Document:

[LOGO] Samson
--------------------------------------------------------------------------------
      Suite 1900
      1301 Travis Street
      Houston, TX 77002, USA
      713/751-9000 (main line)
      713/751-8864 (fax line)

                                February 15,2005

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

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

    Gentlemen:

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

      1.    PURCHASE AND SALE

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

                                        1
<PAGE>

      2.    CONSIDERATION

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

      3.    JOINT OPERATING AGREEMENT

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

      4.    INITIAL TEST WELL

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

      5.    SUBSTITUTE WELL

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

                                        2
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            Well around an obstruction in the wellbore shall not be considered a
            Substitute  Well but a  continuation  of the Test  Well,  unless the
            targeted bottom hole location of the  sidetracked  well is more than
            200' from the original proposed bottom hole location. Any Substitute
            Well proposal shall include the estimated costs to drill the same to
            the original Objective Depth in the Test Well.  Ridgewood shall have
            the right and  option to elect not to  participate  in a  Substitute
            Well, if proposed, however, failure to participate shall result in a
            forfeiture  of  interest  in the  Leases  and the Test Well  without
            reimbursement  of costs incurred  prior to such  election.  The time
            period  during  which  Ridgewood's  election  to  participate  in  a
            Substitute  Well  must be made  shall be  governed  by the  election
            provisions in the Joint Operating Agreement. If such Substitute Well
            is timely commenced and Ridgewood participates,  the Substitute Well
            shall be considered and deemed for all purposes under this Agreement
            to be the Test Well including, without limitation, the apportionment
            among the Parties of the costs and expenses  incurred in  connection
            therewith pursuant to Section 4.

      6.    ASSIGNMENT OF INTEREST

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

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

      7.    SUBSEQUENT WELL

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

                                        3
<PAGE>

      8.    RIGHT OF FIRST REFUSAL

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

      9.    NOTICES

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

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

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

                                        4
<PAGE>

            With a copy to

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

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

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

      10.   SUCCESSORS AND ASSIGNS

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

      11.   CONFIDENTIALITY

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

                                        5
<PAGE>

      12.   INDEMNITY

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

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

SAMSON OFFSHORE COMPANY

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

AGREED TO AND ACCEPTED THIS _______ DAY OF FEBRUARY 2005

RIDGEWOOD ENERGY CORPORATION

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

                                        6
<PAGE>

                                   EXHIBIT "A"

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

                                    "Leases"

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

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

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

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

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

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

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

                                        7
<PAGE>

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

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

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

                                        8
<PAGE>

      12.   INDEMNITY

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

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

SAMSON OFFSHORE COMPANY

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

AGREED TO AND ACCEPTED THIS 15th DAY OF FEBRUARY 2005

RIDGEWOOD ENERGY CORPORATION

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

                                        6
<PAGE>

                                      JOINT

                               OPERATING AGREEMENT

                                     BETWEEN

                             SAMSON OFFSHORE COMPANY

                                   AS OPERATOR

                                       AND

                          MAGNUM HUNTER PRODUCTION, INC

                                       And

                          RIDGEWOOD ENERGY CORPORATION

                                AS NON-OPERATORS

                               COVERING OCS LEASES
                            DESCRIBED IN EXHIBIT A-l

                                 DATED EFFECTIVE
                                 January 1,2005

<PAGE>

                            JOINT OPERATING AGREEMENT

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

                                   WITNESSETH:

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

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

                                    ARTICLE I

                                   APPLICATION

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

                                   ARTICLE II

                                   DEFINITIONS

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

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

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

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

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

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

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

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

                                        2
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

                                   ARTICLE III

                                    EXHIBITS

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

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

                                   ARTICLE IV

                                    OPERATOR

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

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

                                        3
<PAGE>

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

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

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

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

                                    ARTICLE V

                        AUTHORITY AND DUTIES OF OPERATOR

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

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

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

                                        4
<PAGE>

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

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

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

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

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

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

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

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

                   (c)    complete report of all core analyses;

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

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

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

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

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

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

                                   ARTICLE VI

                          VOTING AND VOTING PROCEDURES

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

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

                                       5
<PAGE>

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

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

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

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

                                   ARTICLE VII

                                     ACCESS

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

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

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

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

                                        6
<PAGE>

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

                                  ARTICLE VIII

                                  EXPENDITURES

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

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

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

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

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

                                        7
<PAGE>

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

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

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

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

                                   ARTICLE IX

                                    NOTICES

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

                                        8
<PAGE>

            9.2    CONTENT OF NOTICE. Any notice which requires a response shall
indicate  the  maximum  response  time  specified  in Section  9.3 If a proposal
involves a Platform or Facility, the notice shall contain a description of same,
including  location and the estimated costs of fabrication,  transportation  and
installation.  If a proposal involves a well operation, the notice shall include
the estimated commencement date, the proposed depth, the objective zone or zones
to be tested,  the surface and bottom-hole  locations and the estimated costs of
the operation including all necessary  expenditures  through installation of the
wellhead.

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

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

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

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

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

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

                                    ARTICLE X

                                EXPLORATORY WELLS

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

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

                                        9
<PAGE>

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

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

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

            10.4   COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH

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

                          (a)   further log or test the well,

                          (b)   complete the well as originally planned,

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

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

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

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

                          (g)   other operations in the well, or

                                       10
<PAGE>

                          (h)   plug and abandon the well.

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

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

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

                                   ARTICLE XI

                           DEVELOPMENT WELL OPERATIONS

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

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

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

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

                                       11
<PAGE>

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

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

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

                                   ARTICLE XII

                             NON-CONSENT OPERATIONS

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

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

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

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

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

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

                                       12
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                       13
<PAGE>

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

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

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

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

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

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

                                       14
<PAGE>

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

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

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

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

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

                                       15
<PAGE>

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

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

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

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

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

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

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

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

                                       16
<PAGE>

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

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

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

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

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

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

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

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

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

                                       17
<PAGE>

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

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

                                  ARTICLE XIII

                                   FACILITIES

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

                                   ARTICLE XIV

                             ABANDONMENT AND SALVAGE

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

                                       18
<PAGE>

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

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

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

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

                                       19
<PAGE>

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

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

                                   ARTICLE XV

                                   WITHDRAWAL

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

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

                                   ARTICLE XVI

                      RENTALS, ROYALTIES AND OTHER PAYMENTS

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

                                       20
<PAGE>

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

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

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

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

                                       21
<PAGE>

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

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

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

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

                                  ARTICLE XVIII

                                    INSURANCE

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

                                   ARTICLE XIX

                         LIABILITY, CLAIMS AND LAWSUITS

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

                                       22
<PAGE>

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

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

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

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

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

                                   ARTICLE XX

                           INTERNAL REVENUE PROVISION

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

                                       23
<PAGE>

                                   ARTICLE XXI

                                  CONTRIBUTIONS

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

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

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

                                  ARTICLE XXII

                            DISPOSITION OF PRODUCTION

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

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

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

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

                                       24
<PAGE>

such PARTY.

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

                                  ARTICLE XXIII

                                 APPLICABLE LAW

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

                                  ARTICLE XXIV

                    LAWS, REGULATIONS AND NON-DISCRIMINATION

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

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

                                   ARTICLE XXV

                                  FORCE MAJEURE

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

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

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

                                  ARTICLE XXVI

                             SUCCESSORS AND ASSIGNS

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

                                       25
<PAGE>

benefit of the PARTIES and their respective heirs,  successors,  representatives
and assigns and shall constitute a covenant  running with the LEASE.  Each PARTY
shall incorporate in any assignment of an interest in the LEASE a provision that
such assignment is subject to this Agreement.

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

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

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

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

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

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

                                  ARTICLE XXVII

                                      TERM

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

                                       26
<PAGE>

                                 ARTICLE XXVIII

                             HEADINGS AND EXECUTION

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

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

                                       27
<PAGE>

SAMSON OFFSHORE COMPANY                   MAGNUM HUNTER PRODUCTION, INC.

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

RIDGEWOOD ENERGY CORPORATION

BY: /s/ W. GREG TABOR
   --------------------------

Name: W. GREG TABOR
     ------------------------

Title: EXEC. VICE PRESIDENT
      -----------------------

STATE OF TEXAS

COUNTY OF Harris

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

[LOGO]       DIANE S. COLEMAN             /s/ Diane S. Coleman
       Notary Public, State of Texas      ----------------------------
           My Commission Expires          Notary Public in and for
             December 13,2008

STATE OF

COUNTY OF

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

[LOGO]       DIANE S. COLEMAN             /s/ Diane S. Coleman
       Notary Public, State of Texas      ----------------------------
           My Commission Expires          Notary Public in and for
             December 13,2008

STATE OF

COUNTY OF

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

[LOGO]          DONNA ERMIS               /s/ Donna Ermis
       Notary Public, State of Texas      ----------------------------
           My Commission Expires          Notary Public in and for
              October 01,2008

                                       22

<PAGE>

                                   EXHIBIT "A"

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

I     CONTRACT AREA:

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

II.   RESTRICTIONS AS TO DEPTH, FORMATIONS or STRUCTURE:

      None

III.  PARTIES & INTERESTS:

      Samson Offshore Company              37,5%
      Magnum Hunter Production, Inc.       25%*
      Ridgewood Energy Corporation         37.5%**

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

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

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

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

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

            Operator:

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

            With a copy to

            SAMSON OFFSHORE COMPANY
            Two West Second Street
            Tulsa, OK
            Attention: Mr. Jack Canon
            Phone:(918)5914009
            Fax: (918)591-1718

            Non-operator:

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

VI.   BURDENS ON PRODUCTION:

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

<PAGE>

                                  EXHIBIT "A-l"

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

                                   EXHIBIT "B"

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

                          OFFSHORE INSURANCE PROVISIONS

I.    WORKERS COMPENSATION & EMPLOYERS LIABILITY INSURANCE

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

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

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

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

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

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

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

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

II.   INSURANCE NOT CHARGED TO THE JOINT ACCOUNT

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

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

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

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

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

                                       1
<PAGE>

            replacement cost of the facility.

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

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

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

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

III. CONTRACTORS INSURANCE

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

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

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

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

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

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

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

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

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

                                        2
<PAGE>

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

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

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

        6.  Any other insurance that Operator deems necessary.

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

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

IV. NOTICE

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

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

                                        3
<PAGE>

                                   EXHIBIT "C"

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

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

                              ACCOUNTING PROCEDURE
                           OFFSHORE JOINT OPERATIONS

                              I. GENERAL PROVISIONS

1.    Definitions

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

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

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

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

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

      "Parties" shall mean Operator and Non-Operators.

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

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

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

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

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

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

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

2.    Statements and Billings

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

3.    Advances and Payments by Non-Operators

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

      B.    Each  Non-Operator  shall pay its  proportion  of all  bills  within
            fifteen (15) days after receipt.  If payment is not made within such
            time,  the unpaid  balance  shall bear monthly  interest  compounded
            monthly using the U.S.  Treasury 3 month discount rate plus interest
            monthly at the prime rate in effect at the Chase  Manhattan Bank NY,
            NY on the first day of the month in which delinquency occurs plus 1%
            or the maximum  contract rate permitted by the applicable usury laws
            of  the  jurisdiction  in  which  the  Joint  Property  is  located,
            whichever is the lesser,  plus  attorney's  fees,  court costs,  and
            other costs in connection with the collection of unpaid amounts.

4.    Adjustments

      Payment  of  any  such  bills  shall  not   prejudice  the  right  of  any
      Non-Operator  to protest or question the  correctness  thereof;  provided,
      however,  all bills and statements  rendered to  Non-Operators by Operator
      during any  calendar  year shall  conclusively  be presumed to be true and
      correct  after  twenty-four  (24)  months  following  the end of any  such
      calendar year, unless within the said twenty-four (24) month period

<PAGE>

      a Non-Operator takes written exception thereto and makes claim on Operator
      for adjustment No adjustment favorable to Operator shall be made unless it
      is  made  within  the  same  prescribed  period.  The  provisions  of this
      paragraph  shall  not  prevent  adjustments   resulting  from  a  physical
      inventory of Controllable Material as provided for in Section V.

5.    Audits

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

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

6.    Approval by Non-Operators

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

                               II. DERJECT CHARGES

Operator shall charge the Joint Account with the following items:

1.    Rentals and Royalties

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

2.    Labor

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

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

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

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

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

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

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

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

3.    Employee Benefits

      Operator's  current costs of established  plans for employee's  group life
      insurance,  hospitalization,  pension, retirement, stock purchase, thrift,
      bonus, and other benefit plans of a like nature,  applicable to Operator's
      labor cost  chargeable to the Joint Account under  Paragraphs 2A and 2B of
      this  Section II shall be the percent  most  recently  recommended  by the
      Council of Petroleum Accountants Societies.

4.    Material

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

5.    Transportation

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

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

<PAGE>

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

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

6.    Services

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

7.    Equipment, Facilities and Affiliate Services Furnished by Operator

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

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

8.    Damages and Losses to Joint Property

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

9.    Legal Expense

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

10.   Taxes

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

11.   Insurance

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

12.   Communications

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

13.   Ecological and Environmental

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

<PAGE>

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

14.   Abandonment and Reclamation

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

15.   Other Expenditures

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

                                  III. OVERHEAD

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

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

      i.    Except as otherwise provided in Paragraph 2 of this Section III, the
            salaries,  wages and Personal Expenses of Technical Employees and/or
            the cost of professional  consultant  services and contract services
            of technical personnel directly employed on the Joint Property:
            ( ) shall be covered by the overhead rates.
            (X) shall not be covered by the overhead rates,

      ii.   Except as otherwise provided in Paragraph 2 of this Section III, the
            salaries,  wages and Personal Expenses of Technical Employees and/or
            costs of professional  consultant  services and contract services of
            technical  personnel either  temporarily or permanently  assigned to
            and directly employed in the operation of the Joint Property:
            (X) shall be covered by the overhead rates.
            ( ) shall not be covered by the overhead rates.

l. Overhead - Drilling and Producing Operations

      As  compensation  for overhead  incurred in  connection  with drilling and
      producing operations, Operator shall charge on either:
            (X) Fixed Rate Basis, Paragraph 1 A, or
            ( ) Percentage Basis, Paragraph IB

      A.    Overhead - Fixed Rate Basis

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

                  Drilling  Well  Rate $ 29,000  (Prorated  for less than a full
                  month)
                  Producing Well Rate $ 2,900

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

2.    Overhead - Major Construction

      To compensate Operator for overhead costs incurred in the construction and
      installation of fixed assets, the expansion of fixed assets, and any other
      project clearly  discernible as a fixed asset required for the development
      and operation of the Joint Property, or in the dismantling for abandonment
      of platforms  and related  production  facilities,  Operator  shall either
      negotiate a rate prior to the beginning of  construction,  or shall charge
      the Joint Account for Overhead based on the following  rates for any Major
      Construction  project in excess of $ 25,000.

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

            (1)    5 % of total  costs if such  costs are more than $ 25.000 but
                   less than $ 100,000; plus

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

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

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

            (1)    3 % of total costs if such costs are more than $ 25,000,  but
                   less than $100,000; plus

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

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

      Total costs shall mean the gross cost of any one project. For the purposes
      of this  paragraph,  the component  parts of a single project shall not be
      treated  separately  and the  cost of  drilling  and  workover  wells  and
      artificial  lift equipment  shall be excluded.

      On each project, Operator shall advise Non-Operator(s) in advance which of
      the above  options shall apply.  In the event of any conflict  between the
      provisions  of this  paragraph  and those  provisions  under  Section  II,
      Paragraph 2 or Paragraph 6, the provisions of this paragraph shall govern.

3.    Overhead - Catastrophe

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

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

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

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

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

4.    Amendment of Rates

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

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

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

1.    Purchases

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

2.    Transfers and Dispositions

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

      A.    New  Material  (Condition  A)

            (1)   Tubular  Goods Other than Line Pipe

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

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

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

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

<PAGE>

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

            (2)   Line Pipe -- DELETED IN ITS ENTIRETY

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

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

      B.    Good Used Material (Condition B)

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

            (1)   Material moved to the Joint Property

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

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

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

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

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

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

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

      C.    Other Used Material

            (1)   Condition  C

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

            (2)   Condition D

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

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

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

            (3)   Condition  E

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

      D.    Obsolete Material

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

      E.    Pricing Conditions

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

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

3.    Premium Prices

      Whenever Material is not readily  obtainable at published or listed prices
      because of  national  emergencies,  strikes or other  unusual  causes over
      which the  Operator  has no  control,  the  Operator  may charge the Joint
      Account for the required  Material at the Operator's  actual cost incurred
      in providing such  Material,  in making it suitable for use, and in moving
      it to the Joint  Property;  provided  notice in  writing is  furnished  to
      Non-Operators  of the proposed charge prior to billing  Non-Operators  for
      such Material.  Each Non-Operator shall have the right, by so electing and
      notifying  Operator within ten days after receiving  notice from Operator,
      to furnish in kind all or part of his share of such Material  suitable for
      use and acceptable to Operator. Provided however, if a Non-Operator elects
      to furnish  material in kind,  such  material  must (a) meet the  quality,
      specifications  set by Operator,  and (b) be  inspected  by Operator  with
      inspection costs to be billed to the Joint Account.

4.    Warranty of Material Furnished By Operator

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

<PAGE>

                                 V. INVENTORIES

The Operator shall maintain detailed records of Controllable Material.

1.    Periodic Inventories, Notice and Representation

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

2.    Reconciliation and Adjustment of Inventories

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

3.    Special Inventories

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

4.    Expense of Conducting Inventories

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

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

5.    Excess Inventory

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

<PAGE>

                                   EXHIBIT "D"

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

EQUAL EMPLOYMENT OPPORTUNITY

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

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

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

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

      3.          If the  contract is in excess of $50,000 and Operator has more
            than 50  employees,  Operator  agrees  (a) to file  annually,  as or
            before March 31 of each year,  (or within 30 days after the award of
            such contract if not filed within 12 months  proceeding  the date of
            the award),  complete  and  accurate  reports on  Standard  Form 100
            (EEO-1) with the appropriate  government  agency, in accordance with
            the  regulations  issued by the  Secretary of Labor (41 C.F.R.  Sec.
            60-1,7),  and (b) to develop a written affirmative action compliance
            program  for  each of its  establishments  in  accordance  with  the
            regulations  issued  by the  Secretary  of  Labor  (41  C.F.R.  Sec.
            60-1.40).

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

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

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

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

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

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

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

D.    E. 0. 11758 (Employment of Handicapped Persons)

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

                                      -1-
<PAGE>

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

              INSTRUCTIONS FOR USE OF GAS BALANCING AGREEMENT FORM

GENERAL

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

      If this form is used as an  exhibit  to an  A.A.P.L  Form 6l0  Model  Form
Operating Agreement or other operating  agreement,  the provisions in section 15
(Counterparts),  the "IN WITNESS WHEREOF"  paragraph on page 6 and the signature
lines and acknowledgements on page 7 should be omitted.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>

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

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

                                  EXHIBIT "E"
                     GAS BALANCING AGREEMENT ("AGREEMENT")
                   ATTACHED TO AND MADE PART OF THAT CERTAIN
                OPERATING AGREEMENT DATED ______________________
        BY AND BETWEEN _______________________ , ________________________
        AND ____________________________________ ("OPERATING AGREEMENT")
        RELATING TO THE ____________________________________________ AREA,
      ________________________ COUNTY/PARISH, STATE OF ____________________

1.    DEFINITIONS

      The following definitions shall apply to this Agreement:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.    BALANCING AREA

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

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

3.    RIGHT OF PARTIES TO TAKE GAS

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

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

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

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

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

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

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

4.    IN-KIND BALANCING

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

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

5.    STATEMENT OF GAS BALANCES

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

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

6.    PAYMENTS ON PRODUCTION

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

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

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

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

7.    CASH SETTLEMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

8.    TESTING

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

9.    OPERATING COSTS

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

10.   LIQUIDS

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

11.   AUDIT RIGHTS

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

12.   MISCELLANEOUS

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

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

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

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

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<PAGE>

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

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

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

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

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

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

                                      - 5 -
<PAGE>

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

15.   COUNTERPARTS

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

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

ATTESTOR WITNESS:                            OPERATOR

                                             ___________________________________

______________________________________    BY:___________________________________

______________________________________       ___________________________________

                                             Type or print name

                                             Title _____________________________

                                             Date ______________________________

                                             Tax ID or S.S. No. ________________

                                             NON-OPERATORS

                                             ___________________________________

______________________________________    BY:___________________________________

______________________________________       ___________________________________

                                             Type or print name

                                             Title _____________________________

                                             Tax ID or S.S. No._________________

                                             ___________________________________

______________________________________    BY:___________________________________

______________________________________       ___________________________________

                                             Type or print name

                                             Title _____________________________

                                             Date ______________________________

                                             Tax ID or S.S. No._________________

                                      - 6 -
<PAGE>

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

                                 ACKNOWLEDGMENTS

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

Individual acknowledgment:

State of ___________________________ )

                                     )  ss.

County of __________________________ )

      The instrument was acknowledged  before me on  ___________________________

______________________________________ by ______________________________________

(Seal, if any)                            ______________________________________

                                          Title (and Rank) _____________________

                                          My commission expires: _______________

Acknowledgments in representative capacity:

State of ___________________________ )

                                     ) ss.

County of __________________________ )

      This instrument was acknowledged before me on  ___________________________

________________________________________  by ________________________________ as

__________________________________ of _________________________________________.

(Seal, if any)                            ______________________________________

                                          Title (and Rank) _____________________

                                          My commission expires: _______________

                                      - 7 -amend_no2

Exhibit 10.1

AMENDMENT NO. 2 TO SUPPLY AGREEMENT

This Amendment No. 2 to Supply Agreement is dated as of April 15, 2005. Reference is made to the Supply Agreement dated as of July 2, 2004 between MOD-PAC CORP ("Seller"), a New York corporation with a principal place of business at 1801 Elmwood Avenue, Buffalo, NY 14207, USA and VISTAPRINT LIMITED ("Buyer"), a Bermuda corporation with a registered office at Canon's Court, 22 Victoria Street, Hamilton, HM 12 Bermuda (the "2004 Supply Agreement"). Capitalized terms not otherwise defined in this letter agreement shall have the meanings ascribed to them in the 2004 Supply Agreement.

Buyer and Seller hereby agree to amend the 2004 Supply Agreement as follows:

	Notwithstanding the exclusivity provisions of the 2004 Supply Agreement, including specifically and without limitation the Recital and Sections 1.2 and 1.3 of the 2004 Supply Agreement, Seller agrees that commencing April 15, 2005, Buyer shall be permitted to manufacture, at its Windsor, Ontario, Canada production facility ("Windsor") only, Printed Products destined, directly or indirectly, for customers of Buyer located in the Territory..
	With respect to any Printed Products manufactured by Buyer at Windsor, Buyer shall remit to Seller a fee for each unit shipped by Buyer calculated in accordance with the methodology set forth on Annex 1 hereto. Within ten days after the end of each calendar month during the remainder of the term of the 2004 Supply Agreement, Seller shall provide a summary of all Printed Products manufactured at Windsor during the preceding month, its computation of the fee due to Seller hereunder and the accompanying fee. Buyer will make available, at Seller's request, reasonably detailed supporting justifications for the computations. Any dispute arising out of, or relating to, these provisions that cannot be resolved by the parties themselves shall be settled by arbitration according to the terms of Section 10.7 of the 2004 Supply Agreement and any amounts determined to be owed to Seller shall bear interest at the rate set forth in Section 4.4 thereof. 
	Notwithstanding Section 1.5 of the 2004 Supply Agreement, the parties agree that the purchase and sale of Printed Products following the expiration of the 2004 Supply Agreement on August 30, 2005 shall be governed by the terms of the new Supply Agreement between Buyer and Seller concurrently entered into as of the date hereof.

Except as expressly modified herein, the 2004 Supply Agreement shall remain in full force and effect. 

IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 to Supply Agreement as of the date set forth above. 

	
SELLER: MOD-PAC CORP.
	
BUYER: VISTAPRINT LIMITED

	
By: /s/C. Anthony Rider
	
By: /s/Helen Ann Chisholm

	
Title: Chief Financial Officer
	
Title: Secretary

	
Dated: April 15, 2005
	
Dated: April 15, 2005

ANNEX 1

	
	
	
	

	
Matte BC
	
	
	
$ 1.84

	
	
	
	

	
Glossy BC
	
	
	
$ 1.83 

	
	
	
	

	
Post Cards
	
	
	
$ 6.24 

	
	
	
	

	
OSPC's
	
	
	
$ 12.48 

	
	
	
	

	
Folders
	
	
	
$ 131.11 

	
	
	
	

	
Brochures
	
	
	
$ 29.13 

	
	
	
	

	
Data Sheets
	
	
	
$ 29.14 

	
	
	
	

	
Letterhead
	
	
	
$ 58.27 

	
	
	
	

	
RAL's
	
	
	
$ 0.47 

	
	
	
	

	
Magnets
	
	
	
$ 0.40 

	
	
	
	

	
Large Magnets
	
	
	
$ 0.14

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00083-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00083-of-00352.parquet"}]]