Document:

<PAGE>
                                                                    Exhibit 10.4

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

                               OPERATING AGREEMENT

                                      DATED

                               ___________, 20___,

OPERATOR _______________________________________________________________________

CONTRACT AREA See Attached Exhibit "A"

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

COUNTY OR PARISH OF ________________, STATE OF _________________________________

                        COPYRIGHT 1989 ALL RIGHT RESERVED
                        AMERICAN ASSOCIATION OF PETROLEUM
                      LANDMEN, 4100 FOSSIL CREEK BLVD. FORT
                       WORTH, TEXAS. 76137. APPROVED FORM.
                             A.A.P.L NO. 610 - 1989

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

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Article   Title                                                             Page
-------   -----                                                             ----
<S>       <C>                                                               <C>
I.        DEFINITIONS....................................................     2

II.       EXHIBITS.......................................................     4

III.      INTERESTS OF PARTIES...........................................     4
          A. OIL AND GAS INTERESTS:......................................     4
          B. INTERESTS AND PARTIES IN COSTS AND PRODUCTION:..............     4
          C. SUBSEQUENTLY CREATED INTERESTS:.............................     5

IV.       TITLES.........................................................     6
          A. TITLE EXAMINATION:..........................................     6
          B. LOSS OR FAILURE OF TITLE:...................................     7
             1. Other Losses.............................................     7

V.        OPERATOR.......................................................     7
          A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR:...............     7
          B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF
                SUCCESSOR:...............................................     7
             1. Resignation or Removal of Operator.......................     7
             2. Selection of Successor Operator..........................     8
             3. Effect of Bankruptcy.....................................     8
          C. EMPLOYEES AND CONTRACTORS:..................................     8
          D. RIGHTS AND DUTIES OF OPERATOR:..............................     8
             1. Competitive Rates and Use of Affiliates..................     8
             2. Discharge of Joint Account Obligations...................     9
             3. Protection from Liens....................................     9
             4. Custody of Funds.........................................     9
             5. Access to Contract Area and Records......................     9
             6. Filing and Furnishing Governmental Reports...............    10
             7. Drilling and Testing Operations..........................    10
             8. Cost Estimates...........................................    10
             9. Insurance................................................    10

VI.       DRILLING AND DEVELOPMENT.......................................    11
          A. SUBSEQUENT OPERATIONS:......................................    11
             1. Proposed Operations......................................    11
             2. Operations by Less Than All Parties:.....................    12
             3. Stand-By Costs...........................................    15
             4. Deepening................................................    16
             5. Sidetracking.............................................    17
             6. Order of Preference of Operations........................    17
</TABLE>

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

<TABLE>
<S>       <C>                                                                <C>
             7. Conformity to Spacing Pattern............................    17
             8. Paying Wells.............................................    18
          B. COMPLETION OF WELLS; REWORKING AND PLUGGING BACK:...........    18
             1. Completion...............................................    18
             2. Rework, Recomplete or Plug Back..........................    19
          C. OTHER OPERATIONS:...........................................    19
          D. ABANDONMENT OF WELLS:.......................................    19
             1. Abandonment of Dry Holes.................................    19
             2. Abandonment of Wells That Have Produced..................    20
             3. Abandonment of Non-Consent Operations....................    21
          E. TERMINATION OF OPERATIONS:..................................    21
          F. TAKING PRODUCTION IN KIND:..................................    21
             Option No. 1: Gas Balancing Agreement Attched...............    21
             Option No. 2: No Gas Balancing Agreement....................    21

VII.      EXPENDITURES AND LIABILITY OF PARTIES..........................    24
          A. LIABILITY OF PARTIES:.......................................    24
          B. LIENS AND SECURITY INTERESTS:...............................    24
          C. ADVANCES:...................................................    26
          D. DEFAULTS AND REMEDIES:......................................    26
             1. Suspension of Rights.....................................    26
             2. Suit for Damages.........................................    27
             3. Deemed Non-Consent.......................................    27
             4. Advance Payment..........................................    27
             5. Costs and Attorneys' Fees................................    27
          E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:.......    28
          F. TAXES:......................................................    28

VIII.     ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST...............    29
          A. SURRENDER OF LEASES:........................................    29
          B. RENEWAL OR EXTENSION OF LEASES:.............................    30
          C. ACREAGE OR CASH CONTRIBUTIONS:..............................    30
          D. ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST:................    31
          E. WAIVER OF RIGHTS TO PARTITION:..............................    32

IX.       INTERNAL REVENUE CODE ELECTION.................................    32

X.        CLAIMS AND LAWSUITS............................................    32

XI.       FORCE MAJEURE..................................................    33

XII.      NOTICES........................................................    33

XIII.     TERM OF AGREEMENT..............................................    34
</TABLE>

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

<TABLE>
<S>       <C>                                                                <C>
XIV.      COMPLIANCE WITH LAWS AND REGULATIONS...........................    34
          A. LAWS, REGULATIONS AND ORDERS:...............................    34
          B. GOVERNING LAW:..............................................    35
          C. REGULATORY AGENCIES:........................................    35

XV.       MISCELLANEOUS..................................................    35
          A. EXECUTION:..................................................    35
          B. SUCCESSORS AND ASSIGNS:.....................................    36
          C. COUNTERPARTS:...............................................    36
          D. SEVERABILITY:...............................................    36

XVI.      OTHER PROVISIONS...............................................    36
</TABLE>

                                     -iii-

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

                               OPERATING AGREEMENT

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

                                   WITNESSETH:

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

     NOW, THEREFORE, it is agreed as follows:

                                   ARTICLE I.
                                   DEFINITIONS

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

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

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

     C. The term "Contract Area" shall means all of the lands, Oil and Gas
Leases and/or Oil and Gas Interests intended to be developed and operated for
Oil and Gas purposes under this agreement. Such lands, Oil and Gas Leases and
Oil and Gas Interests are described in Exhibit "A".

     D. The term "Deepen" shall mean a single operation whereby a well is
drilled to an objective Zone below the deepest Zone in which the well was
previously drilled, or below the Deepest Zone proposed in the associated AFE,
whichever is the lesser.

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

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

                                      -2-

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      -3-

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

                                   ARTICLE II.
                                    EXHIBITS

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

[X]   A.   Exhibit "A" shall include the following information:

           (1)  Description of lands subject to this agreement,

           (2)  Restrictions, if any, as to depths, formations, or substances,

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

           (4)  Percentages or fractional interests of parties to this
                agreement.

[X]   B.   Exhibit "B," Form of Lease.

[X]   C.   Exhibit "C," Accounting Procedure.

[X]   D.   Exhibit "D," Insurance.

[X]   E.   Exhibit "E," Gas Balancing Agreement.

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

[ ]   G.   Exhibit "G," Tax Partnership.

[ ]   H.   Other: ______________________________________________________________

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

                                  ARTICLE III.
                              INTERESTS OF PARTIES

A.   OIL AND GAS INTERESTS:

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

B.   INTERESTS AND PARTIES IN COSTS AND PRODUCTION:

     Unless changed by other provisions, all costs and liabilities incurred in
operations under this agreement shall be borne and paid, and all equipment and
materials acquired in operations on the Contract Area shall be owned, by the
parties as their interests are set forth in Exhibit "A."

                                      -4-

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

In the same manner, the parties shall also own all production of Oil and Gas
from the Contract Area subject, however, to the payment of royalties and other
burdens on production as described hereafter.

     Regardless of which party has contributed any Oil and Gas Lease or Oil and
Gas Interest on which royalty or other burdens may be payable and except as
otherwise expressly provided in this agreement, each party shall pay or deliver,
or cause to be paid or delivered, all burdens on its share of the production
from the Contract Area up to, but not in excess of, the amount of such burdens
and shall indemnify, defend and hold the other parties free from any liability
therefor. Except as otherwise expressly provided in this agreement, if any party
has contributed hereto any Lease or Interest which is burdened with any royalty,
overriding royalty, production payment or other burden on production in excess
of the amounts stipulated above, such party so burdened shall assume and alone
bear all such excess obligations and shall indemnify, defend and hold the other
parties hereto harmless from any and all claims attributable to such excess
burden. However, so long as the Drilling Unit for the productive Zone(s) is
identical with the Contract Area, each party shall pay or deliver, or cause to
be paid or delivered, all burdens on production from the Contract Area due under
the terms of the Oil and Gas Lease(s) which such party has contributed to this
agreement, and shall indemnify, defend and hold the other parties free from any
liability therefor.

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

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

C.   SUBSEQUENTLY CREATED INTERESTS:

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

     The party whose interest is burdened with the Subsequently Created Interest
(the "Burdened Party") shall assume and alone bear, pay and discharge the
Subsequently Created Interest and shall indemnify, defend and hold harmless the
other parties from and against any liability therefor. Further, if the Burdened
Party fails to pay, when due, its share of expenses chargeable hereunder, all
provisions of Article VII.B. shall be enforceable against the Subsequently
Created Interest in the same manner as they are enforceable against the working

                                      -5-

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

interest of the Burdened Party. If the Burdened Party is required under this
agreement to assign or relinquish to any other party, or parties, all or a
portion of its working interest and/or the production attributable thereto, said
other party, or parties, shall receive said assignment and/or production free
and clear of said Subsequently Created Interest, and the Burdened Party shall
indemnify, defend and hold harmless said other party, or parties, from any and
all claims and demands for payment asserted by owners of the Subsequently
Created Interest.

                                   ARTICLE IV.
                                     TITLES

A.   TITLE EXAMINATION:

     Title examination shall be made on the Drillsite of any proposed well prior
to commencement of drilling operations and, if a majority in interest of the
Drilling Parties so request or Operator so elects, title examination shall be
made on the entire Drilling Unit, or maximum anticipated Drilling Unit, of the
well. The opinion will include the ownership of the working interest, minerals,
royalty, overriding royalty and production payments under the applicable Leases.
Each party contributing Leases and/or Oil and Gas Interests to be included in
the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator all
abstracts (including federal lease status reports), title opinions, title papers
and curative material in its possession free of charge. All such information not
in the possession of or made available to Operator by the parties, but necessary
for the examination of the title, shall be obtained by Operator. Operator shall
cause title to be examined by attorneys on its staff or by outside attorneys.
Copies of all title opinions shall be furnished to each Drilling Party. Costs
incurred by Operator in procuring abstracts, fees paid outside attorneys for
title examination (including preliminary, supplemental, shut-in royalty opinions
and division order title opinions) and other direct charges as provided in
Exhibit "C" shall be borne by the Drilling Parties in the proportion that the
interest of each Drilling Party bears to the total interest of all Drilling
Parties as such interests appear in Exhibit "A."

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

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

                                      -6-

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

B.   LOSS OR FAILURE OF TITLE:

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

                                   ARTICLE V.
                                    OPERATOR

A.   DESIGNATION AND RESPONSIBILITIES OF OPERATOR:

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

B.   RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:

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

     Subject to Article VII.D.1., such resignation or removal shall not become
effective until 7:00 o'clock A.M. on the first day of the calendar month
following the expiration of ninety (90) days after the giving of notice of
resignation by Operator or action by the Non-Operators to remove Operator,
unless a successor Operator has been selected and assumes the duties of

                                      -7-

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

Operator at an earlier date. Operator, after effective date of resignation or
removal, shall be bound by the terms hereof as a Non-Operator. A change of a
corporate name or structure of Operator or transfer of Operator's interest to
any single subsidiary, parent or successor corporation or other affiliated
entity shall not be the basis for removal of Operator.

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

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

C.   EMPLOYEES AND CONTRACTORS:

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

D.   RIGHTS AND DUTIES OF OPERATOR:

     1. Competitive Rates and Use of Affiliates: All wells drilled on the
Contract Area shall be drilled on a competitive contract basis at the usual
rates prevailing in the area. If it so desires, Operator may employ its own
tools and equipment in the drilling of wells, but its charges

                                      -8-

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

therefor shall not exceed the prevailing rates in the area and the rate of such
charges shall be agreed upon by the parties in writing before drilling operating
are commenced, and such work shall be performed by Operator under the same terms
and conditions as are customary and usual in the area in contracts of
independent contractors who are doing work of a similar nature. All work
performed or materials supplied by affiliates or related parties of Operator
shall be performed or supplied at competitive rates, pursuant to written
agreement, and in accordance with customs and standards prevailing in the
industry.

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

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

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

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

                                      -9-

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

and the appropriateness of such expenditures shall be conducted in accordance
with the audit protocol specified in Exhibit "C."

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

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

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

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

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

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

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

     In the event automobile liability insurance is specified in said Exhibit
"D," or subsequently receives the approval of the parties, not direct charge
shall be made by Operator for premiums paid for such insurance for Operators's
automotive equipment.

                                      -10-

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

                                   ARTICLE VI.
                            DRILLING AND DEVELOPMENT

A.   SUBSEQUENT OPERATIONS:

     1. Proposed Operations: If any party hereto should desire to drill any well
on the Contract Area other than the Initial Well, or if any party should desire
to Rework, Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a well no
longer capable of producing in paying quantities in which such party has not
otherwise relinquished its interest in the proposed objective Zone under this
agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete or
Plug Back such a well shall give written notice of the proposed operation to the
parties who have not otherwise relinquished their interest in such objective
Zone under this agreement and to all other parties in the case of a proposal for
Sidetracking or Deepening, specifying the work to be performed, the location,
proposed depth, objective Zone and the estimated cost of the operation. The
parties to whom such a notice is delivered shall have thirty (30) days after
receipt of the notice within which to notify the party proposing to do the work
whether they elect to participate in the cost of the proposed operation. If a
drilling rig is on location, notice of a proposal to Rework, Sidetrack,
Recomplete, Plug Back or Deepen may be given by telephone and the response
period shall be limited to forty-eight (48) hours, exclusive of Saturday, Sunday
and legal holidays. Failure of a party to whom such notice is delivered to reply
within the period above fixed shall constitute an election by that party not to
participate in the cost of the proposed operation. Any proposal by a party to
conduct an operation conflicting with the operation initially proposed shall be
delivered to all parties within the time and in the manner provided in Article
VI.A.6.

     If all parties to whom such notice is delivered elect to participate in
such a proposed operation, the parties shall be contractually committed to
participate therein provided such operations are commenced with the time period
hereafter set forth, and Operator shall, no later than ninety (90) days after
expiration of the notice period of thirty (30) days (or as promptly as
practicable after the expiration of the forty-eight (48) hour period when a
drilling rig is on location, as the case may be), actually commence the proposed
operation and thereafter complete it with due diligence at the risk and expense
of the parties participating therein; provided, however, said commencement date
may be extended upon written notice of same by Operator to the other parties,
for a period of up to thirty (30) additional days if, in the sole opinion of
Operator, such additional time is reasonably necessary to obtain permits from
governmental authorities, surface rights (including rights-of-way) or
appropriate drilling equipment, or to complete title examination or curative
matter required for title approval or acceptance. If the actual operation has
not been commenced within the time provided (including any extension thereof as
specifically permitted herein or in the force majeure provisions of Article XI)
and if any party hereto still desires to conduct said operation, written notice
proposing same must be resubmitted to the other parties in accordance herewith
as if no prior proposal had been made. Those parties that did not participate in
the drilling of a well for which a proposal to Deepen or Sidetrack is made
hereunder shall, if such parties desire to participate in the proposed Deepening
or Sidetracking operation, reimburse the Drilling Parties in accordance with
article VI.A.4. in the event of a Deepening operation and in accordance with
Article VI.a.5. in the event of a Sidetracking operation.

                                      -11-

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

     2. Operations by Less Than All Parties:

          (a) Determination of Participation. If any party to whom such notice
is delivered as provided in Article VI.A.1. or VI.B.1. (Option No. 2) elects not
to participate in the proposed operation, then, in order to be entitled to the
benefits of this Article, the party or parties giving the notice and such other
parties as shall elect to participate in the operation shall, no later than
ninety (90) days after the expiration of the notice period of thirty (30) days
(or as promptly as practicable after the expiration of the forty-eight (48) hour
period when a drilling rig is on location, as the case may be) actually commence
the proposed operation and complete it with due diligence. Operator shall
perform all work for the account of the Consenting Parties; provided, however,
if no drilling rig or other equipment is on location, and if Operator is a
Non-Consenting Party, the Consenting Parties shall either: (i) request Operator
to perform the work required by such proposed operation for the account of the
Consenting Parties, or (ii) designated one of the Consenting Parties as Operator
to perform such work. The rights and duties granted to and imposed upon the
Operator under this agreement are granted to and imposed upon the party
designated as Operator for an operation in which the original Operator is a
Non-Consenting Party. Consenting Parties, when conducting operations on the
Contract Area pursuant to this Article VI.A.2., shall comply with all terms and
conditions of this agreement.

     If less than all parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise all Parties of the total interest of the parties approving such operation
and its recommendation as to whether the Consenting Parties should proceed with
the operation as proposed. Each Consenting Party, within forty-eight (48) hours
(exclusive of Saturday, Sunday and legal holidays) after delivery of such
notice, shall advise the proposing party of its desire to (i) limit
participation to such party's interest as shown on Exhibit "A" or (ii) carry
only its proportionate part (determined by dividing such party's interest in the
Contract Area by the interests of all Consenting Parties in the Contract Area)
of Non-Consenting Parties' interests, or (iii) carry its proportionate part
(determined as provided in(ii)) of Non-Consenting Parties' interest together
with all or a portion of its proportionate part of any Non-Consenting Parties'
interests that any Consenting Party did not elect to take. Any interest of
Non-Consenting Parties that is not carried by a Consenting Party shall be deemed
to be carried by the party proposing the operation if such party does not
withdraw its proposal. Failure to advise the proposing party within the time
required shall be deemed an election under (i). In the event a drilling rig is
on location, notice may be given by telephone, and the time permitted for such a
response shall not exceed a total of forty-eight (48) hours (exclusive of
Saturday, Sunday and legal holidays). The proposing party, at its election, may
withdraw such proposal if there if less than 100% participation and shall notify
all parties of such decision within ten(10) days, or within twenty-four (24)
hours if a drilling rig is on location, following expiration of the applicable
response period. If 100% subscription to the proposed operation is obtained, the
proposing party shall promptly notify the Consenting Parties of their
proportionate interests in the operation and the party serving as Operator shall
commence such operation within the period provided in Article VI.A.1., subject
to the same extension right as provided therein.

          (b) Relinquishment of Interest for Non-Participation. The entire cost
and risk of conducting such operations shall be borne by the Consenting Parties
in the proportions they have elected to bear same under the terms of the
preceding paragraph. Consenting Parties shall keep the leasehold estates
involved in such operations free and clear of all liens and

                                      -12-

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

encumbrances of every kind created by or arising from the operations of the
Consenting Parties. If such an operation results in a dry hole, then subject to
Articles VI.A.6. and VI.D.3, the Consenting Parties shall plug and abandon the
well and restore the surface location at their sole cost, risk and expense;
provided, however, that those Non-Consenting Parties that participated in the
drilling, Deepening or Sidetracking of the well shall remain liable for, and
shall pay, their proportionate shares of the cost of plugging and abandoning the
well and restoring the surface location insofar only as those costs were not
increased by the subsequent operations of the Consenting Parties. If any well
drilled, Reworked, Sidetracked, Deepened, Recompleted or Plugged Back under the
provisions of this Article results in a well capable of producing Oil and/or Gas
in paying quantities, the Consenting Parties shall Complete and equip the well
to produce at their sole cost and risk, and the well shall then be turned over
to Operator (if the Operator did not conduct the operation) and shall be
operated by it at the expense and for the account of the Consenting Parties.
Upon commencement of operations for the drilling, Reworking, Sidetracking,
Recompleting, Deepening or Plugging Back of any such well by Consenting Parties
in accordance with the provisions of this Article, each Non-Consenting Party
shall be deemed to have relinquished to Consenting Parties, and the Consenting
Parties shall own and be entitled to receive, in proportion to their respective
interests, all of such Non-Consenting Party's interest in the well and share of
production therefrom or, the case of a Reworking, Sidetracking, Deepening,
Recompleting or Plugging Back, or a Completion pursuant to a Article VI.B.1.
Option No. 2, all of such Non-Consenting Party's interest in the production
obtained from the operation in which the Non-Consenting Party did not elect to
participate. Such relinquishment shall be effective until the proceeds of the
sale of such share, calculated at the well, or market value thereof if such
share is not sold (after deducting applicable ad valorem, production, severance,
and excise taxes, royalty, overriding royalty and other interests not excepted
by Article III.C. payable out of or measured by the production from such well
accruing with respect to such interest until it reverts), shall equal the total
of the following:

               (i) 400% of each such Non-Consenting Party's share of the cost of
any newly acquired surface equipment beyond the wellhead connections (including
but not limited to stock tanks, separators, treaters, pumping equipment and
piping), plus 100% of each such Non-Consenting Party's share of the cost of
operation of the well commencing with first production and continuing until each
such Non-Consenting Party's relinquished interest shall revert to it under other
provisions of this Article, it being agreed that each Non-Consenting Party's
share of such costs and equipment will be that interest which would have been
chargeable to such Non-Consenting Party had it participated in the well from the
beginning of the operations; and

               (ii) 400% of (a) that portion of the costs and expenses of
drilling, Reworking, Sidetracking, Deepening, Plugging Back, testing, Completing
and Recompleting, after deducting any cash contributions received under Article
VIII.C., and of (b) that portion of the cost of newly acquired equipment in the
well (to and including the wellhead connections), which would have been
chargeable to such Non-Consenting Party if it had participated therein.

     Notwithstanding anything to contrary in this Article VI.A., if the well
does not reach the deepest objective Zone described in the notice proposing the
well for reasons other than the encountering of granite or practically
impenetrable substance or other condition in the hole rendering further
operations impracticable, Operator shall give notice thereof to each
Non-Consenting Party who submitted or voted for an alternative proposal under
Article VI.A.6. to

                                      -13-

<PAGE>

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

drill the well to a shallower Zone than the deepest objective Zone proposed in
the notice under which the well was drilled, and each such Non-Consenting Party
shall have the option to participate in the initial proposed Completion of the
well by paying its share of the cost of drilling the well to its actual depth,
calculated in the manner provided in Article VI.A.4.(a). If any such
Non-Consenting Party does not elect to participate in the first Completion
proposed for such well, the relinquishment provisions of this Article VI.B.2.
(b) shall apply to such party's interest.

          (c) Reworking, Recompleting or Plugging Back. An election not to
participate in the drilling, Sidetracking or Deepening of a well shall be deemed
an election not to participate in any Reworking or Plugging Back operation
proposed in such a well, or portion thereof, to which the initial non-consent
election applied that is conducted at any time prior to full recovery by the
Consenting Parties of the Non-Consenting Party's recoupment amount. Similarly,
an election not to participate in the Completing or Recompleting of a well shall
be deemed an election not to participate in any Reworking operation proposed in
such a well, or portion thereof, to which the initial non-consent election
applied that is conducted at any time prior to full recovery by the Consenting
Parties of the Non-Consenting Party's recoupment amount. Any such Reworking,
Recompleting or Plugging Back operation conducted during the recoupment period
shall be deemed part of the cost of operation of said well and there shall be
added to the sums to be recouped by the Consenting Parties 400% of that portion
of the costs of operation of said well and there shall be added to the sums to
be recouped by the Consenting Parties 400% of that portion of the costs of the
Reworking, Recompleting or Plugging Back operation which would have been
chargeable to such Non-Consenting Party had it participated therein. If such a
Reworking, Recompleting or Plugging Back operation is proposed during such
recoupment period, the provisions of this Article VI.A. shall be applicable as
between said Consenting Parties in said well.

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

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

     Within ninety (90) days after the completion of any operations under this
Article, the party conducting the operations for the Consenting Parties shall
furnish each Non-Consenting Party with an inventory of the equipment in and
connected to the well, and an itemized statement of the cost of drilling,
Sidetracking, Deepening, Plugging Back, testing, Completing, Recompleting, and
equipping the well for production; or, at its option, the operating party, in
lieu of an itemized statement of such costs of operation, may submit a detailed
statement of monthly billings. Each month thereafter, during the time the
Consenting Parties are being reimbursed as

                                      -14-

<PAGE>

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

provided above, the party conducting in the operations for the Consenting
Parties shall furnish the Non-Consenting Parties with an itemized statement of
all costs and liabilities incurred in the operation of the well, together with a
statement of the quantity of Oil and Gas produced from it and the amount of
proceeds realized from the sale of the well's working interest production during
the preceding month. In determining the quantity of Oil and Gas produced during
any month, Consenting Parties shall use industry accepted methods such as but
not limited to metering or periodic well tests. Any amount realized from the
sale or other disposition of equipment newly acquired in connection with any
such operation which would have been owned by a Non-Consenting Party had it
participated therein shall be credited against the total unreturned costs of the
work done and of the equipment purchased in determining when the interest of
such Non-Consenting Party shall revert to it as above provided; and if there is
a credit balance, it shall be paid to such Non-Consenting Party.

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

     3. Stand-By Costs: When a well has been drilled or Deepened has reached its
authorized depth and all tests have been completed and the results thereof
furnished to the parties, or when operations on the well have been otherwise
terminated pursuant to Article VI.E., stand-by costs incurred pending response
to a party's notice proposing a Reworking, Sidetracking, Deepening, Plugging
Back or Completing operation in such a well (including the period required under
Article VI.A.6 to resolve competing proposals) shall be charged and borne as
part of the drilling or Deepening operation just completed. Stand-by costs
subsequent to all parties responding, or expiration of the response time
permitted, whichever first occurs, and prior to agreements as to the
participating interest of all Consenting Parties pursuant to the terms of the
second grammatical paragraph of Article VI.A.2.(a), shall be charged to and
borne as part of the proposed operation, but if the proposal is subsequently
withdrawn because of insufficient participation, such stand-by costs shall be
allocated between the Consenting Parties in the proportion each Consenting
Party's interest as shown on Exhibit "A" bears to the total interest as shown on
Exhibit "A" of all Consenting Parties.

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

                                      -15-

<PAGE>

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

as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of
all the electing parties.

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

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

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

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

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

                                      -16-

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

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

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

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

     6. Order of Preference of Operations. Except as otherwise specially
provided in this agreement, if any party desires to propose the conduct of an
operation that conflicts with a proposal that has been made by a party under
this Article VI, such party shall have fifteen (15) days from delivery of the
initial proposal, in the case of a proposal to drill a well or to perform an
operation on a well where no drilling rig is on location, or twenty-four (24)
hours, exclusive of Saturday, Sunday, and legal holidays, from delivery of the
initial proposal, if a drilling rig is on location for the well on which such
operation is to be conducted, to deliver to all parties entitled to participate
in the proposed operation such party's alternative proposal, such alternate
proposal to contain the same information required to be included in the initial
proposal. Each party receiving such proposals shall elect by delivery of notice
to Operator within five (5) days after expiration of the proposal period or
within twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays)
if a drilling rig is on location for the well that is the subject of the
proposals, to participate in one of the competing proposals. Any party not
electing within the time required shall be deemed not to have voted. The
proposal receiving the vote of parties owning the largest aggregate percentage
interest of the parties voting shall have priority over all other competing
proposals; in the case of a tie vote, the initial proposal shall prevail.
Operator shall deliver notice of such results to all parties entitled to
participate in the operation within five (5) days after expiration of the
election period (or within twenty-four (24) hours, exclusive of Saturday, Sunday
and legal holidays, if a drilling rig is on location). Each party shall then
have two (2) days (or twenty-four (24) hours if a rig is on location) from
receipt of such notice to elect by delivery of notice to Operator to participate
in such operation or to relinquish interest in the affected well pursuant to the
provisions of Article VI.A.2.; failure by a party to deliver notice within such
period shall be deemed an election not to participate in the prevailing
proposal.

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

                                      -17-

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

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

B.   COMPLETION OF WELLS; REWORKING AND PLUGGING BACK:

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

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

     [ ] Option No. 2: All necessary expenditures for the drilling, Deepening or
Sidetracking and testing of the well. When such well has reached its authorized
depth, and all logs, cores and other tests have been completed, and the results
thereof furnished to the parties, Operator shall give immediate notice to the
Non-Operators having the right to participate in a Completion attempt whether or
not Operator recommends attempting to Complete the well, together with
Operator's AFE for Completion costs if not previously provided. The parties
receiving such notice shall have forty-eight (48) hours (exclusive of Saturday,
Sunday and legal holidays) in which to elect by delivery of notice to Operator
to participate in a recommended Completion attempt or to make a Completion
proposal with an accompanying AFE. Operator shall deliver any such Completion
proposal, or any Completion proposal conflicting with Operator's proposal, to
the other parties entitled to participate in such Completion in accordance with
the procedures specified in Article VI.B.6. Election to participate in a
Completion attempt shall include consent to all necessary expenditures for the
Completing and equipping of such well, including necessary tankage and/or
surface facilities but excluding any stimulation operation not contained on the
Completion AFE. Failure of any party receiving such notice to reply within the
period above fixed shall constitute an election by that party not to participate
in the cost of the Completion attempt; provided, that Article VI.A.6. shall
control in the case of conflicting Completion proposals. If one or more, but
less than all of the parties, elect to attempt a Completion, the provisions of
Article VI.A.2. hereof (the phrase "Reworking, Sidetracking, Deepening,
Recompleting or Plugging Back" as contained in Article VI.A.2. shall be deemed
to include "Completing") shall apply to the operations thereafter conducted by
less than all parties; provided, however, that Article VI.A.2. shall apply
separately to each separate Completion or Recompletion attempt undertaken
hereunder, and an election to become a Non-Consenting Party as to one Completion
or Recompletion attempt shall not prevent a party from becoming a Consenting
Party in subsequent Completion or Recompletion attempts regardless whether the
Consenting Parties as to earlier Completions or Recompletions have recouped
their costs pursuant to Article VI.A.2.; provided further, that any recoupment
of costs by a Consenting Party shall be made solely from the production
attributable to the Zone in which the Completion attempt is made. Election by a
previous Non-Consenting Party to participate in a subsequent Completion or
Recompletion attempt shall require such party to pay its proportionate share of
the cost of salvable materials and equipment installed in the well pursuant to
the previous

                                      -18-

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

Completion or Recompletion attempt, insofar and only insofar as such materials
and equipment benefit the Zone in which such party participates in a Completion
attempt.

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

C.   OTHER OPERATIONS:

     Operator shall not undertake any single project reasonably estimated to
require an expenditure in excess of Seventy-Five Thousand Dollars ($75,000.00)
except in connection with the drilling, Sidetracking, Reworking, Deepening,
Completing, Recompleting or Plugging Back of a well that has been previously
authorized by or pursuant to this agreement; provided, however, that, in case of
explosion, fire, flood or other sudden emergency, whether of the same or
different nature, Operator may take such steps and incur such expenses as in its
opinion are required to deal with the emergency to safeguard life and property
but Operator, as promptly as possible, shall report the emergency to the other
parties. If Operator prepares an AFE for its own use, Operator shall furnish any
Non-Operator so requesting an information copy thereof for any single project in
excess of Fifty Thousand Dollars ($50,000.00). Any party who has not
relinquished its interest in a well share have the right to propose that
Operator perform repair work or undertake the installation of artificial lift
equipment or ancillary production facilities such as salt water disposal wells
or to conduct additional work with respect to a well drilled hereunder or other
similar project (but not including the installation of gathering lines or other
transportation or marketing facilities, the installation of which shall be
governed by separate agreement between the parties) reasonably estimated to
require an expenditure in excess of the amount first set forth above in this
Article VI.C. (except in connection with an operation required to be proposed
under Articles VI.A.1. or VI.B.1. Option No. 2, which shall be governed
exclusively by those Articles). Operator shall deliver such proposal to all
parties entitled to participate therein. If within thirty (30) days thereof
Operator secures the written consent of any party or parties owning at least 50%
of the interests of the parties entitled to participate in such operation, each
party having the right to participate in such project shall be bound by the
terms of such proposal and shall be obligated to pay its proportionate share of
the costs of the proposed project as if it had consented to such project
pursuant to the terms of the proposal.

D.   ABANDONMENT OF WELLS:

     1. Abandonment of Dry Holes: Except for any well drilled or Deepened
pursuant to Article VI.A.2., any well which has been drilled or Deepened under
the terms of this agreement and is proposed to be completed as a dry hole shall
not be plugged and abandoned without the consent of all parties. Should
Operator, after diligent effort, be unable to contact any party, or should any
party fail to reply within forty-eight (48) hours (exclusive of Saturday, Sunday
and legal holidays) after delivery of notice of the proposal to plug and abandon
such well, such party shall be deemed to have consented to the proposed
abandonment. All such wells shall be plugged and abandoned in accordance with
applicable regulations and at the cost, risk and expense of the parties who
participated in the cost of drilling or Deepening such well. Any party who
objects to plugging and abandoning such well by notice delivered to Operator
within forty-

                                      -19-

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

eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after
delivery of notice of the proposed plugging shall take over the well as of the
end of such forty-eight (48) hour notice period and conduct further operations
in search of Oil and/or Gas subject to the provisions of Article VI.A.; failure
of such party to provide proof reasonably satisfactory to Operator of its
financial capability to conduct such operations or take over the well within
such period or thereafter to conduct operations on such well or plug and abandon
such well shall entitle Operator to retain or take possession of the well and
plug and abandon the well. The party taking over the well shall indemnify
Operator (if Operator is an abandoning party) and the other abandoning parties
against liability for any further operations conducted on such well except for
the costs of plugging and abandoning the well and restoring the surface, for
which the abandoning parties shall remain proportionately liable.

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

     Parties taking over a well as provided herein shall tender to each of the
other parties its proportionate share of the value of the well's salvable
material and equipment, determined in accordance with the provisions of Exhibit
"C," less the estimated cost of salvaging and the estimated cost of plugging and
abandoning and restoring the surface; provided, however, that in the event the
estimated plugging and abandoning and surface restoration costs and the
estimated cost of salvaging are higher than the value of the well's salvable
material and equipment, each of the abandoning parties shall tender to the
parties continuing operations their proportionate shares of the estimated excess
cost. Each abandoning party shall assign to the non-abandoning parties, without
warranty, express or implied, as to title or as to quantity, or fitness for use
of the equipment and material, all of its interest in the wellbore of the well
and related equipment, together with its interest in the Leasehold insofar and
only insofar as such Leasehold covers the right to obtain production from that
wellbore in the Zone then open to production. If the interest of the abandoning
party is or includes an Oil and Gas Interest, such party shall execute and
deliver to the non-abandoning party or parties an oil and gas lease, limited to
the wellbore and the Zone then open to production, for a term of one (1) year
and so long thereafter as Oil and/or Gas is produced from the Zone covered
thereby, such lease to be on the form attached as Exhibit "B." The assignments
or leases so limited shall encompass the Drilling Unit upon which the well is
located. The payments by, and the assignments or leases to, the assignees shall
be in a

                                      -20-

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

ratio based upon the relationship of their respective percentage of
participation in the Contract Area to the aggregate of the percentages of
participation in the Contract Area of all assignees. There shall be no
readjustment of interests in the remaining portions of the Contract Area.

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

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

E.   TERMINATION OF OPERATIONS:

     Upon the commencement of an operation for the drilling, Reworking,
Sidetracking, Plugging Back, Deepening, testing, Completion or plugging of a
well, including but not limited to the Initial Well, such operation shall not be
terminated without consent of parties bearing 75% of the costs of such
operation; provided, however, that in the event granite or other practically
impenetrable substance or condition in the hole is encountered which renders
further operations impractical, Operator may discontinue operations and give
notice of such condition in the manner provided in Article VI.A.1 and the
provisions of Article VI.A. or VI.D. shall thereafter apply to such operation,
as appropriate.

F.   TAKING PRODUCTION IN KIND:

     [X]  Option No. 1: GAS BALANCING AGREEMENT ATTACHED

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

                                      -21-

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

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

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

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

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

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

                                      -22-

<PAGE>

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

     [ ]  Option No. 2: NO GAS BALANCING AGREEMENT:

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

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

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

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

               All parties shall give timely written notice to Operator of their
          Gas marketing arrangements for the following month, excluding price,
          and shall notify to Operator immediately in the event of a change in
          such arrangements. Operator shall maintain records of all marketing
          arrangements, and of volumes actually

                                      -23-

<PAGE>

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

          sold or transported, which records shall be made available to
          Non-Operators upon reasonable request.

                                  ARTICLE VII.
                      EXPENDITURES AND LIABILITY OF PARTIES

A.   LIABILITY OF PARTIES:

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

B.   LIENS AND SECURITY INTERESTS:

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

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

                                      -24-

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

granted hereunder. Any party may file this agreement, the recording supplement
executed herewith, or such other documents as it deems necessary as a lien or
mortgage in the applicable real estate records and/or a financing statement with
the proper officer under the Uniform Commercial Code.

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

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

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

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

                                      -25-

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

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

C.   ADVANCES:

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

D.   DEFAULTS AND REMEDIES:

     If any party fails to discharge any financial obligation under this
agreement, including without limitation the failure to make any advance under
the preceding Article VII.C. or any other provision of this agreement, within
the period required for such payment hereunder, then in addition to the remedies
provided in Article VII.B. or elsewhere in this agreement, the remedies
specified below shall be applicable. For purposes of this Article VII.D., all
notices and elections shall be delivered only by Operator, except that Operator
shall deliver any such notice and election requested by a non-defaulting
Non-Operator, and when Operator is the party in default, the applicable notices
and elections can be delivered by any Non-Operator. Election of any one or more
of the following remedies shall not preclude the subsequent use of any other
remedy specified below or otherwise available to a no-defaulting party.

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

                                      -26-

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

information as to any operation conducted hereunder during the period of such
default, the right to elect to participate in an operation proposed under
Article VI.A. of this agreement, the right to participate in an operation being
conducted under this agreement even if the party has previously elected to
participate in such operation, and the right to receive proceeds of production
from any well subject to this agreement.

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

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

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

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

     5. Costs and Attorneys' Fees: In the event any party is required to bring
legal proceedings to enforce any financial obligation of a party hereunder, the
prevailing party in such

                                      -27-

<PAGE>

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

action shall be entitled to recover all court costs, costs of collection, and a
reasonable attorney's fee, which the lien provided for herein shall also secure.

E.   RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:

     Rentals, shut-in well payments and minimum royalties which may be required
under them terms of any lease shall be paid by the party or parties who
subjected such lease to this agreement at its or their expense. In the event two
or more parties own and have contributed interests in the same lease to this
agreement, such parties may designate one of such parties to make said payments
for and on behalf of all such parties. Any party may request, and shall be
entitled to receive, proper evidence of all such payments. In the event of
failure to make proper payment of any rental, shut-in well payment or minimum
royalty through mistake or oversight where such payment is required to continue
the lease in force, any loss which results from such non-payment shall be borne
in accordance with the provisions of Article IV.B.1.

     Operator shall notify Non-Operators of the anticipated completion of a
shut-in well, or the shutting in or return to production of a producing well, at
least five (5) days (excluding Saturday, Sunday and legal holidays) prior to
taking such action, or at the earliest opportunity permitted by circumstances,
but assumes no liability for failure to do so. In the event of failure by
Operator to so notify Non-Operators, the loss of any lease contributed hereto by
Non-Operators for failure to make timely payments of any shut-in well payment
shall be borne jointly by the parties hereto under the provisions of Article
IV.B.1.

F.   TAXES:

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

     If Operator considers any tax assessment improper, Operator may, at its
discretion, protest within the time and manner prescribed by law, and prosecute
the protest to a final determination, unless all parties agree to abandon the
protest prior to final determination. During the pendency of administrative or
judicial proceedings, Operator may elect to pay, under protest, all such taxes
and any interest and penalty. When any such protested assessment shall have been
finally determined, Operator shall pay the tax for the joint account, together
with any interest and penalty accrued, and the total cost shall then be assessed
against the parties, and be paid by them, as provided in Exhibit "C."

                                      -28-

<PAGE>

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

     Each party shall pay or cause to be paid all production, severance, excise,
gathering and other taxes imposed upon or with respect to the production or
handling of such party's share of Oil and Gas produced under the terms of this
agreement.

                                  ARTICLE VIII.
                ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

A.   SURRENDER OF LEASES:

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

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

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

                                      -29-

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

B.   RENEWAL OR EXTENSION OF LEASES:

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

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

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

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

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

C.   ACREAGE OR CASH CONTRIBUTIONS:

     While this agreement is in force, if any party contracts for a contribution
of cash towards the drilling of a well or any other operation on the Contract
Area, such contribution shall be paid to the party who conducted the drilling or
other operation and shall be applied by it against the cost of such drilling or
other operation. If the contribution be in the form of acreage, the party to
whom the contribution is made shall promptly tender an assignment of the
acreage, without warranty of title, to the Drilling Parties in the proportions
said Drilling Parties shared the cost of

                                      -30-

<PAGE>

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

drilling the well. Such acreage shall become a separate Contract Area and, to
the extent possible, be governed by provisions identical to this agreement. Each
party shall promptly notify all other parties of any acreage or cash
contributions it may obtain in support of any well or any other operation on the
Contract Area. The above provisions shall also be applicable to optional rights
to earn acreage outside the Contract Area which are in support of well drilled
inside the Contract Area.

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

D.   ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST:

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

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

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

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

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

                                      -31-

<PAGE>

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

E.   WAIVER OF RIGHTS TO PARTITION:

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

                                  ARTICLE IX.
                         INTERNAL REVENUE CODE ELECTION

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

                                   ARTICLE X.
                               CLAIMS AND LAWSUITS

     Operator may settle any single uninsured third party damage claim or suit
arising from operations hereunder if the expenditure does not exceed
Seventy-Five Thousand Dollars ($75,000.00) and if the payment is in complete
settlement of such claim or suit. If the amount required for settlement exceeds
the above amount, the parties hereto shall assume and take over the further
handling of the claim or suit, unless such authority is delegated to Operator.
All costs and expenses of handling, settling, or otherwise discharging such
claim or suit shall be at the joint expense of the parties participating in the
operation from which the claim or suit arises. If a claim is made against any
party or if any party is sued on account of any matter arising from operations
hereunder over which such individual has no control because of the rights given
Operator by this agreement, such party shall immediately notify all other
parties, and the claim or suite shall be treated as any other claim or suit
involving operations hereunder.

                                      -32-

<PAGE>

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

                                   ARTICLE XI.
                                  FORCE MAJEURE

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

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

                                  ARTICLE XII.
                                     NOTICES

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

                                      -33-

<PAGE>

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

                                  ARTICLE XIII.
                                TERM OF AGREEMENT

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

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

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

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

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

                                  ARTICLE XIV.
                      COMPLIANCE WITH LAWS AND REGULATIONS

A.   LAWS, REGULATIONS AND ORDERS:

     This agreement shall be subject to the applicable laws of the state in
which the Contract Area is located, to the valid rules, regulations, and orders
of any duly constituted regulatory body

                                      -34-

<PAGE>

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

of said state; and to all other applicable federal, state, and local laws,
ordinances, rules, regulations and orders.

B.   GOVERNING LAW:

     This agreement and all matters pertaining hereto, including but not limited
to matters of performance, non-performance, breach, remedies, procedures,
rights, duties, and interpretation or construction, shall be governed and
determined by the law of the state in which the Contract Area is located. If the
Contract Area is in two or more states, the law of the state of Texas shall
govern.

C.   REGULATORY AGENCIES:

     Nothing herein contained shall grant, or be construed to grant, Operator
the right or authority to waive or release any rights, privileges, or
obligations which Non-Operators may have under federal or state laws or under
rules, regulations or orders promulgated under such laws in reference to oil,
gas and mineral operations, including the location, operation, or production of
wells, on tracts offsetting or adjacent to the Contract Area.

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

                                   ARTICLE XV.
                                  MISCELLANEOUS

A.   EXECUTION:

     This agreement shall be binding upon each Non-Operator when this agreement
or a counterpart thereof has been executed by such Non-Operator and Operator
notwithstanding that this agreement is not then or thereafter executed by all of
the parties to which it is tendered or which are listed on Exhibit "A" as owning
an interest in the Contract Area or which own, in fact, an interest n the
Contract Area. Operator may, however, by written notice to all Non-Operators who
have become bound by this agreement as aforesaid, given at any time prior to the
actual spud date of the Initial Well terminate this agreement if Operator in its
sole discretion determines that there is insufficient participation to justify
commencement of drilling operations. In the event of such a termination by
Operator, all further obligations of the parties hereunder shall cease as of
such termination. In the event any Non-Operator has advanced or prepaid any
share of drilling or other costs hereunder, all sums so advanced shall be
returned to such Non-Operator without interest. In the event Operator proceeds
with drilling operations for the Initial Well without the execution hereof by
all persons listed on Exhibit "A" as having a current working interest in such
well, Operators shall indemnify Non-Operators with respect to all costs incurred

                                      -35-

<PAGE>

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

for the Initial Well which would have been charged to such person under this
agreement if such person had executed the same and Operator shall receive all
revenues which would have been received by such person under this agreement if
such person had executed the same.

B.   SUCCESSORS AND ASSIGNS:

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

C.   COUNTERPARTS:

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

D.   SEVERABILITY:

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

                                  ARTICLE XVI.
                                OTHER PROVISIONS

     Notwithstanding anything contained herein to the contrary:

A. Should it be necessary to conduct hearings before governmental agencies for
the securing of spacing or pooling orders, or for certifying new gas, the costs
attributable to such hearings as well as fees paid attorneys and witnesses,
shall be borne by the Drilling Parties in the proportion that the interest of
each Drilling Party bears to the total interest of all Drilling Parties as such
interests appear in Exhibit "A".

B. In addition to Article VII.C. and D., Operator shall have the right, at its
discretion, to require prepayment of all costs, including dry hole costs
completion costs, recompletion costs or costs associated with remedial work,
based on an Authority for Expenditure for any well drilled on the Contract Area.
Failure by any party to remit its proportionate part of the above referenced
prepayment to Operator in the manner within the time period requested shall be
deemed an election by such party not to participate in the cost of the proposed
operation thereafter, the proposed operation shall be conducted under Article
VI.A.2. of this Agreement.

C. The proceeds from the sale of all hydrocarbons produced, saved and sold shall
be paid to Operator by all purchasing companies purchasing such hydrocarbons and
by the execution of this Agreement, the Non-Operators covenant and agree to save
all purchasing companies harmless from any and all liability by reason of paying
any such proceeds to Operator. Further, Non-Operators authorize and direct
Operator to deduct from their proportionate share of such sales all Lease
Operating Expenses and other expenses owed to Operator provided for under the
terms of this Agreement and remit the balance from such sale to Non-Operators.

                                      -36-

<PAGE>

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

D. This Agreement shall be construed in accordance with and governed by the laws
of the State of Texas, and all sums payable hereunder to Operator shall be paid
at P.O. Box 7698, Tyler, Texas 75711.

E. In the event that any party shall subsequently create against its interests
any additional royalty, overriding royalty, production payment, or other burden
or charge, the party which subsequently creates any such additional burden or
charge shall hold the other parties to this Agreement harmless from such
additional burdens or charges, and shall satisfy and discharge such burdens and
charges out of its own funds. As security for the performance of the obligations
created by this paragraph, the parties entitled to be held harmless shall have a
lien to secure the performance of the obligations created by this paragraph.
Such lien shall exist upon the interest to be owned by the party charged with
performing such obligation.

F. No party shall exercise any right of partition of the Contract Area or sale
thereof in lieu of partition during the term of this Agreement.

                                      -37-

<PAGE>

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

     IN WITNESSES WHEREOF, this agreement shall be effective as of the ______
day of _____________, 20___.

ATTEST OR WITNESS:                      OPERATOR

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

                                        By
-------------------------------------      -------------------------------------

-------------------------------------   ----------------------------------------
                                        Type or print name

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

                                  NON-OPERATORS

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

                                        By
-------------------------------------      -------------------------------------

-------------------------------------   ----------------------------------------
                                        Type or print name

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

                                      -38-

<PAGE>

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

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

                                        By
-------------------------------------      -------------------------------------

-------------------------------------   ----------------------------------------
                                        Type or print name

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

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

                                        By
-------------------------------------      -------------------------------------

-------------------------------------   ----------------------------------------
                                        Type or print name

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

                                      -39-

<PAGE>

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

                                 ACKNOWLEDGMENTS

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

Individual acknowledgment:

State of __________________________   )

                                      ) ss.

County of _________________________   )

     This instrument was acknowledged before me on _____________________________
by ______________________________________.

(Seal, if any)
                                        ________________________________________

                                        Title (and Rank) _______________________

                                        My commission expires: _________________

                                      -40-

<PAGE>

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

Acknowledgment in representative capacity:

State of __________________________   )

                                      ) ss.

County of _________________________   )

     This instrument was acknowledged before me on _____________________________
by ______________________________________.

(Seal, if any)
                                        ________________________________________

                                        Title (and Rank) _______________________

                                        My commission expires: _________________

                                      -41-

<PAGE>

                                   EXHIBIT "A"

Attached to and made a part of that certain Operating Agreement dated
____________________, between ____________________, as Operator, and
____________________, as Non-Operator.

                        (TO BE COMPLETED AT A LATER DATE)

                               END OF EXHIBIT "A"

                                       A-1

<PAGE>

                                   EXHIBIT "B"

Producer's 88 - (Producer's Revised 1972)          Printed and for sale by Hall-
(New Mexico) Form 342P                             Peerbough Prom, Roswell, N.M.

                                 OIL & GAS LEASE

     THIS AGREEMENT made this _____________ day of _____________, 19____,
between ________________________________________________________________________
_______________________________________________________________________________
_____________________________________________________________________________ of
__________________________________________________________

                                                           (Post Office Address)

herein called lessor (whether one or more) and ____________________, lessee:

     1. Lessor, in consideration of TEN AND OTHER DOLLARS in hand paid, receipt
of which is here acknowledged, and of the royalties herein provided and of the
agreements of the lessor herein contained, hereby grants, leases and lets
exclusively unto lessee for the purpose of investigating, exploring, properties,
drilling, and operating for and producing oil and gas, injecting gas, waters,
other fluids, and air into subsurface strata, laying pipe lines, storing oil,
building banks, roadways, telephone lines, and other structures and things
thereon to produce, save, take care of, treat, process, store and transport said
minerals, the following described land in ____________________ County, New
Mexico, to-wit:

     For the purposes of calculating the rental payments herein provided for,
said land is estimated to comprise _____________ acres, whether it actually
comprises more or less.

     2. Subject to the other provisions herein contained, this lease shall
remain in force for a term of ______ years from this date (called "primary
term"), and as long thereafter as oil, gas or other mineral is produced from
said land or land with which said land is pooled.

     3. The royalties to be paid by lessee are: (a) on oil, and on other liquid
hydrocarbons saved at the well, of that produced and saved from said land, same
to be delivered at the wells or to the credit of lessor in the pipe line to
which the wells may be connected; (b) on gas, including casinghead gas or other
gaseous substance produced from said land used off the premises or used in the
manufacture or gasoline or other products, the market value at the well of
_____________ of the gas used, provided that on gas sold on or off the premises
the royalty shall be _____________ of the amount realize from such sale; (c) and
at any time when this lease is not validated by other provision thereof and
there is a gas and/or condensate well on said land, or land pooled therewith,
but gas and/or condensate is not being so sold or used and such well is shut in,
either before or after production therefrom, then on or before 90 days after
said well is shut in, and thereafter at annual intervals, lessee may pay or
tender an advance annual shut-in

                                      B-1

<PAGE>

royalty equal to the amount of delay rentals provided for in this lease for the
acreage then held under this lease by the party making such payment or tender,
and so long as said shut-in royalty is paid or tendered this lease shall not
terminate and it will be considered under all clauses hereof that gas is being
produced from the leased premises in paying quantities. Each such payment shall
be paid or tendered to the party or parties who at the time of such payment
would be entitled to receive the royalties which would be paid under this lease
if the well were in fact producing, or be paid or tendered to the credit of such
party or parties in the depository bank and in the manner hereinafter provided
for the payment of rentals. The amount realized from the sale of gas on or off
the premises shall be the price established by the gas sales contract entered
into in good faith by Lessee and gas purchaser for such term and under such
conditions as are customary in the industry. "Price" shall mean the net amount
received by Lessee after giving effect to applicable regulatory orders and after
application of any applicable price adjustments specified in such contract or
regulation orders. In the event Lessee compresses, treats, purifies, or
dehydrates such gas (whether on or off the leased premises) or transports gas
off the leased premises, Lessee in computing royalty hereunder may deduct from
such price a reasonable charge for each of such functions performed.

     4. If operations for drilling are not commenced on said land or on land
pooled therewith on or before one (1) year from this date, this lease shall
terminate as to both parties, unless on or before one (1) year from this date
lessee shall pay or tender to the lessor a rental of $____________________ which
shall cover the privilege of deferring commencement of such operations for a
period of twelve (12) months. In like manner and upon like payments or tenders,
annually, the commencement of said operations may be further deferred for
successive periods of twelve (12) months each during the primary term. Payment
or tender may be made to the lessor or to the credit of the lessor in the
____________________ Bank at ____________________, which bank, or any successor
thereof, shall continue to be the agent for the lessor and lessor's heirs and
assigns. If such bank (or any successor bank) shall fail, liquidate, or be
succeeded by another bank, or for any reason shall fail or refuse to accept
rental, lessee shall not be held in default until thirty (30) days after lessor
shall deliver to lessee a recordable instrument making provision for another
acceptable method of payment or tender, and any depository charge is a liability
of the lessor. The payment or tender of rental may be made by check or draft of
lessee, mailed or delivered to said bank or lessor, or any lessor if more than
one, on or before the rental paying date. Any timely payment or tender of rental
or shut-in royalty which is made in a bona fide attempt to make proper payment,
but which is erroneous in whole or in part as to parties, amounts, or
depositories shall nevertheless be sufficient to prevent termination of this
lease in the same manner as though a proper payment had been made; provided,
however, lessee shall correct such error within thirty (30) days after lessee
has received written notice thereof by certified mail from lessor together with
such instruments as are necessary to enable lessee to make proper payment.

     5. Lessee is hereby granted the right and power, from time to time, to pool
or combine, this lease, the land covered by it or any part or horizon thereof
with any other land, lease, leases, mineral estates or parts thereof for the
production of oil or gas. Units pooled hereunder shall not exceed the standard
proration unit fixed by law or by the New Mexico Oil Conservation Commission or
by other lawful authority for the pool or area in which said land is situated,
plus a tolerance of 10%. Lessee shall file written unit designations in the
county in which the premises are located and such units may be designated from
time to time and either

                                      B-2

<PAGE>

before or after the completion of wells. Drilling operations on or production
from any part of any such unit shall be considered for all purposes, except the
payment of royalty, as operations conducted upon or production from the land
described in this lease. There shall be allocated to the land covered by this
lease included in any such unit that portion of the total production of pooled
minerals from wells in the unit, after deducting any used in lease or unit
operations, which the number of surface acres in the land covered by this lease
included in the unit bears to the total number of surface acres in the unit. The
production so allocated shall be considered for all purposes, including the
payment or delivery of royalty, to be the entire production of pooled minerals
from the portion of said land covered hereby and included in said unit in the
same manner as though produced from said land under the terms of this lease. Any
pooled unit designated by lessee, as provided herein, may be dissolved by lessee
by recording an appropriate instrument in the County where the land is situated
at any time after the completion of a dry hole or the cessation of production on
said unit.

     6. If prior to the discovery of oil or gas hereunder, lessee should drill
and abandon a dry hole or holes hereunder, or if after discovery of oil or gas
the production thereof should cease for any cause, this lease shall not
terminate if lessee commences working or additional drilling operations within
60 days thereafter and diligently prosecutes the same, or (if it be within the
primary term) commences or resumes the payment or tender of rentals or commences
operations for drilling or reworking on or before the rental paying date next
ensuing after the expiration of three months from date of abandonment of said
dry hole or holes or the cessation of production. If at the expiration of the
primary term oil or gas is not being lessee is then engaged in operations for
drilling or reworking of any well, this lease shall remain in force so long as
such operations are diligently prosecuted with no Cessation of more than 60
consecutive days. If during the drilling or reworking of any well under this
paragraph, lessee loses or junks the hole or well and after diligent efforts in
good faith is unable to complete said operations then within 30 days after the
abandonment of said operations lessee may commence another well and drill the
same with due diligence. If any drilling, additional drilling, or reworking
operations hereunder result in production, then this lease shall remain in full
force so long thereafter as oil or gas is produced hereunder.

     7. Lessee shall have free use of oil, gas and water from said land, except
water from lessor's wells and tanks, for all operations hereunder, and the
royalty shall be computed after deducting any so used. Lessee shall have the
right at any time during or after the expiration of this lease to remove all
property and fixtures placed by lessee on said land, including the right to draw
and remove all casing. When required by lessor, lessee will bury all pipe lines
on cultivated lands below ordinary plow depth, and no well shall be drilled
within two hundred feet (200 ft.) of any residence or bam now on said land
without lessor's consent. Lessor shall have the privilege, at his risk and
expense, of using gas from any gas well on said land for stoves and inside
lights in the principal dwelling thereon, out of any surplus gas not needed for
operations hereunder.

     8. The rights of either party hereunder may be assigned in whole or in part
and the provisions hereof shall extend to the heirs, executors, administrators,
successors and assigns; but no change or division in the ownership of the land,
or in the ownership of or right to receive rentals, royalties or payments,
however accomplished shall operate to enlarge the obligations or diminish the
rights of lessee; and no such change or division shall be binding upon lessee
for any

                                      B-3

<PAGE>

purpose until 30 days after lessee has been furnished by certified mail at
lessee's principal place of business with acceptable instruments or certified
copies thereof constituting the chain of title from the original lessor. If any
such change in ownership occurs through the death of the owner, lessee may pay
or tender any rentals, royalties or payments to the credit of the deceased or
his estate in the depository bank until such time as lessee has been furnished
with evidence satisfactory to lessee as to the persons entitled to such sums. In
the event of an assignment of this lease as to a segregated portion of said
land, the rentals payable hereunder shall be apportioned as between the several
leasehold owners ratably according to the surface area of each, and default in
rental payment by one shall not affect the rights of other leasehold owners
hereunder. An assignment of this lease, in whole or in part, shall, to the
extent of such assignment, relieve and discharge lessee of any obligations
hereunder, and, if lessee or assignee of part or parts hereof shall fail to make
default in the payment of the proportionate part of the rentals due from such
lessee or assignee or fail to comply with any other provision of such lease,
such default shall not affect this lease in so far as it covers a part of said
lands upon which lessee or any assignee thereof shall so comply or make such
payments. Rentals as used in this paragraph shall also include shut-in royalty.

     9. Should lessee be prevented from complying with any express or implied
covenant of this lease, or from conducting drilling or reworking operations
hereunder, or from producing oil or gas hereunder by reason of scarcity or
inability to obtain or use equipment or material, or by operation of force
majeure, or by any Federal or state law or any order, rule or regulation of
governmental authority, then while so prevented, lessee's duty shall be
suspended, and lessee shall not be liable for failure to comply therewith; and
this lease shall be extended while and so long as lessee is prevented by any
such cause from conducting drilling or reworking operations on or from producing
oil or gas hereunder; and the time while lessee is so prevented shall not be
counted against lessee, anything in this lease to the contrary notwithstanding.

     10. Lessor hereby warrants and agrees to defend the title to said land, and
agrees that lessee, at its option, may discharge any tax, mortgage, or other
lien upon said land, and in the event lessee does so, it shall be subrogated to
such lien with the right to enforce same and apply rentals and royalties
accruing hereunder toward satisfying same. Without impairment of lessee's rights
under the warranty, if this lease covers a less interest in the oil or gas in
all or any part of said land than the entire and undivided fee simple estate
(whether lessor's interest is herein specified or not) then the royalties,
shut-in royalty, rental, and other payments, if any, securing from any part as
to which this lease covers less than such full interest, shall be paid only in
the proportion which the interest therein, if any, covered by this lease, bears
to the whole and undivided fee simple estate therein. Should any one or more of
the parties named above as lessors fail to execute this lease, it shall
nevertheless be binding upon the party or parties executing the same.

     11. Lessee, its/his successors, heirs and assigns, shall have the right at
any time to surrender this lease, in whole or in part, to lessor or his heirs,
successors, and assigns by delivering or mailing a release thereof to the
lessor, or by placing a release thereof of record in the county in which said
land is situated; thereupon lessee shall be relieved from all obligations,
expressed or implied, of this agreement as to acreage so surrendered, and
thereafter the rentals and shut-in royalty payable hereunder shall be reduced in
the proportion that the acreage covered hereby is reduced by said release or
releases.

                                      B-4

<PAGE>

     Executed the day and year first above written.

                                      B-5

<PAGE>

                                   EXHIBIT "C"

Attached to and made a part of that certain Operating Agreement dated
_____________, ______, between ____________________, as Operator and
____________________, as Non-Operators.

                              ACCOUNTING PROCEDURE

                              I. General Provisions

1.   Definitions

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

     "Operations" shall mean any and all operations and activities necessary or
     proper for the acquisition, development, operation, protection and
     maintenance of the Property and the Affiliated Program.

     "Joint Account" shall mean the account showing the charges and credits
     accruing because of the Operations and which are to be shared by the
     Parties according to their pro rata interests.

     "Operator" shall mean the Party designated to conduct the Operations.

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

     "Parties" shall mean Operator and Non-Operators.

     "First-level supervisors" shall mean those employees whose primary function
     in Operations is the direct supervision of other employees, service
     companies, drilling rigs, contract labor, and other personnel directly
     employed on the Property in a field operating capacity.

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

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

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

     "Controllable Material" shall be defined as Material which is ordinarily so
     classified and controlled by Operator in the conduct of its Operations.

                                      C-1

<PAGE>

2.   Statement and Billings

     Operator shall bill Non-Operators on or before the last day of each month
     for their proportionate share of costs and expenses for the preceding
     month. Such bills will be accompanied by statements of all charges and
     credits to the Joint Account, summarized by appropriate classifications
     indicative of the nature thereof.

3.   Advances and Payments by Administrators

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

     B.   Each Non-Operator shall pay to Operator in Smith County, Texas its
          proportion of all bills within fifteen (15) days after receipt. If
          payment is not made within such time, the unpaid balance shall bear
          interest monthly at a rate of one and one-half percent (l 1/2%) per
          month or the maximum contract rate permitted by the applicable usury
          laws in the state in which the Property is located, whichever is the
          lesser, plus attorney's fees, court costs, and other costs in
          connection with the collection of unpaid amounts.

4.   Adjustments

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

5.   Audits

     A.   A Non-Operator, upon notice in writing to Operator and all other
          Non-Operators, shall have the right to audit Operator's accounts and
          records relating to the Joint Account for any calendar year within the
          twenty-four (24) month period following the end of such calendar year;
          provided, however, the making of an audit shall not extend the time
          for the taking of written exception to and the adjustment of accounts
          as provided for in Paragraph 4 of this Section I. Where there are two
          or more Non-Operators, the Non-Operators shall make every reasonable
          effort to conduct a joint audit in a manner which will result in a
          minimum of inconvenience to the Operator. Operator shall bear no
          portion of the Non-Operator's audit cost incurred under this
          paragraph. The audits shall not be

                                      C-2

<PAGE>

          conducted more than once each year without prior approval of Operator,
          except upon the resignation or removal of the Operator, and shall be
          made at the expense of those Non-Operators approving such audit.

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

6.   Approval by Non-Operators

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

                               II. Direct Charges

Operator shall charge the Joint Account with the following items:

1.   Ecological and Environmental

     Costs incurred for the benefit of the Property as a result of governmental
     or regulatory requirements to satisfy environmental considerations
     applicable to the Operations. Such costs may include surveys of an
     ecological or archaeological nature and pollution control procedures as
     required by applicable laws and regulations.

2.   Rentals and Royalties

Lease rentals and royalties paid by Operator for the Operations.

3.   Labor

Salaries, wages, benefits and related expenses shall be charged an a day-rate
basis (recomputed within a reasonable periodic time period) for:

     A.   (1)  Operator's employees directly employed on the Property in the
               conduct of Operations.

          (2)  First-level supervisors in the field.

          (3)  Technical employees directly employed on the Property.

          (4)  Technical employees either temporarily or permanently assigned to
               and directly employed in the Operations of the Property.

     B.   Operator's cost of holiday, vacation, sickness and disability benefits
          and other customary allowances paid to the employees whose salaries
          and wages are chargeable to the Joint Account under Paragraph 3A of
          this Section II. Cost

                                      C-3

<PAGE>

          under this Paragraph 3B may be charged on a "when and as paid basis"
          or by "percentage assessment" on the amount of salaries and wages
          chargeable to the Joint Account under Paragraph 3A of this Section II.
          If percentage assessment is used, the rate shall be based on the
          Operator's cost experience.

     C.   Expenditures or contributions made pursuant to assessments imposed by
          governmental authority which are applicable to Operator's labor cost
          of salaries and wages chargeable to the Joint Account under Paragraphs
          3A of this Section II.

     D.   Personal expenses of those employees whose salaries and wages are
          chargeable to the Joint Account under Paragraph 3A of this Section II.

     E.   Operator's current costs of established plans for employees' group
          life insurance, hospitalization, pension, retirement, stock purchase,
          thrift, bonus, and other benefit plans of a like nature, applicable to
          Operator's labor cost chargeable to the Joint Account under Paragraphs
          3A of this Section II shall be Operator's actual cost not to exceed
          the percent most recently recommended by the Council of Petroleum
          Accountants Societies.

4.   Material

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

5.   Transportation

     Transportation of employees and Material necessary for the Operations, not
     previously charged as a part of day-rate basis.

6.   Services

     The cost of contract services and utilities procured from outside sources
     including without limitation auditing and taxation services, engineering
     consultant services including engineers, geologists and landmen, and
     services in connection with matters before or involving government agencies
     or regulatory bodies.

7.   Equipment and Facilities Furnished by Operator

     A.   Operator shall charge the Joint Account for use of Operator owned
          equipment and facilities at rates commensurate with costs of ownership
          and operation. Such rates shall include costs of maintenance, repairs,
          other operating expense, insurance, taxes, depreciation, and interest
          on gross investment less accumulated depreciation not to exceed twelve
          percent (12%) per annum. Such rates shall not exceed average
          commercial rates currently prevailing in the immediate area of the
          Property.

                                      C-4

<PAGE>

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

8.   Damages and Losses to Property

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

9.   Legal Expense

     All costs and expenses of handling, investigating, and settling litigation
     or claims arising by reason of the Operations or necessary to protect or
     recover the Property, including, but not limited to, attorney's fees, court
     costs, cost of investigation or procuring evidence and amounts paid in
     settlement or satisfaction of any such litigation or claims. All costs and
     expenses necessary for title work, division order title opinions, transfer
     orders, deeds, assignments and conveyances which affect title to the oil
     and gas estate. All costs and expenses related to curative matters and
     representation before regulatory or governmental agencies.

10.  Taxes

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

11.  Insurance

     Net premiums paid for insurance provided for the Operations for the
     projection of the Parties. In the event Operations are conducted in a state
     in which Operator may act as self-insurer for Worker's Compensation and/or
     Employer's Liability under the respective state's laws, Operator may, at
     its election, include the risk under its self-insurance program and in that
     event, Operator shall include a charge at Operator's cost not to exceed
     manual rates.

12.  Abandonment and Reclamation

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

                                      C-5

<PAGE>

13.  Communications

     Cost of acquiring, leasing, installing, operating, repairing and
     maintaining communication systems, including radio and microwave facilities
     directly serving the Property. In the event communication
     facilities/systems serving the Property are Operator owned, charges to the
     Joint Account shall be made as provided in Paragraph 7 of this Section II.

14.  Additional Services

     The cost of all additional services provided by the Operator or by third
     parties relating to the Operations, whether direct or indirect, including
     without limitation accounting, engineering, land and administrative
     services. Such charges to the Joint Account will include without limitation
     salaries and benefits of Operator's personnel; automotive and travel;
     office rental; utilities; the cost of furnishing, maintaining, operating or
     otherwise securing the use of office equipment, furniture, machines,
     computers, and other physical equipment and facilities; Amounts paid to
     outside parties for additional services; an allocable part of General and
     Administrative Expenses and other indirect cost and all other cost and
     expense related to the performance of these additional services.

15.  Other Expenditures

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

                              III. Indirect Charges

1.   Overhead - Drilling and Producing Operations

     Overhead - Fixed Rate Basis

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

          Drilling Well Rate: $7,420.00

          Producing Well Rate: $780.00

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

          (a)  Drilling Well Rate

               1)   Charges for onshore drilling wells shall begin on the date
                    well is spudded and terminate on the date of completion or
                    abandonment.

               2)   Charges for wells undergoing any type of workover or
                    recompletion for a period of five (5) consecutive workdays
                    or more shall be made at the drilling well rate. Such
                    charges shall be applied for the period from date workover
                    operations, with rig, commence through date of rig release,
                    except that no charge shall

                                      C-6

<PAGE>

                    be made during suspension of operations for fifteen (15) or
                    more consecutive days.

          (b)  Producing Well Rates

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

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

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

               4)   A one-well charge may be made for the month in which
                    plugging and abandonment operations are completed on any
                    well.

               5)   Each facility serving the Operations other than a well shall
                    count as a well for this purpose, such as compressor or
                    dehydration facilities, or other facilities for producing
                    (including secondary recovery) operations or for treating,
                    handling or marketing production.

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

     (3)  The well rates shall be adjusted as of the first day of April, 2001,
          and each year on the first day of April thereafter. The adjustment
          shall be computed by multiplying the rate currently in use by the
          percentage increase or decrease in the average weekly earnings of
          Crude Petroleum and Gas Production Workers for the last calendar year
          compared to the calendar year preceding as show by the index of
          average weekly earnings of Crude Petroleum and Gas Fields Production
          Workers as published by the United States Department of Labor, Bureau
          of Labor Statistics, or the equivalent Canadian index as published by
          Statistics Canada, as applicable. The adjusted rates shall be the
          rates currently in use, plus or minus the computed adjustment.

2.   Overhead - Major Construction

     To compensate Operator for overhead costs incurred in the construction and
     installation of fixed assets, the expansion of fixed assets, and any other
     project clearly discernible as

                                      C-7

<PAGE>

     a fixed asset required for the development and operation of the Property,
     Operator shall either negotiate a rate prior to the beginning of
     construction, or shall charge the Joint Account for overhead based on the
     following rates for any Major Construction project in excess of $25,000.

     A.   Five percent (5%) of first $100,000 or total cost if less; plus

     B.   Three percent (3%) of costs in excess of $100,000 but less than
          $1,000,000; plus

     C.   Two percent (2%) of costs in excess of $1,000,000.

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

3.   Catastrophe Overhead

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

     A.   Five percent (5%) of total costs through $100,000; plus

     B.   Three percent (3%) of costs in excess of $100,000 but less than
          $1,000,000; plus

     C.   Two percent (2%) of costs in excess of $1,000,000.

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

4.   Prospect Screening and Evaluation

     The General and Administrative Expenses incurred by the Operator in the
     screening, evaluation and acquisition of Prospects. Such charge shall be
     based on an allocation system which is in accordance with generally
     accepted accounting principles.

5.   General and Administrative Expense

     Operator shall charge the Non-Operators for General and Administrative
     Expenses allocated to the Program or Partnership in accordance with
     generally accepted accounting principles.

                                      C-8

<PAGE>

6.   Amendment of Rates

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

                     IV. Pricing of Joint Account Material -

                      Purchases, Transfers and Dispositions

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

1.   Purchases

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

2.   Transfers and Dispositions

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

     A.   New Material (Condition "A")

          Material shall be priced at the current replacement cost of the same
          kind of Material, effective at date of movement.

     B.   Good Used Material (Condition "B")

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

          (1)  Material moved to the Property

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

                                      C-9

<PAGE>

          (2)  Material used on and moved from the Property

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

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

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

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

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

     C.   Other Used Material

          (1)  Condition "C"

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

          (2)  Condition "D"

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

          (3)  Condition "E"

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

     D.   Obsolete Material

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

                                      C-10

<PAGE>

3.   Warranty of Material Furnished by Operator

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

                                 V. Inventories

The Operator shall maintain detailed records of Controllable Material. At
reasonable intervals, inventories shall be taken by the Operator. Adjustments
resulting from the reconciliation of a physical inventory shall be made within
six months following the taking of the inventory. Special inventories may be
taken by the Non-Operators at their expense in accordance with Paragraph 5 of
Section I.

                                      C-11

<PAGE>

                                   EXHIBIT "D"

Attached to and made a part of that certain Operating Agreement dated
_____________, between ____________________, as Operator, and
____________________, et al, as Non-Operator.

                                    INSURANCE

At all times during the conduct of operations hereunder, Operator shall maintain
in force the following insurance, at the expense of and for the benefit of the
joint account:

1.   Workmen's Compensation Insurance

     A.   Statutory Workmen's Compensation coverage to include all areas
          involved in operations covered under this contract.

     B.   Employers liability with a limit of $500,000 each accident.

2.   Comprehensive General Liability Insurance (CGL)

     A.   Standard Comprehensive General, conditions including coverage for
          products/completed operations.

     B.   Contractual Liability insuring contracts between Mewbourne Oil Company
          and their contractors; covering assumed tort liability.

     C.   Limits of Liability:

<TABLE>
<S>                                                           <C>
          General Aggregate Limit                             $2,000,000
          Products and Completed Operations Aggregate Limit   $1,000,000
          Personal and Advertising Injury Limit               $1,000,000
          Each Occurrence Limit                               $1,000,000
</TABLE>

3.   Aircraft and Automobile Liability Insurance

     A.   Standard Comprehensive form including all owned, non-owned and hired
          automobile equipment.

     B.   Limits of Liability:                                $1,000,000

                                                           Combined Single Limit

     C.   If the Operator will use Owned, Hired or Non-owned Aircraft:

          Aircraft Public Liability Insurance                 $25,000,000

                                       D-1

<PAGE>

                                                           Combined Single Limit

4.   Contractors and Subcontractors

     Operator agrees to use its best efforts to assure that its contractors and
     subcontractors also comply with the insurance requirements listed in
     paragraphs 1-3 above and that certain contractors and subcontractors
     engaged in higher risk activities carry appropriate insurance coverage.

5.   Umbrella Policy

     In addition to paragraphs 1-3 above, Operator also carries $50,000,000 in
     Excess Umbrella Liability policies.

6.   Operator's Extra Expense Insurance

     Operator will carry Operator's Extra Expense Insurance covering costs of
     well control, clean up, and redrilling, with a limit per occurrence of
     $3,000,000 for well depths of 1-10,000' and $10,000,000 for well depths
     over 10,000'.

7.   Additional Insurance

     In addition to the above referenced types of insurance coverage, Operator
     may, but is not required to, carry additional types of insurance coverage
     including, but not limited to, various types of additional excess umbrella
     liability, public property damage, oil lease property, pollution or
     contamination, or similar coverage. The actual premiums paid for all
     insurance shall be charged on a pro-rata basis to the Joint account of the
     parties hereto.

8.   Other Provisions

     Any liability, loss, damage claim or expense resulting from accidents or
     occurrences not covered by insurance of the character referred to above or
     in excess of the insurance actually carried under the above provisions,
     shall be borne by the parties hereto in the proportions in which they own
     in the unit area. In the event Operator is unable to procure and maintain
     any of the insurance enumerated above, Operator shall promptly give written
     notice thereof to the other parties and in such event, resulting loss,
     damage, claim and expense shall be borne by the parties hereto proportion
     to their respective interests in the unit area. Such notice shall also
     constitute a waiver of the requirement that Operator procure and maintain
     the insurance which is the subject of notice.

                                       D-2

<PAGE>

                                   EXHIBIT "E"

ATTACHED to that certain Operating Agreement dated ____________________, between
____________________ as Operator, and ____________________, as Non-Operator.

                             GAS BALANCING AGREEMENT

                             FOR GAS WELL PRODUCTION

     DURING the period or periods when any party hereto has no market for, or
its purchaser is unable to take or if any party fails to take its share of gas,
the other parties shall be entitled to produce each month one hundred percent of
the allowable gas production assigned to the Unit Area by the appropriate
governmental entity having jurisdiction, and each of such parties shall have the
right to take all or any part of its prorata share. All parties hereto shall
share in and own the condensate recovered at the surface in accordance with
their respective interest, but each party taking such gas shall own all of the
gas delivered to its purchaser. Each party unable to market its share of the gas
produced shall be credited with gas in storage equal to its share of the gas
produced, less its share of gas used in lease operations, vented or lost.
Operator shall maintain a current account of the gas balance between the parties
and shall furnish all parties hereto monthly statements showing the total
quantity of gas produced, used in lease operations, vented or lost, and the
total quantity of condensate recovered.

     AFTER notice to Operator, any party may begin taking or delivering its
share of the gas produced. In addition to its share, each party, until it has
recovered its gas in storage and balanced its gas account, shall be entitled to
take or deliver a volume of gas equal to fifty (50%) percent of each
overproduced party's share of gas produced. If more than one party is entitled
to the additional gas produced, they shall divide such additional gas in
accordance with Unit participation.

     IN, the event production of gas permanently ceases prior to the time that
the accounts of the parties have been balanced, a complete balancing shall be
accomplished by a money settlement. Such settlement shall be based on the price
or prices received by each over-produced party, less taxes, for its share of the
overproduced gas, without interest.

     AT all times while gas is produced from the Unit Area, each party shall
make appropriate settlement of all royalties, overriding royalty interest, and
other payments out of or in lieu of production for which it is responsible, as
if each party were taking or delivering to a purchaser its share, and its share
only, of such gas production. Each party hereto agrees to hold each other party
harmless from any and all claims for royalty payments asserted by royalty owners
to whom each party is accountable.

     THE provisions of this agreement shall be separately applicable to each
reservoir to the end that production from one reservoir in a gas well may not be
utilized for the purpose of balancing underproduction from other reservoirs.

                                 END EXHIBIT "E"

                                       E-1<PAGE>
                                                                    Exhibit 10.5

                             GAS MARKETING AGREEMENT

     THIS GAS MARKETING AGREEMENT (the "Agreement"), made and entered into the
____ day of ____________, by and between Mewbourne Oil Company ("MOC"), ,
Mewbourne Energy Partners __-A, L.P. (the "Partnership") and Mewbourne
Development Corporation ("MD").

Recitals

     1.   MD and the Partnership are participants in a drilling program (the
          "Program") governed by that certain Drilling Program Agreement dated
          __________, 200_ by and among MOC, the Partnership and MD (the
          "Program Agreement").

     2.   Under the terms of the Program Agreement, MOC is the "Program Manager"
          and also serves a the "Operator" of the "Program's" properties under
          the terms of a joint operating agreement.

     3.   MOC operates hundreds of oil and gas wells in which non-affiliated
          parties own working interests.

     4.   MOC has developed expertise in the marketing of natural gas produced
          from the wells it operates.

     5.   In recognition of MOC's gas marketing expertise, non-affiliated
          parties have contracted with MOC for gas marketing services on
          substantially the same terms as provided for in this Agreement.

AGREEMENT

     NOW THEREFORE, in consideration of the premises and of the respective
undertaking and obligations of the parties set forth below, the parties agree as
follows:

     1.   MOC shall provide gas marketing services to the Program pursuant to
          which the Program's gas production will be bundled with other parties'
          gas production in an effort to maximize the overall price and terms
          received for the Program's gas production.

     2.   The term of this Agreement shall begin on _______________, and shall
          continue through December 31, 2006, and from year to year thereafter,
          until terminated by any party hereto upon 60 days prior notice.

     3.   For its services rendered, Operator shall charge Program and the
          Program shall pay, a fee of $0.035 per Mcf of gas owned by the Program
          and sold for the Program's account by MOC. This fee shall be assessed
          only upon gas sold by MOC under multi-month term or single month spot
          market contracts; the fee shall not be assessed upon gas sold under
          long term percentage-of-proceeds or percentage-of-index contracts.

                                        1

<PAGE>

     4.   This Agreement shall not create, nor shall it be construed as
          creating, a mining or other partnership, joint venture, agency
          relationship or association, or to render the parties liable as
          partners, co-venturers or principals nor shall it give rise to any
          fiduciary duties among the parties hereto.

     5.   Defined terms used herein but not defined herein shall have the
          meaning given such terms in the Program Agreement.

     EXECUTED at Tyler, Texas on the date indicated above.

MEWBOURNE OIL COMPANY                   MEWBOURNE DEVELOPMENT CORPORATION,
                                        in its individual corporate capacity and
                                        in its capacity as managing general
                                        partner of Mewbourne Energy
                                        Partners __-A, L.P.

By:                                     By:
    ---------------------------------       ------------------------------------
    James Allen Brinson                     J. Roe Buckley
    Attorney-in-Fact                        Executive Vice President

                                        2

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