of the Pubco
      Shares; or

	 	 	 
	 	(d) 	
      that any of the Pubco Shares will be listed and posted
      for trading on any stock exchange or automated dealer quotation system or
      that application has been made to list and post any of the Pubco Shares on
      any stock exchange or automated dealer quotation system, except that
      currently certain market makers make market in the common shares of Pubco
      on the OTC Bulletin Board;

          15.      none
of the Pubco Shares are listed on any stock exchange or automated dealer
quotation system and no representation has been made to the undersigned that any
of the Pubco Shares will become listed on any stock exchange or automated dealer
quotation system, except that currently certain market makers make market in the
common shares of Pubco on the OTC Bulletin Board; 

- 5 - 

          16.      the
undersigned is acquiring the Pubco Shares as principal for their own account,
for investment purposes only, and not with a view to, or for, resale,
distribution or fractionalization thereof, in whole or in part, and no other
person has a direct or indirect beneficial interest in the Pubco Shares;

          17.      neither
the SEC nor any other securities commission or similar regulatory authority has
reviewed or passed on the merits of the Pubco Shares; 

          18.      the
undersigned acknowledges and agrees that Pubco shall refuse to register any
transfer of Pubco Shares not made in accordance with the provisions of
Regulation S, pursuant to registration under the U.S. Securities Act, or
pursuant to an available exemption from registration under the U.S. Securities
Act; 

          19.      the
undersigned understands and agrees that the Pubco Shares will bear the following
legend: 

  
    
      “NONE OF THE SECURITIES REPRESENTED HEREBY HAVE
        BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
        (THE “1933 ACT”), OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS
        SO REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN
        THE UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE
        WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN
        EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN
        AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
        REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH
        APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING
        THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933
        ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED
        BY REGULATION S UNDER THE 1933 ACT.” 

    

  

- 6 - 

          20.      the
address of the undersigned included herein is the sole address of the
undersigned as of the date of this certificate. 

IN WITNESS WHEREOF, I have executed this Certificate of U.S.
Shareholder. 

		          Date:_______________________________,
      2007 
	Signature 	  
	 	 
	Print Name 	  
	 	 
	Title (if applicable) 	  
	 	 
	Address 	  
	 	 

THIS AND THE FOLLOWING 2 PAGES COMPRISE SCHEDULE "G" ATTACHED
  TO AND FORMING PART OF AN AGREEMENT OF PURCHASE AND SALE MADE AS OF THE 15 DAY
  OF OCTOBER, 2007 BETWEEN ARMONT ENERGY INC., BS OIL COMPANY LTD., LONGSHOT OIL
  COMPANY, MEGAWEST ENERGY CORP. AND MEGAWEST ENERGY MONTANA CORP. 

NATIONAL INSTRUMENT 45-106 INVESTOR QUESTIONNAIRE 

In connection with the issuance of common stock (the “Pubco
Shares”) of MEGAWEST ENERGY CORP., a British Columbia corporation (“Pubco”), to
the undersigned, pursuant to that certain Agreement of Purchase and Sale dated
October *, 2007 (the “Agreement”), among Pubco, MegaWest Energy Montana Corp.,
Armont Energy Inc., BS Oil Company Ltd. and Longshot Oil Company (each, a
“Selling Shareholder”), the undersigned Selling Shareholder hereby agrees,
acknowledges, represents and warrants that: 

(The purpose of this Questionnaire is to assure Pubco that the
Selling Shareholders will meet certain requirements for the registration and
prospectus exemptions provided for under National Instrument 45-106 (“NI
45-106”), as adopted by the British Columbia Securities Commission in respect to
the issuance of the Pubco Shares pursuant to the Transaction. Pubco will rely on
the information contained in this Questionnaire for the purposes of such
determination.) 

	 	1. 	 the Selling Shareholder is (check one or
        more of the following boxes):

      	[   ]
	 	 	 	 	
	 		(a) 	 a director, executive officer, employee or control
        person of Pubco or an affiliate of Pubco
	[   ]
	 	 	 	 	
	 		(b) 	 a spouse, parent, grandparent, brother, sister or child
        of a director, executive officer or control person of Pubco or an affiliate
        of Pubco
	[   ]
	 	 	 	 	
	 		(c) 	 a parent, grandparent, brother, sister or child of
        the spouse of a director, executive officer or control person of Pubco
        or an affiliate of Pubco
	[   ]
	 	 	 	 	
	 		(d) 	 a close personal friend of a director, executive officer
        or control person of Pubco or an affiliate of Pubco
	[   ]
	 	 	 	 	
	 		(e) 	 a close business associate of a director, executive
        officer or control person of Pubco or an affiliate of Pubco
	[   ]
	 	 	 	 	
	 		(f) 	 a founder of Pubco or a spouse, parent, grandparent,
        brother, sister, child, close personal friend or close business associate
        of a founder of Pubco
	[   ]
	 	 	 	 	
	 		(g) 	 a parent, grandparent, brother, sister or child of
        the spouse of a founder of Pubco
	[   ]
	 	 	 	 	
	 		(h) 	 a company, partnership or other entity which a majority
        of the voting securities are beneficially owned by, or a majority of the
        directors are, persons or companies as described in paragraphs (a) to
        (g) above
	[   ]
	 	 	 	 	
	 		(i) 	 purchasing the Pubco Shares as principal with an aggregate
        value of more than CDN$150,000
	[   ]

- 2 - 

	 	(j) 	
      an accredited investor
	[   ]

	2. 	
      if the Selling Shareholder has checked one or more of
      boxes b, c, d, e, f, g or h in section 1 above, the director(s), executive
      officer(s), control person(s) or founder(s) of Pubco with whom the Selling
      Shareholder has the relationship is:

	 	 
	 	 
	 	 
	 	 
	 	 
	 	 

		
      (Instructions to Selling Shareholder: fill in the name
      of each director, executive officer, founder and control person which you
      have the above- mentioned relationship with. If you have checked box h,
      also indicate which of a to g describes the security holders or directors
      which qualify you as box h and provide the names of those individuals.
      Please attach a separate page if necessary).

	 	 	 
	3. 	
      If the Subscriber has ticked box j in section 1 above,
      the Selling Shareholder acknowledges and agrees that Pubco shall not
      consider the Selling Shareholder’s request for Pubco Shares for acceptance
      unless the undersigned provides to Pubco:

	 	 	 
		(i) 	
      the information required in sections 4 and 5;
  and

	 	 	 
		(ii) 	
      such other supporting documentation that Pubco or its
      legal counsel may request to establish the Selling Shareholder’s
      qualification as an Accredited Investor;

	 	 	 
	4. 	
      the Selling Shareholder has such knowledge and experience
      in financial and business matters as to be capable of evaluating the
      merits and risks of the Transaction and the Selling Shareholder is able to
      bear the economic risk of loss arising from such Transaction;

	 	 	 
	5. 	
      the Selling Shareholder satisfies one or more of the
      categories of “accredited investor” (as that term is defined in NI 45-106)
      indicated below (please check the appropriate
box):

	 	[   ] 	
      an individual who, either alone or with a spouse,
      beneficially owns, directly or indirectly, financial assets (as defined in
      NI 45-106) having an aggregate realizable value that, before taxes, but
      net of any related liabilities, exceeds CDN$1,000,000; 

	 	  	
       

	 	[   ] 	
      an individual whose net income before taxes exceeded
      CDN$200,000 in each of the two most recent calendar years or whose net
      income before taxes combined with that of a spouse exceeded CDN$300,000 in
      each of those years and who, in either case, reasonably expects to exceed
      that net income level in the current calendar year;

- 3 - 

	 	[   ] 	
      an individual who, either alone or with a spouse, has net
      assets of at least CDN$5,000,000;

	 	 	 
	 	[   ] 	
      an entity, other than an individual or investment fund,
      that has net assets of at least CDN$5,000,000 as shown on its most
      recently prepared financial statements;

	 	 	 
	 	[   ] 	
      an entity registered under the securities legislation of
      a jurisdiction of Canada as an advisor or dealer, other than a person
      registered solely as a limited market dealer under one or both of the
      Securities Act (Ontario) or the Securities Act (Newfoundland
      and Labrador), or any entity organized in a foreign jurisdiction that is
      analogous to any such person or entity; or

	 	 	 
	 	[   ] 	
      an entity in respect of which all of the owners of
      interests, direct, indirect or beneficial, except the voting securities
      required by law to be owned by directors, are persons or companies that
      are accredited investors.

The Selling Shareholder acknowledges and agrees that the
Selling Shareholder may be required by Pubco to provide such additional
documentation as may be reasonably required by Pubco and its legal counsel in
determining the Selling Shareholder’s eligibility to acquire the Pubco Shares
under relevant securities legislation. 

                  
IN WITNESS WHEREOF, the undersigned has executed this Questionnaire as of the
____ day of ________________________, 2007. 

	 	          Date:_______________________________,
      2007 
	Signature 	 
	 	 
	Print Name 	 
	 	 
	Title (if applicable) 	 
	 	 
	AddressFiled by Automated Filing Services Inc. (604) 609-0244 - MegaWest Energy Corp. - Exhibit 10.30

REGIONAL AREA OF MUTUAL INTEREST AGREEMENT

     THIS AGREEMENT made as of the 24 day
of October, 2007.

AMONG:

		
      ARMONT ENERGY INC., a body corporate, having offices in
      the Town of Somers, in Flathead County in the State of Montana, one of the
      United States of America (hereinafter referred to as "Armont") 
	
	 	
       
	 
	 	- and - 	 
	 	
       
	 
		
      BS OIL COMPANY LTD., a body corporate, having offices in
      the City of Calgary, in the Province of Alberta (hereinafter referred to
      as "BS") 
	
	 	
       
	 
	 	- and - 	 
	 	
       
	 
		
      LONGSHOT OIL COMPANY, a body corporate, having offices in
      the Town of Somers, in Flathead County in the State of Montana, one of the
      United States of America (hereinafter referred to as "Longshot") 
	
	 	
       
	 
	 	- and - 	 
	 	
       
	 
		
      MEGAWEST ENERGY MONTANA CORP., a body corporate, having
      offices in the City of Calgary, in the Province of Alberta (hereinafter
      referred to as "MegaWest Montana") 
	

     AND WHEREAS the Parties wish to
provide for an area of mutual interest pertaining to any and all Petroleum
Substances within, upon or under the Regional AMI Lands;

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

	1. 	
      DEFINITIONS

	 	 	 
		
      In this Agreement, unless the context otherwise
      requires:

	 	 	 
		(a) 	
      "Affiliate" means, with respect to the
      relationship between corporations, that one of them is controlled by the
      other or that both of them are controlled by the same person, corporation
      or body politic; and for this purpose a corporation shall be deemed to be
      controlled by those persons, corporations or bodies politic who own or
      effectively control, other than by way of security only, sufficient voting
      shares of the corporation (whether directly through the ownership of
      shares of the corporation or indirectly through the ownership of shares of
      another corporation which owns shares of the corporation) to elect the
      majority of its board of directors, provided that a partnership which is a
      party and which is comprised solely of corporations which are Affiliates,
      as described above, shall be deemed to be an affiliate of each such
      corporation and its other Affiliates;

- 2 -

		(b) 	
      "Business Day" means a day other than a Saturday,
      a Sunday or a statutory holiday in Calgary, Alberta;

	 	 	 
		(c) 	
      "Operating Procedure" means the standard form of AAPL
      Operating Procedure attached as Schedule "B" hereto;

	 	 	 
		(d) 	
      "Party" means a party to this Agreement;

	 	 	 
		(e) 	
      "Petroleum Substances" means any of crude oil,
      crude bitumen and products derived therefrom, synthetic crude oil,
      petroleum, natural gas, natural gas liquids, and any and all other
      substances related to any of the foregoing, whether liquid, solid or
      gaseous, and whether hydrocarbons or not, including without limitation
      sulphur;

	 	 	 
		(f) 	
      "Regional AMI Lands" means those lands falling, in
      whole or in part, within the area outlined in Schedule "A"
  hereto;

	 	 	 
		(g) 	
      "Term" means a period of 2 years commencing *
      October, 2007 and expiring * October, 2009; and

	 	 	 
		(h) 	
      "this Agreement", "herein",
      "hereto", "hereof" and similar expressions mean and refer to
      this Regional Area of Mutual Interest Agreement.

	 	 	 
	2. 	
      INTERPRETATION

	 	 	 
		(a) 	
      The expressions "section, "subsection", "clause",
      "subclause" and "paragraph" followed by a number or letter or combination
      thereof mean and refer to the specified section, subsection, clause,
      subclause, and paragraph of this Agreement.

	 	 	 
		(b) 	
      The division of this Agreement into sections,
      subsections, clauses, subclauses and paragraphs and the provision of
      headings for all or any thereof are for convenience and reference only and
      shall not affect the construction or interpretation of this
    Agreement.

	 	 	 
		(c) 	
      When the context reasonably permits, words suggesting the
      singular shall be construed as suggesting gender or gender neutrality
      shall be construed as suggesting the masculine, feminine and neutral
      genders.

	 	 	 
	3. 	
      AREA OF MUTUAL INTEREST

	 	 	 
		(a) 	
      The Parties hereby establish an area of mutual interest
      encompassing all lands, formations and Petroleum Substances within the
      Regional AMI Lands, which area of mutual interest shall remain active
      during the Term.

	 	 	 
		(b) 	
      The interest in the area of mutual interest shall be
      allocated 65% to MegaWest Montana, 25% to Longshot, 5% to Armont and 5% to
      BS Oil.

	 	 	 
		(c) 	
      During the Term, if any Party wishes to acquire from the
      State or Bureau of Land Management an interest in Petroleum Substances
      within, upon or under all or a portion of the Regional AMI Lands (the
      "Target Lands"), such Party shall first

- 3 -

	 		 consult with the other Parties at least 48
        hours prior to the applicable bid submission deadline to attempt to establish
        a joint bid to acquire such Target Lands. If agreement is reached by the
        Parties for joint acquisition of such Target Lands, the agreed upon Party
        will submit such bid on behalf of all Parties. If the Parties do not agree
        on the terms of a joint bid for such Target Lands, any Party may submit
        an independent bid for its own account subject to paragraph 3(b). Each
        Party participating in a bid under this paragraph will pay its share of
        the applicable amount to the Party that submitted the bid within 3 Business
        Day's of being advised that the bid was successful. If any such Target
        Lands are jointly acquired, they shall be deemed to be part of the "Contract
        Area" as such expression is defined in the Operating Procedure, and the
        Operating Procedure shall be deemed to immediately apply in respect thereof.

	 	 	 	 
	 	(d) 	 If any Party (an "Acquiring Party") acquires
        an interest in Target Lands within, upon or under all or a portion of
        the Regional AMI Lands:

	 	 	 	 
	 		(i) 	 from the State or Bureau of Land Management without
        consulting all other Parties or without disclosing to all other Parties
        the price it was prepared to pay for that acquisition;

	 	 	 	 
	 		(ii) 	 from the State or Bureau of Land Management where agreement
        was not reached pursuant to Paragraph 3(c) and the price paid to acquire
        such Target Lands differs by more than 5% from the last price such Acquiring
        Party disclosed it was prepared to bid for the joint acquisition of such
        Target Lands;

	 	 	 	 
	 		(iii) 	 other than by bidding from the State or Bureau of Land
        Management; or

	 	 	 	 
	 		(iv) 	 from a freehold owner, whether prior consultation occurred
        or not;

	 	 	 	 
	 		 such Acquiring Party will acquire such Target
        Lands subject to the rights of the other Parties under this Paragraph
        3, and such Acquiring Party shall deliver notice to all other Parties
        describing the material provisions of the acquisition of those Target
        Lands rights within 5 Business Days of that acquisition.

	 	 	 	 
	 	(e) 	 Upon receipt of notice (an "Acquisition Notice")
        from an Acquiring Party pursuant to Paragraph 3(d), each other Party shall
        have the right to elect to participate in the acquisition of the applicable
        Target Lands in accordance with those proportions set forth in clause
        3(b) by notice to the Acquiring Party within 5 Business Days of the receipt
        of the Acquisition Notice. Failure of any other Party to so elect within
        5 Business Days shall be deemed to be an election not to participate in
        the acquisition.

	 	 	 	 
	 	(f) 	 Notwithstanding anything else to the contrary
        herein contained, a Party will be deemed to have acquired any interest
        in any Regional AMI Lands acquired by an Affiliate of such Party, provided
        however that the obligations in this Article will not apply to:

	 	 	 	 
	 		(i) 	 interests acquired by a Party or an Affiliate of a Party
        pursuant to a corporate reorganization, an amalgamation with a third party
        or the

- 4 -

				acquisition of al or substantially all of the
      undertaking, property and assets or a third party; and
	 	 	 	 
			(ii) 	
      legal or beneficial interests acquired by a Party or an
      Affiliate of a Party prior to the date hereof, including any documents of
      title issued in direct substitution for the documents of title under which
      those interests had been held prior to the date hereof.

	 	 	 	 
		(g) 	
      Longshot shall be the sole representative of Longshot, BS
      and Armont with respect to the giving of notices and elections pursuant to
      this Paragraph 3, and MegaWest Montana shall not be burdened with multiple
      notices, elections or lease obligations from the other Parties to this
      Agreement.

	 	 	 	 
	4. 	
      OPERATIONS WITHIN REGIONAL AMI LANDS

	 	 	 	 
		(a) 	
      Upon any interest in Petroleum Substances within, upon or
      under all or any portion of the Regional AMI Lands being acquired by more
      than one Party in accordance with Paragraph 3 hereof, operations on the
      lands so acquired shall, subject to the balance of this Paragraph 4, be
      governed by the Operating Procedure, with MegaWest Montana serving as
      initial operator thereunder; provided, however, that if Megawest Montana
      is not one of the parties acquiring an interest in such lands in
      accordance with Paragraph 3 hereof, the Acquiring Party shall serve as
      initial operator thereunder in respect of such lands only, and not in
      respect of any other lands acquired in accordance with Paragraph 3
      hereof.

	 	 	 	 
		(b) 	
      If an Acquiring Party acquires an interest in Target
      Lands within, upon or under all or a portion of the Regional AMI Lands and
      MegaWest Montana elects to participate in the acquisition of such interest
      in such Target Lands, MegaWest Montana will pay 100% of the acquisition
      costs of such Target Lands and such Target Lands will be considered to be
      a "New Prospect".

	 	 	 	 
		(c) 	
      If the Parties which participate in the acquisition of
      any New Prospect shall mutually agree upon an initial development program
      for such lands, MegaWest Montana shall pay for 100% of the lease
      acquisition, initial geological and geophysical activity, drilling and
      completing of all wells, if any, comprising such agreed upon initial
      development program for such New Prospect and shall receive 100% payout of
      all such costs and expenses incurred with respect to such New Prospect.
      Upon payout occurring with respect to such New Prospect, all Parties which
      participate in the acquisition of such lands shall receive their
      respective shares of the production from such lands, with subsequent
      operations on such lands being governed by the terms of the Operating
      Procedure. In other words, once the Parties have agreed on an initial
      development program for such New Prospect and payout has occurred with
      respect to such initial development program, subsequent operations on such
      New Prospect shall be governed by the terms of the Operating Procedure.
      During the pre-payout period on any lands in respect of which an
      agreed-upon initial development program is being conducted, a 3%
      overriding royalty shall be paid by MegaWest Montana to the other Party(s)
      that participated in the acquisition of the New Prospect. Said 3%
      overriding royalty shall be paid on each such Party's proportionate
      interest in and to the applicable lands.

- 5 -

		(d) 	
      As long as MegaWest Montana is the carrying party in
      operations conducted on a New Prospect pursuant to paragraph 4(b) hereof,
      MegaWest Montana shall have full, unfettered discretion as to operations
      to be conducted upon such New Prospect, what well or wells are to be
      drilled, and the location of any such wells.

	 	 	 	 
		(e) 	
      The Parties agree that Donald Anderson, or his assigns,
      shall be entitled to receive an assignment of 1% of 8/8ths royalty in
      respect of all Petroleum Substances produced, saved and sold from acreage
      within the Regional AMI Lands acquired during the Term.

	 	 	 	 
		(f) 	
      If a New Prospect has been defined, approved, and
      acquired by or for MegaWest Montana and no drilling has occurred on such
      New Prospect for a period of 12 months from the date hereof, then any of
      Armont, Longshot or BS shall be entitled to propose drilling on said New
      Prospect at their sole risk, all subject to and in accordance with the
      provisions of the Operating Agreement.

	 	 	 	 
		(g) 	
      None of the Parties, nor any assignees of any of them,
      shall have the right to file a partition action of any mineral or
      leasehold interest within the Regional AMI Lands. This provision may be
      indexed into the chain of title of the leases involved.

	 	 	 
		(h) 	
      MegaWest Montana shall be responsible for the
      administrative payment of lease delay rentals for present and future
      leases within Regional AMI Lands, except to the extent that such leases
      are acquired after October 2, 2007 within the Regional AMI Lands and
      MegaWest Montana has declined to participate in the acquisition of such
      leases.

	 	 	 	 
	5. 	
      FURTHER ASSURANCES

	 	 	 	 
		
      Each Party will, from time to time and at all times
      hereafter upon request, without further consideration, do such further
      acts and deliver all such further assurances, deeds and documents as shall
      be reasonably required in order to fully perform and carry out the terms
      of this Agreement.

	 	 	 	 
	6. 	
      ENTIRE AGREEMENT

	 	 	 	 
		
      The provisions contained in any and all documents and
      agreements collateral hereto shall at all times be read subject to the
      provisions of this Agreement and, in the event of conflict, the provisions
      of this Agreement shall prevail. No amendments shall be made to this
      Agreement unless in writing, executed by the Parties. This Agreement
      supercedes all other agreements, documents, writings and verbal
      understandings among the Parties relating to the subject matter hereof and
      expresses the entire agreement of the Parties with respect to the subject
      matter hereof.

	 	 	 	 
	7. 	
      GOVERNING LAW

	 	 	 	 
		
      This Agreement shall, in all respects, be subject to,
      interpreted, construed and enforced in accordance with and under the laws
      of the Province of Alberta and the laws of Canada applicable therein and
      shall, in all respects, be treated as a contract made in the Province of
      Alberta. The Parties irrevocably attorn and submit to the jurisdiction of
      the

- 6 -

		
      courts of the Province of Alberta and courts or appeal
      therefrom in respect of all matters arising out of or in connection with
      this Agreement.

	 	 
	8. 	
      ENUREMENT

	 	 
		
      This Agreement shall be binding upon and shall enure to
      the benefit of the Parties and their respective administrators, trustees,
      receivers, successors and assigns.

	 	 
	9. 	
      NOTICES

	 	 
		
      The address for service and the fax numbers of the
      Parties shall be as follows:

	 	Longshot - 	Longshot Oil Company 
	 	  	P.O. Box 397 
	 	 	Somers, MT  
	 	  	59932 
	 	  	  
	 	  	Attention: Land Department 
	 	  	Fax: (509) 455-5924 * 51 
	 	  	  
	 	  	  
	 	MegaWest Montana 	MegaWest Energy Montana Corp. 
	 	  	MegaWest Energy Corp. 
	 	  	800, 926 - 5th Ave. SW 
	 	  	Calgary, AB, Canada 
	 	  	T2P 0N7 
	 	  	  
	 	  	Attention: Land Department 
	 	  	Fax: (403) 984-6343 

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

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

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

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

A Party may from time to time change
its address for service or its fax number or both by giving written notice of
such change to the other Party.

- 7 -

	10. 	
      COUNTERPART EXECUTION

	 	 
		
      This Agreement may be executed in counterpart, no one
      copy of which need be executed by all Parties. A valid and binding
      contract shall arise if and when counterpart execution pages are executed
      and delivered by all Parties.

     IN WITNESS WHEREOF the Parties
have executed this Agreement as of the day and year first above written.

	ARMONT ENERGY INC. 	 	BS OIL COMPANY LTD. 
	 	 	 
	Per: 	/s/ signed 	 	Per: 	/s/ Geoffrey Say 
	 	 	 	 	 
	Per: 	 
    	 	Per: 	 
    
	 	 	 	 	 
	LONGSHOT OIL COMPANY. 	 	MEGAWEST ENERGY MONTANA CORP. 
	 	 	 
	Per: 	/s/ signed 	 	Per: 	/s/ George Stapleton, II 
	 	 	 	 	 
	Per: 	 
    	 	Per: 	 
    

	
      THE FOLLOWING PAGE COMPRISES SCHEDULE "A" ATTACHED TO AND
      FORMING PART OF A REGIONAL AMI AGREEMENT MADE AS OF THE * DAY OF OCTOBER,
      2007 AMONG ARMONT ENERGY INC., BS OIL COMPANY LTD., LONGSHOT OIL COMPANY
      AND MEGAWEST ENERGY MONTANA CORP. 

	 

	
      THE FOLLOWING 39 PAGES COMPRISE SCHEDULE "B" ATTACHED TO
      AND FORMING PART OF A REGIONAL AMI AGREEMENT MADE AS OF THE * DAY OF
      OCTOBER, 2007 AMONG ARMONT ENERGY INC., BS OIL COMPANY LTD., LONGSHOT OIL
      COMPANY AND MEGAWEST ENERGY MONTANA CORP. 

	  
	[AAPL Operating Procedure to be added]

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

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

MODEL FORM OPERATING AGREEMENT 

 

 

 

OPERATING AGREEMENT 

DATED 

October <> , 2007, 

                      
  year 

OPERATOR MegaWest Energy Montana Corp.                                                                                                                                                                           
  

CONTRACT AREA AMI                                                                                                                                                                                                                   
  

____________________________________________________________________________________________________________

____________________________________________________________________________________________________________

____________________________________________________________________________________________________________

____________________________________________________________________________________________________________

COUNTY OR PARISH OF Choteau                                                                              
  , STATE OF Montana                                                                          
  

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

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

            

          

        

      

    

  

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

TABLE OF CONTENTS 

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

i 

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

TABLE OF CONTENTS 

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

ii 

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

OPERATING AGREEMENT 

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

WITNESSETH: 

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

ARTICLE I. 

  DEFINITIONS 

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

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

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

                   
  C. The term "Contract Area" shall mean all of the lands, Oil and Gas Leases
  and/or Oil and Gas Interests intended to be developed and operated for Oil and
  Gas purposes under this agreement. Such lands, Oil and Gas Leases and Oil and
  Gas Interests are described in Exhibit "A." D. The term "Deepen" shall mean
  a single operation whereby a well is drilled to an objective Zone below the
  deepest Zone in which the well was previously drilled, or below the Deepest
  Zone proposed in the associated AFE, whichever is the lesser. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE II. 

  EXHIBITS 

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

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

	 	 	 
			(1) Description of lands subject to this agreement,
			 
			 (2) Restrictions, if any, as to depths, formations,
        or substances,

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

	 	 	 
	 	 	(4) Percentages or fractional interests of parties to this agreement,
    
	 	 	 
	 	 	(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement, 
    
	 	 	 
	 	 	(6) Burdens on production.
	 	 	 
		B. 	 Exhibit "B," Form of Lease.

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

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

	 	 	 
		G. 	 Exhibit "G," Tax Partnership.

	 	 	 
		H. 	 Other: ________________________________

- 1 - 

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

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

ARTICLE III. 

  INTERESTS OF PARTIES 

A. Oil and Gas Interests: 

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

B. Interests of Parties in Costs and Production: 

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

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

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

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

C. Subsequently Created Interests: 

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

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

ARTICLE IV. 

  TITLES 

A. Title Examination: 

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

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

- 2 - 

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

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

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

B. Loss or Failure of Title: 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- 3 - 

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

ARTICLE V. 

  OPERATOR 

A. Designation and Responsibilities of Operator: 

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

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

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

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

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

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

C. Employees and Contractors: 

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

D. Rights and Duties of Operator: 

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

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

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

- 4 - 

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE VI. 

  DRILLING AND DEVELOPMENT 

A. Initial Well: 

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

B. Subsequent Operations: 

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

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

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

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

                   
  2. Operations by Less Than All Parties: 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- 7 - 

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

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

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

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

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

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

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

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

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

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

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

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

- 8 - 

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

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

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

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

C. Completion of Wells; Reworking and Plugging Back: 

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

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

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

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

D. Other Operations: 

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

E. Abandonment of Wells: 

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

- 9 - 

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

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

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

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

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

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

F. Termination of Operations: 

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

G. Taking Production in Kind: 

	[   ] 	 Option No. 1: Gas Balancing Agreement Attached

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

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

- 10 - 

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE VII. 

  EXPENDITURES AND LIABILITY OF PARTIES 

A. Liability of Parties: 

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

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

B. Liens and Security Interests: 

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

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

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

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

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

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

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

C. Advances: 

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

D. Defaults and Remedies: 

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

- 12 - 

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

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

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

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

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

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

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

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

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

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

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

F. Taxes: 

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

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

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

ARTICLE VIII. 

  ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST 

A. Surrender of Leases: 

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

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

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

B. Renewal or Extension of Leases: 

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

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

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

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

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

C. Acreage or Cash Contributions: 

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

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

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

D. Assignment; Maintenance of Uniform Interest: 

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

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

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

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

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

E. Waiver of Rights to Partition: 

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

F. Preferential Right to Purchase: 

[X]  (Optional; Check if applicable.) 

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

ARTICLE IX. 

  INTERNAL REVENUE CODE ELECTION 

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

ARTICLE X. 

  CLAIMS AND LAWSUITS 

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

- 15 - 

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

ARTICLE XI. 

  FORCE MAJEURE 

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

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

ARTICLE XII. 

  NOTICES 

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

ARTICLE XIII. 

  TERM OF AGREEMENT 

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

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

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

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

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

ARTICLE XIV. 

  COMPLIANCE WITH LAWS AND REGULATIONS 

A. Laws, Regulations and Orders: 

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

B. Governing Law: 

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

C. Regulatory Agencies: 

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

- 16 - 

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

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

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

ARTICLE XV. 

  MISCELLANEOUS 

A. Execution: 

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

B. Successors and Assigns: 

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

C. Counterparts: 

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

D. Severability: 

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

ARTICLE XVI. 

  OTHER PROVISIONS 

- 17 - 

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

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

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

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

- 18 - 

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

ACKNOWLEDGMENTS 

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

Individual acknowledgment:

 State of ___________________________ )

                                                                                )
  ss. 

County of _________________________  ) 

          This instrument
  was acknowledged before me on 

________________________________________ by _______________________________________________________________

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

Acknowledgment in representative capacity: 

 State of ___________________________ )

                                                                                )
  ss. 

County of _________________________  ) 

          

This instrument was acknowledged before me on 

________________________________________ by _______________________________________________________________as

____________ of _____________________________________________________________________________________________.

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

- 19 - 

 

	 	COPAS 2005 Accounting Procedure
      

      Recommended by COPAS 

Exhibit “C” 

  ACCOUNTING PROCEDURE 

  JOINT OPERATIONS 

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

I. GENERAL PROVISIONS 

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

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

	1. 	 DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

		• 	 Coordination of job priorities and approval of work
        procedures

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

		• 	 Responsibility for meeting production and field operating
        expense targets

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

		• 	 Responsibility for all emergency responses with field
        staff

		• 	 Responsibility for implementing safety and environmental
        practices

		• 	 Responsibility for field adherence to company policy

		• 	 Responsibility for employment decisions and performance
        appraisals for field personnel

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

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

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

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

1 

	 	COPAS 2005 Accounting Procedure
      

      Recommended by COPAS 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	2. 	 STATEMENTS AND BILLINGS

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

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

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

 2 

	 	COPAS 2005 Accounting Procedure
      

      Recommended by COPAS 

	3. 	 ADVANCES AND PAYMENTS BY THE PARTIES

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

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

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

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

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

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

	 	 	 	 
	4. 	 ADJUSTMENTS

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

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

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

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

	 	 	 	 
			(3) 	 a government/regulatory audit, or

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

	 	 	 	 
	5. 	 EXPENDITURE AUDITS

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

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

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	 		 those Non-Operators approving such audit.

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

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

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

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

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

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

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

	6. 	 APPROVAL BY PARTIES

	 	 	 
		A. 	 GENERAL MATTERS

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

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

	 	 	  

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

	 	 	  

	 	B. 	 AMENDMENTS

	 	 	  

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

	 	 	  

	 	C. 	 AFFILIATES

	 	 	  

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

	 	 	  

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

II. DIRECT CHARGES 

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

	1. 	 RENTALS AND ROYALTIES

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

	 	 	 	 
	2. 	 LABOR

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	3. 	 MATERIAL

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

	 	 
	4. 	 TRANSPORTATION

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

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

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

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

	 	5. 	 SERVICES

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

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

	 	 	 
	 	6. 	 EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR

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

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

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

	 	 	 
	 	B. 	 In lieu of charges in Section II.6.A above, the Operator
        may elect to use average commercial rates prevailing in the immediate
        area of the Joint Property, less twenty percent (20%). If equipment and
        facilities are charged under this Section II.6.B, the Operator shall adequately
        document and support commercial rates and shall periodically review and
        update the rate and the supporting documentation. For automotive equipment,
        the Operator may elect to use rates published by the Petroleum Motor Transport
        Association (PMTA) or such other organization recognized by COPAS as the
        official source of rates.

	7. 	 AFFILIATES

	 	  

		 A. 
	 Charges for an Affiliate’s goods and/or
        services used in operations requiring an AFE or other authorization from
        the Non-Operators may be made without the approval of the Parties provided
        (i) the Affiliate is identified and the Affiliate goods and services are
        specifically detailed in the approved AFE or other authorization, and
        (ii) the total costs for such Affiliate’s goods and services billed
        10,000.00 to such individual project do not exceed $ /
        If the total costs for an Affiliate’s goods and services
        charged to such individual project are not specifically detailed in the
        approved AFE or authorization or exceed such amount, charges for such
        Affiliate shall require approval of the Parties, pursuant to Section I.6.A
        (General Matters).

	 	  
	  

		 B. 
	 For an Affiliate’s goods
        and/or services used in operations not requiring an AFE or other authorization
        from the Non-Operators, charges for such Affiliate’s goods and services
        shall require approval of the Parties, pursuant to Section I.6.A (General
        Matters), if the charges exceed $ 50,000.00 in a given calendar
        year.

	 	  
	  

		 C. 
	 The cost of the Affiliate’s goods or
        services shall not exceed average commercial rates prevailing in the area
        of the Joint Property, unless the Operator obtains the Non-Operators’
        approval of such rates. The Operator shall adequately document and support
        commercial rates and shall periodically review and update the rate and
        the supporting documentation; provided, however, documentation of commercial
        rates shall not be required if the Operator obtains Non-Operator approval
        of its Affiliate’s rates or charges prior to billing Non-Operators
        for such Affiliate’s goods and services. Notwithstanding the foregoing,
        direct charges for Affiliate-owned communication facilities or systems
        shall be made pursuant to Section II.12 (Communications). 

	 	  
	  

			  If the Parties fail to designate an amount
        in Sections II.7.A or II.7.B, in each instance the amount deemed adopted
        by the Parties as a result of such omission shall be the amount established
        as the Operator’s expenditure limitation in the Agreement. If the
        Agreement does not contain an Operator’s expenditure limitation,
        the amount deemed adopted by the Parties as a result of such omission
        shall be zero dollars ($ 0.00).

	8. 	 DAMAGES AND LOSSES TO JOINT PROPERTY

	 	 
		 All costs or expenses necessary for the repair or replacement
        of Joint Property resulting from damages or losses incurred, except to
        the extent such damages or losses result from a Party’s or Parties’
        gross negligence or willful misconduct, in which case such Party or Parties
        shall be solely liable.

	 	 
		 The Operator shall furnish the Non-Operator written
        notice of damages or losses incurred as soon as practicable after a report
        has been received by the Operator.

	 	 
	9. 	 LEGAL EXPENSE

	 	 
		 Recording fees and costs of handling, settling, or otherwise
        discharging litigation, claims, and liens incurred in or resulting from
        operations under the Agreement, or necessary to protect or recover the
        Joint Property, to the extent permitted under the Agreement. Costs of
        the Operator’s or Affiliate’s legal staff or outside attorneys,
        including fees and expenses, are not chargeable unless approved by the
        Parties pursuant to Section I.6.A (General Matters) or otherwise
        provided for in the Agreement.

	 	 
		 Notwithstanding the foregoing paragraph, costs for procuring
        abstracts, fees paid to outside attorneys for title examinations (including
        preliminary, supplemental, shut-in royalty opinions, division order title
        opinions), and curative work shall be chargeable to the extent permitted
        as a direct charge in the Agreement.

	 	 
	10. 	 TAXES AND PERMITS

	 	 
		 All taxes and permitting fees of every kind and nature,
        assessed or levied upon or in connection with the Joint Property, or the
        production therefrom, and which have been paid by the Operator for the
        benefit of the Parties, including penalties and interest, except to the
        extent the penalties and interest result from the Operator’s gross
        negligence or willful misconduct.

	 	 
		 If ad valorem taxes paid by the Operator are based in
        whole or in part upon separate valuations of each Party’s working
        interest, then notwithstanding any contrary provisions, the charges to
        the Parties will be made in accordance with the tax value generated by
        each Party’s working interest.

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		 Costs of tax consultants or advisors, the Operator’s
        employees, or Operator’s Affiliate employees in matters regarding
        ad valorem or other tax matters, are not permitted as direct charges unless
        approved by the Parties pursuant to Section I.6.A (General Matters).

	 	 
		 Charges to the Joint Account resulting from sales/use
        tax audits, including extrapolated amounts and penalties and interest,
        are permitted, provided the Non-Operator shall be allowed to review the
        invoices and other underlying source documents which served as the basis
        for tax charges and to determine that the correct amount of taxes were
        charged to the Joint Account. If the Non-Operator is not permitted to
        review such documentation, the sales/use tax amount shall not be directly
        charged unless the Operator can conclusively document the amount owed
        by the Joint Account.

	 	 
	11. 	 INSURANCE

	 	 
		 Net premiums paid for insurance required to be carried
        for Joint Operations for the protection of the Parties. If Joint Operations
        are conducted at locations where the Operator acts as self-insurer in
        regard to its worker’s compensation and employer’s liability
        insurance obligation, the Operator shall charge the Joint Account manual
        rates for the risk assumed in its self-insurance program as regulated
        by the jurisdiction governing the Joint Property. In the case of offshore
        operations in federal waters, the manual rates of the adjacent state shall
        be used for personnel performing work On-site, and such rates shall be
        adjusted for offshore operations by the U.S. Longshoreman and Harbor Workers
        (USL&H) or Jones Act surcharge, as appropriate.

	 	 
	12. 	 COMMUNICATIONS

	 	 
		 Costs of acquiring, leasing, installing, operating,
        repairing, and maintaining communication facilities or systems, including
        satellite, radio and microwave facilities, between the Joint Property
        and the Operator’s office(s) directly responsible for field operations
        in accordance with the provisions of COPAS MFI-44 (“Field Computer
        and Communication Systems”). If the communications facilities or
        systems serving the Joint Property are Operator-owned, charges to the
        Joint Account shall be made as provided in Section II.6 (Equipment
        and Facilities Furnished by Operator). If the communication facilities
        or systems serving the Joint Property are owned by the Operator’s
        Affiliate, charges to the Joint Account shall not exceed average commercial
        rates prevailing in the area of the Joint Property. The Operator shall
        adequately document and support commercial rates and shall periodically
        review and update the rate and the supporting documentation.

	 	 
	13. 	 ECOLOGICAL, ENVIRONMENTAL, AND SAFETY

	 	 
		 Costs incurred for Technical Services and drafting to
        comply with ecological, environmental and safety Laws or standards recommended
        by Occupational Safety and Health Administration (OSHA) or other regulatory
        authorities. All other labor and functions incurred for ecological, environmental
        and safety matters, including management, administration, and permitting,
        shall be covered by Sections II.2 (Labor), II.5 (Services),
        or Section III (Overhead), as applicable.

	 	 
		 Costs to provide or have available pollution containment
        and removal equipment plus actual costs of control and cleanup and resulting
        responsibilities of oil and other spills as well as discharges from permitted
        outfalls as required by applicable Laws, or other pollution containment
        and removal equipment deemed appropriate by the Operator for prudent operations,
        are directly chargeable.

	 	 
	14. 	 ABANDONMENT AND RECLAMATION

	 	 
		 Costs incurred for abandonment and reclamation of the
        Joint Property, including costs required by lease agreements or by Laws.

	 	 
	15. 	 OTHER EXPENDITURES

	 	 
		 Any other expenditure not covered or dealt with in the
        foregoing provisions of this Section II (Direct Charges), or in
        Section III (Overhead) and which is of direct benefit to the Joint
        Property and is incurred by the Operator in the necessary and proper conduct
        of the Joint Operations. Charges made under this Section II.15 shall require
        approval of the Parties, pursuant to Section I.6.A (General Matters).

III. OVERHEAD 

As compensation for costs not specifically identified as chargeable
  to the Joint Account pursuant to Section II (Direct Charges), the Operator
  shall charge the Joint Account in accordance with this Section III. 

Functions included in the overhead rates regardless of whether
  performed by the Operator, Operator’s Affiliates or third parties and regardless
  of location, shall include, but not be limited to, costs and expenses of: 

	warehousing, other than for warehouses that are jointly owned under this
    Agreement
  
	design and drafting (except when allowed as a direct charge under Sections
    II.13, III.1.A(ii), and III.2, Option B)
  
	inventory costs not chargeable under Section V (Inventories of Controllable
    Material)
  
	procurement
  
	administration
  
	accounting and auditing
  
	gas dispatching and gas chart integration 

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	human resources
  
	management
  
	supervision not directly charged under Section II.2 (Labor)
  
	legal services not directly chargeable under Section II.9 (Legal Expense)
  
	taxation, other than those costs identified as directly chargeable under
    Section II.10 (Taxes and Permits)
  
	preparation and monitoring of permits and certifications; preparing regulatory
    reports; appearances before or meetings with governmental agencies or other
    authorities having jurisdiction over the Joint Property, other than On-site
    inspections; reviewing, interpreting, or submitting comments on or lobbying
    with respect to Laws or proposed Laws. 

Overhead charges shall include the salaries or wages plus applicable
  payroll burdens, benefits, and Personal Expenses of personnel performing overhead
  functions, as well as office and other related expenses of overhead functions.

	1. 	 OVERHEAD—DRILLING AND PRODUCING OPERATIONS

	 	 
		 As compensation for costs incurred but not chargeable
        under Section II (Direct Charges) and not covered by other provisions
        of this Section III, the Operator shall charge on either:

	 	[X]	(Alternative 1) Fixed Rate Basis, Section
      III.1.B. 
	 	[   ] 	(Alternative 2) Percentage Basis, Section
      III.1.C. 

	 	A. 	 TECHNICAL SERVICES 

	 	  	  	 	  

			(i) 	 Except as otherwise provided
        in Section II.13 (Ecological Environmental, and Safety) and Section
        III.2 (Overhead – Major Construction and Catastrophe),
        or by approval of the Parties pursuant to Section I.6.A (General Matters),
        the salaries, wages, related payroll burdens and benefits, and Personal
        Expenses for On-site Technical Services, including third party
        Technical Services: 

	 	  	  	 	  

	 	  	  	[X]	 (Alternative 1 – Direct) shall
        be charged direct to the Joint Account. 

	 	  	  	 	  

	 	  	  	[   ]	 (Alternative 2 – Overhead) shall
        be covered by the overhead rates. 

	 	  	  	 	  

			(ii) 	 Except as otherwise provided
        in Section II.13 (Ecological, Environmental, and Safety) and Section
        III.2 (Overhead – Major Construction and Catastrophe),
        or by approval of the Parties pursuant to Section I.6.A (General Matters),
        the salaries, wages, related payroll burdens and benefits, and Personal
        Expenses for Off-site Technical Services, including third party
        Technical Services: 

	 	  	  	 	  

	 	  	  	[   ]	 (Alternative 1 – All Overhead) shall
        be covered by the overhead rates. 

	 	  	  	 	  

	 	  	  	[X]	 (Alternative 2 – All Direct) shall
        be charged direct to the Joint Account. 

	 	  	  	 	  

				[   ] 	 (Alternative 3 – Drilling Direct)
        shall be charged direct to the Joint Account, only
        to the extent such Technical Services are directly attributable
        to drilling, redrilling, deepening, or sidetracking operations, through
        completion, temporary abandonment, or abandonment if a dry hole. Off-site
        Technical Services for all other operations, including workover, recompletion,
        abandonment of producing wells, and the construction or expansion of fixed
        assets not covered by Section III.2 (Overhead - Major Construction
        and Catastrophe) shall be covered by the overhead rates. 

	 		 Notwithstanding anything to the contrary in this Section
        III, Technical Services provided by Operator’s Affiliates are subject
        to limitations set forth in Section II.7 (Affiliates). Charges
        for Technical personnel performing non-technical work shall not be governed
        by this Section III.1.A, but instead governed by other provisions of this
        Accounting Procedure relating to the type of work being performed.

	 	 	 
	 	B. 	 OVERHEAD—FIXED RATE BASIS

	 	(1) 	The Operator shall charge
      the Joint Account at the following rates per well per month: 
	 	  	 	 
			Drilling Well Rate per month
      $3000.00 (prorated for less than a full month) 
	 	  	 	 
	 	  	Producing Well Rate per month
      $500.00 
	 	  	 	 
	 	(2) 	Application of Overhead—Drilling Well Rate
      shall be as follows: 
	 	  	 	 
			(a) 	Charges for onshore drilling wells shall begin on the spud
      date and terminate on the date the drilling and/or completion equipment
      used on the well is released, whichever occurs later. Charges for offshore
      and inland waters drilling wells shall begin on the date the drilling or
      completion equipment arrives on location and terminate on the date the drilling
      or completion equipment moves off location, or is released, whichever occurs
      first. No charge shall be made during suspension of drilling and/or completion
      operations for fifteen (15) or more consecutive calendar days. 

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	 	(b) 	 Charges for any well undergoing any type of workover,
        recompletion, and/or abandonment for a period of five (5) or more consecutive
        work–days shall be made at the Drilling Well Rate. Such charges shall
        be applied for the period from date operations, with rig or other units
        used in operations, commence through date of rig or other unit release,
        except that no charges shall be made during suspension of operations for
        fifteen (15) or more consecutive calendar days.

	 	(3) 	 Application of Overhead—Producing Well
        Rate shall be as follows:

	 	 	 	 
	 		(a) 	 An active well that is produced, injected into for recovery
        or disposal, or used to obtain water supply to support operations for
        any portion of the month shall be considered as a one-well charge for
        the entire month.

	 	 	 	 
	 		(b) 	 Each active completion in a multi-completed well shall
        be considered as a one-well charge provided each completion is considered
        a separate well by the governing regulatory authority.

	 	 	 	 
	 		(c) 	 A one-well charge shall be made for the month in which
        plugging and abandonment operations are completed on any well, unless
        the Drilling Well Rate applies, as provided in Sections III.1.B.(2)(a)
        or (b). This one-well charge shall be made whether or not the well has
        produced.

	 	 	 	 
	 		(d) 	 An active gas well shut in because of overproduction
        or failure of a purchaser, processor, or transporter to take production
        shall be considered as a one-well charge provided the gas well is directly
        connected to a permanent sales outlet.

	 	 	 	 
	 		(e) 	 Any well not meeting the criteria set forth in Sections
        III.1.B.(3) (a), (b), (c), or (d) shall not qualify for a producing overhead
        charge.

	 	 	 	 
	 	(4) 	 The well rates shall be adjusted on the first
        day of April each year following the effective date of the Agreement;
        provided, however, if this Accounting Procedure is attached to or otherwise
        governing the payout accounting under a farmout agreement, the rates shall
        be adjusted on the first day of April each year following the effective
        date of such farmout agreement. The adjustment shall be computed by applying
        the adjustment factor most recently published by COPAS. The adjusted rates
        shall be the initial or amended rates agreed to by the Parties increased
        or decreased by the adjustment factor described herein, for each year
        from the effective date of such rates, in accordance with COPAS MFI-47
        (“Adjustment of Overhead Rates”).

	C. 	 OVERHEAD—PERCENTAGE BASIS

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

	 	(a) 	 Development Rate percent ( ) % of the cost of development
        of the Joint Property, exclusive of costs provided under Section II.9
        (Legal Expense) and all Material salvage credits.

	 	 	 
	 	(b) 	 Operating Rate percent ( %) of the cost of operating
        the Joint Property, exclusive of costs provided under Sections II.1 (Rentals
        and Royalties) and II.9 (Legal Expense); all Material salvage
        credits; the value of substances purchased for enhanced recovery; all
        property and ad valorem taxes, and any other taxes and assessments that
        are levied, assessed, and paid upon the mineral interest in and to the
        Joint Property.

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

	 	 	 	 	 
	 		(a) 	 The Development Rate shall be applied to all
        costs in connection with:

	 	 	 	 	 
	 			[i] 	 drilling, redrilling, sidetracking, or deepening of
        a well

	 	 	 	 	 
	 			[ii] 	 a well undergoing plugback or workover operations for
        a period of five (5) or more consecutive work–days

	 	 	 	 	 
	 			[iii] 	 preliminary expenditures necessary in preparation for
        drilling

	 	 	 	 	 
	 			[iv] 	 expenditures incurred in abandoning when the well is
        not completed as a producer

	 	 	 	 	 
	 			[v] 	 construction or installation of fixed assets, the expansion
        of fixed assets and any other project clearly discernible as a fixed asset,
        other than Major Construction or Catastrophe as defined in Section III.2
        (Overhead-Major Construction and Catastrophe).

	 	 	 	 	 
	 		(b) 	 The Operating Rate shall be applied to all
        other costs in connection with Joint Operations, except those subject
        to Section III.2 (Overhead-Major Construction and Catastrophe).

	2. 	 OVERHEAD—MAJOR CONSTRUCTION AND CATASTROPHE

	 	 
		 To compensate the Operator for overhead costs incurred
        in connection with a Major Construction project or Catastrophe, the Operator
        shall either negotiate a rate prior to the beginning of the project, or
        shall charge the Joint Account for overhead based on the following rates
        for any Major Construction project in excess of the Operator’s expenditure
        limit under the Agreement, or for any Catastrophe regardless of the amount.
        If the Agreement to which this Accounting Procedure is attached does not
        contain an expenditure limit, Major Construction Overhead shall be assessed
        for any single Major Construction project costing in excess of $100,000
        gross.

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  Major Construction shall mean the construction and installation
    of fixed assets, the expansion of fixed assets, and any other project clearly
    discernible as a fixed asset required for the development and operation of
    the Joint Property, or in the dismantlement, abandonment, removal, and restoration
    of platforms, production equipment, and other operating facilities. 

  Catastrophe is defined as a sudden calamitous event bringing
    damage, loss, or destruction to property or the environment, such as an oil
    spill, blowout, explosion, fire, storm, hurricane, or other disaster. The
    overhead rate shall be applied to those costs necessary to restore the Joint
    Property to the equivalent condition that existed prior to the event. 

	 	A. 	 If the Operator absorbs the engineering, design
      and drafting costs related to the project: 
	 	 	 	 	 
	 	  	(1) 	20 	% of total costs if such costs are less than $100,000; plus
    
	 	 	 	 	 
	 	  	(2) 	10 	% of total costs in excess of $100,000 but less than $1,000,000;
      plus 
	 	 	 	 	 
	 	  	(3) 	5 	% of total costs in excess of $1,000,000. 
	 	 	 	 	 
	 	B. 	 If the Operator charges engineering, design and
      drafting costs related to the project directly to the Joint Account: 
	 	 	 	 	 
	 	  	(1) 	5 	% of total costs if such costs are less than $100,000; plus
    
	 	 	 	 	 
	 	  	(2) 	2 	% of total costs in excess of $100,000 but less than $1,000,000;
      plus 
	 	 	 	 	 
	
 	  	(3) 	1 	% of total costs in excess of $1,000,000. 

	   	 Total cost shall mean the gross
        cost of any one project. For the purpose of this paragraph, the component
        parts of a single Major Construction project shall not be treated separately,
        and the cost of drilling and workover wells and purchasing and installing
        pumping units and downhole artificial lift equipment shall be excluded.
        For Catastrophes, the rates shall be applied to all costs associated with
        each single occurrence or event. 

	 	 

	 	 On each project, the Operator shall
        advise the Non-Operator(s) in advance which of the above options shall
        apply. For the purposes of calculating Catastrophe Overhead, the cost
        of drilling relief wells, substitute wells, or conducting other well operations
        directly resulting from the catastrophic event shall be included. Expenditures
        to which these rates apply shall not be reduced by salvage or insurance
        recoveries. Expenditures that qualify for Major Construction or Catastrophe
        Overhead shall not qualify for overhead under any other overhead provisions.
      

	 	 

	 	 In the event of any conflict between
        the provisions of this Section III.2 and the provisions of Sections II.2
        (Labor), II.5 (Services), or II.7 (Affiliates), the
        provisions of this Section III.2 shall govern. 

3.        AMENDMENT OF OVERHEAD RATES
  

The overhead rates provided for in this
  Section III may be amended from time to time if, in practice, the rates are
  found to be insufficient 

  or excessive, in accordance with the provisions of Section I.6.B (Amendments).
  

IV. MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS 

The Operator is responsible for Joint Account Material and shall
  make proper and timely charges and credits for direct purchases, transfers,
  and dispositions. The Operator shall provide all Material for use in the conduct
  of Joint Operations; however, Material may be supplied by the Non- Operators,
  at the Operator’s option. Material furnished by any Party shall be furnished
  without any express or implied warranties as to quality, fitness for use, or
  any other matter. 

	1. 	 DIRECT PURCHASES

	 	 
		 Direct purchases shall be charged to the Joint Account
        at the price paid by the Operator after deduction of all discounts received.
        The Operator shall make good faith efforts to take discounts offered by
        suppliers, but shall not be liable for failure to take discounts except
        to the extent such failure was the result of the Operator’s gross
        negligence or willful misconduct. A direct purchase shall be deemed to
        occur when an agreement is made between an Operator and a third party
        for the acquisition of Material for a specific well site or location.
        Material provided by the Operator under “vendor stocking programs,”
        where the initial use is for a Joint Property and title of the Material
        does not pass from the manufacturer, distributor, or agent until usage,
        is considered a direct purchase. If Material is found to be defective
        or is returned to the manufacturer, distributor, or agent for any other
        reason, credit shall be passed to the Joint Account within sixty (60)
        days after the Operator has received adjustment from the manufacturer,
        distributor, or agent.

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	2. 	 TRANSFERS

	 	 
		 A transfer is determined to occur when the Operator
        (i) furnishes Material from a storage facility or from another operated
        property, (ii) has assumed liability for the storage costs and changes
        in value, and (iii) has previously secured and held title to the transferred
        Material. Similarly, the removal of Material from the Joint Property to
        a storage facility or to another operated property is also considered
        a transfer; provided, however, Material that is moved from the Joint Property
        to a storage location for safe-keeping pending disposition may remain
        charged to the Joint Account and is not considered a transfer. Material
        shall be disposed of in accordance with Section IV.3 (Disposition of
        Surplus) and the Agreement to which this Accounting Procedure is attached.

	 	A. 	 PRICING

	 	 	 
	 		 The value of Material transferred to/from the Joint
        Property should generally reflect the market value on the date of physical
        transfer. Regardless of the pricing method used, the Operator shall make
        available to the Non-Operators sufficient documentation to verify the
        Material valuation. When higher than specification grade or size tubulars
        are used in the conduct of Joint Operations, the Operator shall charge
        the Joint Account at the equivalent price for well design specification
        tubulars, unless such higher specification grade or sized tubulars are
        approved by the Parties pursuant to Section I.6.A (General Matters).
        Transfers of new Material will be priced using one of the following pricing
        methods; provided, however, the Operator shall use consistent pricing
        methods, and not alternate between methods for the purpose of choosing
        the method most favorable to the Operator for a specific transfer:

	 	(1) 	 Using published prices in effect on date of
        movement as adjusted by the appropriate COPAS Historical Price Multiplier
        (HPM) or prices provided by the COPAS Computerized Equipment Pricing System
        (CEPS).

	 	 	 	 
	 		(a) 	 For oil country tubulars and line pipe, the published
        price shall be based upon eastern mill carload base prices (Houston, Texas,
        for special end) adjusted as of date of movement, plus transportation
        cost as defined in Section IV.2.B (Freight).

	 	 	 	 
	 		(b) 	 For other Material, the published price shall be the
        published list price in effect at date of movement, as listed by a Supply
        Store nearest the Joint Property where like Material is normally available,
        or point of manufacture plus transportation costs as defined in Section
        IV.2.B (Freight).

	 	 	 	 
	 	(2) 	 Based on a price quotation from a vendor that
        reflects a current realistic acquisition cost.

	 	 	 	 
	 	(3) 	 Based on the amount paid by the Operator for
        like Material in the vicinity of the Joint Property within the previous
        twelve (12) months from the date of physical transfer.

	 	 	 	 
	 	(4) 	 As agreed to by the Participating Parties
        for Material being transferred to the Joint Property, and by the Parties
        owning the Material for Material being transferred from the Joint Property.

	 	B. 	 FREIGHT

	 	 	 	 
	 		 Transportation costs shall be added to the
        Material transfer price using the method prescribed by the COPAS Computerized
        Equipment Pricing System (CEPS). If not using CEPS, transportation costs
        shall be calculated as follows:

	 	 	 	 
	 		(1) 	 Transportation costs for oil country tubulars and line
        pipe shall be calculated using the distance from eastern mill to the Railway
        Receiving Point based on the carload weight basis as recommended by the
        COPAS MFI-38 (“Material Pricing Manual”) and other COPAS MFIs
        in effect at the time of the transfer.

	 	 	 	 
	 		(2) 	 Transportation costs for special mill items shall be
        calculated from that mill's shipping point to the Railway Receiving Point.
        For transportation costs from other than eastern mills, the 30,000-pound
        interstate truck rate shall be used. Transportation costs for macaroni
        tubing shall be calculated based on the interstate truck rate per weight
        of tubing transferred to the Railway Receiving Point.

	 	 	 	 
	 		(3) 	 Transportation costs for special end tubular goods shall
        be calculated using the interstate truck rate from Houston, Texas, to
        the Railway Receiving Point.

	 	 	 	 
	 		(4) 	 Transportation costs for Material other than that described
        in Sections IV.2.B.(1) through (3), shall be calculated from the Supply
        Store or point of manufacture, whichever is appropriate, to the Railway
        Receiving Point

	 		 Regardless of whether using CEPS or manually calculating
        transportation costs, transportation costs from the Railway Receiving
        Point to the Joint Property are in addition to the foregoing, and may
        be charged to the Joint Account based on actual costs incurred. All transportation
        costs are subject to Equalized Freight as provided in Section II.4 (Transportation)
        of this Accounting Procedure.

	 	 	 
	 	C. 	 TAXES

	 	 	 
	 		 Sales and use taxes shall be added to the Material transfer
        price using either the method contained in the COPAS Computerized Equipment
        Pricing System (CEPS) or the applicable tax rate in effect for the Joint
        Property at the time and place of transfer. In either case, the Joint
        Account shall be charged or credited at the rate that would have governed
        had the Material been a direct purchase.

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	 	D. 	 CONDITION

	 	 	 	 
	 		(1) 	 Condition “A” – New and unused Material
        in sound and serviceable condition shall be charged at one hundred percent
        (100%) of the price as determined in Sections IV.2.A (Pricing),
        IV.2.B (Freight), and IV.2.C (Taxes). Material transferred
        from the Joint Property that was not placed in service shall be credited
        as charged without gain or loss; provided, however, any unused Material
        that was charged to the Joint Account through a direct purchase will be
        credited to the Joint Account at the original cost paid less restocking
        fees charged by the vendor. New and unused Material transferred from the
        Joint Property may be credited at a price other than the price originally
        charged to the Joint Account provided such price is approved by the Parties
        owning such Material, pursuant to Section I.6.A (General Matters).
        All refurbishing costs required or necessary to return the Material to
        original condition or to correct handling, transportation, or other damages
        will be borne by the divesting property. The Joint Account is responsible
        for Material preparation, handling, and transportation costs for new and
        unused Material charged to the Joint Property either through a direct
        purchase or transfer. Any preparation costs incurred, including any internal
        or external coating and wrapping, will be credited on new Material provided
        these services were not repeated for such Material for the receiving property.

	 	 	 	 
	 		(2) 	 Condition “B” – Used Material in sound
        and serviceable condition and suitable for reuse without reconditioning
        shall be priced by multiplying the price determined in Sections IV.2.A
        (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) by
        seventy-five percent (75%).

	 	 	 	 
	 			 Except as provided in Section IV.2.D(3), all reconditioning
        costs required to return the Material to Condition “B” or to
        correct handling, transportation or other damages will be borne by the
        divesting property.

	 	 	 	 
	 			 If the Material was originally charged to the Joint
        Account as used Material and placed in service for the Joint Property,
        the Material will be credited at the price determined in Sections IV.2.A
        (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) multiplied
        by sixty-five percent (65%).

	 	 	 	 
	 			 Unless otherwise agreed to by the Parties that paid
        for such Material, used Material transferred from the Joint Property that
        was not placed in service on the property shall be credited as charged
        without gain or loss.

	 	 	 	 
	 		(3) 	 Condition “C” – Material that is not
        in sound and serviceable condition and not suitable for its original function
        until after reconditioning shall be priced by multiplying the price determined
        in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C
        (Taxes) by fifty percent (50%).

	 	 	 	 
	 			 The cost of reconditioning may be charged to the receiving
        property to the extent Condition “C” value, plus cost of reconditioning,
        does not exceed Condition “B” value.

	 	 	 	 
	 		(4) 	 Condition “D” – Material that (i) is
        no longer suitable for its original purpose but useable for some other
        purpose, (ii) is obsolete, or (iii) does not meet original specifications
        but still has value and can be used in other applications as a substitute
        for items with different specifications, is considered Condition “D”
        Material. Casing, tubing, or drill pipe used as line pipe shall be priced
        as Grade A and B seamless line pipe of comparable size and weight. Used
        casing, tubing, or drill pipe utilized as line pipe shall be priced at
        used line pipe prices. Casing, tubing, or drill pipe used as higher pressure
        service lines than standard line pipe, e.g., power oil lines, shall be
        priced under normal pricing procedures for casing, tubing, or drill pipe.
        Upset tubular goods shall be priced on a non-upset basis. For other items,
        the price used should result in the Joint Account being charged or credited
        with the value of the service rendered or use of the Material, or as agreed
        to by the Parties pursuant to Section 1.6.A (General Matters).

	 	 	 	 
	 		(5) 	 Condition “E” – Junk shall be priced
        at prevailing scrap value prices.

	 	 	 	 
	 	E. 	 OTHER PRICING PROVISIONS

	 	 	 	 
	 		(1) 	 Preparation Costs

	 	 	 	 
	 			 Subject to Section II (Direct Charges) and Section
        III (Overhead) of this Accounting Procedure, costs incurred by
        the Operator in making Material serviceable including inspection, third
        party surveillance services, and other similar services will be charged
        to the Joint Account at prices which reflect the Operator’s actual
        costs of the services. Documentation must be provided to the Non-Operators
        upon request to support the cost of service. New coating and/or wrapping
        shall be considered a component of the Materials and priced in accordance
        with Sections IV.1 (Direct Purchases) or IV.2.A (Pricing),
        as applicable. No charges or credits shall be made for used coating or
        wrapping. Charges and credits for inspections shall be made in accordance
        with COPAS MFI-38 (“Material Pricing Manual”).

	 	 	 	 
	 		(2) 	 Loading and Unloading Costs

	 	 	 	 
	 			 Loading and unloading costs related to the movement
        of the Material to the Joint Property shall be charged in accordance with
        the methods specified in COPAS MFI-38 (“Material Pricing Manual”).

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	3. 	 DISPOSITION OF SURPLUS

	 	 	 
		 Surplus Material is that Material, whether
        new or used, that is no longer required for Joint Operations. The Operator
        may purchase, but shall be under no obligation to purchase, the interest
        of the Non-Operators in surplus Material.

	 	 	 
		 Dispositions for the purpose of this procedure
        are considered to be the relinquishment of title of the Material from
        the Joint Property to either a third party, a Non-Operator, or to the
        Operator. To avoid the accumulation of surplus Material, the Operator
        should make good faith efforts to dispose of surplus within twelve (12)
        months through buy/sale agreements, trade, sale to a third party, division
        in kind, or other dispositions as agreed to by the Parties.

	 	 	 
		 Disposal of surplus Materials shall be made
        in accordance with the terms of the Agreement to which this Accounting
        Procedure is attached. If the Agreement contains no provisions governing
        disposal of surplus Material, the following terms shall apply:

	 	 	 
		• 	 The Operator may, through a sale to an unrelated third
        party or entity, dispose of surplus Material having a gross sale value
        that is less than or equal to the Operator’s expenditure limit as
        set forth in the Agreement to which this Accounting Procedure is attached
        without the prior approval of the Parties owning such Material.

	 	 	 
		• 	 If the gross sale value exceeds the Agreement expenditure
        limit, the disposal must be agreed to by the Parties owning such Material.

	 	 	 
		• 	 Operator may purchase surplus Condition “A”
        or “B” Material without approval of the Parties owning such
        Material, based on the pricing methods set forth in Section IV.2 (Transfers).

	 	 	 
		• 	 Operator may purchase Condition “C” Material
        without prior approval of the Parties owning such Material if the value
        of the Materials, based on the pricing methods set forth in Section IV.2
        (Transfers), is less than or equal to the Operator’s expenditure
        limitation set forth in the Agreement. The Operator shall provide documentation
        supporting the classification of the Material as Condition C.

	 	 	 
		• 	 Operator may dispose of Condition “D” or “E”
        Material under procedures normally utilized by Operator without prior
        approval of the Parties owning such Material.

	4. 	 SPECIAL PRICING PROVISIONS

	 	 	 
		A. 	 PREMIUM PRICING

	 	 	 
			 Whenever Material is available only at inflated prices
        due to national emergencies, strikes, government imposed foreign trade
        restrictions, or other unusual causes over which the Operator has no control,
        for direct purchase the Operator may charge the Joint Account for the
        required Material at the Operator’s actual cost incurred in providing
        such Material, making it suitable for use, and moving it to the Joint
        Property. Material transferred or disposed of during premium pricing situations
        shall be valued in accordance with Section IV.2 (Transfers) or
        Section IV.3 (Disposition of Surplus), as applicable.

	 	 	 
		B. 	 SHOP-MADE ITEMS

	 	 	 
			 Items fabricated by the Operator’s employees, or
        by contract laborers under the direction of the Operator, shall be priced
        using the value of the Material used to construct the item plus the cost
        of labor to fabricate the item. If the Material is from the Operator’s
        scrap or junk account, the Material shall be priced at either twenty-five
        percent (25%) of the current price as determined in Section IV.2.A (Pricing)
        or scrap value, whichever is higher. In no event shall the amount charged
        exceed the value of the item commensurate with its use.

	 	 	 
		C. 	 MILL REJECTS

	 	 	 
			 Mill rejects purchased as “limited service”
        casing or tubing shall be priced at eighty percent (80%) of K-55/J-55
        price as determined in Section IV.2 (Transfers). Line pipe converted
        to casing or tubing with casing or tubing couplings attached shall be
        priced as K-55/J- 55 casing or tubing at the nearest size and weight.

V. INVENTORIES OF CONTROLLABLE MATERIAL 

The Operator shall maintain records of Controllable Material
  charged to the Joint Account, with sufficient detail to perform physical inventories.

Adjustments to the Joint Account by the Operator resulting from
  a physical inventory of Controllable Material shall be made within twelve (12)
  months following the taking of the inventory or receipt of Non-Operator inventory
  report. Charges and credits for overages or shortages will be valued for the
  Joint Account in accordance with Section IV.2 (Transfers) and shall be
  based on the Condition “B” prices in effect on the date of physical
  inventory unless the inventorying Parties can provide sufficient evidence another
  Material condition applies. COPYRIGHT © 2005 by Council of Petroleum Accountants
  Societies, Inc. (COPAS) 

14

	 	COPAS 2005 Accounting Procedure
      

      Recommended by COPAS 

	1. 	 DIRECTED INVENTORIES

	 	 	 
		 Physical inventories shall be performed by
        the Operator upon written request of a majority in working interests of
        the Non-Operators (hereinafter, “directed inventory”); provided,
        however, the Operator shall not be required to perform directed inventories
        more frequently than once every five (5) years. Directed inventories shall
        be commenced within one hundred eighty (180) days after the Operator receives
        written notice that a majority in interest of the Non-Operators has requested
        the inventory. All Parties shall be governed by the results of any directed
        inventory.

	 	 	 
		 Expenses of directed inventories will be borne
        by the Joint Account; provided, however, costs associated with any post-report
        follow-up work in settling the inventory will be absorbed by the Party
        incurring such costs. The Operator is expected to exercise judgment in
        keeping expenses within reasonable limits. Any anticipated disproportionate
        or extraordinary costs should be discussed and agreed upon prior to commencement
        of the inventory. Expenses of directed inventories may include the following:

	 	 	 
		A. 	 A per diem rate for each inventory person, representative
        of actual salaries, wages, and payroll burdens and benefits of the personnel
        performing the inventory or a rate agreed to by the Parties pursuant to
        Section I.6.A (General Matters). The per diem rate shall also be
        applied to a reasonable number of days for pre-inventory work and report
        preparation.

	 	 	 
		B. 	 Actual transportation costs and Personal Expenses for
        the inventory team.

	 	 	 
		C. 	 Reasonable charges for report preparation and distribution
        to the Non-Operators.

	 	 	 
	2. 	 NON-DIRECTED INVENTORIES

	 	 	 
		A. 	 OPERATOR INVENTORIES

	 	 	 
			 Physical inventories that are not requested by the Non-Operators
        may be performed by the Operator, at the Operator’s discretion. The
        expenses of conducting such Operator-initiated inventories shall not be
        charged to the Joint Account.

	 	 	 
		B. 	 NON-OPERATOR INVENTORIES

	 	 	 
			 Subject to the terms of the Agreement to which this
        Accounting Procedure is attached, the Non-Operators may conduct a physical
        inventory at reasonable times at their sole cost and risk after giving
        the Operator at least ninety (90) days prior written notice. The Non-Operator
        inventory report shall be furnished to the Operator in writing within
        ninety (90) days of completing the inventory fieldwork.

	 	 	 
		C. 	 SPECIAL INVENTORIES

	 	 	 
			 The expense of conducting inventories other than those
        described in Sections V.1 (Directed Inventories), V.2.A (Operator
        Inventories), or V.2.B (Non-Operator Inventories), shall be
        charged to the Party requesting such inventory; provided, however, inventories
        required due to a change of Operator shall be charged to the Joint Account
        in the same manner as described in Section V.1 (Directed Inventories).

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

15 

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

The Operator shall, prior to the commencement of joint operations,
  hold or cause to be held with a reputable insurance company or companies, and
  thereafter maintain or cause to be maintained for the joint account and benefit
  of the parties and their respective Affiliates, directors, officers, servants,
  consultants, agents and employees, the insurance hereinafter set forth and any
  other insurance which is specifically required to comply with the Regulations.
  The insurance required pursuant to this Subclause shall apply to each separate
  claim and shall be as follows: 

	 	(i) 	 Automobile Liability Insurance covering all motor vehicles
        or snowcraft and all terrain vehicles, owned or non-owned, operated or
        licenced by the Operator and used in joint operations (insofar only as
        they are used in joint operations), with an inclusive bodily injury, death
        and property damage limit of one million dollars ($1,000,000.00) per accident;

	 	(ii) 	 Comprehensive General Liability Insurance with an inclusive
        bodily injury, death, and property damage limit of one million dollars
        ($1,000,000.00) per occurrence, and, without restricting the generality
        of the provisions of this paragraph, such coverage shall include, but
        not be limited to, employer's, employer's contingent liability, contractual
        liability, contractor's protective liability, products and completed operations
        liability; and

	 	(iii) 	 Aircraft Liability Insurance covering all aircraft,
        owned or non-owned, operated or licenced by the Operator and used in joint
        operations (insofar only as they are used in joint operations), with an
        inclusive bodily injury, death and property damage limit of five million
        dollars ($5,000,000.00) per occurrence

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