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Exhibit 10.22    
    

THIS
DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR A VALID EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. 

THIS
DEBENTURE IS SUBJECT TO THE PROVISIONS OF THAT CERTAIN DEBENTURE PURCHASE AGREEMENT, DATED AS OF DECEMBER 19, 2001. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. 

7% SUBORDINATED CONVERTIBLE DEBENTURE  

	$	 	December    , 2001

        FOR
VALUE RECEIVED, the undersigned, 3D Systems Corporation, a Delaware corporation (hereinafter referred to as the "Company"), hereby promises to pay
to                        , a
                        ("Purchaser"), to the extent not previously redeemed or converted in accordance with the terms hereof, the
principal sum of                        dollars
($            ) and to pay interest on the outstanding principal balance of this Debenture (this "Debenture") in accordance with Section 3 hereof. 

        1.    Purchase Agreement.    This Debenture is one of the Debentures issued pursuant to the Debentures Purchase
Agreement dated as of December 19, 2001 (the "Purchase Agreement"), among the Company, Purchaser and the other purchasers identified on Schedule I thereof. The Purchaser is entitled to
the benefits of the Purchase Agreement to which reference is hereby made for a statement of all applicable terms and conditions. All capitalized terms, unless otherwise defined herein, shall have the
meanings ascribed to them in the Purchase Agreement. 

        2.    Maturity Date.    To the extent not converted or redeemed, the Company agrees to pay the principal amount of the
indebtedness evidenced hereby on December 31, 2006 (the "Maturity Date"). 

        3.    Interest.    

        The
principal amount of this Debenture from time to time outstanding shall bear interest at the rate of seven percent (7%) per annum (the "Coupon Rate") from the date hereof and
continuing until the payment in full. 

        Interest
shall be payable quarterly in arrears on January 2, April 1, July 1 and October 1 of each year, beginning on January 2, 2002 or, in the case
of any redemption or conversion, the date of such redemption or conversion as provided for under the Purchase Agreement. Interest payable shall be paid, at the option of the Company, either
(i) in lawful money of the United States of America and in immediately available funds or (ii) by increasing the outstanding principal balance of this Debenture by the amount of interest
payable to the Purchaser by the Company. Accrued and unpaid interest payable at the Maturity Date or any Redemption Date or Conversion Date shall be paid only in lawful money of the United States of
America and in immediately available funds. 

        4.    Method of Payment.    Payments shall be made in the manner specified in Section 2.5 of the Purchase
Agreement. 

        6.    Subordination.    The rights of the holder of this Debenture are subordinated in accordance with the provisions
of Article VII of the Purchase Agreement. 

1

 

        7.    Events of Default.    Upon and after the occurrence of an Event of Default, as defined in the Article VI
of the Purchase Agreement, this Debenture may, as provided in the Purchase Agreement, and without presentment, demand, notice or legal process of any kind, be declared, and immediately shall become,
due and payable. 

        8.    Redemption.    This Debenture is redeemable at a price equal to 107% of the outstanding principal amount the
Debenture in accordance with the provisions of Section 2.2 of the Purchase Agreement. 

        9.    Conversion.    This Debenture is convertible at a per share conversion price of $12.00, subject to certain
adjustment, in accordance with the provisions of Sections 2.3 and 2.4 of the Purchase Agreement. 

        10.    Governing Law.    This Debenture shall be interpreted, governed by and construed in accordance with, the laws
of the State of California, without regard to its conflict of laws principles. 

        IN
WITNESS WHEREOF, the undersigned has executed this Debenture as of the day and year first written above. 

	

 	
 	

3D SYSTEMS CORPORATION
	

 	
 	

 	

 	

 
	 	 	By:	 

	 	 	 	Name:

Title:	 

2

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Exhibit 10.22QuickLinks
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Exhibit 10.43    
    

December 10,
2003 

Mr. Abraham
N. Reichental

3D Systems Corporation

26081 Avenue Hall

Valencia, CA 91355 

Dear
Abe: 

        The
purpose of this letter is to clarify the provisions of your employment agreement dated September 19, 2003 relating to the number of shares of the common stock of 3D Systems
Corporation to be awarded to you as incentive stock options and the vesting schedule of those options in order to comply with applicable regulatory limitations. When executed by you and the Chairman
of the Board of 3D Systems in the spaces provided below, this letter will constitute an amendment to your employment agreement, and all other provisions of your employment agreement will remain in
full force and effect. 

        Based
on a review of the applicable legal requirements relating to the 400,000 shares of 3D Systems' common stock to be awarded to you under option agreements, 55,401 shares will be
covered by incentive stock options, and the remaining 344,599 shares will be covered by non-qualified stock options. 

        The
vesting of your incentive stock options shall be as follows: The shares shall vest over a period of four years, with 3,462 shares vesting on December 31, 2003, 10,388 shares
vesting on September 19, 2004, the first anniversary of the date of grant, and the remaining shares vesting in approximately equal monthly installments beginning on October 19, 2004 (35
installments of 1,154 shares and a 36th installment of 1,161 shares). 

        If
you are in agreement with the foregoing, please sign and return a copy of this letter to Bob Grace. 

Sincerely,

	

3D SYSTEMS CORPORATION	
 	

 	
 	

 
	

 	
 	

 	
 	

 	
 	

 
	By:	 	/s/  G. WALTER LOEWENBAUM, II       
 G. Walter Loewenbaum, II

Chairman of the Board of Directors	 	 	 	 
	

Accepted and agreed:	
 	

 	
 	

 
	

 	
 	

/s/  ABRAHAM N. REICHENTAL       
 Abraham N. Reichental	
 	

Date:	
 	

December 17, 2003 

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Exhibit 10.43EXHIBIT 10.1

                        JOINT VALUE ENHANCEMENT AGREEMENT

                                  by and among

                              PANNONIAN ENERGY INC.

                                       and

                                    M-I, LLC
                            NABORS DRILLING USA, LP,
                             POOL WELL SERVICES CO.,
                         RED OAK CAPITAL MANAGEMENT LLC
                                       and
                       Schlumberger Technology Corporation

                                      dated

                                January 16, 2004

                              CARBON, DUCHESNE AND
                              UINTAH COUNTIES, UTAH

<PAGE>

                                TABLE OF CONTENTS

1.       DEFINITIONS...........................................................1

2.       THE PROJECT WELLS.....................................................5

3.       PROJECT GOVERNANCE....................................................5

4.       THE SERVICES..........................................................8

5.       SERVICE PARTY COMPENSATION...........................................11

6.       OPERATION OF THE PROJECT WELLS.......................................13

7.       EARLY BUYOUT.........................................................15

8.       TERM.................................................................15

9.       GENERAL TERMS AND CONDITIONS.........................................16

10.      CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY...................17

11.      NOTICES..............................................................19

12.      MISCELLANEOUS PROVISIONS.............................................20

13.      SEVERABILITY; SAVINGS CLAUSE.........................................22

14.      WARRANTIES/DISCLAIMERS...............................................22

15.      FORCE MAJEURE........................................................22

16.      RELATIONSHIP OF THE PARTIES..........................................23

17.      REASONABLENESS.......................................................23

                                       i
<PAGE>

18.      CONFLICTS OF INTEREST................................................23

19.      CORPORATE POWER AND AUTHORITY........................................24

20.      PUBLIC ANNOUNCEMENTS.................................................24

21.      MODIFICATION OF EXHIBITS.............................................24

22.      NO LIABILITY; INDEMNITY..............................................25

23.      COUNTERPARTS.........................................................26

EXHIBITS

Exhibit A.........Contract Area
Exhibit B.........Project Governance
Exhibit C.........Master Service Agreements
Exhibit D.........Engagement Letter
Exhibit E.........Computations
Exhibit F.........Financial Accounting Procedures
Exhibit G.........Form of Pannonian Collateral Documents

                                       ii
<PAGE>

                        JOINT VALUE ENHANCEMENT AGREEMENT

This JOINT VALUE  ENHANCEMENT  AGREEMENT (the  "Agreement") is entered into this
16th  day  of  January,  2004  by,  between  and  among  Pannonian  Energy  Inc.
("Pannonian"),  a Delaware  corporation;  M-I, LLC ("M-I"),  a Delaware  limited
liability  company;  Nabors  Drilling  USA, LP  ("Nabors"),  a Delaware  limited
partnership;  Pool Well Services Co. ("Pool"), a Delaware  corporation;  Red Oak
Capital  Management LLC ("red Oak"), a Delaware  corporation;  and  Schlumberger
Technology Corporation ("Schlumberger"), a Texas corporation. In this Agreement,
M-I,  Nabors,  Pool, Red Oak and  Schlumberger are referred to individually as a
"Service Party" and collectively as the "Service Parties."

WHEREAS,  Pannonian owns numerous oil and gas leasehold interests covering lands
within portions of Carbon,  Duchesne and Uintah  Counties,  Utah, as depicted on
the attached Exhibit A ("Contract Area");

WHEREAS,  Pannonian  wishes to develop the Contract Area by drilling  fifty (50)
new wells;

WHEREAS,  the Service Parties wish to become the exclusive  suppliers of certain
goods and services for Pannonian's development of the Contract Area, and

WHEREAS,  as an inducement for Pannonian to grant such exclusivity,  the Service
Parties are willing to accept Deferred Payments for a portion of those goods and
services; and

WHEREAS,  Pannonian and the Service  Parties wish to accomplish the foregoing in
accordance with the terms of this Agreement;

NOW,  THEREFORE,  in  consideration  of  the  mutual  promises,  conditions  and
agreements  herein contained,  the sufficiency of which is hereby  acknowledged,
the Parties agree as follows:

1.       DEFINITIONS

         For  purposes of this  Agreement,  including  the  Exhibits,  except as
         otherwise  expressly provided or unless the context otherwise requires,
         the terms  defined in this Article  have the meanings  assigned to them
         herein and the capitalized terms defined elsewhere in this Agreement by
         inclusion in quotation marks have the meanings so ascribed to them.

          1.1  "Accrual  Method of  Accounting"  means a method of accounting in
               which (i) the Gross  Proceeds for a Month shall be the net amount
               recognized and recorded during such Month in Pannonian's  ledgers
               for sales of Hydrocarbon  Production from a Project Well and (ii)
               the Production  Costs for a Month shall be the amount incurred in
               connection  with that Project Well and recorded during such Month
               in  Pannonian's  ledgers  as  production  costs,  with  all  such
               proceeds and costs being  determined in accordance with Generally
               Accepted Accounting  Principles ("GAAP") and Council of Petroleum
               Accountants Societies ("COPAS") guidelines and procedures.

          1.2  "AFE" means an Authority for Expenditure prepared for the purpose
               of  estimating  the costs to be  incurred  in  connection  with a
               proposal  to drill,  deepen,  plug  back,  complete,  recomplete,
               sidetrack or rework a Project Well.

                                       1
<PAGE>

          1.3  "Affiliate"  means, with respect to any Person,  any other Person
               controlling  or controlled  by or under common  control with such
               Person,  with the concept of control in such context  meaning the
               possession,  directly or  indirectly,  of the power to direct the
               management  and  policies of  another,  whether by  ownership  of
               voting  securities,  contract  or  otherwise.  With  respect to a
               corporation, partnership or limited liability company, control is
               conclusively  deemed to exist where a Person  owns fifty  percent
               (50%) or more of the voting stock in such  corporation  or of the
               voting  interest as a partner in such  partnership or as a member
               of such limited liability company.

          1.4  "Agreement" means this Joint Value Enhancement  Agreement between
               and among the Parties,  including the Exhibits attached hereto or
               referred to herein.

          1.5  "Bundle"  means a specific group of Project Wells approved by the
               Executive  Committee and the Oilfield Service Parties pursuant to
               Article 3.3.2,  consisting of the first twelve (12) Project Wells
               (the two [2] Evaluation Wells and the next ten [10] Project Wells
               that are completed thereafter, whether as producers or dry holes)
               in the first  Bundle;  the next ten (10)  Project  Wells that are
               completed,  whether  as  producers  or dry  holes,  in the second
               Bundle,  and successive  groups of the following ten (10) Project
               Wells that are completed,  whether as producers or dry holes,  in
               each of the following Bundles;  provided however, that if for any
               reason the full  number of Project  Wells are not  drilled in the
               final  Bundle,  then the final Bundle shall  consist only of such
               lesser number of Project Wells as were actually commenced.

          1.6  "Business Day" means any day other than a Saturday,  a Sunday, or
               a day on which the United States Postal  Service is not scheduled
               to deliver ordinary first class mail.

          1.7  "Deferred  Payment"  means the monthly  payments  calculated on a
               Bundle by Bundle basis due each Service  Party under the terms of
               this  Agreement  in  consideration  of its  provision  of  Risked
               Services with the amount of each such  Deferred  Payment due each
               Service  Party being  calculated  as the amount  equal to the Net
               Profits  for such Bundle  times the  applicable  Service  Party's
               Percentage for such Bundle.

          1.8  "Deferred Payment Account" is defined in Article 5.4.

          1.9  "Effective  Date"  means the  effective  date of this  Agreement,
               being January 16, 2004.

          1.10 "Engagement  Letter" means that certain  letter  agreement  dated
               December  8,  2003,   entered   into   between  Red  Oak  Capital
               Management, LLC and Pannonian, pursuant to which Red Oak will, at
               Pannonian's  request,  arrange for financing for a portion of the
               services  provided on the Project Wells within the Contract Area,
               a copy of which is attached hereto as Exhibit D.

          1.11 "Evaluation  Wells" means the Lytham Federal  #22-22-9-19 and the
               Federal  #32-31-9-19 wells completed by Schlumberger  pursuant to
               that  certain  Joint Value  Enhancement  Agreement by and between
               Pannonian  Energy Inc. and  Schlumberger  Technology  Corporation
               dated November 3, 2003.

                                       2
<PAGE>

          1.12 "Excess  Production  Costs"  for a  Month  means  the  amount  of
               Production  Costs,  together  with any  Excess  Production  Costs
               carried  forward  from a prior  Month,  that are in excess of the
               Gross Proceeds for such Month.

          1.13 "Exhibits" means the exhibits to this Agreement, as such exhibits
               may be amended from time to time.

          1.14 "Gross Proceeds" for a Month means the amount earned by Pannonian
               from the sale of Hydrocarbon  Production  from each Project Well,
               computed in accordance  with Exhibit E attached  hereto and using
               the Accrual Method of Accounting.

          1.15 "Hydrocarbon  Production"  means  all  crude  oil,  natural  gas,
               condensate  and other liquid and gaseous  hydrocarbons  produced,
               saved and sold from the Contract Area.

          1.16 "Investment  Election"  shall have the same  meaning  assigned to
               that term in the Engagement Letter attached hereto as Exhibit D.

          1.17 "Master Service  Agreement"  means, as to  Schlumberger,  Nabors,
               Pool and M-I,  the service  agreement  entered  into between that
               Service Party and Pannonian, pursuant to which that Service Party
               will  provide  Services in  connection  with the  Project  Wells.
               Copies of (i) the executed  Schlumberger  and M-I Master  Service
               Agreements  and (ii) forms of the Nabors and Pool Master  Service
               Agreements are attached hereto as Exhibit C.

          1.18 "Month" means the period beginning at 7:00 a.m.  Mountain time on
               the first day of any  calendar  month and ending at the same time
               on the first day of the next succeeding calendar month.

          1.19 "Negative  Account  Balance" means, at any given time, the amount
               by which the cumulative value of the Risked Services  provided by
               a given  Service  Party  exceeds  the  cumulative  amount  of the
               Deferred Payments received by such Service Party.

          1.20 "Net  Profits"  for the  Project  Wells for any  Month  means the
               amount by which the Gross  Proceeds for the Project Wells exceeds
               the sum of (a)  Production  Costs for the Project  Wells for that
               Month, plus (b) Recompletion Costs for the Project Wells for that
               Month,  plus (c) Excess Production Costs for the Project Wells as
               of the end of the immediately preceding Month.

          1.21 "Pannonian's  Working Interest" means that portion of the working
               interest ownership in a given Project Well (determined  according
               to industry  custom and  practice)  attributable  to  Pannonian's
               ownership  of the lease on which such well is located  (including
               farm-in interests and other related interests).

                                       3
<PAGE>

          1.22 "Party"  means  Pannonian,   M-I,   Nabors,   Pool,  Red  Oak  or
               Schlumberger,   individually;  "Parties"  means  Pannonian,  M-I,
               Nabors, Pool, Red Oak and Schlumberger, collectively.

          1.23 "Percentage"  means,  as to  each  Service  Party  and as to each
               Bundle, the percentage  determined by the Executive  Committee by
               dividing that Service Party's  Expenditures on such Bundle by the
               Total Well Construction and Completion Costs attributable to that
               Bundle;  provided,  however, that until finally determined by the
               Executive  Committee  pursuant to Article 3.4(g), the Percentage,
               as to  each  Service  Party  and  as to  that  Bundle,  shall  be
               provisionally  determined by the Executive  Committee,  either by
               dividing each of the anticipated Service Party's  Expenditures as
               shown  in all  applicable  AFEs,  by  the  estimated  Total  Well
               Construction  and Completion Costs shown in those AFEs or by such
               other method as the Executive  Committee may believe  appropriate
               under the circumstances.

          1.24 "Person" means any individual,  governmental agency, corporation,
               partnership,   joint  venture,   trust,  estate,  joint  venture,
               unincorporated organization, or other entity or organization.

          1.25 "Production  Costs"  for a Month  means  the  costs  incurred  by
               Pannonian  during such Month that are  allocable  to  Pannonian's
               Working  Interest  in  the  Project  Wells   (including   without
               limitation plugging, abandonment and reclamation costs), computed
               in accordance  with Exhibits E and F and using the Accrual Method
               of Accounting. For purposes of calculating the Deferred Payments,
               Production   Costs  will  be   determined   and  allocated  on  a
               Bundle-by-Bundle basis.

          1.26 "Project  Well"  means a well  commenced  under the terms of this
               Agreement  in the  Wasatch,  Mesaverde,  Castlegate  or Blackhawk
               formations,  starting at a depth below the Green River  Formation
               and  ending  at a  depth  equivalent  to the  top  of the  Mancos
               formation.

          1.27 "Prudent Standards" means the standards of reasonable and prudent
               business  judgment  and  sound oil and gas  field  practices,  in
               compliance with applicable  federal,  state and local laws, rules
               and regulations.

          1.28 "Recompletion  Costs"  means the actual  charges  to all  working
               interest owners in connection with the  recompletion of a Project
               Well;  provided,  however,  that no portion of Recompletion Costs
               shall  ever  duplicate  amounts  that have been  included  in the
               Production Costs for that same well.

          1.29 "Representative" means a director, officer, supervisor, employee,
               partner,  technical  consultant,  attorney,  accountant,  lender,
               financial advisor,  marketing  representative or other consultant
               or agent of a Party.

          1.30 "Risked  Services"  means  those  Services,  or that  portion  of
               Services,  that a Service Party provides in exchange for Deferred
               Payments in accordance with the terms of this Agreement.

                                       4
<PAGE>

          1.31 "Service  Party's  Expenditures"  means  (i) as to  Schlumberger,
               Nabors, Pool and M-I, the cumulative value of the Risked Services
               provided by such Service Party on a given Bundle, as evidenced by
               invoices issued by each Service Party for their respective Risked
               Services  and (ii) as to Red Oak, the  cumulative  total of funds
               provided by Red Oak on a given Bundle.

          1.32 "Services" means those products,  goods and services  supplied by
               the Service Parties to Pannonian as set out in Article 4.1.

          1.33 "Third  Party"  means a Person who is not a Party or an Affiliate
               of a Party.

          1.34 "Total Well  Construction and Completion  Costs" means the actual
               charges to Pannonian, in its capacity as a working interest owner
               in connection with the drilling and completing of a Project Well;
               provided, however, that no portion of Total Well Construction and
               Completion  Costs  shall ever  duplicate  amounts  that have been
               included in the Production  Costs or Recompletion  Costs for that
               same well.

          1.35 "Unrisked Services" means, as to each Service Party, the Services
               or that portion of Services that are not Risked  Services and for
               which that  Service  Party will receive or has elected to receive
               payments  under  the  terms  of  the  applicable  Master  Service
               Agreement, rather than Deferred Payments.

2.       THE PROJECT WELLS

          2.1  Overview.  Pannonian and the Service  Parties will work together,
               using the project  governance  principles set forth in Article 3,
               to develop the oil and gas resources contained in that portion of
               the  Contract  Area in which  Pannonian  may  conduct oil and gas
               operations,  whether  through  ownership of oil and gas leasehold
               interests  or through  communitization,  pooling  or  unitization
               agreements.

          2.2  Field Development  Plan. The Technical  Committee will, not later
               than  January 23,  2004,  propose to the  Executive  Committee an
               initial field development plan, identifying  prospective drilling
               locations  in the  Contract  Area,  the  sequence of drilling and
               anticipated  drilling and completion protocols and will from time
               to time thereafter propose to the Executive Committee appropriate
               amendments and additions to such plan. The plan actually  adopted
               by  the  Executive  Committee,  as  subsequently  amended  by the
               Executive  Committee,  shall be the "Field Development Plan." The
               Executive Committee shall provide to each Service Party a copy of
               the Field  Development  Plan and shall  thereafter  timely inform
               each Service Party of all  amendments  and additions to the Field
               Development Plan. All Project Wells will be drilled and completed
               in accordance with the Field Development Plan then in effect.

3.       PROJECT GOVERNANCE

          3.1  Principles.  The  Parties  will  work  together  in a  spirit  of
               openness  and  cooperation  in an  effort  to  achieve  efficient
               Hydrocarbon   Production   from  the  Project  Wells.  A  graphic
               illustration of the Parties' anticipated responsibilities appears
               in the attached Exhibit B.

                                       5
<PAGE>

          3.2  Pannonian  as  Operator.  Based  upon  existing  joint  operating
               agreements and leasehold  ownership,  the Parties anticipate that
               Pannonian  will be and remain the  operator of all of the Project
               Wells.  Nothing  in this  Agreement  shall  have  the  effect  of
               modifying or superseding  Pannonian's position as operator. It is
               the stated policy of Schlumberger not to take any equity interest
               in the leases in the Contract  Area,  the  production or reserves
               associated   therewith   or  other   property  of   Pannonian  in
               consideration  for  providing  the Risked  Services.  The Parties
               acknowledge that the sole compensation to the Service Parties for
               providing Risked Services shall be the Deferred Payments.

          3.3  Schlumberger as Project Well Coordinator.

               3.3.1Schlumberger, acting under the direction of Pannonian in its
                    capacity  as   operator,   shall   serve  as  Project   Well
                    Coordinator,  facilitating  the effective  collaboration  of
                    Pannonian,  the Service  Parties and any Third Party service
                    providers  in the supply of proposed  products  and services
                    for the Project  Wells.  In such capacity and subject to the
                    provisions of Article 3.3.2,  Schlumberger shall communicate
                    with the  Service  Parties  concerning  their  elections  to
                    provide both Unrisked  Services and Risked Services for each
                    Project  Well  and,  in   conjunction   with  the  Technical
                    Committee,  shall ensure that all Risked  Services  proposed
                    for that Project Well are in compliance with the limitations
                    set forth in Articles 4.2 and 4.3 below.  When  Schlumberger
                    has  satisfactory  commitments  from  each  of  the  Service
                    Parties as to the Unrisked  Services and Risked  Services to
                    be provided for a particular  Project  Well, it shall notify
                    the Technical Committee of such commitments,  indicating the
                    availability  and proposed timing for the provision of these
                    Services.  The Parties  anticipate  that  Schlumberger  will
                    provide such  notification  within  fourteen (14) days after
                    the  concerned  Project Well has been  included in the Field
                    Development  Plan. In  consideration  of its  performance of
                    these  coordination  services,  Schlumberger will earn a fee
                    determined  by the  Executive  Committee and included in the
                    approved AFE for each Project Well, the full amount of which
                    shall be included as part of  Schlumberger's  Service  Party
                    Expenditures for that Project Well.

               3.3.2The  Executive   Committee  shall  present  to  the  Service
                    Parties,  other than Red Oak,  (for purposes of this Article
                    3.3.2,  referred to as the "Oilfield  Service Parties") each
                    proposed Bundle approved by the Executive Committee.  Should
                    the Oilfield Service Parties collectively elect not to offer
                    one  hundred  percent  (100%)  of  their  Services  on  each
                    proposed  Project  Well in such  Bundle as Risked  Services,
                    Schlumberger shall identify to the Executive  Committee that
                    well or wells  within  the  proposed  Bundle  on  which  the
                    Oilfield  Service  Parties  chose not to provide one hundred
                    percent  (100%) of their  Services as Risked  Services.  The

                                       6
<PAGE>

                    Executive Committee shall then substitute proposed wells for
                    inclusion in the proposed Bundle until the Oilfield  Service
                    Parties agree to offer one hundred  percent  (100%) of their
                    Services  on all  wells in the  proposed  Bundle  as  Risked
                    Services.  The  Executive  Committee  and  Oilfield  Service
                    Parties may  mutually  agree at any time during the drilling
                    of the wells within a proposed  Bundle to  substitute a well
                    for any proposed  Project Well within such proposed  Bundle.
                    Should any reduction in the percentage of Risked Services be
                    required  pursuant to Pannonian's  election to provide funds
                    as set  out  in  Article  4.2.1  below,  Schlumberger  shall
                    coordinate proportional reductions with the Oilfield Service
                    Parties in accordance with Article 4.2.4.

          3.4  Executive  Committee.  Promptly  following  the execution of this
               Agreement,   Pannonian  and   Schlumberger   shall  establish  an
               Executive  Committee  consisting of four (4) members,  two (2) of
               which shall be appointed by Pannonian from its management and two
               (2) of which shall be appointed by  Schlumberger  from its or its
               Affiliate's  management.  The Executive  Committee  shall meet at
               least  once each  calendar  quarter  in  Denver,  Colorado  or as
               otherwise  set out  herein.  Within  seven  (7)  days  after  the
               execution of this Agreement,  the Parties will exchange a list of
               their  respective   appointments,   as  well  as  any  designated
               alternates.

               Pannonian  shall  designate one (1) of its two (2) members as the
               Chairman  of  the  Executive  Committee  (the  "Chairman").   The
               Chairman  shall  schedule  meetings of the  Executive  Committee,
               arrange for the preparation  and  distribution of notices as well
               as an  agenda  of the  meetings  and  preside  and keep  minutes.
               Special  meetings  shall be held upon the  request of any two (2)
               members of the  Executive  Committee  under this  Agreement.  The
               Chairman shall transmit  written  notices of all meetings to each
               member  at least  seven (7) days in  advance  of the  meeting.  A
               quorum for the  conduct of  Executive  Committee  business  shall
               consist of three (3)  members,  and such quorum may be by person,
               by proxy, or by telephone.

               The Executive  Committee shall generally  oversee all hydrocarbon
               development and production  activities occurring pursuant to this
               Agreement.  Without limiting the generality of the foregoing, the
               Executive  Committee shall have the authority and  responsibility
               to:

               a.   Appoint a committee  composed of Pannonian and  Schlumberger
                    technical    personnel    ("Technical    Committee"),    the
                    responsibilities of which shall include,  but not be limited
                    to, the preparation of the suggested field  development plan
                    and  appropriate  subsequent  amendments and  modifications.
                    Both Pannonian and Schlumberger  shall earn a fee determined
                    by the  Executive  Committee for their work on the Technical
                    Committee   (including  any  start-up  costs)  and  included
                    (without duplication in subsequent AFEs) in the approved AFE
                    for the next Project Well actually  drilled.  Schlumberger's
                    share  of  such   fee   shall   be   included   as  part  of
                    Schlumberger's Service Party's Expenditures for that Project
                    Well and  Pannonian's  share shall be a line item on the AFE
                    for the applicable Project Well;

               b.   Adopt the Field  Development  Plan within fourteen (14) days
                    of the  Effective  Date of this  Agreement,  and  thereafter
                    adopt appropriate amendments and modifications to such plan;

                                       7
<PAGE>

               c.   Approve  or  disapprove  an AFE for  each  single  operation
                    (whether  drilling,  completing,  deepening,  plugging back,
                    recompleting, sidetracking or reworking) anticipated to cost
                    more than Fifty  Thousand  Dollars  ($50,000) in  connection
                    with a  Project  Well,  with  the  understanding  that  such
                    operation will not be undertaken unless there is an approved
                    AFE;

               d.   Attempt to resolve conflicts between the Parties  concerning
                    this Agreement and the activities contemplated hereby;

               e.   Recommend appropriate actions to optimize the performance of
                    each  Project  Well  in  accordance   with  good  production
                    practices;

               f.   Provide Pannonian and Schlumberger  quarterly reports on the
                    activities conducted pursuant to this Agreement, the Service
                    Parties'  Expenditures  in  respect  of each  Bundle,  and a
                    computation of each Service Party's Percentage in respect of
                    each Bundle; and

               g.   Determine  the  Percentage  of each  Service  Party  in each
                    Bundle on a  provisional  basis as each Project Well in that
                    Bundle is drilled  and  completed  and on a final  basis not
                    sooner  than sixty (60) days nor later than ninety (90) days
                    after the  completion and equipping of the last well in that
                    Bundle.

          Matters  requiring  Executive  Committee  action  shall be  decided by
          unanimous vote of the Executive Committee members present at a meeting
          and voting in person,  by proxy or by telephone.  All proxies shall be
          in  writing.  Any  action  permitted  to be  taken  by  the  Executive
          Committee  may also be taken  without a meeting  by means of a written
          consent  to  the  action  signed  by  all  members  of  the  Executive
          Committee.

     4.   THE SERVICES

          4.1  Service Party  Exclusivity.  Pannonian hereby grants each Service
               Party the exclusive  right to provide the  following  Services in
               the Contract  Area, so long as such Service Party can deliver its
               Services as reasonably requested by the Executive Committee:

               (a)  Schlumberger.  Schlumberger  shall have the right to provide
                    the  following  goods and  services at mutually  agreed upon
                    market  prices and in  accordance  with its  Master  Service
                    Agreement included in Exhibit C hereto:

                    i.   coordination of field services
                    ii.  well  cementing  products and services
                    iii. formation evaluation logging products and services
                    iv.  well completion products and services
                    v.   data management and consulting services
                    vi.  well perforating products and services
                    vii. well testing and evaluation products and services
                    viii.directional   drilling  and  measurement  products  and
                         services

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<PAGE>

                    ix.  well stimulation, fracturing and acidizing products and
                         services
                    x.   coiled tubing  products and services
                    xi.  downhole  pumps
                    xii. slickline products and services
                    xiii.well/field  monitoring  and  measurement  products  and
                         services

               (b)  Nabors  and Pool.  Nabors  and Pool  shall have the right to
                    provide   drilling,   reworking  and  related   services  in
                    accordance  with their Master Service  Agreements,  forms of
                    which are included in Exhibit C.

               (c)  M-I.  M-I  shall  have the  right to  provide  drilling  and
                    completion fluids,  production chemicals,  pressure control,
                    drilling waste management services and solids control and in
                    accordance  with its Master  Service  Agreement  included in
                    Exhibit C hereto.

               (d)  Red Oak. Red Oak shall have the right to provide  funding in
                    accordance with the terms of its Engagement  Letter attached
                    as Exhibit D.

         Rates to be  charged  by Nabors  and Pool for their  Services  shall be
         determined in accordance with the applicable Master Service  Agreement.
         Rates to be charged by Schlumberger and M-I for their Services shall be
         determined  in  accordance  with their  respective  then current  price
         lists,  which shall not be modified more frequently than once every six
         (6) months.

         Pannonian  shall not enter into any agreement  that  conflicts with the
         exclusivity  granted to the Service Parties herein,  although Pannonian
         does reserve the right freely to contract  with Third  Parties for such
         Services as the Service  Parties may be unable to provide as reasonably
         requested by the Executive Committee

         4.2      Parties' Expenditures

                    4.2.1General.   As   indicated   in  Article   4.2.2  below,
                         Pannonian will have the right to provide  funding for a
                         percentage of the Total Well and Construction Costs for
                         each Project Well.  The  aggregate  value of all Risked
                         Services  provided by all Service  Parties in a Project
                         Well may never exceed the difference  between the Total
                         Well  Construction  and Completion  Costs for that well
                         less the portion being provided by Pannonian.

                    4.2.2Pannonian Expenditures.  In connection with the Project
                         Wells in the first through third Bundles, Pannonian may
                         elect to  provide  up to  twenty  percent  (20%) of the
                         Total Well Construction and Completion Costs,  although
                         it must  provide (i) at least five  percent (5%) of the
                         Total Well  Construction  and Completion  Costs of each
                         well in the  first  Bundle  and (ii) at least  the same
                         percentage  in the Project  Wells in the second  Bundle
                         and  (iii) at least  the same  percentage  in the third
                         Bundle as it funded in the second Bundle. In connection

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<PAGE>

                         with the Project Wells in the fourth and fifth Bundles,
                         Pannonian  may elect to  provide  up to thirty  percent
                         (30%) of the Total  Well  Construction  and  Completion
                         Costs,  although it must  provide (i) at least the same
                         percentage  in each of the Project  Wells in the fourth
                         Bundle as it funded  in the  third  Bundle  and (ii) at
                         least the same  percentage in each of the Project Wells
                         in the fifth Bundle as it funded in the fourth  Bundle.
                         Pannonian  shall notify the  Executive  Committee as to
                         its  election in  connection  with each Bundle no later
                         than  seven (7) days  after the first  Project  Well in
                         each  Bundle is  identified  in the  Field  Development
                         Plan.

                    4.2.3Red  Oak   Expenditures.   If  Red  Oak   delivers  its
                         Investment  Election  within one hundred  twenty  (120)
                         days  after  December  8,  2003,  as  provided  in  the
                         Engagement Letter attached hereto as Exhibit D, Red Oak
                         shall provide Pannonian cash funding in accordance with
                         the  terms  of  its   Investment   Election   equal  to
                         thirty-five  percent  (35%),  subject to any adjustment
                         made  pursuant  to Article  4.2.6,  of the  anticipated
                         completed  well cost shown in the AFE for each  Project
                         Well.

                    4.2.4Expenditures  of Other  Service  Parties.  Because  the
                         percentage of  Pannonian's  funding will not vary as to
                         the  Project  Wells in a  particular  Bundle  except as
                         provided by Article  4.2.6,  and because the percentage
                         of funding  provided by Red Oak likewise  will not vary
                         as to any of the Project  Wells,  except as provided by
                         Article  4.2.6,  the  Technical  Committee  may find it
                         necessary  to adjust  the  amount  of  Risked  Services
                         furnished  by the  remaining  Service  Parties.  If the
                         Technical Committee determines that the Risked Services
                         proposed  by  all  Service   Parties  will  exceed  the
                         completed well cost shown in the AFE,  after  deduction
                         of the  amounts  to be paid by  Pannonian  and Red Oak,
                         then  it  will  direct   Schlumberger   to   coordinate
                         appropriate   proportional  reductions  of  the  Risked
                         Services to be provided by the other  Service  Parties,
                         so that the Pannonian  funding and the Risked  Services
                         will exactly  satisfy the Total Well  Construction  and
                         Completion  Costs.  In  no  event  shall  Schlumberger,
                         Nabors,  Pool or M-I be  required  to provide  anything
                         other than the value of their  respective  Services  as
                         Risked Services.

                    4.2.5AFE Approval.  Before commencement of the first Project
                         Well in each Bundle, the Executive  Committee shall, by
                         unanimous  consent,  approve  one or more AFEs  setting
                         forth the estimated cost of the Services to be provided
                         by each  of the  Service  Parties  and  indicating  the
                         percentage  of such  Services  which  are to be  Risked
                         Services  and which are to be  Unrisked  Services.  All
                         costs to be borne by Pannonian shall be approved by the
                         Executive  Committee  and set  forth in the  applicable
                         AFE.

                    4.2.6Cost Overruns.  Pannonian may incur  expenditures of up
                         to one hundred ten percent  (110%) of the total  amount
                         anticipated  in  the  AFE  for a  particular  operation
                         without  consultation  with  the  Executive  Committee;
                         provided,  however,  that the entire amount of the cost
                         overrun  shall be borne by  Pannonian.  When  Pannonian
                         reasonably anticipates that the one hundred ten percent
                         (110%) limit set forth in the  preceding  sentence will
                         be exceeded,  however,  Pannonian  shall furnish to the
                         Technical  Committee a reasonably  detailed estimate of
                         the   anticipated   overexpenditure   and  the  reasons
                         therefor.  Schlumberger  shall, after consultation with
                         the other  Service  Parties,  determine  whether and to
                         what  extent,  if  any,  the  Service  Parties  wish to

                                       10
<PAGE>

                         provide  additional  Risked  Services  to  satisfy  the
                         overexpenditure  and advise the Technical  Committee of
                         the amount of additional Risked Services, if any, to be
                         provided by each Service Party. The Technical Committee
                         shall  then  submit  a  revised  AFE to  the  Executive
                         Committee  for  its  approval  or  modification,   with
                         Pannonian bearing the entire amount of the cost overrun
                         that is not provided by the Service Parties through the
                         provision of additional Risked Services.

          4.3     Special Limitations on Amount of Risked Services.

                    4.3.1Service   Party   Limitations.    Notwithstanding   the
                         provisions of Article 4.2, the Service Parties shall be
                         under no obligation to undertake  Risked  Services that
                         are  anticipated to produce a Negative  Account Balance
                         as to the Risked  Services each Service Party  provides
                         on the Project Wells in a given Bundle in excess of the
                         following amounts:

                    (i)  as to Schlumberger,  Four Million Nine Hundred Thousand
                         Dollars ($4, 900,000.00);
                    (ii) as to Nabors and Pool  collectively,  Two Million Seven
                         Hundred Fifty Thousand Dollars ($2,750,000.00);
                    (iii)as   to   M-I,   Seven   Hundred    Thousand    Dollars
                         ($700,000.00); and
                    (iv) as to Red Oak, Five Million One Hundred Fifty  Thousand
                         Dollars ($5,150,000.00).

                    Finally,  the Service  Parties  shall have no  obligation to
                    provide any Risked  Services in connection with any proposed
                    Bundle unless each is satisfied in its reasonable discretion
                    that Pannonian has or will have appropriate means to satisfy
                    all  cash  expenditure   requirements  associated  with  all
                    Project Wells in that Bundle. Pannonian agrees to provide to
                    each Service  Party such  information  as that Service Party
                    reasonably deems necessary to make such determination.

                    4.3.2Pannonian  Limitations.  If  Pannonian  is not the sole
                         working  interest  owner in a Project Well,  then in no
                         event  shall  the  cumulative   total  of  all  Service
                         Parties'   Percentages,   together   with   Pannonian's
                         expenditures for Total Well Construction and Completion
                         Costs, in that well exceed Pannonian's Working Interest
                         in such well.

     5.   SERVICE PARTY COMPENSATION

          5.1  Unrisked  Services.  Any Unrisked  Services provided by a Service
               Party shall be governed by, and paid for in accordance  with, the
               applicable Master Service Agreement.

          5.2  Risked Services.

               5.2.1Schlumberger's  Deferred Payments.  In consideration for the
                    performance of Risked Services on a Bundle,  Pannonian shall
                    pay to  Schlumberger  Deferred  Payments  equal  to the  Net
                    Profits of each  Project Well in that Bundle  multiplied  by

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<PAGE>

                    Schlumberger's Percentage in such well. Schlumberger's right
                    to Deferred Payments as to such Bundle shall commence in the
                    month  that  Hydrocarbon  Production  is first  sold  from a
                    Project  Well in  that  Bundle  and  shall  end one  hundred
                    forty-four  (144)  months  (inclusive  of the first month of
                    Hydrocarbon Production) thereafter.

               5.2.2Nabors',  Pool's,  M-I's and Red Oaks' Net Profit  Interest.
                    In consideration  for Nabors',  Pool's,  M-I's and Red Oak's
                    Service  Party's  Expenditures,  Pannonian  shall grant unto
                    each such  Service  Party an interest in the  Contract  Area
                    equal  to  the  Net  Profits  attributable  to  each  Bundle
                    multiplied by the applicable  Service Party's Percentage for
                    such Bundle for one hundred forty-four (144) months from the
                    date of first sale of Hydrocarbon  Production from the first
                    well  completed or  recompleted  in a given Bundle (the "Net
                    Profits Interest").

          5.3  Deferred Payment Timing. Pannonian shall pay Deferred Payments by
               corporate check mailed to each Service Party's address set out in
               Article II no later than the 28th day of each Month beginning not
               later than  sixty  (60) days after the first sale of  Hydrocarbon
               Production from the first completed and producing Project Well.

          5.4  Deferred  Payment  Account.  Pannonian  shall maintain an account
               (the  "Deferred  Payment  Account")  on its books and records for
               each  Service  Party in respect  of each  Bundle.  Each  Deferred
               Payment Account shall be credited with the aggregate of any Gross
               Proceeds  received by Pannonian after the Effective Date for each
               Project  Well in the  Bundle,  and  shall  be  charged  with  the
               aggregate Production Costs incurred after the Effective Date.

               On or before the  payment  date set forth in Article  5.3 hereof,
               Pannonian   shall  furnish  to  each  Service  Party  a  detailed
               statement  clearly  reflecting the credits and debits against and
               the balance of the Deferred Payment Account for each Bundle as of
               the close of business on the last day of the preceding Month. Any
               Excess  Production Costs reflected by any such statement shall be
               carried forward to the next and succeeding  month or months until
               the Excess Production Costs have been liquidated.

          5.5  Deed of Trust. As security for the payment and performance of all
               of Pannonian's obligations to Schlumberger  hereunder,  Pannonian
               shall, upon request by Schlumberger,  execute and acknowledge one
               or more Deed of Trust,  Assignment  of  Production  and  Security
               Agreements as to each Bundle in the form of the attached  Exhibit
               G-1,   together  with  such   financing   statements   and  other
               instruments  as  Schlumberger  may  reasonably  request  in order
               properly to perfect the lien and  security  interests  created by
               the Deed of Trust.  Schlumberger  shall file the Deed of Trust in
               all appropriate records to properly perfect the lien and security
               interest created  thereunder.  Pannonian agrees that Schlumberger
               may at any time assign,  transfer or otherwise convey all or part
               of its  right  to  receive  Deferred  Payments  pursuant  to this
               Agreement  to any Person  (herein  called the  "Deferred  Payment
               Assignee").  Concurrently  with any such conveyance to a Deferred
               Payment  Assignee,   (a)  Schlumberger's  right  to  receive  the
               applicable  Deferred Payments pursuant to this Agreement shall be

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<PAGE>

               automatically  converted to a net profits interest, (b) Pannonian
               shall  execute and deliver to such Deferred  Payment  Assignee an
               assignment  of  net  profits   interest  in  form  and  substance
               reasonably  satisfactory to Schlumberger and the Deferred Payment
               Assignee,  (c) Pannonian shall amend the Memorandum of Assignment
               of Net Profits Interest described in Section 5.6 below to reflect
               the Deferred Payment Assignee's Percentage,  and (d) Schlumberger
               shall  terminate the liens  created by the Security  Agreement as
               they relate to the  applicable  Deferred  Payments and deliver to
               Pannonian  executed  releases,  in form and substance  reasonably
               satisfactory to Pannonian, to evidence such termination.

          5.6  Memorandum of Assignment. Pannonian shall, contemporaneously with
               the completion of Services on each Project Well, execute and file
               a Memorandum of Assignment of Net Profits Interest  substantially
               in the form attached as Exhibit G-2. Pannonian shall from time to
               time amend such Memorandum of Assignment of Net Profits  Interest
               to  reflect  each  of  Nabors',   Pools',  M-I's  and  Red  Oak's
               Percentage.  Final adjustment to the Service Parties' Percentages
               and  payments  to   reallocate   Deferred   Payments  made  under
               inaccurate interim  percentages shall be made by the Parties,  as
               provided  in Article  3.4(g) not more than ninety (90) days after
               completion  of the  Services  on a  given  Bundle.  In the  event
               Pannonian  fails to execute and file any Memorandum of Assignment
               when and as requested, the Parties hereby agree that such failure
               will cause  potentially  irreparable  harm to the Service Parties
               and that,  therefore,  the  Service  Parties  will be entitled to
               injunctive relief to cure such failure.

          5.7  Schlumberger  Production  Facilities  Audit.  At any time  during
               which  Schlumberger  is  entitled to receive  Deferred  Payments,
               Schlumberger  shall have the right to enter the Contract Area and
               to audit the surface facilities to assess the performance of such
               facilities. Schlumberger may provide to the Executive Committee a
               recommendation  regarding  improvements or  modifications  to the
               facilities  with a view to  improving  the  flow  of  Hydrocarbon
               Production for eventual sale. The Executive Committee will review
               on a timely basis any such  recommendations  by Schlumberger and,
               if approved by the  Executive  Committee,  the Field  Development
               Plan shall be amended to include such activities.

          5.8  Interest on Past Due  Payments.  Any amount not paid by Pannonian
               when due shall  bear,  and  Pannonian  will pay,  interest at the
               interest  rate  set  forth  in  the  applicable   Master  Service
               Agreement for late payments.

     6.   OPERATION OF THE PROJECT WELLS

          6.1  Prudent Operator Standard. Pannonian will conduct and carry on or
               cause  to  be   conducted   and   carried  on  the   exploration,
               development,  maintenance  and  operation of the Project Wells in
               compliance with applicable federal, state, and local laws, rules,
               and   regulations   and  in  accordance  with  the  standards  of
               reasonable  and prudent  business  judgment and sound oil and gas
               field practices  customarily employed by oil and gas operators in
               the Contract Area.

          6.2  Emergencies.  In any emergency situation posing a threat to life,
               property  or  the  environment,  Pannonian  shall  undertake  all

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<PAGE>

               actions  that it  believes  in good  faith to be  appropriate  to
               contain and remedy the situation.  While approval  (whether under
               Article 4.2.6 or  otherwise)  shall not be required in connection
               with  any  such  actions,  Pannonian  shall  provide  as  soon as
               practicable a report to the Technical  Committee of the situation
               and the actions undertaken.

          6.3  Production   Monitoring  and  Surveillance.   Schlumberger  shall
               monitor  the  relevant   production  and   parameters   from  the
               appropriate number of nodes (selected  individual wells and field
               level gathering points) using its proprietary real time web based
               system  to  provide  data in order  continually  to assist in the
               optimization of the Contract Area.

          6.4  Partial  Disposal of  Properties.  At any time  following July 1,
               2005,  Pannonian  shall have the right in its sole  discretion to
               dispose  of its oil  and  gas  interests  in the  Contract  Area,
               whether by farmout,  exchange,  assignment or otherwise, free and
               clear of the terms of this  Agreement;  provided,  however,  that
               this  Article  6.4 shall not permit  Pannonian's  disposal at any
               time of either a Project Well,  and or the eight (8)  immediately
               surrounding  80-acre offset  drilling  locations of Project Wells
               drilled in the first  Bundle  and  alternate  drilling  locations
               provided such locations are  identified in the Field  Development
               Plan.

          6.5  Abandonment  of  Properties.   Nothing  herein   contained  shall
               obligate  Pannonian to drill or complete any well in the Contract
               Area, to continue to operate any well in the Contract Area, or to
               operate or  maintain in force or attempt to maintain in force any
               lease  when,  in  Pannonian's  reasonable  opinion  as a  prudent
               operator, such well or lease is not economical.  No Service Party
               shall ever have any liability for the  plugging,  abandonment  or
               reclamation of any Project Well,  although plugging,  abandonment
               and reclamation costs are included as Production Costs.

          6.6  Development of Formations Outside this Agreement. Pannonian shall
               have the right in its sole  discretion  at any time and from time
               to time to drill,  complete  and operate oil and gas wells in the
               Contract  Area,  free and clear of the  terms of this  Agreement;
               provided,  however,  that this  Article  6.6 shall not permit the
               drilling by  Pannonian  of a well within the spacing unit (or the
               40-acre  quarter-quarter  section of the government survey, if no
               spacing  has  been  adopted)  of  either  a  Project  Well  or an
               anticipated  Project Well that has been approved by the Executive
               Committee for inclusion in a Bundle,  unless  Pannonian's well is
               drilled  solely  to test  and  produce  formations  that  are not
               subject to this  Agreement  and such testing or drilling does not
               affect Hydrocarbon Production from any Project Well.

          6.7  Delay  Rentals,  Minimum  Royalties,  and Shut-in  Gas  Payments.
               Pannonian shall use reasonable commercial efforts to pay or cause
               to be paid in a proper  and  timely  manner  all  delay  rentals,
               minimum  royalties,   and  shut-in  gas  payments  which  may  be
               necessary  to maintain  its leases in the  Contract  Area in full
               force and effect, except to the extent that Pannonian has decided
               to dispose of or abandon such leases. Notwithstanding anything to
               the contrary herein, Pannonian shall not be liable to any Service
               Party  for  failure  to pay or for  incorrect  payment  of  delay

                                       14
<PAGE>

               rentals,  minimum royalties,  shut-in gas payments,  or any other
               contractual  obligations,  except where caused by the intentional
               or reckless conduct of Pannonian.

          6.8  Marketing   Hydrocarbon   Production.   Pannonian   shall  market
               Hydrocarbon  Production  in  accordance  with Prudent  Practices,
               taking  into  account  relevant  locations,  qualities  and other
               circumstances.   Pannonian   shall   never   market   Hydrocarbon
               Production to its Affiliates or in any transaction  other than an
               arms'-length transaction.

          6.9  Insurance.  Pannonian  shall  maintain or cause to be maintained,
               during the  period of time that any of the  Service  Parties  are
               entitled to receive Deferred Payments, insurance coverage that is
               consistent with the requirements of the joint operating agreement
               applicable to the  concerned  Project Well. In the event there is
               no  joint  operating  agreement   applicable  to  a  given  well,
               Pannonian shall maintain insurance in the amounts required by the
               Master Service Agreement with Schlumberger.

     7.   EARLY BUYOUT

          Pannonian  may buy out the  Service  Parties'  entitlement  to  future
          Deferred Payments at any time after the termination of this Agreement,
          although  it must first  provide  at least  thirty  (30) days  advance
          written  notice  to the  Service  Parties  of its  intention  to do so
          ("Early  Buyout  Notice").  Upon  exercise of the early  buyout,  each
          Service  Party  shall  release  its right to receive  future  Deferred
          Payments  and  terminate  any  mortgage  or lien it then  holds in the
          Contract  Area  securing  such  Deferred   Payments  upon  payment  by
          Pannonian  to each  Service  Party of an amount  equal to two  hundred
          fifty  percent  (250%) of the  Service  Party's  Expenditures  for all
          Bundles,  less any  Deferred  Payments  that  have  been  made to such
          Service Party through the date of the early buyout exercise.

     8.   TERM

          8.1  Term.  This  Agreement  shall remain in force and effect for five
               (5) years after the Effective  Date,  unless  earlier  terminated
               pursuant to Article 8.2.

          8.2  Termination.  This  Agreement may be terminated by written notice
               from the  terminating  Party to all other  Parties in  accordance
               with the following provisions:

               8.2.1Not later than April 16, 2004 by any Party, if Red Oak fails
                    to deliver  its  Investment  Election  within 120 days after
                    December  8, 2003,  as  provided  in the  Engagement  Letter
                    attached hereto as Exhibit D;

               8.2.2Immediately  by any Party,  after the Project  Wells in five
                    (5) Bundles have been completed;

               8.2.3Immediately  by any Service  Party,  if, through no fault of
                    the  terminating  Service  Party,  at least ten (10) Project
                    Wells have not been commenced in a calendar year;

               8.2.4Immediately  by any Party,  without  prejudice  to its other
                    rights, if another Party becomes insolvent,  makes a general

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<PAGE>

                    assignment for the benefit of its creditors,  applies for or
                    consents  to  the  appointment  of a  receiver,  trustee  or
                    liquidation of all or substantially  all of its assets,  has
                    an involuntary petition in bankruptcy filed against it which
                    is not dismissed  within sixty (60) days or fails to pay its
                    debts  and  obligations  as  they  become  due,  or  if  the
                    terminating Party reasonably  believes that any of the above
                    events is likely to occur;

               8.2.5Immediately  by any Party,  without  prejudice  to its other
                    rights,  if another Party fails to pay any obligation  under
                    this Agreement  within ten (10) Business Days after the same
                    shall become due and  payable,  or if such other Party fails
                    to duly observe,  perform or comply with any other covenant,
                    agreement, condition or provision of this Agreement and such
                    failure remains  unremedied for a period of thirty (30) days
                    after  written  notice  of  such  failure  is  given  by the
                    non-breaching Party to the breaching Party;

               8.2.6Upon thirty (30) days advance  written notice from Pannonian
                    to the  Service  Parties  if, at any time during the term of
                    this  Agreement,  the Parties  allow a cessation of drilling
                    operations (not caused by Pannonian) for a period of greater
                    than   one-hundred   (100)   consecutive  days  between  the
                    completion  of a Project Well and  commencement  of drilling
                    operations  on the next Project Well in an approved  Bundle.
                    Pannonian  shall  withdraw the notice of  termination  under
                    this  Article  8.2.6  should the  Service  Parties  commence
                    drilling  operations  prior to the  expiration of the thirty
                    (30) day notice period; or

               8.2.7By mutual  agreement of the  Parties,  on such terms as they
                    may agree.

          8.3  Survival.  Notwithstanding  any  termination of this Agreement in
               accordance  with Section 8.2, (i) the  obligation of Pannonian to
               make Deferred  Payments under Article 5 in respect of each Bundle
               shall  continue  for the full period  provided by Article 5.2 for
               that Bundle and (ii) the confidentiality provisions of Article 10
               shall continue for a period of eighteen (18) months following the
               termination of this Agreement.

          8.4  Return of Property.  Pannonian shall promptly return all property
               of each Service Party that is in Pannonian's  possession or under
               its control upon termination of this Agreement.  Similarly,  each
               Service Party shall promptly  return to Pannonian all property of
               Pannonian,  and to each Service  Party all property  belonging to
               that Service Party,  which is in such Service Party's  possession
               or under its control upon termination of this Agreement.

     9.   GENERAL TERMS AND CONDITIONS

          9.1  Effect of Master  Service  Agreement.  The Parties agree that the
               provision of Services by each Service  Party shall be governed by
               the terms and conditions contained in that Service Party's Master
               Service  Agreement.  To the extent that any term or condition set
               forth in the Master  Service  Agreement is not  addressed in this
               Agreement,  the term or condition in the Master Service Agreement
               shall  apply  as  between  the  parties  to such  Master  Service
               Agreement.  To the extent that any  indemnity  is extended by any

                                       16
<PAGE>

               Party in the Master Service Agreement, it is agreed that, for the
               purposes of this  Agreement,  such  indemnity  shall apply to the
               extent it is applicable. To the extent that any term or condition
               set forth in the  Master  Service  Agreement  conflicts  with the
               provisions of this  Agreement,  the  provisions of this Agreement
               shall  control.  The Master Service  Agreements are  incorporated
               herein by reference  thereto for all purposes and are made a part
               hereof.

          9.2  Other   Documents.   In  the   event   any   Party   issues   any
               acknowledgment, delivery ticket, invoice, purchase order or other
               instrument whose terms are inconsistent  with any of the terms or
               provisions of this Agreement,  such terms shall be  unenforceable
               and the terms of this Agreement shall control.

     10.  CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY

          10.1 Confidential   Information.   "Confidential   Information"  means
               information  unavailable  from  public  sources  that  any of the
               Parties  considers  confidential  and  proprietary   information,
               including,  but not  limited  to,  the  terms of this  Agreement,
               seismic  records  and  tapes,   interpreted   well  logs,   maps,
               engineering  data,  and  financial  information  relating  to the
               Contract Area, together with nonproprietary seismic data that has
               been licensed  from Third Parties under terms which  restrict the
               licensee's use, disclosure, or display of such data.

          10.2 Nondisclosure.   Each   Party   agrees   that  any   Confidential
               Information  obtained  by it from any other Party under the terms
               of this Agreement will be held in strict  confidence and will not
               be   disclosed  by  it  to  any  Third  Party   without   written
               authorization from the originating Party, unless such information
               (i) is in the public  domain  through no fault of the  disclosing
               Party  or  (ii)  is  required  to  be  publicly  disclosed  under
               applicable  securities laws. Each Party agrees to limit access to
               such Confidential Information only to those of its Affiliates and
               Representatives  who have a need under or in  furtherance of this
               Agreement to review such Confidential Information.

          10.3 Other Working Interest Owners. Notwithstanding the foregoing, the
               terms of this Agreement and all related financial information may
               be  disclosed  by  Pannonian  to  Third  Parties  owning  working
               interests in a Project  Well,  but only if such working  interest
               owners have themselves  requested such  information in the course
               of a joint interest  billing audit and have agreed to be bound by
               the confidentiality provisions of this Agreement.

          10.4 Confidential    Procedures   of   Service   Parties.    Pannonian
               acknowledges that the procedures, processes, methods and know-how
               used in  rendering  the Services  and the  formulas,  components,
               mixtures,  specifications  and other descriptions of the oilfield
               products are  considered  confidential  and  proprietary  to each
               Service  Party and will not be divulged to  Pannonian.  Pannonian
               agrees  that  it and  its  Affiliates  shall  hold  the  same  in
               strictest  confidence and shall not to attempt to analyze or test
               any oilfield products provided by the Service Parties,  including
               mixtures, to determine their formula or components.

                                       17
<PAGE>

          10.5 Confidential   Procedures  of  Pannonian.   The  Service  Parties
               acknowledge  that  their  personnel  will have  access to certain
               procedures,  processes,  methods,  know-how and practices used by
               Pannonian in its business  planning  and its  development  of the
               Contract  Area.  Each  Service  Party  agrees  that  it  and  its
               Affiliates shall treat Pannonian's  information  provided to such
               personnel as confidential and proprietary, and shall not disclose
               the  same to  Third  Parties  or to any of its or its  Affiliates
               personnel,  other  than those of its  Representatives  who have a
               need to review such  Confidential  Information  for the  purposes
               stated herein.

          10.6 Confidential Designs,  Drawings,  Information and Data. Pannonian
               shall treat as secret and confidential,  and shall not, except in
               connection  with this  Agreement,  make any use whatsoever of any
               designs, drawings,  information or data furnished to Pannonian by
               the Service  Parties  hereunder.  Similarly,  the Service Parties
               shall treat as secret and confidential,  and shall not, except in
               connection  with this  Agreement,  make any use whatsoever of any
               designs,  drawings,  information  or data  furnished by Pannonian
               hereunder.

          10.7 No Intellectual Property  Assignments.  Nothing in this Agreement
               shall be deemed to  constitute  or result in an assignment to one
               Party of any  trademarks  owned or used by any other Party or the
               Confidential  Information,  or the  creation of any  equitable or
               other  interest  therein,  or to grant one Party any right to use
               the  trademarks  owned or used by any  other  Party or the  other
               Party's  Confidential  Information.  Each Party  agrees  never to
               impugn  or  challenge,  or to  assist  in  any  challenge  to the
               validity  of, the  trademarks,  any  registration  thereof or any
               other Party's ownership thereof.

          10.8 New Copyrights and Patents.  Schlumberger shall have the right to
               obtain copyrights or patents on any method, material or equipment
               originating in whole or in part from Schlumberger  arising in the
               course of or out of this Agreement.

          10.9 Copyright and Patent Cooperation and Use. Pannonian, Nabors, Pool
               and M-I (for purposes of this Article 10.9,  each a "User Party")
               shall   provide   reasonable   cooperation   in  all  efforts  by
               Schlumberger to obtain such patents and  copyrights,  and will be
               reimbursed a reasonable  amount for the time and expense required
               in providing  such  cooperation.  If requested by any User Party,
               Schlumberger  shall  grant to such  User  Party  an  irrevocable,
               royalty-free  license  to use any  patent  developed  out of this
               Agreement  exclusively  for the User  Party's  use in the  normal
               course of its  business,  although any such license  shall not be
               sold, licensed,  sublicensed or otherwise  transferred to a Third
               Party without the approval of  Schlumberger.  If requested by any
               User  Party,  Schlumberger  shall  grant  to such  User  Party an
               irrevocable  license,  free from  royalty,  for the User  Party's
               internal  use  only  of  any  copyrighted   documents   developed
               hereunder. It is understood and agreed that each User Party shall
               have no right to grant any  sublicense  to Third Parties for such
               copyrights.

          10.10Proceedings  to  Compel  Disclosure.  If a Party  hereto,  or its
               Representative,  is  required  by any  court  or  legislative  or
               administrative  body to  disclose  any  Confidential  Information
               belonging  to any other  Party,  the Party  required to make such

                                       18
<PAGE>

               disclosure  shall provide the disclosing Party with prompt notice
               of such  requirement in order to afford the disclosing  Party the
               opportunity to seek an appropriate protective order. If, however,
               the Party seeking to prevent the  disclosure  does not seek or is
               unable to obtain such protective  order,  then the Party required
               to  compel  such  Confidential   Information  may  disclose  such
               Confidential  Information,  without liability to the other Party,
               if such disclosure is, in the opinion of counsel,  required under
               pain of liability for contempt or other penalty.

          10.11Injunctive  Relief.  In the event of breach or threatened  breach
               by one Party or its  Representatives  of the  provisions  of this
               Article  10,  the  disclosing  Party  shall  be  entitled  to  an
               injunction or judicial order equivalent thereto  restraining that
               Party or its Representatives  from using or disclosing,  in whole
               or in part, such Confidential  Information.  Nothing herein shall
               be construed  as  prohibiting  any Party from  pursuing any other
               remedies  available to it for such breach or  threatened  breach,
               including recovery of damages from the other Party.

          10.12Non-Confidentiality  for Tax Purposes.  Notwithstanding  anything
               to the contrary  contained  herein,  each Party to this Agreement
               (and each employee, representative, or other agent of such Party)
               may  disclose to any person as required or allowed by  applicable
               law, rule or  regulation,  the tax treatment and tax structure of
               the    transaction    contemplated   by   this   Agreement   (the
               "Transaction") and all materials of any kind (including  opinions
               or other tax analyses)  that are provided to such Party  relating
               to  such  tax  treatment  and  tax  structure.  Nothing  in  this
               Agreement,  or any other  agreement  between the Parties  hereto,
               whether express or implied, shall be construed as limiting in any
               way the  ability  of any Party to  consult  with any tax  advisor
               independent  from all other entities  involved in the Transaction
               regarding the treatment, tax structure or tax consequences of the
               Transaction.

     11.  NOTICES

          Any  notice  required  under the terms of this  Agreement  shall be in
          writing,  addressed to the Party to whom sent, and transmitted prepaid
          by air courier,  telecopy or other facsimile  transmission with signed
          original to follow by air courier. All such notices in compliance with
          this  provision  shall be deemed given when actually  delivered to the
          recipient's address. For purposes of this Agreement,  the addresses of
          the Parties are as follows  until  changed by written  notice from the
          Party desiring to change its address to the other Parties:

         If to Schlumberger:                Schlumberger Technology Corporation
                                            6501 South Fiddler's Green Circle,
                                            Greenwood Village, Colorado  80111,
                                            Telephone:        303-486-3246
                                            Facsimile:        303-486-3249
                                            Attention:        James Stewart

                                            cc:        NAM General Counsel
                                                       300 Schlumberger Drive
                                                       Sugar Land, Texas  77478

                                       19
<PAGE>

         If to Pannonian:           Pannonian Energy
                                            14 Inverness Drive East
                                            Building H, Suite 236
                                            Englewood, Colorado 80112
                                            Telephone:        303-483-0044
                                            Facsimile:        303-483-0011
                                            Attention:        Mark Erickson

         If to Nabors:                      Nabors Drilling USA, LP
                                            515 W. Greens Rd., Suite 1000
                                            Houston, Texas 77067
                                            Telephone:        281-775-8527
                                            Facsimile:        281-775-8414
                                            Attention:        J. R. Smith

         If to Pool:                        Pool Well Services Co.
                                            515 W. Greens Rd., Suite 1000
                                            Houston, Texas 77067
                                            Telephone:        281-775-8527
                                            Facsimile:        281-775-8414
                                            Attention:        J. R. Smith

         If to M-I:                         M-I, LLC
                                            5950 North Course Drive
                                            Houston, Texas 77025
                                            Telephone:   832-295-2774
                                            Facsimile:   832-295-2501
                                            Attention:   Contracts Administrator
                                            cc: Joe  P.  Bacho

         If to Red Oak:                     Red Oak Capital Management, LLC
                                            11757 Katy Freeway, Suite 300
                                            Houston, Texas  77079
                                            Telephone:         281-493-4450
                                            Facsimile:         281-493-4490
                                            Attention:        James Whipkey

     12.  MISCELLANEOUS PROVISIONS

          12.1 Governing Law. This Agreement  shall be governed by and construed
               in accordance with the laws of the State of Colorado.

          12.2 Dispute  Resolution.  Any  dispute  or  controversy  between  the
               Parties  arising  out of or  related  to  this  Agreement  or the
               provision  of Services  contemplated  hereunder  shall be finally
               settled by binding  arbitration  between the Parties  pursuant to
               the  commercial  arbitration  rules of the  American  Arbitration
               Association.  The  arbitration  shall  be  conducted  in  Denver,
               Colorado,  before a single arbitrator. In the event the disputing
               Parties  are unable to agree upon an  arbitrator  within  fifteen
               (15) days of the notice of arbitration,  the American Arbitration
               Association  shall  select an  arbitrator  for the  Parties.  The

                                       20
<PAGE>

               arbitration  award may be enforced by application to any court of
               competent jurisdiction. Except as may otherwise be awarded by the
               arbitrator,  the prevailing party in any such proceeding shall be
               entitled to recover, in addition to other damages to which it may
               be entitled to recover,  its reasonable  attorney's fees incurred
               in connection with such proceeding.

          12.3 Compliance  with Laws.  Each  Service  Party  agrees to comply in
               material  respects with all laws,  statutes,  codes,  rules,  and
               regulations,  which  are  now or  may  become  applicable  to its
               Services or arising out of the performance of its Services.

          12.4 Amendment;  Entire Agreement;  No Waiver. No modification of this
               Agreement  shall be of any force or effect  unless in writing and
               signed by an authorized signatory of all Parties. This Agreement,
               together  with  any  service  orders,  service  requests  and the
               Exhibits  attached hereto,  constitutes the entire  understanding
               between the Parties with respect to the subject matter hereof and
               supersedes all prior agreements,  negotiations and discussions of
               the Parties in relation to its  contents.  Failure to enforce any
               or all  of the  terms  and  conditions  of  this  Agreement  in a
               particular  instance or instances  shall not  constitute a waiver
               thereof or preclude subsequent enforcement thereof.

          12.5 Assignment.  Pannonian  may not assign its rights or  obligations
               under this  Agreement  without the prior  written  consent of the
               Service Parties, which shall not be unreasonably  withheld.  Each
               Service  Party  shall  have the right to assign  all  rights  and
               obligations  under this Agreement to an Affiliate,  without prior
               consent of  Pannonian.  No Service  Party will transfer or assign
               its  respective  rights and  obligations  under  this  Agreement,
               except   its  right  to   receive   payments   hereunder,   to  a
               Non-Affiliate without the prior written consent of Pannonian.

          12.6 Rules  of  Construction.  All  references  in this  Agreement  to
               articles,  sections,  subsections and other subdivisions refer to
               corresponding   articles,   sections,   subsections   and   other
               subdivisions  of  this  Agreement   unless   expressly   provided
               otherwise.  Titles  appearing  at the  beginning  of any of  such
               subdivisions  are for  convenience  only and shall not constitute
               part of such  subdivisions and shall be disregarded in construing
               the  language  contained  in such  subdivisions.  The words "this
               Agreement", "this instrument",  "herein", "hereof",  "hereunder"'
               and words of similar  import  refer to this  Agreement as a whole
               and  not  to  any  particular  subdivision  unless  expressly  so
               limited.  Unless the context otherwise requires:  "including" and
               its grammatical  variations mean "including without  limitation";
               "or" is not  exclusive;  words  in the  singular  form  shall  be
               construed  to include  the plural  and vice  versa;  words in any
               gender  include  all  other  genders;  references  herein  to any
               instrument or agreement  refer to such instrument or agreement as
               it  may be  from  time  to  time  amended  or  supplemented;  and
               references herein to any Person include such Person's  successors
               and assigns.  All  references  in this  Agreement to exhibits and
               schedules  refer to  exhibits  and  schedules  to this  Agreement
               unless expressly  provided  otherwise,  and all such exhibits and
               schedules are hereby  incorporated herein by reference and made a
               part hereof for all purposes.

                                       21
<PAGE>

     13.  SEVERABILITY; SAVINGS CLAUSE

          Any  provision  or term of  this  Agreement  that is or may be void or
          unenforceable   shall,   to  the   extent   of  such   invalidity   or
          unenforceability,  be deemed  severable and shall not affect any other
          provision of this Agreement.  All Parties agree that the  exculpatory,
          indemnification  and hold harmless provisions herein, or in the Master
          Service Agreements which are incorporated  herein by reference,  shall
          be modified  or altered  only  insofar as  required by a  jurisdiction
          purporting  to limit such  provisions,  it being the  intention of all
          Parties  to  enforce to the  fullest  extent all terms and  conditions
          herein agreed to.

     14.  WARRANTIES/DISCLAIMERS

          14.1 Service Party Disclaimer. In preparing technical recommendations,
               each Service  Party shall  provide  Pannonian  the benefit of its
               best  judgment  based  on  its  experience.  All  such  technical
               recommendations are opinions only, and it may not be possible for
               the Service  Parties to obtain  first-hand  knowledge of the many
               variable   conditions  that  could  affect  the  outcome  of  the
               services. NO WARRANTY IS GIVEN AS TO THE EFFECTIVENESS OR RESULTS
               OF THE SERVICES  THAT WILL BE RENDERED  HEREUNDER,  NOR AS TO THE
               OUTCOME OF  IMPLEMENTATION  OF ANY TECHNICAL  RECOMMENDATION.  NO
               SERVICE  PARTY  MAKES ANY  WARRANTY,  EXPRESS  OR  IMPLIED,  WITH
               RESPECT TO THE SERVICES,  EXCEPT TO THE EXTENT, IF ANY, SET FORTH
               IN ITS MASTER SERVICE AGREEMENT. MOREOVER,  SCHLUMBERGER MAKES NO
               WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, COMPLETENESS OR
               MATERIALITY OF ANY DATA,  INFORMATION OR RECORDS FURNISHED TO ANY
               OTHER PARTY IN CONNECTION WITH THIS AGREEMENT.

          14.2 Pannonian  Title Warranty.  Pannonian  represents and warrants to
               the  Service   Parties  that  it  will  be  the  owner  (or  have
               appropriate   operational  rights  under  a  farmout  or  earning
               agreement from the owner) of the leasehold interests constituting
               the drill site of a Project Well, but only to extent indicated in
               the  drilling  opinion  furnished  by  Pannonian  to the  Service
               Parties with the AFE for such Project Well.  Pannonian  will take
               appropriate  steps to maintain such interest in good standing and
               free and clear of all  liens,  charges,  encumbrances  and claims
               whatsoever.  To the best of  Pannonian's  knowledge,  there is no
               claim,  action or  administrative  proceeding  pending  which may
               jeopardize title to any interest Pannonian holds on the Effective
               Date.  Pannonian shall provide such  documentation to the Service
               Parties as they may reasonably require to satisfy themselves that
               Pannonian owns such interests.

     15.  FORCE MAJEURE

          If, as a result of an event of Force  Majeure,  any Party is  rendered
          unable,  wholly or in part,  to carry out its  obligations  under this
          Agreement,  other than the  obligation  to pay any  amounts  due or to
          furnish security, then the obligations of that Party, so far as and to
          the extent that the  obligations  are  affected by such event of Force
          Majeure, shall be suspended during the continuance of any inability so
          caused,  but for no longer  period.  The Party  claiming Force Majeure
          shall notify the other Parties of the Force Majeure situation within a
          reasonable  time after the occurrence of the cause relied on and shall
          keep  the  other   Parties   timely   informed   of  all   significant

                                       22
<PAGE>

          developments.  Such notice shall give reasonably  full  particulars of
          said event of Force Majeure, and also estimate the period of time that
          said  Party  likely  will  require to remedy  the Force  Majeure.  The
          affected  Party  shall  use all  reasonable  diligence  to  remove  or
          overcome  the Force  Majeure  situation  as quickly as  possible in an
          economic  manner,  but shall  not be  obligated  to  settle  any labor
          dispute  except on terms  acceptable to it and all such disputes shall
          be handled within the sole discretion of the affected Party.

          For the  purposes  of  this  Agreement,  "Force  Majeure"  shall  mean
          circumstances  that were irresistible or reasonably beyond the control
          of the Party concerned.

     16.  RELATIONSHIP OF THE PARTIES

          This Agreement is not intended to create, nor shall it be construed as
          creating,  any  joint  venture,  association,  partnership,  trust  or
          fiduciary  relationship  nor shall it give rise to the imposition of a
          fiduciary  obligation  or liability  with regard to any one or more of
          the Parties. In this Agreement, the Parties agree that where decisions
          are to be taken hereunder by unanimous  agreement,  agreement  thereto
          shall not be unreasonably withheld.

     17.  CAPACITY OF PANNONIAN

          The  Service  Parties  agree  to look  only to  Pannonian  for the due
          performance  of this  Agreement  and nothing  herein  contained  shall
          impose any liability  upon, or entitle the Service Parties to commence
          any  proceedings  against any party having an interest in the Contract
          Area  other  than  Pannonian.  Furthermore,  only  Pannonian  shall be
          entitled to enforce this  Agreement on behalf of all interest  holders
          in the Contract Area as well as for itself and, for this purpose only,
          Pannonian  may  commence  proceedings  in its own name to enforce  all
          obligations  and  liabilities  of the Service  Parties and to make any
          claim  which any of the said  interest  owners  may have  against  the
          Service Parties in relation to or arising out of this Agreement.

     18.  REASONABLENESS

          Each of the Parties  undertakes to do all things reasonably within its
          power that are  necessary  to give  effect to the spirit and intent of
          this Agreement.  None of the Parties shall act unreasonably or without
          giving  due  regard to the  representations  of the other  Party  when
          reaching  any decision as to the giving or  withholding  of consent or
          approval  or when  exercising  any other  discretion  pursuant to this
          Agreement.

     19.  CONFLICTS OF INTEREST

          Conflicts  of  interest   relating  to  this  Agreement  are  strictly
          prohibited.  Except as otherwise expressly provided herein, no Service
          Party and no  director,  employee  or agent of a Service  Party or its
          subcontractors shall give to or receive from any director, employee or
          agent  of  Pannonian  any  gift,   entertainment  or  other  favor  of
          significant  value, or any  commission,  fee or rebate.  Likewise,  no
          Service Party and no director, employee or agent of a Service Party or
          its subcontractors  shall,  without prior written notification thereof
          to Pannonian,  enter into any business relationship with any director,
          employee, or agent of Pannonian or any of its Affiliates,  unless such
          person is acting for and on behalf of  Pannonian.  Each Service  Party

                                       23
<PAGE>

          undertakes  promptly  to notify  Pannonian  of any  violation  of this
          Article,  with the understanding that any consideration  received as a
          result of such violation  shall be paid over or credited to Pannonian.
          Additionally, in the event of any violation of this Article, including
          any violation occurring prior to the date of this Agreement, resulting
          directly  or  indirectly  in  Pannonian's  consent  to enter into this
          Agreement,  Pannonian may, at Pannonian's sole option,  terminate this
          Agreement at any time and  notwithstanding any other provision of this
          Agreement,  pay each Service  Party only for that part of the services
          provided  prior  to  the  date  of  termination.  Any  representatives
          authorized  by a Party  hereto  may audit any and all  records  of the
          other  Party,  as  well as  applicable  subcontractors,  for the  sole
          purpose of  determining  whether there has been  compliance  with this
          Article 19.

     20.  CORPORATE POWER AND AUTHORITY

          Each of the Parties  represents  and warrants to the other that it has
          full  power to enter  into and  perform  its  obligations  under  this
          Agreement and that, when executed, this Agreement will constitute such
          Party's legal,  valid and binding  obligations in accordance  with its
          terms.

     21.  GOVERNMENT APPROVALS

          From and after  the  execution  hereof,  each of the  Parties  hereto,
          without further consideration,  shall use its best efforts to execute,
          deliver,  submit,  gain  approvals  of,  and  record,  or  cause to be
          executed,  delivered,  submitted,  and recorded,  good and  sufficient
          permits,  designations of operator forms,  other regulatory  documents
          and instruments,  as applicable,  and take such other action as may be
          reasonably required to carry out the purposes of this Agreement and to
          give effect to the  covenants,  stipulations  and  obligations  of the
          Parties hereto.

     22.  PUBLIC ANNOUNCEMENTS

          No Party will issue,  or permit any agent or Affiliate  to issue,  any
          press release,  announcement or other public statement with respect to
          this Agreement and the transactions  contemplated  hereby,  unless (i)
          the prior  written  approval of the other Parties has been obtained or
          (ii)  any  Party  believes  in  good  faith  that  it is  required  by
          applicable government  regulations to disclose any information related
          to this  Agreement,  in which event, it shall notify the other Parties
          of its belief and shall seek appropriate  confidentiality  protections
          for the  information  required to be  disclosed.  The Parties  further
          agree that approval will not be unreasonably withheld.

     23.  MODIFICATION OF EXHIBITS

          Additional  Exhibits or  amendments  may be necessary to fully address
          the financial and operational  details of the various activities under
          this Agreement. The Parties agree to cooperate to obtain the execution
          of any documents  necessary to carry out the intention of this Article
          23.

                                       24
<PAGE>

     24.  NO LIABILITY; INDEMNITY

          EXCEPT TO THE EXTENT OF THE SERVICE PARTIES' EXPENDITURES, THE SERVICE
          PARTIES SHALL NEVER BE RESPONSIBLE FOR ANY PART OF THE COSTS, EXPENSES
          OR LIABILITIES INCURRED IN CONNECTION WITH:

          (A)  THE  EXPLORING,   DEVELOPING,   OPERATING,  OWNING,  MAINTAINING,
               REWORKING OR RECOMPLETING OF THE EVALUATION  WELLS OR ANY PROJECT
               WELL,  THE  PHYSICAL  CONDITION  OF  THE  CONTRACT  AREA,  OR THE
               HANDLING,  TREATING OR TRANSPORTING OF HYDROCARBONS PRODUCED FROM
               THE  CONTRACT  AREA  (INCLUDING  ANY COSTS,  EXPENSES,  LOSSES OR
               LIABILITIES  RELATED  TO  VIOLATION  OF AN  ENVIRONMENTAL  LAW OR
               OTHERWISE RELATED TO DAMAGE TO OR REMEDIATION OF THE ENVIRONMENT,
               WHETHER  THE SAME  ARISE  OUT OF A  SERVICE  PARTY'S  LIEN ON ANY
               PROPERTY  OR OUT OF  THE  ACTIONS  OF  PANNONIAN  OR THE  SERVICE
               PARTIES OR OF THIRD PARTIES OR ARISE OTHERWISE), OR

          (B)  THE FAILURE BY PANNONIAN TO HAVE GOOD AND DEFENSIBLE TITLE TO THE
               PROJECT WELLS, FREE AND CLEAR OF ALL BURDENS, ENCUMBRANCES, LIENS
               AND TITLE  DEFECTS  (INCLUDING  ANY  COSTS,  EXPENSES,  LOSSES OR
               LIABILITIES  SUFFERED BY THE  SERVICE  PARTIES AS A RESULT OF ANY
               CLAIM  THAT ANY  SERVICE  PARTY  MUST  DELIVER OR PAY OVER TO ANY
               PERSON ANY PART OF THE PROCEEDS OF HYDROCARBON PRODUCTION THEREOF
               AT ANY TIME  PREVIOUSLY  RECEIVED OR THEREAFTER TO BE RECEIVED BY
               ANY SERVICE PARTY),

          AND  PANNONIAN  AGREES  TO  INDEMNIFY  AND  HOLD THE  SERVICE  PARTIES
          HARMLESS FROM AND AGAINST ALL COSTS, EXPENSES,  LOSSES AND LIABILITIES
          INCURRED  BY  THE  SERVICE  PARTIES  IN  CONNECTION  WITH  ANY  OF THE
          FOREGOING  INCLUDING THE  ENFORCEMENT OR DEFENSE  THEREOF OR HEREOF AT
          ANY TIME ASSOCIATED WITH OR CONTEMPLATED IN ANY OF THE FOREGOING. SUCH
          INDEMNITY  SHALL ALSO COVER ALL  REASONABLE  COSTS AND EXPENSES OF THE
          SERVICE PARTIES,  INCLUDING REASONABLE LEGAL FEES AND EXPENSES,  WHICH
          ARE INCURRED INCIDENT TO THE MATTERS  INDEMNIFIED  AGAINST. AS USED IN
          THIS ARTICLE 24,  "SERVICE  PARTY"  MEANS EACH SERVICE  PARTY AND ITS'
          SUCCESSORS AND ASSIGNS, ALL OF THEIR RESPECTIVE AFFILIATES, AND ALL OF
          THE OFFICERS,  DIRECTORS, AGENTS,  BENEFICIARIES,  TRUSTEES, ATTORNEYS
          AND EMPLOYEES OF THEMSELVES AND THEIR AFFILIATES.

          THE FOREGOING  INDEMNITY SHALL APPLY WHETHER OR NOT ARISING OUT OF THE
          SOLE, JOINT OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF ANY
          SERVICE PARTY AND SHALL APPLY,  WITHOUT  LIMITATION,  TO ANY LIABILITY
          IMPOSED  UPON ANY  SERVICE  PARTY AS A RESULT OF ANY  THEORY OF STRICT
          LIABILITY OR ANY OTHER  DOCTRINE OF LAW,  PROVIDED  THAT THE FOREGOING
          INDEMNITY  SHALL  NOT  APPLY  TO  ANY  COSTS,   EXPENSES,   LOSSES  OR
          LIABILITIES  INCURRED BY ANY SERVICE  PARTY TO THE EXTENT  PROXIMATELY

                                       25
<PAGE>

          CAUSED SOLELY BY THE GROSS  NEGLIGENCE  OR WILLFUL  MISCONDUCT OF SUCH
          SERVICE PARTY.  THE FOREGOING  INDEMNITY SHALL SURVIVE THE TERMINATION
          OF THIS AGREEMENT AND THE OTHER DOCUMENTS RELATED HERETO.

     25.  COUNTERPARTS

          This  Agreement may be executed in one or more  counterparts,  each of
          which shall be deemed an  original,  and all of which  taken  together
          shall constitute one agreement.

IN WITNESS  WHEREOF,  this  Agreement  is  executed  as of the date first  above
written, but is effective as of the Effective Date.

Pannonian Energy Inc.                        Schlumberger Technology Corporation

By: /s/ Michael Decker                      By: /s/ Gary Kolstad
    -------------------------------             --------------------------------
Name: Michael Decker                        Name: Gary Kolstad
      -----------------------------               ------------------------------
Title:Executive Vice President/COO          Title: Vice President
      -----------------------------                -----------------------------

Nabors Drilling USA, LP                      M-I, LLC

By: /s/ Randall D. Clark                     By: /s/ Bryan L. Dudman
    -------------------------------             -------------------------------
Name: Randall D. Clark                       Name: Bryan L. Dudman
     ------------------------------              -------------------------------
Title: Vice Pres Business Development        Title:Senior VP Western Hemisphere
      -----------------------------------         ------------------------------

Pool Well Services Co.                      Red Oak Capital Management, LLC

By: /s/ Nickolas Petronio                   By: /s/ James M. Whipkey
   -------------------------------------        --------------------------------
Name: Nickolas Petronio                     Name: James M. Whipkey
   -------------------------------------         -------------------------------
Title: President                            Title: Managing Director
   -------------------------------------         -------------------------------

                                       26
<PAGE>

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