Document:

OFFSHORE OPERATING AGREEMENT

                               APACHE CORPORATION

                                       and
                          RIDGEWOOD ENERGY CORPORATION
                              MOUNTAIN ENERGY, LLC
                            WILLIFORD ENERGY COMPANY
                             TRANSITION ENERGY, LLC
                                LOWE PARTNERS, LP
                               EXCESS ENERGY, LTD.

                     Parts of Vermilion Area Blocks 7 and 8

                        State Waters Offshore Louisiana

                          Effective September 22, 2004

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                                    CONTENTS

PRELIMINARY RECITALS .......................................................   1

ARTICLE 1: APPLICATION TO EACH LEASE .......................................   1

ARTICLE 2: DEFINITIONS .....................................................   1
2.1    Additional Testing ..................................................   1
2.2    Affiliate ...........................................................   1
2.3    Authorization For Expenditure (AFE) .................................   1
2.4    Complete, Completing, Completion ....................................   1
2.5    Confidential Data ...................................................   1
2.6    Deepen, Deepening ...................................................   1
2.7    Development Operation ...............................................   1
2.8    Development Well ....................................................   1
2.9    Exploratory Operation ...............................................   1
2.10   Exploratory Well ....................................................   2
2.11   Facilities ..........................................................   2
2.12   Lease ...............................................................   2
2.13   Non-Consent Operation ...............................................   2
2.14   Non-Consent Platform ................................................   2
2.15   Non-Consent Well ....................................................   2
2.16   Non-Operator ........................................................   2
2.17   Non-Participating Party .............................................   2
2.18   Non-Participating Party's Share .....................................   2
2.19   Objective Depth .....................................................   2
2.20   Objective Horizon ...................................................   2
2.21   Operator ............................................................   2
2.22   Participating interest ..............................................   2
2.23   Participating Party .................................................   2
2.24   Platform ............................................................   2
2.25   Producible Reservoir ................................................   2
2.26   Producible Well .....................................................   2
2.27   Recomplete, Recompleting, Recompletion ..............................   3
2.28   Rework, Reworking ...................................................   3
2.29   Sidetrack, Sidetracking .............................................   3
2.30   Working interest ....................................................   3

ARTICLE 3: EXHIBITS ........................................................   3
3.1    Exhibits ............................................................   3
       3.1.1    Exhibit "A" ................................................   3
       3.1.2    Exhibit "B" ................................................   3
       3.1.3    Exhibit "C" ................................................   3
       3.1.4    Exhibit "D" ................................................   3
       3.1.5    Exhibit "E" ................................................   3
       3.1.6    Exhibit "F" ................................................   3
3.2    Conflicts ...........................................................   3

ARTICLE 4: OPERATOR ........................................................   3
4.1    Operator ............................................................   3
4.2    Resignation .........................................................   3
4.3    Removal of Operator .................................................   3
4.4    Selection of Successor ..............................................   4
4.5    Delivery of Property ................................................   4
4.6    Resignation or Removal and Selection of Successor Operator
       in a Two-Party Agreement ............................................   4
4.7    Designation of Operator Forms .......................................   4

ARTICLE 5: AUTHORITY AND DUTIES OF OPERATOR ................................   4
5.1    Exclusive Right to Operate ..........................................   4
5.2    Workmanlike Conduct .................................................   4
5.3    Liens and Encumbrances ..............................................   5
5.4    Employees ...........................................................   5
5.5    Records .............................................................   5
5.6    Compliance ..........................................................   5
5.7    Contractors .........................................................   5
5.8    Governmental Reports ................................................   5
5.9    Information to Participating Parties ................................   5
5.10   Information to Non-Participating Parties ............................   6

ARTICLE 6: VOTING AND VOTING PROCEDURES ....................................   6
6.1    Voting Interest .....................................................   6
6.2    Vote Required .......................................................   6
6.3    Votes ...............................................................   6
6.4    Meetings ............................................................   6

ARTICLE 7: ACCESS...........................................................   6
7.1    Access to Lease......................................................   6
7.2    Reports  ............................................................   6
7.3    Confidentiality......................................................   7
7.4    Limited Disclosure...................................................   7
7.5    Media Releases.......................................................   7

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ARTICLE 8: EXPENDITURES ....................................................   7
8.1    Basis of Charge to the Parties ......................................   7
8.2    Authorization .......................................................   7
8.3    Emergency and Required Expenditures .................................   8
8.4    Advance Billings ....................................................   8
8.5    Commingling of Funds ................................................   8
8.6    Security Rights .....................................................   8
8.7    Unpaid Charges and Default ..........................................   9
8.8    Overexpenditures (Optional Provision) ...............................   9

ARTICLE 9: NOTICES .........................................................   9
9.1    Giving and Receiving Notices ........................................   9
9.2    Content of Notice ...................................................   9
9.3    Response to Notices .................................................  10
       9.3.1    Platform Construction ......................................  10
       9.3.2    Proposal Without Platform ..................................  10
       9.3.3    Proposal for Multiple Operations ...........................  10
       9.3.4    Other Matters ..............................................  10
9.4    Failure to Respond ..................................................  10

ARTICLE 10: EXPLORATORY OPERATIONS .........................................  10
10.1   Proposing Operations ................................................  10
10.2   Counterproposals ....................................................  10
10.3   Operations by All Parties ...........................................  11
10.4   Second Opportunity to Participate ...................................  11
10.5   Operations by Fewer Than All Parties ................................  11
10.6   Expenditures Approved ...............................................  11
10.7   Timely Operations ...................................................  11
10.8   Conduct of Operations ...............................................  11
10.9   Course of Action After Reaching Objective Depth .....................  12
       10.9.1   Election by Participating Parties ..........................  12
       10.9.2   Priority of Operations .....................................  12
       10.9.3   Second Opportunity to Participate ..........................  12
       10.9.4   Operations by Fewer Than All Parties .......................  12
       10.9.5   Subsequent Operations ......................................  13
10.10  Wells Proposed Below Deepest Producible Reservoir ...................  13

ARTICLE 11: DEVELOPMENT OPERATIONS..........................................  14
11.1   Proposing Operations ................................................  14
11.2   Counterproposals ....................................................  14
11.3   Operations by All Parties ...........................................  14
11.4   Second Opportunity to Participate ...................................  14
11.5   Operations by Fewer Than All Parties ................................  14
11.6   Expenditures Approved ...............................................  14
11.7   Timely Operations ...................................................  15
11.8   Conduct of Operations ...............................................  15
11.9   Course of Action After Reaching Objective Depth .....................  15
       11.9.1   Election by Fewer Than All Parties .........................  15
       11.9.2   Priority of Operations .....................................  15
       11.9.3   Second Opportunity to Participate ..........................  16
       11.9.4   Operations by Fewer Than All Parties .......................  16
       11.9.5   Subsequent Operations ......................................  16

ARTICLE 12: NON-CONSENT OPERATIONS .........................................  17
12.1   Non-Consent Operations ..............................................  17
       12.1.1   Non-interference ...........................................  17
       12.1.2   Multiple Completion Limitation .............................  17
       12.1.3   Metering ...................................................  17
       12.1.4   Non-Consent Well ...........................................  17
       12.1.5   Cost Information ...........................................  17
       12.1.6   Completions ................................................  17
12.2   Relinquishment of Interest ..........................................  17
       12.2.1   Production Reversion Recoupment ............................  18
       12.2.2   Non-Production Reversion ...................................  18
12.3   Deepening or Sidetracking of Non-Consent Well .......................  18
12.4   Deepening or Sidetracking Cost Adjustments ..........................  19
12.5   Subsequent Operations in Non-Consent Well ...........................  19
12.6   Operations in a Production interval .................................  19
12.7   Operations from Non-Consent Platform ................................  19
12.8   Discovery or Extension from Non-Consent Drilling ....................  20
12.9   Allocation of Platform/Facilities Costs to Non-Consent Operations ...  20
       12.9.1   Charges ....................................................  20
       12.9.2   Operating and Maintenance Charges ..........................  20
12.10  Allocation of Costs Between Zones ...................................  21
12.11  Lease Maintenance Operations ........................................  21
       12.11.1  Participation in Lease Maintenance Operations ..............  21
       12.11.2  Accounting for Non-Participation ...........................  21
12.12  Retention of Lease by Non-Consent Well ..............................  22
12.13  Operations Conducted by Non-Operator ................................  22

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ARTICLE 13: FACILITIES AND MAINTENANCE .....................................  22
13.1   Approval ............................................................  22
13.2   Ownership ...........................................................  22
13.3   Maintenance Operations ..............................................  22

ARTICLE 14: ABANDONMENT, SALVAGE, AND SURPLUS ..............................  23
14.1   Platform Salvage and Removal Costs ..................................  23
14.2   Abandonment of Platforms or Wellbores ...............................  23
14.3   Assignment of Interest ..............................................  23
14.4   Abandonment Operations Required by Governmental Authority ...........  23
14.5   Disposal of Surplus Material ........................................  23

ARTICLE 15: WITHDRAWAL .....................................................  23
15.1   Withdrawal ..........................................................  23
       15.1.1   Unanimous Withdrawal .......................................  23
       15.1.2   Failure to Accept Withdrawing Interests ....................  24
       15.1.3   Assignment Upon Withdrawal .................................  24
       15.1.4   Payment Upon Withdrawal ....................................  24
15.2   Limitation on Withdrawal During an Emergency ........................  24
15.3   Withdrawal During an Operation ......................................  25

ARTICLE 16: RENTALS, ROYALTIES, AND OTHER PAYMENTS .........................  25
16.1   Overriding Royalty and Other Burdens ................................  25
16.2   Subsequently Created Interest .......................................  25
16.3   Payment of Rentals and Minimum Royalties ............................  25
16.4   Non-Participation in Payments .......................................  25
16.5   Royalty Payments ....................................................  26

ARTICLE 17: TAXES ..........................................................  26
17.1   Property Taxes ......................................................  26
17.2   Contest of Property Tax Valuation ...................................  26
17.3   Production and Severance Taxes ......................................  26
17.4   Other Taxes and Assessments .........................................  26

ARTICLE 18: INSURANCE ......................................................  26

ARTICLE 19: LIABILITY, CLAIMS, AND LAWSUITS ................................  26
19.1   Individual Obligations ..............................................  26
19.2   Notice of Claim or Lawsuit ..........................................  26
19.3   Defense and Settlements .............................................  26
19.4   Legal Expense .......................................................  27
19.5   Liability for Losses, Damages, Injury, or Death .....................  27
19.6   Damage to Reservoir, Loss of Reserves and Profit ....................  27

ARTICLE 20: INTERNAL REVENUE PROVISION .....................................  27

ARTICLE 21: CONTRIBUTIONS ..................................................  27
21.1   Notice of Contributions Other Than Advances for Sale of Production ..  27
21.2   Cash Contributions ..................................................  27
21.3   Acreage Contributions ...............................................  27

ARTICLE 22: DISPOSITION OF PRODUCTION ......................................  28
22.1   Facilities to Take in Kind ..........................................  28
22.2   Duty to Take in Kind ................................................  28
22.3   Failure to Take Oil and Condensate in Kind ..........................  28
22.4   Failure to Take Gas in Kind .........................................  28
22.5   Expenses of Delivery in Kind ........................................  28

ARTICLE 23: APPLICABLE LAW

ARTICLE 24: LAWS, REGULATIONS, AND NONDISCRIMINATION .......................  28
24.1   Laws and Regulations ................................................  28
24.2   Nondiscrimination ...................................................  28

ARTICLE 25: FORCE MAJEURE...................................................  29

ARTICLE 26: SUCCESSORS, ASSIGNS, AND PREFERENTIAL RIGHTS ...................  29
26.1   Successors and Assigns ..............................................  29
26.2   Transfer of Interest ................................................  29
26.3   Consent to Assign ...................................................  29
26.4   Transfers Between Parties ...........................................  30
26.5   Division of Interest ................................................  30
26.6   Preferential Rights .................................................  30

ARTICLE 27: TERM ...........................................................  30

ARTICLE 28: MISCELLANEOUS PROVISIONS .......................................  31
28.1   Plurals and Headings ................................................  31
28.2   Other Miscellaneous .................................................  31

ARTICLE 29: EXECUTION ......................................................  31

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                          OFFSHORE OPERATING AGREEMENT

      Parts of Vermilion Area Blocks 7 and 8 State Waters Offshore Louisiana

THIS AGREEMENT, made  effective  the  22 day of  September, 2004, by the signers
hereof, (collectively, the "Parties" and individually, a "Party").

                                   WITNESSETH:

      WHEREAS, the Parties own the one (1) or more oil and gas leases identified
in Exhibit "A" (the "Leases") and desire to explore, develop, produce, and
operate those Leases.

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
in this Agreement, the Parties agree as follows:

                                    ARTICLE 1

                            APPLICATION TO EACH LEASE

      Concurrent with the effective date of this  Agreement,  the Parties hereto
agree that  operations on the Leases will be conducted in  accordance  with this
Agreement.

                                    ARTICLE 2

                                   DEFINITIONS

      2.1      Additional  Testing.  An operation not previously approved in the
AFE and  proposed for the specific  purpose of obtaining  additional  subsurface
data.

      2.2      Affiliate.  For  a  person,  another  person  that  controls,  is
controlled by, or is under common control with that person.  In this definition,
(a) "control" means the possession by one (1) person, directly or indirectly, of
more than fifty percent (50%) of the voting  securities of a corporation or, for
other  persons,   the  equivalent   ownership   interest  (such  as  partnership
interests),  and (b) "person"  means an  individual,  corporation,  partnership,
trust, estate, unincorporated organization, association, or other  legal entity.

      2.3      Authorization for Expenditure (AFE). An authority to expend funds
prepared  by a Party to  estimate  the costs to be  incurred  in  conducting  an
operation under this Agreement.

      2.4      Complete, Completing, Completion. An operation to complete a well
for initial production of oil and gas in one (1) or more Producible  Reservoirs,
including,  but not limited  to,  setting  production  casing,  perforating  the
casing, stimulating the well, or conducting production tests.

      2.5      Confidential  Data. The  information and data obtained under this
Agreement, including, but not limited to, geological, geophysical, and reservoir
information;  originals  and  copies of logs;  and other  information  about the
progress,  tests,  or results of a well drilled or an operation  conducted under
this Agreement,  except data or information that is or becomes public other than
by breach of this Agreement.

      2.6      Deepen,  Deepening. A drilling operation conducted in an existing
wellbore below the Objective Depth to which the well was previously drilled.

      2.7      Development  Operation.  An  operation on the Lease other than an
Exploratory Operation.

      2.8      Development  Well.  A well or  portion  of a well  proposed  as a
Development Operation.

      2.9      Exploratory  Operation.  An  operation  that is  conducted on the
Lease and that is any of the following:

      (a)      proposed  for an  Objective  Horizon  that  is  not a  Producible
               Reservoir;

      (b)      proposed for an Objective Horizon that has a Producible Well, but
               that will be penetrated at a location where the distance  between
               the midpoint of the  Objective  Horizon to be  penetrated  by the
               proposed  well and the  midpoint  of the same  Objective  Horizon
               where it is actually  penetrated by a Producible  Well will be at
               least four  thousand feet  (4,000') for a gas  Completion  and at
               least fifteen hundred feet (1,500") for an oil Completion;

      (c)      proposed for an Objective  Horizon that is unanimously  agreed by
               the Parties not to be in an existing Producible Reservoir; or

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      (d)      proposed  as  deeper  drilling  operations  below the base of the
               deepest Producible Reservoir.

      2.10     Exploratory  Well.  A well or  portion of a well  proposed  as an
Exploratory Operation.

      2.11     Facilities.  Lease equipment beyond the wellhead connections. The
term "Facilities"  shall include pipelines  constructed under this Agreement and
used to  transport  hydrocarbons  or produced  water to shore or to Platforms or
pipeline interconnections located on lands or leases other than those identified
in Exhibit "A".

      2.12     Lease. Each oil and gas lease, or portion thereof,  identified in
Exhibit "A" and the lands covered by that lease.

      2.13     Non-consent Operation.  An Exploratory Operation or a Development
Operation conducted by fewer than all Parties.

      2.14     Non-Consent Platform. A Platform owned by fewer than all Parties.

      2.15     Non-Consent Well. An Exploratory Well or a Development Well owned
by fewer than all Parties.

      2.16     Non-Operator. A Party other than Operator.

      2.17     Non-Participating  Party.  A  Party  other  than a  Participating
Party,

      2.18     Non-Participating  Party's Share. The Participating Interest that
a Non-Participating  Party would have had if all Parties had participated in the
operation.

      2.19     Objective  Depth.  A depth  sufficient  to test the lesser of the
Objective Horizon or the specific footage depth stated in the AFE.

      2.20     Objective Horizon.  The interval  consisting of the deepest zone,
formation,  or horizon to be tested in an Exploratory  Well,  Development  Well,
Deepening Operation, or Sidetracking operation, as stated in the AFE.

      2.21     Operator. The Party designated as the operator under Article 4 of
this Agreement.

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

      2.23     Participating  Party. A Party that executes an AFE for a proposed
operation or otherwise agrees, or becomes liable, to pay and bear a share of the
costs and risks of conducting an operation under this Agreement.

      2.24     Platform.  An offshore  structure,  including  a  structure  that
solely  supports  Facilities,  whether fixed,  compliant,  or floating,  and the
components of that  structure,  including,  but not limited to, caissons or well
protectors,   rising  above  the  water  line  and  used  for  the  exploration,
development,  or production of hydrocarbons  from the Lease. The term "Platform"
shall also mean an offshore subsea  structure or template  (excluding  templates
used for drilling  operations)  and any component  thereof  (including,  but not
limited  to,  flow lines and  control  systems,  other than those  installed  in
connection with Completion of a well) that is attached to the sea floor and used
to obtain production of hydrocarbons from the Lease.

      2.25     Producible Reservoir.  An underground  accumulation of oil or gas
(a) in a single and separate natural pool  characterized by a distinct  pressure
system, (b) not in oil or gas communication with another  accumulation of oil or
gas, and (c) into which a Producible Well has been drilled.

      2.26     Producible Well, A well that is drilled  under this Agreement and
that (a) is producing oil or gas; (b) is determined to be, or meets the criteria
for being determined to be, capable of producing oil or gas in paying quantities
under an applicable  order or regulation  issued by the  governmental  authority
having jurisdiction;  or (c) is determined to be a Producible Well by one (1) or
more  Participating  Parties  having a combined  Working  Interest of fifty-five
percent (55%) or more, even if the well has been plugged and abandoned.

      2.27     Recomplete, Recompleting, Recompletion. An  operation  whereby  a
Completion  in one (1)  Producible  Reservoir is abandoned in order to attempt a
Completion in a different Producible Reservoir within the existing wellbore.

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      2.28     Rework, Reworking. An operation conducted in a well, after it has
been Completed in one (1) or more Producible Reservoirs,  to restore,  maintain,
or  improve  production  from  one (1) or more of those  Producible  Reservoirs,
excluding drilling,  Sidetracking,  Deepening,  Completing,  or Recompleting the
well.

      2.29     Sidetrack, Sidetracking. The directional  control and intentional
deviation  of a well to change the  bottom-hole  location,  whether it be to the
original Objective Depth or formation or another bottom-hole location not deeper
than the  stratigraphic  equivalent of the initial  Objective Depth,  unless the
intentional  deviation is done to straighten the hole or to drill around junk in
the hole or to overcome other mechanical  difficulties.

      2.30     Working Interest. The ownership of each Party in and to the Lease
and all wells, equipment,  Platforms,  and Facilities,  located on the tease, as
well as all  production  from the Lease,  in the percentage set forth in Exhibit
"A", except as otherwise provided by this Agreement.

                                    ARTICLE 3

                                    EXHIBITS

      3.1      Exhibits. The following exhibits are  attached to  this Agreement
and incorporated into this Agreement by reference:

               3.1.1  EXHIBIT "A". Operator, Description of Leases, Division of
                      Interests, and Notification Addresses.

               3.1.2  EXHIBIT "B". Insurance Provisions.

               3.1.3  EXHIBIT "C". Accounting Procedure.

               3.1.4  EXHIBIT "D". Non-Discrimination Provisions.

               3.1.5  EXHIBIT "E". Gas Balancing Agreement.

               3.1.6  EXHIBIT "F". Memorandum of Operating Agreement and
                      Financing Statement.

      3.2      Conflicts. If a provision of an exhibit, except  Exhibits "D", or
"E",  is  inconsistent  with a  provision  in the  body of this  Agreement,  the
provision in the body of this Agreement shall prevail. If a provision of Exhibit
"D",  or "E" is  inconsistent  with a provision  in the body of this  Agreement,
however, the provision of the exhibit shall prevail.

                                    ARTICLE 4

                                    OPERATOR

      4.1      Operator. Unless otherwise  provided in this Agreement, the Party
designated as the operator in Exhibit "A" shall serve as Operator.

      4.2      Resignation.  Subject  to Section  4.4 (Selection  of Successor),
Operator  may  resign at any time by giving  notice  to the other  Parties.  The
resignation  shall become effective at the earlier of (a) 7:00 a.m. on the first
day of the month following a period of ninety (90) days after the notice, or (b)
the time when a successor Operator assumes the duties of Operator.

      4.3      Removal of  Operator.  Operator may be removed by the affirmative
vote of the Parties owning a combined Working interest of fifty percent (50%) or
more after excluding Operator's Working Interest if:

      (a)      Operator  becomes  insolvent  or  unable to pay its debts as they
               mature, makes an assignment for the benefit of creditors, commits
               an act of  bankruptcy,  or seeks relief under laws  providing for
               the relief of debtors;

      (b)      a receiver is appointed for Operator or for  substantially all of
               its property or affairs;

      (c)      Operator commits a substantial  breach of a material provision of
               this  Agreement  and fails to cure the breach  within thirty (30)
               days after notice of the breach.

If a  petition  for  relief  under the  federal  bankruptcy  laws is filed by or
against  Operator,  and if a federal  bankruptcy  court  prevents the removal of
Operator,  all  Non-Operators  and Operator shall comprise an interim  operating
committee  to  operate  until  Operator  has  elected  to reject or assume  this
Agreement   under  the   Bankruptcy   Code.   An   election  by  Operator  as  a
debtor-in-possession or by a trustee in

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bankruptcy  to reject  this  Agreement  shall be deemed to be a  resignation  by
Operator  without any action by the  Non-Operators,  except the  selection  of a
successor.  To be effective,  a vote to remove  Operator for any cause described
above must be taken within thirty (30) days after a Non-Operator receives actual
knowledge of the cause. A change of corporate name or structure of Operator or a
transfer of Operator's  interest to a single Affiliate shall not be deemed to be
a  resignation  or basis for removing  Operator.  Subject to Section 8.7 (Unpaid
Charges  and  Default),  the  resignation  or removal of Operator  shall  become
effective at the earlier of (a) 7:00 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 Non-Operators  to remove  Operator,  or (b)
the time when a successor Operator assumes the duties of Operator.

      4.4      Selection of Successor.  Upon resignation or removal of Operator,
a successor Operator shall be selected from among the Parties by an  affirmative
vote of one (1) or more Parties having a combined Working interest of fifty-five
percent  (55%) or more.  If the  removed or resigned  Operator  fails to vote or
votes only to succeed  itself,  the successor  Operator  shall be selected by an
affirmative  vote of the  Parties  having a combined  Working  Interest of fifty
percent  (50%) or more after  excluding  the Working  Interest of the removed or
resigned  Operator.  On the  effective  date of the  designation,  the successor
Operator  shall assume the duties and  responsibilities  of Operator  under this
Agreement.  In no event  shall the  resignation  or removal of  Operator  become
effective  unless  and until a  successor  Operator  has  assumed  the duties of
Operator.

      4.5      Delivery  of  Property.  An Operator  that  resigns or is removed
shall promptly  deliver to the successor  Operator copies of all records,  maps,
information,  and data obtained  affecting the Lease that the successor Operator
is entitled to have and that are not already in the  possession of the successor
Operator,  as well  as all  other  property  owned  by the  Parties  under  this
Agreement.

      4.6      Resignation  or Removal and Selection of  Successor Operator in a
Two-party  Agreement.  If this  Agreement  involves  only two (2)  Parties,  the
following provisions shall apply:

      4.6.1    On  occurrence  of an event  specified in Section 4.3 (Removal of
               Operator)  that allows  removal of Operator,  Non-Operator  shall
               have the option of either becoming  Operator or allowing Operator
               to continue in that position.  If  Non-Operator  elects to become
               Operator,  Non-Operator  shall  assume the duties of Operator the
               day after receipt by Operator of written notice from Non-Operator
               of the cause for removal.

      4.6.2    If Operator resigns or ceases to serve as Operator, Non-Operator,
               at its option,  shall have the option of either becoming Operator
               or terminating this Agreement.

      4.7      Designation of Operator  Forms.  Before the effective date of the
resignation or removal of Operator, all Parties shall execute the forms required
by the governmental  authority  having  jurisdiction to effectuate the change of
Operator.

                                    ARTICLE 5

                        AUTHORITY AND DUTIES OF OPERATOR

      5.1      Exclusive  Right to Operate.  Unless  otherwise  provided in this
Agreement,  Operator shall have the exclusive right to conduct  operations under
this   Agreement,   in  performing   services   under  this  Agreement  for  the
Non-Operators,  Operator shall be an independent contractor,  not subject to the
control or  direction of  Non-Operators,  except for the type of operation to be
undertaken  in  accordance  with the  voting  and  election  procedures  in this
Agreement.  Operator  shall not be deemed to be, or hold  itself   out  as,  the
agent or fiduciary of Non-Operators.

      5.2      Workmanlike  Conduct.  Operator shall conduct all operations in a
good and  workmanlike  manner,  as would a  prudent  operator  under the same or
similar circumstances.  Operator shall not be liable to Non-Operators for losses
sustained or liabilities  incurred,  except as may result from Operator's  gross
negligence or willful  misconduct.  Operator  shall never be required under this
Agreement  to conduct an  operation  that it  believes  would be unsafe or would
endanger  persons or  property.  Unless  otherwise  provided in this  Agreement,
Operator  shall  consult  with  Non-Operators  and  keep  them  informed  of all
important matters.

                                       7
<PAGE>

      5.3      Liens  and  Encumbrances.  Operator  shall  endeavor  to keep the
Lease, wells, Platforms, Facilities, and other equipment free from all liens and
other encumbrances occasioned by operations hereunder,  except those provided in
Section 8.6 (Security Rights).

      5.4      Employees.  Operator shall select  employees and determine  their
number,  hours of labor, and  compensation.  The employees shall be employees of
Operator.

      5.5      Records.  Operator  shall  keep  accurate  books,  accounts,  and
records of operations under this Agreement,  which, unless otherwise provided in
this Agreement, shall be available to Non-Operators as provided in Exhibit "C".

      5.6      Compliance.  Operator shall comply,  and shall require all agents
and contractors to comply,  with all applicable laws,  rules,  regulations,  and
orders of governmental authorities having jurisdiction.

      5.7      Contractors. Operator may enter into contracts  with  independent
contractors  for  the  design,  construction,   installation,  or  operation  of
Platforms and  Facilities.  Insofar as possible,  Operator shall use competitive
bidding to procure  goods and  services  for the  benefit  of the  Parties.  All
drilling  operations  conducted  under  this  Agreement  shall be  conducted  by
properly   qualified  and  responsible   drilling   contractors   under  current
competitive  contracts.  A  drilling  contract  will be  deemed  to be a current
competitive  contract  if it (a)  was  made  within  one  (1)  year  before  the
commencement of the well and (b) contains  terms,  rates,  and provisions  that,
when the contract was made,  did not exceed those  generally  prevailing  in the
area for operations involving substantially  equivalent rigs that are capable of
drilling  the proposed  well.  At its  election,  Operator may use its own or an
Affiliate's  drilling  equipment,  derrick barge, tools, or machinery to conduct
drilling  operations,  but the work shall be (a) performed by Operator acting as
an  independent   contractor,   (b)  approved  by  written  agreement  with  the
Participating Parties before commencement of operations, and (c) conducted under
the same  terms  and  conditions  and at the same  rates  as are  customary  and
prevailing  in  competitive  contracts  of third  parties  doing work of similar
nature.  Before awarding a drilling  contract or performing work with its own or
an Affiliate's drilling equipment, derrick barge, tools, or machinery,  Operator
shall  attempt  to  obtain  competitive  bids  for  the  work  from  independent
contractors.

      5.8      Governmental Reports. Operator shall make reports to governmental
authorities  it has a duty to make as Operator and shall  furnish  copies of the
reports to the Participating Parties.

      5.9      Information to Participating Parties. Operator shall furnish each
Participating  Party the following  information,  if  applicable,  for each well
operation conducted by Operator:

      5.9.1    A copy of the  application for permit to drill and all amendments
               thereto.

      5.9.2    A  daily  drilling  report,   giving  the  depth,   corresponding
               lithological information, data on drilling fluid characteristics,
               information  about drilling  difficulties or delays,  if any, and
               other  pertinent  information,  by telecopier or other  facsimile
               transmission   within   twenty-four   (24)  hours  (exclusive  of
               Saturdays,  Sundays,  and federal  holidays) for well  operations
               conducted in the preceding twenty-four (24) hour period.

      5.9.3    A complete report of each core analysis.

      5.9.4    A copy of each  electrical  survey,  currently  as it is run; all
               data for each radioactivity log, temperature survey, deviation or
               directional survey, caliper log, and other log or survey obtained
               during the  drilling of the well;  and,  upon  Completion  of the
               well,  a composite  of all  electrical  type logs,  insofar as is
               reasonable and customary.

      5.9.5    A copy of all well test results,  bottom-hole  pressure  surveys,
               and fluid analyses.

      5.9.6    Upon written request received by Operator before  commencement of
               drilling,  samples of cuttings  and cores taken from the well (if
               sufficient cores are retrieved), packaged in containers furnished
               by Operator at the expense of the requesting Party,  marked as to
               the depths  from which they were taken,  and  shipped  collect by
               express  courier  to the  address  designated  by the  requesting
               Party.

      5.9.7    To the extent possible, twenty-four (24) hours advance notice of,
               and access to, logging, coring, and testing operations.

                                       8
<PAGE>

      5.9.8    A monthly report on the volume of oil, gas, condensate, and water
               produced from each well.

      5.9.9    A copy of each report  made to a  governmental  authority  having
               jurisdiction.

      5.9.10   Upon written request,  other pertinent  information  available to
               Operator.

      5.10     Information to Non-participating  Parties. Operator shall furnish
each Non-Participating  Party a copy of each Operator's governmental report that
is  available  to the  public and  associated  with the  applicable  Non-Consent
Operation.  Until  the  applicable  recoupment  under  Article  12  (Non-Consent
Operations) is complete., a Non-Participating  Party shall not receive or review
any other  information  specified by Section 5.9  (Information to  Participating
Parties),  except  as may be  necessary  for a payout  audit of the  Non-Consent
Operation.

                                    ARTICLE 6

                          VOTING AND VOTING PROCEDURES

Unless otherwise  provided in this Agreement,  each matter requiring approval of
the Parties shall be determined as follows:

      6.1      Voting  Interest. Subject  to  Section  8.7 (Unpaid  Charges  and
Default),  each Party shall have a voting interest equal to its Working Interest
or its Participating Interest, as applicable.

      6.2      Vote Required. Unless  expressly stated to the contrary herein, a
matter  requiring  approval of the Parties  shall be decided by the  affirmative
vote of one (1) or more Parties having a combined  voting interest of fifty-five
percent (55%)or more.

      6.3      Votes. The Parties may vote at a meeting;  by telephone, promptly
confirmed in writing to Operator; or by letter, telegram,  telecopier,  or other
form of facsimile transmission.  Operator shall give each Party prompt notice of
the results of the voting.

      6.4      Meetings. Meetings of the Parties may be called by Operator  upon
its own motion or at the request of a Party or Parties having a combined  voting
interest of not less than thirty-five percent (35%), Except in an emergency,  no
meeting shall be called on less than ten (10) days' advance written notice,  and
the  notice  of  meeting  shall  include  the  proposed   meeting  agenda.   The
representative  of  Operator  shall be chairman of each  meeting.  Only  matters
included in the agenda may be discussed  at a meeting,  but the agenda and items
included in the agenda may be amended by unanimous agreement of all Parties.

                                    ARTICLE 7

                                     ACCESS

      7.1      Access to Lease.  Each Party shall have access,  at its sole risk
and expense and at all reasonable times, to the Lease to inspect  operations and
wells in  which it  participates,  and to the  pertinent  records  and  data.  A
Non-Operator  shall give Operator at least twenty-four (24) hours' notice of the
Non-Operator's  intention  to visit  the  Lease,  To  protect  Operator  and the
Non-Operators from unnecessary lawsuits,  claims, and Segal liability,  if it is
necessary  for a person who is not  performing  services for  Operator  directly
related  to the  joint  operations,  but is  performing  services  solely  for a
Non-Operator or pertaining to the business or operations of a  Non-Operator,  to
visit,  use, or board a rig,  Platform,  or Facility on a Lease  subject to this
Agreement,  the  Non-Operator  shall give Operator  advance notice of the visit,
use, or  boarding,  and shall  secure from that person an  agreement,  in a form
satisfactory to Operator,  indemnifying and holding  Operator and  Non-Operators
harmless,  or shall itself provide the same hold harmless and indemnification in
favor of Operator and other Non-Operators before the visit, use, or boarding.

      7.2      Reports. On written  request, Operator shall furnish a requesting
Party any  information  not otherwise  furnished  under Article 5 (Authority and
Duties of Operator) to which that Party is entitled  under this  Agreement.  The
costs of gathering and  furnishing  information  not  furnished  under Article 5
shall be charged to the requesting  Party,  Operator is not obligated to furnish
interpretative data that was generated by Operator at its sole cost.

                                       9
<PAGE>

      7.3      Confidentiality. Except  as otherwise  provided  in  Section  7.4
(Limited Disclosure),  Section 7.5 (Media Releases), and Section 21.1 (Notice of
Contributions  Other  Than  Advances  for Sale of  Production),  and  except for
necessary disclosures to governmental authorities having jurisdiction, or except
as agreed in writing by all Participating  Parties,  no Party or Affiliate shall
disclose Confidential Data to a third party.

      7.4      Limited  Disclosure.  A Party may make Confidential Data to which
it is entitled under this Agreement available to:

      (a)      outside professional  consultants and reputable engineering firms
               for the purpose of evaluations;

      (b)      gas  transmission  companies  for  hydrocarbon  reserve  or other
               technical evaluations;

      (c)      reputable  financial  institutions for study before commitment of
               funds;

      (d)      governmental  authorities  having  jurisdiction or the public, to
               the extent required by applicable  laws or by those  governmental
               authorities;

      (e)      the  public,  to the  extent  required  by the  regulations  of a
               recognized stock exchange;

      (f)      third  parties with whom a Party is engaged in a bona fide effort
               to effect a merger or  consolidation,  sell all or a  controlling
               part of that  Party's  stock,  or sell all or  substantially  all
               assets of that Party or an Affiliate of that Party; and

      (g)      an Affiliate of a Party.

      (h)      third  parties with whom a Party is engaged in a bona fide effort
               to sell,  farmout,  or trade all or a portion of its  interest in
               the Lease;

Confidential Data made available under  Subsections  7.4(f) and 7.4(h) shall not
be removed  from the custody or premises  of the Party  making the  Confidential
Data available to third parties  described in those  Subsections.  A third party
permitted access under  Subsections  7.4(a),  (b), (c), (f), and (h) shall first
agree in writing neither to disclose the Confidential  Data to others nor to use
the Confidential  Data,  except for the purpose for which it was disclosed.  The
disclosing Party shall give prior notice to the other Parties that it intends to
make the Confidential Data available.

      7.5      Media  Releases. Except as  agreed by all  Parties  or  otherwise
permitted by this  Section,  no Party shall issue a news or media  release about
operations on the Lease. In an emergency  involving  extensive  property damage,
operations failure, loss of human life, or other clear emergency,  and for which
there is insufficient time to obtain the prior approval of the Parties, Operator
may furnish the minimum, strictly factual,  information necessary to satisfy the
legitimate  public  interest of the media and  governmental  authorities  having
jurisdiction.  Operator  shall then  promptly  advise  the other  Parties of the
information furnished in response to the emergency.

                                    ARTICLE 8

                                  EXPENDITURES

      8.1      Basis of Charge to the Parties.  Subject to the other  provisions
of this  Agreement,  Operator shall pay all costs incurred under this Agreement,
and each Party shall  reimburse  Operator  in  proportion  to its  Participating
Interest. All charges, credits, and accounting for  expenditures  shall  be made
and done pursuant to Exhibit "C".

      8.2      Authorization. Before undertaking an operation or making a single
expenditure  to be in excess of One Hundred  Thousand  Dollars  ($100,000),  and
before  conducting  an  operation  to drill,  Sidetrack,  Deepen,  Complete,  or
Recomplete a well (regardless of the estimated  cost),  Operator shall submit an
AFE for the operation or expenditure to the Parties for approval. Operator shall
also  furnish an  informational  AFE to all Parties for an  operation  or single
expenditure  estimated to cost One Hundred Thousand Dollars  ($100,000) or less,
but in excess of Fifty Thousand Dollars ($50,000), if Operator prepares same for
its own use

      8.3      Emergency and Required  Expenditures. Notwithstanding anything in
this  Agreement  to the  contrary,  Operator  is hereby  authorized  to  conduct
operations and incur  expenses that in its opinion are  reasonably  necessary to
safeguard life, property, and the environment in case of an actual or

                                       10
<PAGE>

imminently  threatened  blowout,   explosion,   accident,  fire,  flood,  storm,
hurricane,  catastrophe,  or other emergency, and the expenses shall be borne by
the Participating  Parties in the affected  operation.  Operator shall report to
the Participating  Parties, as promptly as possible, the nature of the emergency
and the action  taken.  Operator is also  authorized to conduct  operations  and
incur expenses  reasonably  required by statute,  regulation,  order,  or permit
condition or by a governmental  authority  having  jurisdiction,  which expenses
shall be borne by the Participating Parties in the affected operation.

      8.4      Advance  Billings.   After  the  initial  Exploratory  Well,  the
Operator  may require  each Party to advance its  respective  share of estimated
expenditures pursuant to Exhibit "C".

      8.5      Commingling  of  Funds.  Funds received  by Operator  under  this
Agreement may be commingled with its own funds.

      8.6      Security  Rights.  In  addition  to  other  security  rights  and
remedies provided by law for services rendered or and equipment  furnished under
this  Agreement,  each  Non-Operator  grants a lien in, and mortgages,  pledges,
affects,  and  hypothecates  to  Operator,  and  Operator  grants a lien in, and
mortgages,  pledges, affects, and hypothecates to the Non-Operators,  all of its
respective  rights,  title, and interest in and to the following (the "Mortgaged
Property"):

      (a)      the Lease and all  accounts,  gas  imbalance  accounts,  contract
               rights,  inventory,  and general intangibles  relating thereto or
               arising therefrom;

      (b)      all property and fixtures, moveable or immovable,  attached to or
               located on the Lease;

      (c)      all production  from the Lease and the proceeds  attributable  to
               the production  from the Lease and the proceeds  attributable  to
               the production; and

      (d)      all personal property, corporeal or incorporeal,  used, obtained,
               or constructed  (including,  but not limited to,  Platforms under
               construction) for use in connection with the Lease and operations
               thereon;

to secure  payment of charges  against  that  Party and the  performance  of the
obligations  of that Party under this  Agreement  in the actual  amount,  not to
exceed Twenty-Five Million Dollars ($25,000,000), together with interest thereon
at the rate  set  forth in  Exhibit  "C" or the  maximum  rate  allowed  by law,
whichever  is less,  plus  attorneys'  fees,  court  costs,  and  other  related
collection  costs, all as provided in Exhibit "F". On request,  each Party shall
execute,  acknowledge,  and deliver  multiple  originals  of the  Memorandum  of
Operating Agreement and Financing Statement, attached hereto as Exhibit "F". Any
Party may file  this  Agreement,  the  Memorandum  of  Operating  Agreement  and
Financing  Statement,  or both, in any public office it deems appropriate.  If a
Party does not pay its charges and perform its obligations under this Agreement,
and if the  failure to pay or perform  subjects  that  Party to  foreclosure  or
execution proceedings under this Agreement,  the defaulting Party waives (to the
extent  allowed by applicable  law) (a) all rights of redemption  from and after
the date of  judgment,  (b) all  required  valuations  or  appraisements  of the
Mortgaged Property before sale, (c) all rights to stay execution or to require a
marshalling  of assets,  and (d) all  requirements  for a bond if a receiver  is
appointed.  In addition,  to the extent  allowed by  applicable  taw, each Party
hereby  grants the other  Parties a power of sale for each  Mortgaged  Property,
such power to be  exercised  on default  in  payment or  performance  under this
Agreement,  in  the  manner  provided  by  applicable  law  OR  otherwise  in  a
commercially  reasonable  manner  and upon  reasonable  notice.  A Party may use
applicable state lien laws to secure the payment and performance  obligations of
each Party hereunder.  Without limiting the generality of the foregoing,  to the
extent  allowed by applicable  law,  Operator may invoke use the  mechanics" and
materialmen's  lien laws to secure the  payment to Operator of any sum due under
this Agreement for services  performed or materials  supplied by Operator.  If a
Party does not pay the charges when due and until the amount owed has been paid,
Operator (or Non-Operators, if the defaulting Party is the Operator) shall have,
in addition to all rights and remedies to realize  upon its security  under this
Section 8.6, (a) the right of offset,  (b) the right to notify the  purchaser of
the defaulting  Party's share of production  about the unpaid  charges,  (c) the
right  to  collect  from  the  purchaser  the  proceeds  from  the  sale  of the
production,  and (d) the right to cause the  purchaser to withhold or escrow the
proceeds from the  defaulting  Party.  Each purchaser may rely on Operator's (or
Non-Operators', if the defaulting Party is the Operator) statement of the amount
owed. A

                                       11
<PAGE>

purchaser  of  production  may  rely  on  a  notification   of  default  from  a
non-defaulting  Party,  stating the amount due as a result of the  default.  All
Parties waive recourse  against the purchasers  for releasing,  withholding,  or
escrowing production proceeds under this Section 8.6.

      8.7      Unpaid  Charges and Default.  If a Party fails to pay the charges
due under this Agreement  within thirty (30) days after  rendition of Operator's
statement,  and if  Operator  then issues a notice of default and the default is
not cured in the time and manner provided below, the other Participating Parties
shall,  upon  Operator's  request,  pay the unpaid amount in proportion to their
Participating Interests.  Each Party paying its share of the unpaid amount shall
be subrogated to Operator's  security rights,  to the extent of the payment.  In
addition to other remedies provided by this Agreement or by law, if a Party does
not pay, when due, its share of the charges under this  Agreement,  Operator may
give that Party notice that unless payment is made within thirty (30) days after
receipt of Operator's  notice, the Party shall be in default. A Party in default
shall  have no  further  access to the  Lease,  maps,  records,  data,  or other
information  obtained in connection  with  operations.  If a Party believes that
Operator's  charges,  or a portion  thereof,  are  incorrect,  that Party  shall
nevertheless  pay the charges  claimed by Operator and may notify  Operator that
the charges are in dispute.  Thereafter,  Operator  and the  Non-Operator  shall
attempt to resolve the issue within sixty (60) days after receipt of payment.  A
defaulting  Party  shall not be  entitled to vote or exercise an election on any
matter until that Party's  payments  are  current.  The voting  interest of each
non-defaulting Party shall be in the proportion its Participating Interest bears
to the total Participating  Interests of all  non-defaulting  Parties.  For each
operation  approved while a Party is in default,  the defaulting  Party shall be
deemed to have voted not to participate in that operation.

                                    ARTICLE 9

                                     NOTICES

      9.1      Giving and  Receiving  Notices,  Except as otherwise  provided in
this  Agreement,  all AFE's and notices  required or permitted by this Agreement
shall be in  writing  and  shall be  delivered  in  person  or by mail,  courier
service, telegram, telecopier, or any other form of facsimile transmission, with
postage and  charges  prepaid,  addressed  to the  Parties at the  addresses  in
Exhibit  "A".  When a  drilling  rig is on  location  and  standby  charges  are
accumulating, however, notices pertaining to the rig shall be given orally or by
telephone.  All telephone or oral notices  permitted by this Agreement  shall be
confirmed  immediately  thereafter by written  notice.  The  originating  AFE or
notice shall be deemed to have been delivered only when received by the Party to
whom it was directed,  and the period for a Party to deliver an AFE or notice in
response  thereto  shall  begin on the date the  originating  AFE or  notice  is
received.  "Receipt",  for oral or telephone notice,  means actual and immediate
communication to the Party to be notified,  and for written notice, means actual
delivery of the notice to the address of the Party to be notified,  as specified
in this Agreement, or to the telegraph,  telecopy, or other facsimile machine of
that Party.  A responsive  notice shall be deemed to have been delivered when it
is received by the Party to be  notified,  either by the United  States  mail, a
courier or telegraph service, transmitted by telecopy or facsimile transmission,
receipt confirmed by telephone contact, or personally  delivered to the Party to
be  notified.  When A response is required  in  forty-eight  (48) hours or less,
however,  the response may be given orally or by telephone,  telecopy,  or other
facsimile  transmission  within that period and confirmed in writing. If A Party
is unavailable to receive a notice  required to be given orally or by telephone,
the notice may be delivered  by any other  method  specified in this Section 9.1
and shall be deemed to have been  delivered in the same manner  provided in this
Section 9.1 for a responsive  notice. A message left on an answering  machine or
with an  answering  service  or other  third  person  shall  not be deemed to be
adequate telephonic or oral notice.

      9.2      Content of Notice, An AFE or notice  requiring  a response  shall
indicate  the  maximum  response  time specified  in Section  9.3  (Response  to
Notices). A proposal for a Platform or Facility shall include an AFE, containing
a  description  of the  Platform  or  Facility,  including,  but not limited to,
location, and the estimated costs of design,  fabrication,  transportation,  and
installation.  A proposal for a well operation shall include an AFE,  describing
the estimated  commencement date, the proposed depth, the objective formation or
formations to be penetrated or tested, the Objective Horizon, the surface and

                                       12
<PAGE>

bottomhole  locations,  proposed directional  drilling  operations,  the type of
equipment to be used, and the estimated costs of the operation,  including,  but
not limited to, the  estimated  costs of drilling,  testing,  and  Completing or
abandoning the well, if a proposed  operation is subject to Section 12.11 (Lease
Maintenance  Operations),  the notice shall specify that the proposal is a Lease
Maintenance  Operation,  A proposal for multiple operations on more than one (1)
well  location by the same rig shall  contain  separate AFEs or notices for each
operation  and shall specify in writing which  operation  will take  precedence.
Each Party  shall  respond to each  proposed  multiple  operation  in the manner
provided in Subsection 9.3.3 (Proposal for Multiple Operations). With respect to
the two (2) preceding sentences and Subsection 9.3.3 below notwithstanding,  not
more than one (1) operation involving drilling, Sidetracking or Deepening a well
(including any Completion  attempt that may follow) shall be conducted while any
such  operation is already  pending or in progress so that the Parties shall not
be  obligated  to  participate  in more  than one (1)  operation  for  drilling,
Sidetracking or Deepening a well, and Completing a well at the same time, EXCEPT
if  either  of the  Leases  will  expire  or  otherwise  terminate  for  lack of
operations thereon or production therefrom, then the foregoing restriction shall
not apply to a well (or other operation) proposed in order to preserve the Lease
from expiration or termination.

      9.3      Response to Notices. Each Party's response to a proposal shall be
in writing to the proposing Party.  Unless otherwise provided in this Agreement,
the response time shall be as follows:

      9.3.1    Platform Construction.  When a proposal involves the construction
               of a Platform,  each Party shall respond  within ninety (90) days
               after receipt of the AFE or notice.

      9.3.2    Proposal Without Platform. Except as provided in Subsection 9.3.3
               (Proposal  for  Multiple  Operations),  when a proposal  does not
               require  construction  of a Platform,  each Party  shall  respond
               within thirty (30) days after receipt of the proposal, but if (a)
               a drilling  rig is on location,  (b) the proposal  relates to the
               same  well  or  its  substitute,  and  (c)  standby  charges  are
               accumulating,  a response shall be made within  forty-eight  (48)
               hours after  receipt of the  proposal,  inclusive  of  Saturdays,
               Sundays, and federal holidays.

      9.3.3    Proposal  for  Multiple  Operations.  When a proposal  is made to
               conduct multiple, but not simultaneous, Development Operations at
               separate  well  locations  using the same rig,  each Party  shall
               respond  (a) to the  well  operation  taking  precedence,  within
               thirty (30) days after receipt of the  proposal;  and (b) to each
               subsequent  well   location,  within forty-eight (48) hours after
               completion  of  approved  operations  at the prior  location  and
               notification thereof by Operator.

      9.3.4    Other Matters.  For all other matter requiring notice, each Party
               shall respond within thirty (30) days after receipt of notice.

      9.3.5    Failure to  Respond.  Failure of a Party to respond to a proposal
               or notice, to vote, or to elect to participate  within the period
               required  by this  Agreement  shall be  deemed  to be a  negative
               response, vote, or election.

                                   ARTICLE 10

                             EXPLORATORY OPERATIONS

      10.1     Proposing   Operations.   A  Party  may  propose  an  Exploratory
Operation by sending an AFE or notice to the other  Parties in  accordance  with
Article 9 (Notices).

      10.2     Counterproposals. When an  Exploratory Operation is proposed,  if
standby  charges  are not  accumulating  a Party  may,  within  seven  (7)  days
inclusive of Saturdays,  Sundays,  and federal holidays after receipt of the AFE
or notice for the original proposal, make a proposal, hereinafter referred to as
"Counterproposal" to conduct an alternative  Exploratory Operation by sending an
AFE or notice to the other Parties in accordance  with Article 9 (Notices).  The
AFE or notice  shall  indicate  that the  proposal is a  Counterproposal  to the
original  proposal.  If one (1) or more  Counterproposals  are made,  each Party
shall  elect  to   participate  in  either  the  original   proposal,   one  (1)
Counterproposal,  or neither the original  proposal nor a  Counterproposal,  The
election must be made within the response period for the original  proposal.  If
two (2) or more  proposals  receive  the  approval  of the number of Parties and
combined Working Interests

                                       13
<PAGE>

required by Section 10.5  (Operations  by Fewer Than All Parties),  the proposal
receiving  the  largest  percentage  of  Working  Interest  approval  shall take
precedence,  and in  the  event  of a tie  between  two  (2)  or  more  approved
proposals,  the proposal  first  received by the Parties shall take  precedence.
Except for the response period provided in this Section 10.2, a  Counterproposal
shall be subject to the same terms and conditions as the original proposal.

      10.3     Operations by All Parties. If all Parties elect to participate in
the proposed  operation,  Operator shall conduct the operation at their cost and
risk,

      10.4     Second Opportunity to Participate, If there are more than two (2)
Parties  to this  Agreement  and if fewer  than all but one (1) or more  Parties
having a combined Working Interest of  fifty-five percent (55%) or more elect to
participate,  then the proposing Party shall notify the Parties of the elections
made, whereupon a Party originally electing not to participate may then elect to
participate  by notifying the  proposing  Party within  forty-eight  (48) hours,
inclusive of Saturdays,  Sundays,  and federal  holidays,  after receipt of such
notice. If all Parties elect to participate in the proposed operation,  Operator
shall conduct the operation at their cost and risk.

      10.5     Operations by Fewer Than an Parties, If, after the election  made
under Section 10.4 (Second  Opportunity to Participate),  fewer than all but one
(1) or more Parties  having a combined  Working  Interest of fifty-five  percent
(55%) or more elect to  participate  in the proposed  operation,  the  proposing
Party shall notify the Participating Parties, and each Participating Party shall
have  forty-eight  (48) hours,  inclusive  of  Saturdays,  Sundays,  and federal
holidays,  after  receipt  of the notice to notify  the  proposing  Party of the
portion of costs and risks attributable to the total Non-Participating  Parties'
interests  it  elects  to  pay  and  bear.   Unless   otherwise  agreed  by  the
Participating  Parties, each Participating Party may, but shall not be obligated
to, pay and bear that portion of the costs and risks  attributable  to the total
Non-Participating   Parties'   interests  in the  ratio  that the  Participating
Party's interest bears to the total interests of all  Participating  Parties who
elect to pay and bear a portion  of costs and  risks  attributable  to the total
Non-Participating  Parties' interests.  Failure to respond shall be deemed to be
an  election  not  to  pay  or  bear  any  additional  costs  or  risks.  If the
Participating  Parties agree to pay and bear one hundred  percent  (100%) of the
costs and risks of the operation, Operator, subject to Section 12.13 (Operations
Conducted  by  Non-Operator),  shall  conduct  the  operation  as a  Non-Consent
Operation for the benefit of the  Participating  Parties,  and the provisions of
Article 12  (Non-Consent  Operations)  shall  apply.  If such  agreement  is not
obtained,  however, the operation shall not be conducted and the effect shall be
as if the proposal had not been made.

      10.6     Expenditures Approved. Approval of an Exploratory Operation shall
cover all necessary  expenditures  associated with the operation proposed in the
AFE or notice that are incurred by Operator in connection with (a)  preparations
for drilling; (b) the actual drilling; (c) evaluations, such as testing, coring,
and logging; and (d) plugging and abandonment.

      10.7     Timely  Operations. Unless  otherwise  provided,  all Exploratory
Operations  shall be commenced no later than one hundred twenty (120) days after
the date when the last applicable  election may be made. The  commencement  date
may be extended  for a reasonable  period,  not to exceed  thirty (30) days,  by
written  notice  from  Operator  to all  Parties,  if  the  additional  time  is
reasonably  necessary to obtain appropriate  materials,  equipment,  or required
permits.  Operations  shall  be  deemed  to have  commenced  on the day  charges
commence  under  the  drilling  contract  for  the  proposed  operation,  or for
operations involving a Platform, on the date the contract is awarded for design,
fabrication,  or refurbishment of the Platform,  If operations are not commenced
within the period  provided  herein,  the effect shall be as if the proposal had
not been  made.  Regardless  of  whether  or not  operations  are  conducted  or
completed,  all  costs  incurred  by  Operator,   attributable  to  an  approved
operation,  shall be paid by the Participating  Parties.  Exploratory Operations
may be commenced  during the election period under this Article 10. In the event
Exploratory  Operations  are  commenced  during the election  period and a Party
makes an  election  within  the  election  period,  or is  deemed to have made a
negative response under Article 9.3.5, the date and effect of such election will
be made retroactive to the date the Exploratory Operation commenced.

                                       14
<PAGE>

      10.8     Conduct  of  Operations.   Upon   commencement   of  drilling  an
Exploratory  Well,  Operator  shall  diligently  conduct the  operation  without
unreasonable  delay until the well reaches the Objective Depth,  unless the well
encounters,   at  a  lesser   depth,   impenetrable   conditions  or  mechanical
difficulties  that cannot be overcome by reasonable  and prudent  operations and
that  render  further  operations  impracticable.  If a well  does not reach its
Objective  Depth as a result of the  conditions  mentioned in this Section 10.8,
the operation shall be deemed to have been completed and Article 12 (Non-Consent
Operations) shall apply to each  Non-Participating  Party for the portion of the
well drilled.

      10.9     Course  of  Action  After  Reaching  Objective   Depth.  When  an
Exploratory Well has been drilled to its Objective Depth and reasonable testing,
coring,  and logging have been  completed and the results have been furnished to
the Participating  Parties,  Operator shall notify the Participating  Parties of
Operator's  recommendation for further operations in the well, and the following
provisions shall apply:

      10.9.1   Election by  Participating  Parties.  The  Participating  Parties
               shall notify Operator within forty-eight (48) hours, inclusive of
               Saturdays,  Sundays,  and  federal  holidays,  of  receipt of the
               notice whether the Participating Parties elect to (a) participate
               in the recommended operation,  (b) propose another operation,  or
               (c) not  participate  in the  recommended  operation.  Failure to
               respond shall be deemed to be an election not to  participate  in
               the recommended operation.  To propose another operation, a Party
               shall submit notice of the operation to the Participating Parties
               within twenty-four (24) hours,  inclusive of Saturdays,  Sundays,
               and federal holidays,  after receipt of the notice of proposal by
               Operator.   The  Participating   Parties  shall  respond  to  all
               proposals within the period allotted to the original proposal.

      10.9.2   Priority of  Operations.  If all  Participating  Parties elect to
               participate  in  the  same  proposed  operation,  Operator  shall
               conduct the  operation  at their cost and risk.  If more than one
               (1)  operation  is  approved  by one  (1) or  more  Participating
               Parties having a combined Working Interest of fifty-five  percent
               (55%) or more, then the approved operation with the lowest number
               as indicated below shall take precedence:

               Priority  Ranking:

               1.     Additional  Testing,  coring, or logging.  (If conflicting
                      proposals are approved, the proposal receiving the largest
                      percentage  of  Working   Interest   approval  shall  take
                      precedence,  and in the event of a tie  between two (2) or
                      more  approved  proposals,  the  approved  proposal  first
                      received by the Parties shall take precedence.)

               2.     Complete at the Objective Horizon.

               3.     Complete  above the  Objective  Horizon.  (If  conflicting
                      proposals  are  approved,  the  operation  proposed at the
                      deepest depth shall take precedence.)

               4.     Deepen.  (If  conflicting  proposals  are  approved,   the
                      operation   proposed  to  the  deepest  depth  shall  take
                      precedence.)

               5.     Sidetrack.  (If  conflicting  proposals are approved,  the
                      proposal receiving the largest percentage Working Interest
                      approval shall take precedence,  and in the event of a tie
                      between two (2) or more approved  proposals,  the approved
                      proposal   first   received  by  the  Parties  shall  take
                      precedence.)

               6.     Temporarily plug and abandon.

               7.     Plug and abandon.

      10.9.3   Second Opportunity to Participate. If there are more than two (2)
               Parties  to this  Agreement  and if fewer than all but one (1) or
               more Participating  Parties having a combined Working Interest of
               fifty-five  percent  (55%)  or more  elect to  participate  in an
               operation,  the  proposing  Party shall notify the Parties in the
               original  notice  of  the  elections  made,   whereupon  a  Party
               originally  electing not to participate in the proposed operation
               may then elect to  participate  by notifying the proposing  Party
               within forty-eight (48) hours,  inclusive of Saturdays,  Sundays,
               and  federal  holidays,  after  receipt  of such  notice,  if all
               Parties elect to participate in the proposed operation,  Operator
               shall conduct the operation at their cost and risk.

                                       15
<PAGE>

      10.9.4   Operations by Fewer Than All Parties. If, after the election made
               under  Subsection  10.9.3 (Second  Opportunity  to  Participate),
               fewer  than ail but one (1) or more  Parties  having  a  combined
               Working  Interest of  fifty-five  percent  (55%) or more elect to
               participate in the proposed operation that takes precedence,  the
               proposing Party shall notify the  Participating  Parties and each
               Participating Party shall have forty-eight (48) hours,  inclusive
               of Saturdays, Sundays, and federal holidays, after receipt of the
               notice to notify the proposing  Party of the portion of the costs
               and risks  attributable to the total  Non-Participating  Parties'
               interests it elects to pay and bear.  Unless  otherwise agreed by
               the  Participating  Parties,  each  Participating  Party may, but
               shall not be  obligated to pay and bear that portion of the costs
               and risks  attributable to the total  Non-Participating  Parties'
               interests in the ratio that the  Participating  Party's  interest
               bears to the total  interests  of all  Participating  Parties who
               elect to pay and bear a portion  of costs and risks  attributable
               to the non-participating  interests.  Failure to respond shall be
               deemed to be an election not to pay or bear any additional  costs
               or risks. If the Participating  Parties agree to bear one hundred
               percent (100%) of the costs and risks of the operation, Operator,
               subject to Section 12.13 (Operations  Conducted by Non-Operator),
               shall conduct the  operation as a  Non-Consent  Operation for the
               benefit  of the  Participating  Parties,  and the  provisions  of
               Article  12  (Non-Consent   Operations)   shall  apply.  If  such
               agreement is not obtained,  however,  the operation  shall not be
               conducted and the effect shall be as if the proposal had not been
               made.  If  a  Participating   Party  in  a  well  elects  not  to
               participate  in the  Deepening or  Sidetracking  operation in the
               well, such Non-Consenting  Party shall become a Non-Participating
               Party in all operations conducted after the election, through the
               Completing and equipping of the Deepened or  Sidetracked  portion
               of the well.

      10.9.5   Subsequent Operations.  Upon completion of an operation conducted
               under  Section 10.9 (Course of Action  After  Reaching  Objective
               Depth), if the well is not either (a) completed as a well capable
               of  producing   hydrocarbons   in  paying   quantities,   or  (b)
               temporarily or permanently plugged and abandoned,  Operator shall
               notify the Participating Parties of Operator's recommendation for
               further  operations in the well under Subsections  10,9.1 through
               10.9.4,  which again shall apply.  If sufficient  approval is not
               obtained to conduct a  subsequent  operation  in a well or if all
               Participating Parties elect to plug and abandon the well, subject
               to Article 14 (Abandonment, Salvage, and Surplus), Operator shall
               permanently plug and abandon the well at the cost and risk of all
               Participating   Parties.   Each  Participating   Party  shall  be
               responsible  for its  proportionate  share  of the  plugging  and
               abandonment  costs  associated  with  the  operation  in which it
               participated.

      10.10    Wells Proposed Below Deepest Producible Reservoir.  If a proposal
is made to conduct an Exploratory  Operation involving the drilling of a well to
an Objective Horizon below the base of the deepest Producible Reservoir, a Party
may  elect  within  the  applicable  period to limit  its  participation  in the
operation down to the base of the deepest Producible Reservoir.  For purposes of
this  Section  10.10,  a Party  who  elects to limit  its  participation  in the
operation down to the base of the deepest Producible Reservoir shall be referred
to as "Shallow  Participant" and a Party who elects to participate in the entire
operation shall be referred to as "Deep Participant". If a Party elects to limit
its  participation  to the base of the deepest  Producible  Reservoir,  Operator
shall prepare and submit to the Shallow Participant, for informational purposes,
a separate AFE covering operations down to the deepest Producible Reservoir. The
Shallow  Participant  shall be a Participating  Party in, and shall pay and bear
the costs and risks of, each  operation  to the base of the  deepest  Producible
Reservoir,  according to its  Participating  Interest.  The Shallow  Participant
shall  be  a  Non-Participating  Party  in  each  operation  below  the  deepest
Producible  Reservoir,  and the  operation  shall be  considered  a  Non-Consent
Operation,  and the  provisions  of Article 12  (Non-Consent  Operations)  shall
apply. If the well is Completed and produces oil or gas from a horizon below the
deepest Producible  Reservoir,  the Deep Participant shall reimburse the Shallow
Participant for

                                       16
<PAGE>

its  share  of the  actual  well  costs to the  base of the  deepest  Producible
Reservoir. If the well is Completed and produces oil or gas from a horizon below
the deepest Producible  Reservoir,  the Shallow  Participant shall reimburse the
Deep  Participant for its Working Interest share of the actual well costs to the
base of the  deepest  Producible  Reservoir  in  accordance  with  Section  12.4
(Deepening or Sidetracking Cost Adjustments),  upon the earlier of the time that
(a) the  well is  plugged  back  to a  horizon  above  the  base of the  deepest
Producible Reservoir, as determined when the original well was proposed, (b) the
well is plugged  and  abandoned,  or (c) the amount to be  recouped  by the Deep
Participant under Article 12 (Non-Consent Operations) is recovered.

                                   ARTICLE 11

                             DEVELOPMENT OPERATIONS

      11.1     Proposing Operations. A Party may propose a Development Operation
by sending an AFE or notice to the other  Parties in  accordance  with Article 9
(Notices).

      11.2     Counterproposals. When a  Development Operation is proposed,  and
standby charges are not accumulating a Party may, within five (5) days inclusive
of Saturdays,  Sundays,  and federal holidays after receipt of the AFE or notice
for  the  original  proposal,  make  a  proposal,  hereinafter  referred  to  as
"Counterproposal", to conduct an alternative Development Operation by sending an
AFE or notice to the other Parties in accordance  with Article 9 (Notices).  The
AFE or notice  shall  indicate  that the  proposal is a  Counterproposal  to the
original  proposal.  If one (1) or more  Counterproposals  are made,  each Party
shall  elect  to   participate  in  either  the  original   proposal,   one  (1)
Counterproposal,  or neither the original  proposal nor a  Counterproposal.  The
election must be made within the response period for the original  proposal.  If
two (2) or more  proposals  receive  the  approval  of the number of Parties and
combined  Working  Interests  required by Section 11.5 (Operations By Fewer Than
All Parties),  the proposal  receiving the largest  percentage  Working Interest
approval  shall take  precedence,  and in the event of a tie  between two (2) or
more approved  proposals,  the approved  proposal  first received by the Parties
shall prevail.  Except for the response  period provided in this Section 11.2, a
Counterproposal  shall  be  subject  to the same  terms  and  conditions  as the
original proposal.

      11.3     Operations by All Parties, if all Parties elect to participate in
the proposed  operation,  Operator shall conduct the operation at their cost and
risk,

      11.4     Second Opportunity to Participate. If there are more than two (2)
Parties  to this  Agreement  and if fewer  than all but one (1) or more  Parties
having a combined Working Interest of  fifty-five percent (55%) or more elect to
participate,  then the proposing Party shall notify the Parties of the elections
made, whereupon a Party originally electing not to participate may then elect to
participate  by notifying the  proposing  Party within  forty-eight  (48) hours,
inclusive of Saturdays,  Sundays,  and federal  holidays,  after receipt of such
notice. If all Parties elect to participate in the proposed operation,  Operator
shall conduct the operation at their cost and risk.

      11.5     Operations by Fewer Than All Parties. If, after the election made
under Section 11.4 (Second  Opportunity to Participate),  fewer than all but one
(1) or more Parties  having a combined  Working  Interest of fifty-five  percent
(55%) or more elect to  participate  in the proposed  operation,  the  proposing
Party shall notify the Participating Parties, and each Participating Party shall
have  forty-eight  (48) hours,  inclusive  of  Saturdays,  Sundays,  and federal
holidays,  after  receipt  of the notice to notify  the  proposing  Party of the
portion  of the  costs and risks  attributable  to  the total  Non-Participating
Parties'  interests it elects to pay and bear.  Unless  otherwise  agreed by the
Participating  Parties, each Participating Party may, but shall not be obligated
to,  pay and bear that  portion  of costs and  risks  attributable  to the total
Non-Participating Parties' interests in the ratio that the Participating Party's
interest bears to the total interests of all Participating  Parties who elect to
pay and  bear a  portion  of the  costs  and  risks  attributable  to the  total
Non-Participating  Parties' interests.  Failure to respond shall be deemed to be
an  election  not  to  pay  or  bear  any  additional  costs  or  risks.  If the
Participating  Parties agree to pay and bear one hundred  percent  (100%) of the
costs and risks of the operation, Operator, subject to Section 12.13 (Operations
Conducted  by  Non-Operator),  shall  conduct  the  operation  as a  Non-Consent
Operation for the benefit of the  Participating  Parties,  and the provisions of
Article 12 (Non-Consent Operations) shall apply. If such

                                       17
<PAGE>

agreement is not obtained, however, the operation shall not be conducted and the
effect  shall  be as if the  proposal  had  not  been  made.

      11.6     Expenditures Approved.  Approval of a Development Operation shall
cover all necessary  expenditures  associated with the operation proposed in the
AFE or notice that are incurred by Operator in connection with (a)  preparations
for drilling; (b) the actual drilling; (c) evaluations, such as testing, coring,
and logging; and (d) plugging and abandonment.

      11.7     Timely  Operations.  Unless otherwise  provided,  all Development
Operations  shall be commenced no later than one hundred twenty (120) days after
the date when the last applicable  election may be made. The  commencement  date
may be extended  for a reasonable  period,  not to exceed  ninety (90) days,  by
written  notice  from  Operator  to all  Parties,  if  the  additional  time  is
reasonably  necessary to obtain appropriate  materials,  equipment,  or required
permits.  Operations  shall  be  deemed  to have  commenced  on the day  charges
commence  under  the  drilling  contract  for  the  proposed  operation,  or for
operations involving a Platform, on the date the contract is awarded for design,
fabrication,  or refurbishment of the Platform.  If operations are not commenced
within the period  provided  herein,  the effect shall be as if the proposal had
not been  made.  Regardless  of  whether  or not  operations  are  conducted  or
completed,  all costs incurred by Operator attributable to an approved operation
shall  be paid  by the  Participating  Parties.  Development  Operations  may be
commenced  during  the  election  period  under  this  Article  11. In the event
Development  Operations  are  commenced  during the election  period and a Party
makes an  election  within  the  election  period,  or is  deemed to have made a
negative response under Article 9.3.5, the date and effect of such election will
be made retroactive to the date the Development Operation commenced.

      11.8     Conduct of Operations.  Upon  commencement of a Development Well,
Operator shall diligently conduct the operation without unreasonable delay until
the well reaches the Objective Depth,  unless the well  encounters,  at a lesser
depth,  impenetrable  conditions  or  mechanical  difficulties  that  cannot  be
overcome by reasonable  and prudent  operations  and render  further  operations
impracticable.  If a well does not reach its Objective  Depth as a result of the
conditions mentioned in this Section 11.8, the operation shall be deemed to have
been  completed  and  Article 12  (Non-Consent  Operations)  shall apply to each
Non-Participating Party for the portion of the well drilled.

      11.9     Course  of  Action  After  Reaching   Objective  Depth.   When  a
Development Well has been drilled to its Objective Depth and reasonable testing,
coring,  and logging have been  completed and the results have been furnished to
the Participating  Parties,  Operator shall notify the Participating  Parties of
Operator's  recommendation  for further operations in the well and the following
provisions shall apply:

      11.9.1   Election by Fewer Than All  Parties.  The  Participating  Parties
               shall notify Operator within forty-eight (48) hours, inclusive of
               Saturdays,  Sundays,  and  federal  holidays,  of  receipt of the
               notice whether the Participating Parties elect to (a) participate
               in the recommended operation,  (b) propose another operation,  or
               (c) not  participate  in the  recommended  operation.  Failure to
               respond shall be deemed to be an election not to  participate  in
               the recommended operation.  To propose another operation, A Party
               shall submit notice of the operation to the Participating Parties
               within twenty-four (24) hours,  inclusive of Saturdays,  Sundays,
               and federal holidays,  after receipt of notice of the proposal by
               Operator. The Participating Parties shall exercise their election
               on all  proposals  within the  period  allotted  to the  original
               proposal.

      11.9.2   Priority of  Operations.  If all  Participating  Parties elect to
               participate  in  the  same  proposed  operation,  Operator  shall
               conduct the  operation  at their cost and risk.  If more than one
               (1)  operation  is  approved  by one  (1) or  more  Participating
               Parties having a combined Working Interest of fifty-five  percent
               (55%) or more, then the approved operation with the lowest number
               as indicated below shall take precedence:

               Priority Ranking: (Indicate the order of preference.)

               1.     Additional Testing,  coring,  or logging,  (if conflicting
               proposals  are  approved,  the  proposal  receiving  the  largest
               percentage of Working Interest approval shall take

                                       18
<PAGE>

               precedence,  and in the  event of a tie  between  two (2) or more
               approved proposals, the approved proposal first received  by  the
               Parties shall take precedence.)

               2.     Complete at the Objective Horizon.

               3.     Complete  above the  Objective  Horizon.  (If  conflicting
               proposals  are approved,  the  operation  proposed to the deepest
               depth shall take precedence.)

               4.     Deepen. (If  conflicting   proposals  are  approved,   the
               operation proposed to the deepest depth shall take precedence.)

               5.     Sidetrack. (If  conflicting  proposals are  approved,  the
               proposal  receiving the largest  percentage  of Working  Interest
               approval shall take precedence, and in the event of a tie between
               two (2) or more approved  proposals,  the approved proposal first
               received by the Parties shall take precedence.)

               6.     Temporarily plug and abandon.

               7.     Plug and abandon.

      11.9.3   Second Opportunity to Participate. If there are more than two (2)
               Parties  to this  Agreement  and if fewer than all but one (1) or
               more Participating  Parties having a combined Working Interest of
               fifty-five  percent  (55%)  or more  elect to  participate  in an
               operation,  the  proposing  Party shall notify the Parties in the
               original  notice  of  the  elections  made,   whereupon  a  Party
               originally  electing not to participate in the proposed operation
               may then elect to  participate  by notifying the proposing  Party
               within forty-eight (48) hours,  inclusive of Saturdays,  Sundays,
               and  federal  holidays,  after  receipt  of such  notice.  If all
               Parties elect to participate in the proposed operation,  Operator
               shall conduct the operation at their cost and risk.

      11.9.4   Operations by Fewer Than All Parties. If, after the election made
               under  Subsection  11.9.3 (Second  Opportunity  to  Participate),
               fewer  than all but one (1) or more  Parties  having  a  combined
               Working  Interest of  fifty-five  percent  (55%) or more elect to
               participate in the proposed operation that takes precedence,  the
               proposing Party shall notify the  Participating  Parties and each
               Participating  Party shall have  forty-eight (48) hours inclusive
               of Saturdays, Sundays, and federal holidays, after receipt of the
               notice to notify the proposing  Party of the portion of the costs
               and risks  attributable to the total  Non-Participating  Parties'
               interests it elects to pay and bear.  Unless  otherwise agreed by
               the  Participating  Parties,  each  Participating  Party may, but
               shall not be obligated to, pay and bear that portion of the costs
               and risks  attributable to the total  Non-Participating  Parties'
               interests in the ratio that the  Participating  Party's  interest
               bears to the total  interests  of all  Participating  Parties who
               elect to pay and bear a portion  of costs and risks  attributable
               to the non-participating  interests.  Failure to respond shall be
               deemed to be an election not to pay or bear any additional  costs
               or risks. If the Participating  Parties agree to pay and bear one
               hundred  percent  (100%) of the costs and risks of the operation,
               Operator,  subject  to Section  12.13  (Operations  Conducted  by
               Non-Operator),  shall  conduct  the  operation  as a  Non-Consent
               Operation for the benefit of the Participating  Parties,  and the
               provisions of Article 12 (Non-Consent Operations) shall apply. If
               such agreement is not obtained,  however, the operation shall not
               be  conducted  and the effect shall be as if the proposal had not
               been  made.  If a  Participating  Party in a well  elects  not to
               participate  in the  Deepening or  Sidetracking  operation in the
               well, such Non-Consenting  Party shall become a Non-Participating
               Party in all operations conducted after the election, through the
               Completing and equipping of the Deepened or  Sidetracked  portion
               of the well.

      11.9.5   Subsequent  Operations.  Upon  the  completion  of art  operation
               conducted  under  Section 11.9  (Course of Action After  Reaching
               Objective  Depth),  if the well is not either (a)  Completed as a
               well capable of producing  hydrocarbons in paying quantities,  or
               (b)  temporarily or permanently  plugged and abandoned,  Operator
               shall   notify   the   Participating    Parties   of   Operator's
               recommendation for operations in the well under

                                       19
<PAGE>

               Subsections  11.9.1 through  11.9.4,  which again shall apply. If
               sufficient  approval  is not  obtained  to  conduct a  subsequent
               operation in a well or if all Participating Parties elect to plug
               and  abandon  the  well,  subject  to  Article  14  (Abandonment,
               Salvage,  and  Surplus),  Operator  shall  permanently  plug  and
               abandon  the well at the  expense of all  Participating  Parties.
               Each   Participating   Party   shall  be   responsible   for  its
               proportionate   share  of  the  plugging  and  abandonment  costs
               associated with the operation in which it participated.

                                   ARTICLE 12
                             NON-CONSENT OPERATIONS

12.1  Non-Consent  Operations.  Operator or  substitute  Operator  under Section
12.13  (Operations   Conducted  by  Non-Operator)   shall  conduct   Non-Consent
Operations at the sole cost and risk of the Participating  Parties in accordance
with the following provisions;

      12.1.1   Non-interference.  Non-Consent  Operations  shall  not  interfere
               unreasonably with operations being conducted by all Parties.

      12.1.2   Multiple Completion Limitation. A Non-Consent Operation shall not
               be conducted  in a well having  multiple  Completions  unless (a)
               each  Completion  is  owned  by the  same  Parties  in  the  same
               proportions;  (b) the well is  incapable  of  producing  from any
               Completion;  or (c) all Participating Parties in the well consent
               to the operation.

      12.1.3   Metering.   In  Non-Consent   Operations,   production  shall  be
               determined  upon the  basis of  appropriate  well  tests,  unless
               separate   metering   devices  are  required  by  a  governmental
               authority having jurisdiction.

      12.1.4   Non-Consent  Well.  Operations on a Non-Consent Well shall not be
               conducted  in a  Producible  Reservoir  without  approval  of all
               Parties unless (a) the Producible  Reservoir is designated in the
               notice as a Completion  objective;  (b) Completion of the well in
               the   Producible   Reservoir  will  not  increase  the  rates  of
               production  that are  prescribed  and approved for the Producible
               Reservoir by the governmental authority having jurisdiction;  and
               (c) the horizontal  distance between the vertical  projections of
               the  midpoint  of the  Producible  Reservoir  in the  well and an
               existing well currently  completed in and producing from the same
               Producible  Reservoir  will be at least one thousand feet (1000')
               for an oil-well  Completion  or two thousand  feet (2,000') for a
               gas-well Completion.

      12.1.5   Cost Information. Operator shall, within one hundred twenty (120)
               days after  Completion  of a Non-Consent  Operation,  furnish the
               Parties either (a) an inventory and an itemized  statement of the
               cost of the  well  and  equipment  pertaining  thereto,  or (b) a
               detailed   statement  of  the  monthly  billings.   Each  quarter
               thereafter,  while the Participating Parties are being reimbursed
               under  Subsection  12.2.1  (Production   Reversion   Recoupment),
               Operator, shall furnish the Non-Participating Parties a quarterly
               statement of all costs and liabilities  incurred in the operation
               of the well,  together with a statement of the  quantities of oil
               and gas produced  from it and the amount of the proceeds from the
               sale of the Non-Participating  Parties'  relinquished  production
               from the well for the preceding  quarter.  Operator shall prepare
               the monthly  statement of the  quantities of oil and gas produced
               and   the   amounts   of  the   proceeds   from   the   sale   of
               Non-Participating  Parties' relinquished  production based on the
               proceeds  received for the Operator's  share of production.  When
               Operator's payout calculation indicates that payout has occurred,
               Operator shall  promptly  notify all Parties.  The  Participating
               Parties who carried a portion of the  Non-Participating  Parties'
               relinquished interest shall then provide Operator all information
               pertaining to the cumulative  proceeds  received from the sale of
               the Non-Participating Parties' relinquished production.  Operator
               shall revise the payout date using the actual  proceeds  from the
               sale of the Non-Participating  Parties'  relinquished  production
               and administer any subsequent adjustments between the Parties.

                                       20
<PAGE>

      12.1.6   Completions.  For determinations  under Section 12.1 (Non-Consent
               Operations), each Completion shall be considered a separate well.

12.2  Relinquishment of Interest.  Upon commencement of Non-Consent  Operations,
other  than  Section  12.7   (Operations  from   Non-Consent   Platform),   each
Non-Participating  Party's  interest  and  leasehold  operating  rights  in  the
Non-Consent  Operation  and title to  production  resulting  therefrom,  and, if
Section 12.8  (Discovery or Extension from  Non-Consent  Drilling) is effective,
one-half  (1/2)  of  each  Non-Participating   Party's  interest  and  leasehold
operating  rights and title to production  from wells mentioned in Section 12.8,
shall be owned by and vested in each  Participating  Party in  proportion to its
Participating   Interest  or  in  the  proportions   otherwise   agreed  by  the
Participating  Parties for as long as the  operations  originally  proposed  are
being conducted or production is obtained, subject to the following:

      12.2.1   Production Reversion Recoupment.  The interest,  right, and title
               described in Section 12.2 shall revert to each  Non-Participating
               Party  when  the  Participating  Parties  have  recouped  out  of
               production  from the Non-Consent  Operations  attributable to the
               Non-Participating Party's interest an amount, which when added to
               amounts received under Section 12.3 (Deepening or Sidetracking of
               Non-Consent Well), equals the sum of the following:

               (a)    Eight hundred percent (800%) for  Non-Consent  Exploratory
               Operations,  or  four  hundred  percent  (400%)  for  Non-Consent
               Development Operations, of the Non-Participating Party's Share of
               the  costs  of  drilling,  testing,   Completing,   Recompleting,
               Deepening,   Sidetracking,    Reworking,   plugging   back,   and
               temporarily  plugging and abandoning  each  Non-Consent  Well and
               equipping   it   through   the    wellhead,    reduced   by   the
               Non-Participating  Party's Share of a cash contribution  received
               under Section 21.2 (Cash Contributions);

               (b)    Three  hundred  percent (300%)  of  the  Non-Participating
               Party's  Share of the cost of  Facilities  necessary to carry out
               the operation;

               (c)    Three  hundred  percent  (300%) of  the  Non-Participating
               Party's  Share  of the  cost  of a Non-Consent  Platform  that is
               installed to carry out the operation;

               (d)    Two  hundred  percent  (200%)  of  the   Non-Participating
               Party's Share of the cost charged in accordance with Section 12.9
               (Allocation   of   Platform/Facilities   Costs   to   Non-Consent
               Operations) of using a Platform already installed; and

               (e)    the Non-Participating   Party's  Share  of  the  costs  of
               operation,  maintenance,  treating,  processing,  gathering,  and
               transportation,  as well as  lessor's  royalties  and  severance,
               production, and excise taxes.

               When   the   Participating   Parties   have   recovered   from  a
               Non-Participating  Party's  relinquished  interests the specified
               sums, the relinquished  interests of the Non-Participating  Party
               shall automatically revert to the  Non-Participating  Party as of
               7:00 a.m. of the day after the recoupment occurs. Thereafter, the
               Non-Participating  Party  shall  own  the  same  interest  in the
               Non-Consent Well,  equipment pertaining thereto,  including,  but
               not limited to, any applicable  Platform or  Facilities,  and the
               production  therefrom as the  Non-Participating  Party would have
               owned  or  been  entitled  to  if  it  had  participated  in  the
               Non-Consent  Operation.  Upon  reversion,  the  Non-Participating
               Party shall  become a  Participating  Party and,  as such,  shall
               become liable for its proportionate share of the further costs of
               the operation under this Agreement and Exhibit "C".

      12.2.2   Non-Production  Reversion.  If the Non-Consent Operations fail to
               obtain  production or if the operations result in production that
               ceases before complete  recoupment by the Participating,  Parties
               under Subsection 12.2.1 (Production Reversion  Recoupment),  such
               leasehold operating rights shall revert to each Non-Participating
               Party,  except  that  all  Nor-Consent  Wells,   Platforms,   and
               Facilities shall remain vested in the Participating  Parties (but
               the salvage value in excess of the sum remaining under Subsection
               12.2.1 shall he credited to all Parties).

                                       21
<PAGE>

      12.3     Deepening or  Sidetracking  of Non-Consent  Well. Operator  shall
notify  Non-Operators  of each  proposal by a  Participating  Party to Deepen or
Sidetrack  a  Non-Consent  Well.  A  Non-Participating  Party may then effect to
participate  in the Deepening or  Sidetracking  operation by notifying  Operator
within  thirty  (30)  days,  or within  twenty-four  (24)  hours,  inclusive  of
Saturdays,  Sundays,  and federal holidays,  if a rig is on location and standby
charges  are  being  incurred,   after  receiving  notice  of  the  proposal.  A
Non-Participating  Party that elects to participate in Deepening or Sidetracking
the well, as proposed,  shall  immediately  pay the  Participating  Parties,  in
accordance with Section 12.4 (Deepening or Sidetracking Cost  Adjustments),  its
Working Interest share of actual well costs (excluding logging, coring, testing,
and Completion costs),  less all amounts recovered by the Participating  Parties
from the proceeds of production from the well, as if the Non-Participating Party
had originally  participated to the initial Objective Depth or formation, in the
case of a Deepening operation,  or the depth at which the Sidetracking operation
is initiated.  Thereafter,  the Non-Participating  Party shall be deemed to be a
Participating Party for the Deepening or Sidetracking operations, and Subsection
12.2.1 (a) shall not apply to that Party for the Deepened or Sidetracked portion
of the well.  The initial  Participating  Parties,  however,  shall  continue to
recoup out of the proceeds of  production  from the  non-consent  portion of the
well any  balance for the  Non-Consent  Well  remaining  to be  recovered  under
Subsection 12.2.1 (Production  Reversion  Recoupment),  less the amounts paid by
the Non-Participating Party under this Section 12.3.

      12.4     Deepening or Sidetracking Cost Adjustments. If a proposal is made
to Deepen or  Sidetrack  a  Non-Consent  Well,  a well cost  adjustment  will be
performed as follows:

      (a)      Intangible drilling will be valued at the actual cost incurred by
               the Participating Parties.

      (b)      Tangible materials will be valued as transfers of new material in
               accordance with the provisions of Exhibit "C".

      (c)      For Sidetracking operations, the values determined in Subsections
               12.4(a) and 12.4(b)  shall be reduced by the amount  allocated to
               that  portion of the well one hundred feet (100") below the point
               of Sidetrack.  Such allocations shall be accomplished  consistent
               with   guidelines   recommended   by  the  Council  of  Petroleum
               Accountants   Societies   (COPAS)  in  COPAS   Bulletin   No.  2,
               Determination   of  Values  for  Well  Cost   Adjustments   Joint
               Operations, September 1965, as amended from time to time.

      (d)      Amortization/depreciation shall be applied to both intangible and
               tangible  values at the rate  of ten percent (10%) per annum from
               the date the well  commenced  production  to the date  operations
               commence to Deepen or Sidetrack the well, provided,  however, the
               value of tangible  materials  after applying  depreciation  shall
               never be less than fifty percent (50%) of the value determined in
               Subsection 12,4(b).

      12.5     Subsequent  Operations in Non-Consent Well. Except as provided in
Section 12.3 (Deepening or Sidetracking of Non-Consent Well), an election not to
participate  in the  drilling,  Sidetracking,  or  Deepening  of a well shall be
deemed to be an election not to participate in any subsequent  operations in the
well before full recovery by the Participating  Parties of the Non-Participating
Party's  recoupment  amount.  A  subsequent   operation   conducted  during  the
recoupment period by the Parties entitled to participate shall be subject to the
recoupment provided in Subsection 12.2.1 (Production Reversion Recoupment).

      12.6     Operations  in a Production  interval. A Participating  Party may
propose  further  operations  in  a  Production  Interval in a well,  to include
Reworking or temporarily or permanently  plugging and abandoning the interval. A
"Production  Interval"  is a zone or interval  producing or capable of producing
oil or gas from the well without additional Reworking operations.  No Production
Interval  shall be plugged and abandoned  without the unanimous  approval of the
Participating Parties in the Production interval.

      If a proposa1,  estimated  to  exceed the amount  specified in Section 8.2
(Authorization), is made to Rework a Production Interval, the unanimous approval
of the Parties owning an interest in the  Production  interval shall be required
to conduct the proposed Rework operation.

                                       22
<PAGE>

      A proposal to Rework an interval,  other than a Production Interval, shall
be made and approved in accordance  with Section 11.5  (Operations by Fewer Than
All Parties).

      12.7     Operations  from  Non-Consent   Platform.   Except  as  otherwise
provided in this Section 12.7, a Party that did not originally  participate in a
Platform shall be a Non-Participating Party for all operations from the Platform
and shall be subject to Section 12.2  (Relinquishment  of Interest).  Notice, in
accordance  with  Article 9 (Notices),  shall be given to the  Non-Participating
Party for all wells proposed to be drilled from or tied-back to the  Non-Consent
Platform.  If a  Non-Participating  Party in a Non-Consent  Platform  desires to
participate  in the  drilling  of any such well  proposed  by the  Participating
Parties in the Platform,  the  Non-Participating  Party  desiring to join in the
proposed  well shall first pay the  Participating  Parties in the  Platform  and
existing  Facilities  its  proportionate  share of the cost of the  Platform and
Facilities  initially  paid by the  Participating  Parties,  including,  but not
limited to, costs of material,  fabrication,  transportation,  and  installation
plus any  remaining  amounts  to be  recouped  under  Subsection  12.2.1(b),  if
applicable,  and Subsection 12.2.1(c).  The Non-Participating  Party shall remit
payment to Operator and Operator shall (a) reimburse the  Participating  Parties
in the Platform and Facilities in the same  proportions  they are sharing in the
Platforms  and  Facilities  recoupment  account,  and (b) credit the  applicable
payout  account.  Upon  payment of that amount,  the original  Non-Participating
Party  shall  become  an owner and a  Participating  Party in the  Platform  and
Facilities in the same manner as if  recoupment  had occurred  under  Subsection
12.2.1  (Production  Reversion  Recoupment),  and may  participate in all future
wells drilled from or tied back to the Platform. As to well operations conducted
from the  Platform  prior to  payment  under this  Section  12.7,  the  original
Non-Participating   Party  shall  remain  a  Non-Participating   Party  in  such
Non-Consent  Operations  until  such  time  as  the  entire  recoupment  balance
applicable to all such Non-Consent  Operations in the aggregate has occurred, as
provided for in Subsections 12.2.1(a) and 12.2.1(e).

      12.8     Discovery  or  Extension  from    Non-Consent   Drilling.   If  a
Non-Consent  Well (a)  discovers a new  Producible  Reservoir  or (b) extends an
existing Producible Reservoir beyond its recognized  boundaries,  as unanimously
agreed by the Parties before commencement of drilling operations, the recoupment
of costs for the well shall be  governed  by  Section  12.2  (Relinquishment  of
Interest) and shall be recovered by the Participating  Parties in one (1) of the
following ways:

      (a)      If the Non-Consent Well is not completed and produced, recoupment
               shall be out of  one-half (1/2) of each Non-Participating Party's
               interest  in  production  from  all   subsequently   drilled  and
               completed wells on the Lease that are completed in the Producible
               Reservoir  discovered,  or  in  that  portion  extended,  by  the
               Non-Consent Weil and in which the  Non-Participating  Party has a
               Participating Interest; or

      (b)      If the  Non-Consent  Well is completed and  produced,  recoupment
               shall  be out  of  the  Non-Participating  Party's  Share  of all
               production  from the  Non-Consent  Well and one-half (1/2) of the
               Non-Participating   Party's   interest  in  production  from  all
               subsequently  drilled and  completed  wells on the Lease that are
               completed  in the  Producible  Reservoir  discovered,  or in that
               portion  extended,  by the  Non-Consent  Well  and in  which  the
               Non-Participating Party has a Participating interest.

      12.9     Allocation   of   Platform/Facilities    Costs   to   Non-Consent
Operations.  Non-Consent  Operations  shall be subject to further  conditions as
follows:

      12.9.1   Charges.  If a Non-Consent  Well is connected to a Platform,  the
Participating Parties in the well shall pay Operator for credit to the owners of
the Platform a charge for the right to use the Platform  and its  Facilities  as
follows:

               (a)    Such  Participating  Parties shall pay a sum equal to that
                      portion of the total cost of the  Platform,  which one (1)
                      Platform  slot  bears to the total  number of slots on the
                      Platform. If the Non-Consent Well is abandoned,  the right
                      of  Participating  Parties to use that Platform slot shall
                      terminate   unless  such  Parties   commence   drilling  a
                      substitute  well for the same slot within ninety (90) days
                      after abandonment.

               (b)    If the Non-Consent  Well production is handled through the
                      Facilities,  the  Participating  Parties  shall  pay a sum
                      equal to that portion of the total cost of such

                                       23
<PAGE>

                      Facilities  which one (1) well bears to  the total  number
                      of wells utilizing the Facilities.

      12.9.2   Operating and  Maintenance  Charges.  The  Participating  Parties
               shall pay all costs  necessary to connect a  Non-Consent  Well to
               the  Facilities  and their  Participating  Interest  share of the
               expense of operating and  maintaining the Platform and Facilities
               applicable  to  the  Non-Consent  Well.  Platform  operating  and
               maintenance  expenses  shall  be  allocated  equally  to all well
               completions  served,  and operating and maintenance  expenses for
               the  Facilities  shall be  allocated  equally to all active  well
               completions.

      12.10    Allocation of Costs Between Zones.  Except as provided in Section
10.10 (Wells Proposed Below Deepest Producible Reservoir), if for any reason the
Participating Interests of the Parties in a well are not the same for the entire
depth  or the  Completion  thereof,  the  costs  of  drilling,  Completing,  and
equipping the well shall be allocated in an equitable  manner,  as agreed by the
Parties, based on the value and allocation guidelines recommended by the Council
of  Petroleum   Accountants   Societies   (COPAS)  in  COPAS   Bulletin  No.  2,
Determination of Values for Well Costs Adjustments  Joint Operations,  September
1965, as amended from time to time.

      12.11  Lease  Maintenance   Operations.  An operation  proposed within the
last six (6) months of the primary  term or,  subsequent  thereto,  an operation
proposed to perpetuate the Lease or portion  thereof at its  expiration  date or
otherwise,  including,  but not limited to, well operations,  regulatory  relief
(for example,  course of action necessary to satisfy the statutory or regulatory
requirements of the governmental authority having jurisdiction), and other Lease
operations,  shall be deemed to be a "Lease  Maintenance  Operation".  To invoke
this Section  12.11.  a notice or AFE that proposes an operation must state that
the proposed operation is a Lease Maintenance Operation.

      12.11.1  Participation  in  Lease  Maintenance  Operations.  A  Party  may
               propose a Lease  Maintenance  Operation  by giving  notice to the
               other Parties.  If fewer than all Parties elect to participate in
               the proposed Lease  Maintenance  Operation,  the proposing  Party
               shall  notify  the  Parties  of the  elections  made.  Each Party
               electing not to participate shall then have a second  opportunity
               to participate  in the proposed  operation by notifying the other
               Parties of its  election  within  forty-eight  (48)  hours  after
               receipt of the notice.  A Lease  Maintenance  Operation shall not
               require minimum approval,  either of the number of Parties or the
               percentage  of the  voting  interests  of the  Parties  otherwise
               required  in  Subsection  6.1.2  (Vote  Required).  For  a  Lease
               Maintenance Operation to be conducted,  the Participating Parties
               must  agree to pay and bear one  hundred  percent  (100%)  of the
               costs  and  risks of the  operation.  If more  than one (1) Lease
               Maintenance  Operation  is  proposed,   the  operation  with  the
               greatest percentage approval shall be conducted.  Notwithstanding
               the recoupment provisions of this Agreement, a Party electing not
               to  participate   in  a  well  operation   proposed  as  a  Lease
               Maintenance Operation shall promptly assign,  effective as of the
               date the operation commences, to the Participating Parties all of
               its right,  title,  and  interest  in and to that  portion of the
               Lease that would otherwise  expire and the property and equipment
               attributable  thereto, in accordance with Article 26 (Successors,
               Assigns,  and  Preferential  Rights).  If more than one (1) Lease
               Maintenance  Operation is proposed and there is a tie between two
               (2) proposed  operations,  both operations shall be conducted and
               the costs and risks of conducting both  operations  shall be paid
               and borne by the Participating Parties. If the drilling of a well
               is  undertaken  as  a  Lease   Maintenance   Operation,   further
               operations  conducted  by the  Participating  Parties in the well
               shall be  governed  by  Section  10.9  (Course  of  Action  After
               Reaching Objective Depth) or Section 11.9 (Course of Action After
               Reaching Objective Depth),  whichever  applies.  If more than one
               (1) well  operation is conducted,  any of which would  perpetuate
               the Lease or such portion  thereof,  an  assignment  shall not be
               required from a Party participating in any such well operation.

      12.11.2  Accounting  for  Non-Participation.  If after  one (1) year  from
               Completion of a well operation  conducted as a Lease  Maintenance
               Operation, the Lease or portion thereof is

                                       24
<PAGE>

               being perpetuated by a Lease Maintenance  Operation,  as provided
               in  Subsection   12.11.1   (Participation  in  Lease  Maintenance
               Operations),   Operator  shall  render  a  final  statement.   If
               applicable,  to the assigning Party for its share of all expenses
               attributed to the assigned  interest before the effective date of
               the  assignment,  plus any credit or  deficiency in salvage value
               calculated under Subsection 15.1.4 (Payment Upon Withdrawal). The
               assigning   Party   shall   settle   any   deficiency   owed  the
               non-assigning  Parties  within  thirty (30) days after receipt of
               Operator's statement.

      12.12    Retention of Lease by Non-Consent  Well. If, at the expiration of
the primary term of the Lease, one (1) or more Non-Consent  Wells,  Section 10.5
(Operations  by Fewer Than All  Parties),  are the only wells  perpetuating  the
Lease, Operator shall give written notice to each  Non-Participating  Party that
the   Non-Consent   Wells  are   serving   to   perpetuate   the   Lease.   Each
Non-Participating  Party  shall,  within  thirty  (30)  days  after  receipt  of
Operator's  written  notice,  elect one (1) of the following:

      (a)      to assign its entire  interest in the Lease to the  Participating
               Parties in the  proportions  in which the  Non-Consent  Wells are
               owned; or

      (b)      to pay the  Participating  Parties,  within sixty (60) days after
               its election, the lesser of its proportionate share of the actual
               well costs of the wells,  as if the  Non-Participating  Party had
               originally  participated,   or  the  balance  of  the  recoupment
               account.  The payment  shall be made to Operator  and credited to
               the account of each  Participating  Party. The  Non-Participating
               Party  shall  remain  as a  Non-Participating  Party  until  full
               recoupment is obtained, but the payment shall be credited against
               the total amount to be recouped by the Participating Parties.

A  Non-Participating  Party that fails to make the  required  election  shall be
deemed to have  elected  under  Subsection  12.12(a)  to  relinquish  its entire
interest in the Lease. If a Non-Participating Party elects to make payment under
Subsection  12.12(b)  but fails to make the required  payment  within sixty (60)
days after its election, the Non-Participating  Party shall either remain liable
on the obligation to pay or, by unanimous vole of the Participating  Parties, be
deemed to have  elected  under  Subsection  12.12(a)  to  relinquish  its entire
interest in the Lease. Each relinquishing Non-Participating Party shall promptly
execute and deliver an assignment of its interest to the Participating  Parties,
in accordance with Article 26 (Successors, Assigns, and Preferential Rights).

      12.13    Operations  Conducted by Non-Operator.  Notwithstanding any other
provision  in this  Agreement  to the  contrary,  a  Participating  Party may be
designated  as  substitute  Operator  for a  Non-Consent  Operation in which the
Operator is not participating with the same authority,  rights, obligations, and
duties as Operator  except when (a) the permits and  contracts to be used in the
Non-Consent  Operation  (drilling or otherwise) are not  assignable;  or (b) the
operation is conducted  from a Platform  operated by  Operator.  The  substitute
Operator  shall  be  selected  from  among  the  Participating   Parties  by  an
affirmative vote of the Participating  Parties owning a majority interest in the
Non-Consent  Operation.  If a  Non-Consent  Operation  conducted by a substitute
Operator is completed or results in a Producible  Well, the well shall be turned
over to Operator for future operations.

                                   ARTICLE 13

                           FACILITIES AND MAINTENANCE

      13.1     Approval.  A  Party  may  propose  the  modification,  expansion,
upgrade, or replacement of existing Facilities,  other than Facilities installed
with  Non-Consent  Wells or  Platforms,  by notice to the  other  Parties,  with
information  adequate to describe  the  proposed  Facilities  and the  estimated
costs.  The  affirmative  vote  of  one  (1) or  more  Parties  having  combined
Participating  Interests of fifty-five  percent (55%) or more in the wells to be
served shall constitute approval of and shall bind all owners of the wells to be
served,  but nothing in this Section  limits a Party's rights under Section 22.1
(Facilities To Take in Kind).

      13.2     Ownership.  Existing  Facilities  that  are  modified,  expanded,
upgraded,  or replaced for the  development  and operation of the Lease shall be
owned by the Parties in proportion to their Participating  Interest therein. All
costs and risks incurred for such Facilities shall be paid and borne by the

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<PAGE>

Participating  Parties.  No  Facilities,  whether  new  or  existing,  that  are
modified,  expanded, upgraded, or replaced, shall be constructed on the Lease to
serve operations off the Lease, unless agreed by all Parties.

      13.3     Maintenance   Operations.   Notwithstanding   anything   in  this
Agreement  to the  contrary,  a proposed  maintenance  operation  requiring  the
approval of the  Participating  Parties shall be binding on all Parties entitled
to  participate  if one (1) or more  Parties  having  a  combined  Participating
Interest  of  fifty-five  percent  (55%)  or more  elect to  participate  in the
proposed operation.  For purposes of this Section 13.3, a maintenance  operation
is defined as a routine  repair  performed on the Lease and intended to maintain
or  preserve  the  condition  of the  Facilities,  Platforms,  and  other  Lease
equipment.

                                   ARTICLE 14

                       ABANDONMENT, SALVAGE, AND SURPLUS

      14.1     Platform  Salvage and Removal  Costs.  When the Parties  owning a
Platform  unanimously agree to dispose of the Platform,  it shall be disposed of
by Operator in the time and manner  approved by the Parties.  The costs,  risks,
and net  proceeds,  if any, for the  disposal  shall be shared by the Parties in
proportion to their Participating Interests therein.

      14.2     Abandonment  of  Platforms  or  Wellbores.  Except as provided in
Article 10 (Exploratory Operations) and Article 11 (Development  Operations),  a
Party may propose the  abandonment  of a Platform or wellbore by  notifying  the
other Participating  Parties. No Platform or wellbore shall be abandoned without
the  unanimous  approval  of the  Participating  Parties.  If all Parties do not
approve  abandoning  the Platform or wellbore,  the Party desiring to abandon it
shall pay the Operator,  on behalf of the  Participating  Parties,  that Party's
share of the estimated costs of abandonment,  removal, and site clearance of the
Platform or plugging and  abandonment of the wellbore,  less  estimated  salvage
value,  as determined  under Exhibit "C". If an  abandoning  Party's  respective
share of the estimated  salvage value is greater than its share of the estimated
costs,  Operator, on behalf of the Participating  Parties, shall pay a sum equal
to the deficiency to the abandoning Party.

      14.3     Assignment  of Interest.  Each  Participating  Party  desiring to
abandon a Platform or wellbore under Section 14.2  (Abandonment  of Platforms or
Wellbores) shall assign,  effective as of the last applicable  election date, to
the non-abandoning Parties, in proportion to their Participating  Interests, its
interest in the Platform or wellbore and the equipment therein and its ownership
in the production from the wellbore. A Party so assigning shall be relieved from
further  liability for the Platform or wellbore,  except  liability for payments
under Section 14.2 (Abandonment of Platforms or Wellbores).

      14.4     Abandonment  Operations  Required by  Governmental  Authority.  A
wellbore  abandonment or Platform removal  required by a governmental  authority
having jurisdiction shall be accomplished by Operator with the costs, risks, and
net  proceeds,  if any,  to be shared by the  Parties  owning  the  wellbore  or
Platform in proportion to their Participating Interests therein.

      14.5     Disposal of Surplus  Material.  Material and  equipment  acquired
hereunder  may be classified as surplus by Operator when deemed no longer needed
in present or foreseeable  operations.  Operator  shall  determine the value and
cost of  disposing  of the  materials  in  accordance  with  Exhibit "C". If the
material is classified as junk or if the value,  less cost of disposal,  is less
than or equal to Fifty Thousand Dollars ($50,000), Operator shall dispose of the
surplus  materials in any manner it deems  appropriate.  If the value,  less the
cost of disposal of the surplus material, is greater than Fifty Thousand Dollars
($50,000), Operator shall give written notice thereof, to the Parties owning the
material.  Unless purchased by Operator,  the surplus material shall be disposed
of in accordance with the method of disposal  approved by the Parties owning the
material.  Proceeds  from the sale or  transfer  of  surplus  material  shall be
promptly  credited to each Party in  proportion to its ownership of the material
at the time of retirement or disposition.

                                       26
<PAGE>

                                   ARTICLE 15

                                   WITHDRAWAL

      15.1     Withdrawal.  Except as hereinafter provided, a Party may withdraw
from this Agreement  ("Withdrawing  Party") by proposing withdrawal to the other
Parties.  The other  Parties  shall  elect  either to join or not to join in the
withdrawal  within thirty (30) days after  receipt of the  proposal.  Failure to
respond shall be deemed to be an election not to join in the withdrawal. A Party
that elects not to withdraw or fails to respond to a proposal to withdraw  shall
be referred to herein as a "Non-Withdrawing Party".

      15.1.1   Unanimous Withdrawal. If all Parties elect to withdraw,  Operator
               shall  furnish  all  Parties  a  detailed  abandonment  plan,  if
               applicable,  and a detailed cost estimate  within sixty (60) days
               after  receipt of the  elections  to withdraw.  Each  Withdrawing
               Party shall be liable for its Participating Interest share of the
               costs and risks of plugging and  abandoning  all wells,  removing
               all Platforms and  Facilities,  and clearing the site of property
               and equipment  associated  with the  abandonment,  net of salvage
               proceeds.  Operator  shall  then  cease  operations  and begin to
               permanently  abandon all wells,  Platforms,  and Facilities under
               the abandonment  plan. Once all Parties have elected to withdraw,
               no further  proposals  may be made under  this  Agreement  unless
               agreed by all Parties.

      15.1.2   Failure to Accept Withdrawing  Interests.  If the Non-Withdrawing
               Parties are unable to select a successor Operator, if applicable,
               or are not willing to pay and bear one hundred  percent (100%) of
               costs  and  risks   attributable  to  the  Withdrawing   Parties'
               interests,  then the  Non-Withdrawing  Parties  shall meet within
               fifteen (15) days after the end of the election period set out in
               Section  15.1  (Withdrawal)  to agree  upon a method to  continue
               operations.  If five (5) days after the meeting or the end of the
               fifteen  (15) day  period  referred  to above,  whichever  occurs
               first,  the  Non-Withdrawing  Parties  have not agreed on (a) the
               selection of a successor Operator, if applicable, or (b) a method
               to pay and bear one  hundred  percent  (100%)  of costs and risks
               attributable  to the  Withdrawing  Parties'  interests,  then the
               Non-Withdrawing Parties shall be deemed to have consented to join
               in the withdrawal,  and Subsection 15.1.1 (Unanimous  Withdrawal)
               shall apply. Unless otherwise agreed, the Non-Withdrawing Parties
               shall  pay and bear  the  costs  and  risks  attributable  to the
               Withdrawing  Parties'  interests  in  the  proportion  that  each
               Non-Withdrawing  Party's  Working  Interest  bears  to the  total
               Working Interests of the Non-Withdrawing Parties.

      15.1.3   Assignment Upon Withdrawal.  If the Non-Withdrawing Parties agree
               to assume one hundred percent (100%) of the Withdrawing  Parties'
               interests,  the Withdrawing Parties shall then immediately assign
               their interests to the  Non-Withdrawing  Parties in the Lease and
               production therefrom, including, but not limited to, all property
               acquired under this Agreement by the Withdrawing  Parties, in the
               proportions  agreed  to  by  the  Non-Withdrawing   Parties.  The
               assignment  shall be  effective  the first day of the month after
               the date the  Non-Withdrawing  Parties  have agreed to assume one
               hundred percent (100%) of the Withdrawing Parties' interests.

      15.1.4   Payment Upon  Withdrawal.  Within  one hundred  twenty (120) days
               after  execution of the  assignment  by the  applicable  Parties,
               Operator  shall  render  a  final  statement  to the  Withdrawing
               Parties for their  estimated  shares of the costs of plugging and
               abandoning all wells, removing all Platforms and Facilities,  and
               clearing the site of property and equipment  attributable  to the
               assigned  interest,  less estimated  salvage value, as determined
               under Exhibit "C", on the effective date of the  assignment.  The
               Parties,  in good  faith,  shall  approve  the  estimated  costs,
               expenses,  and  salvage  values  by an  affirmative  vote  of the
               Parties,  as set  out in  Subsection  6.2  (Vote  Required).  The
               Withdrawing  Parties,  in proportion to the respective  interests
               assigned,   shall  pay  the   Non-Withdrawing   Parties  for  the
               Withdrawing Parties' share of the above described estimated costs
               and salvage  values.  If the  Withdrawing  Parties' shares of the
               estimated salvage value is greater than the Withdrawing  Parties'
               shares of the estimated costs,

                                       27
<PAGE>

               Operator, on behalf ,of the Non-Withdrawing  Parties, shall pay a
               sum equal to the  deficiency  to the  Withdrawing  Parties.  Upon
               payment,  the Withdrawing  Party shall bear no further  liability
               for plugging and abandoning the wells, removing all Platforms and
               Facilities,  and  clearing  the site of  property  and  equipment
               attributable to the assigned interest.

      15.2     Limitation on Withdrawal  During an Emergency.  No  Participating
Party shall be relieved of its obligations hereunder during a blowout,  fire, or
other  emergency,   but  may  propose   withdrawal  from  this  Agreement  after
termination of the emergency,  subject to Subsection 15.3 (Withdrawal  During an
Operation).  The  Participating  Party shall remain  liable for its share of all
costs and risks arising from the emergency, including, but not limited to, those
incurred in the drilling of relief wells, containment and clean up of oil spills
and pollution, and debris removal.

      15.3     Withdrawal  During an  Operation.  Withdrawal  of a Party  before
completion of an operation in which it is a Participating Party shall be subject
to Section 26.2 (Transfer of Interest).

                                   ARTICLE 16

                     RENTALS, ROYALTIES, AND OTHER PAYMENTS

      16.1     Overriding Royalty and Other Burdens.  If the Working Interest or
Participating  Interest  of  a  Party  is  subject  to  an  overriding  royalty,
production payment, net profits interest,  mortgage, lien, security Interest, or
other  burden or  encumbrance,  other than  lessor's  royalty and other  burdens
listed in Exhibit "A", the Party so burdened shall pay and bear all  liabilities
and  obligations  created  or secured  by the  burden or  encumbrance  and shall
indemnify  and hold the other  Parties  harmless from all claims and demands for
payment  asserted  by the  owners of the  burdens  or  encumbrances.  If a Party
becomes  entitled  to an  assignment  under  this  Agreement  or as a result  of
Non-Consent  Operations  hereunder  becomes  entitled to receive a  relinquished
interest,  as provided in Section 12.2  (Relinquishment of Interest),  otherwise
belonging to a Non-Participating  Party whose Working Interest in the operations
is so burdened or encumbered,  the Party entitled to receive the assignment from
the   Non-Participating    Party   or   the   relinquished   interest   of   the
Non-Participating  Party's  production  shall receive same free and clear of all
such burdens and encumbrances, and the Non-Participating Party whose interest is
subject to the burdens and  encumbrances  shall hold the  Participating  Parties
harmless  for the  burdens  and  encumbrances,  and  will  bear  same at its own
expense.

      16.2     Subsequently Created Interest.  Notwithstanding  anything in this
Agreement  to the  contrary,  if a Party,  after  execution  of this  Agreement,
creates an overriding royalty, production payment, net profits interest, carried
interest, or any other interest out of its Working Interest (hereinafter  called
"Subsequently Created Interests) the Subsequently Created Interest shall be made
specifically  subject to this  Agreement.  If the Party owning the interest from
which the Subsequently  Created Interest was established fails to pay, when due,
its share of costs and the proceeds  from the sale of  production  under Section
8.6 (Security Rights) are insufficient for that purpose,  or elects to abandon a
well,  or elects to  relinquish  its  interest  in the Lease,  the  Subsequently
Created Interest shall be chargeable with a pro rata portion of all costs in the
same manner as if the Subsequently  Created Interest were a Working Interest and
Operator  may enforce  against the  Subsequently  Created  Interest the lien and
other rights  granted or recognized  under this  Agreement to secure and enforce
collection of costs chargeable to the Subsequently Created Interest.  The rights
of the owner of the  Subsequently  Created  Interest  shall be, and hereby  are,
subordinated to the rights granted or recognized by Section 8.6.

      16.3     Payment of Rentals and Minimum Royalties. Operator shall pay in a
timely  manner,  for the joint  account  of the  Parties,  all  rental,  minimum
royalties,  and other similar  payments  accruing under the Lease and shall,  on
request, submit evidence of each such payment to the Parties. Operator shall not
be held liable to the other Parties in damages for loss of the Lease or interest
therein if, through mistake or oversight,  a rental,  minimum royalty,  or other
payment  is not paid or is  erroneously  paid.  The loss of a Lease or  interest
therein that  results  from a failure to pay or  erroneous  payment of rental or
minimum  royalty shall be a joint loss,  and there shall be no  readjustment  of
interests.  For production delivered in kind by Operator to a Non-Operator or to
another for the account of a Non-Operator, the

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<PAGE>

Non-Operator shall provide Operator with information about the proceeds or value
of the production in order that Operator may make payments of minimum  royalties
due.

      16.4     Non-Participation  in  Payments.  A Party that desires not to pay
its share of a rental,  minimum  royalty,  or similar  payment  shall notify the
other  Parties in writing at least  sixty (60) days  before the  payment is due.
Operator  shall then make the payment  for the  benefit of the  Parties  that do
desire to maintain the Lease. In such event, the  Non-Participating  Party shall
assign to the  Participating  Parties,  upon their request,  the portions of its
interest in the Lease maintained by the payment.  The assigned interest shall be
owned by each Participating  Party in proportion to its Participating  Interest.
The assignment  shall be made subject to Article 26  (Successors,  Assigns,  and
Preferential Rights).

      16.5     Royalty  Payments.  Each Party shall be responsible for and shall
separately  bear and  properly  pay or cause to be paid all  royalty  and  other
amounts due on production in accordance  with state or federal  regulations,  as
may be amended from time-to-time. Adjustments shall be made among the Parties in
accordance  with  Exhibit "E" (Gas  Balancing  Agreement).  During a period when
Participating   Parties   in   a   Non-Consent   Operation   are   receiving   a
Non-Participating  Party's share of production,  the Participating Parties shall
bear and properly pay or cause to be paid the Lease  royalty on the  production,
and shall hold the  Non-Participating  Parties  harmless from  liability for the
payment.

                                   ARTICLE 17

                                      TAXES

      17.1     Property Taxes.  Operator shall render  property  covered by this
Agreement for ad valorem  taxation,  if  applicable,  and shall pay the property
taxes for the benefit of each Party,  Operator shall charge each Party its share
of the tax payments.  If the ad valorem taxes are based in whole or in part upon
separate  valuations  of each Party's  Working  Interest,  then  notwithstanding
anything in this Agreement to the contrary, each Party's share of property taxes
shall be in  proportion  to the tax  value  generated  by that  Party's  Working
Interest.

      17.2     Contest of Property  Tax  Valuation.  Operator  shall  timely and
diligently  protest  to a  final  determination  each  tax  valuation  it  deems
unreasonable.  Pending  such  determination,  Operator  may  elect to pay  under
protest.  Upon  final  determination,  Operator  shall  pay  the  taxes  and the
interest,  penalties,  and costs  accrued as a result of the protest.  In either
event, Operator shall charge each Party its share.

      17.3     Production and Severance Taxes, Each Party shall pay, or cause to
be paid, all production and severance  taxes due on production  that it receives
under this Agreement.

      17.4     Other Taxes and Assessments.  Operator shall pay other applicable
taxes (other than income taxes,  excise taxes,  or other similar types of taxes)
or assessments and charge each Party its share.

                                   ARTICLE 18

                                    INSURANCE

      Operator  shall provide and maintain the  insurance  prescribed in Exhibit
"B" and charge each Party its  proportionate  share of the cost of the coverage.
No other  insurance  shall be carried for the benefit of the Parties  under this
Agreement, except as provided in Exhibit "B".

                                   ARTICLE 19

                         LIABILITY, CLAIMS, AND LAWSUITS

      19.1     Individual Obligations. The obligations,  duties, and liabilities
of the  Parties  under this  Agreement  are  several,  not joint or  collective,
Nothing in this  Agreement  shall ever be construed as creating a partnership of
any kind, joint venture, agency relationship, association, or other character of
business  entity  recognizable  in law for any purpose.  In their relations with
each other under this  Agreement,  the  Parties  shall not be  considered  to be
fiduciaries  or to have  established  a  confidential  relationship,  except  as
specifically provided in Section 7.3 (Confidentiality) and Section 7.4 (Limited

                                       29
<PAGE>

Disclosure),  but rather shall be free to act at arm's length in accordance with
their own  respective  self-interests.  Each Party shall hold all other  Parties
harmless  from liens and  encumbrances  on the Lease  arising as a result of its
acts.

      19.2     Notice of Claim or  Lawsuit.  A Party  that is sued on an alleged
cause of action  arising out of operations on the Lease,  or on an alleged cause
of action involving title to an interest subject hereto, or that receives notice
of a material  hearing  related to  operations  on the Lease,  shall give prompt
notice to the other Parties.

      19.3     Defense and Settlements. The defense of lawsuits or damage claims
shall be handled in the manner unanimously  determined by the Parties.  Operator
may  settle a single  suit or claim for which the  amount of  settlement  is One
Hundred  Thousand  Dollars  ($100,000) or less. A single suit or claim for which
the amount of settlement  attributable  to the joint account exceeds One Hundred
Thousand  Dollars  ($100,000)  may be  settled  by  approval  of two (2) or more
Parties having a combined  Participating  Interest of one hundred percent (100%)
or more in the operation from which the suit or claim arose.

      19.4     Legal Expense. Legal expenses shall be handled under Exhibit "C".

      19.5     Liability  for  Losses,  Damages,  Injury,  or  Death.  Except as
provided  in Section  7.1  (Access to Lease),  liability  for  losses,  damages,
injury,  or death arising from operations under this Agreement shall be borne by
each Party in proportion to its  Participating  Interest in the operation out of
which  the  liability  arises,   except  that  liability  resulting  from  gross
negligence or willful misconduct shall be borne by the Party responsible for the
gross negligence or willful misconduct.

      19.6     Damage to Reservoir, Loss of Reserves and Profit. Notwithstanding
anything to the contrary contained herein, no Party shall be liable to any other
Party for damage to a reservoir,  loss of reserves, or loss of profits, nor does
any other  Party  indemnify  any  other  Party for such  loss,  except  for such
liability as may result from a Party's gross negligence or willful misconduct.

                                   ARTICLE 20

                           INTERNAL REVENUE PROVISION

      Notwithstanding  any  provision  in this  Agreement to the effect that the
rights and liabilities of the Parties are several, not joint or collective,  and
that this Agreement and the operations under this Agreement shall not constitute
a  partnership,  if for  federal  income tax  purposes  this  Agreement  and the
operations under this Agreement are regarded as a partnership,  then for federal
income tax  purposes  each  Party  elects to be  excluded  from  application  of
Subchapter K, Chapter 1,  Subtitle A, Internal  Revenue Code of 1986, as amended
("Code"),  as  permitted  and  authorized  by  Section  761 of the  Code and its
regulations.  Operator shall execute,  on behalf of each Party,  the evidence of
this election required by the federal Internal Revenue Service,  including,  but
not limited to, all returns, statements, and data required by federal regulation
1.761-2. Each Party shall execute such documents and furnish such other evidence
of this election as is required by the federal Internal  Revenue  Service.  Each
Party  further  agrees  not to  give  any  notices  or  take  any  other  action
inconsistent  with the election  made hereby.  If a present or future income tax
law of the United  States of America or a state in which the area covered by the
Lease is located contains  provisions  similar to those in Subchapter K, Chapter
1, Subtitle A, of the Code,  under which an election similar to that provided by
Section 761 of  Subchapter  K is  permitted,  each Party makes such  election or
agrees to make such  election as may be permitted  by such laws.  In making this
election,  each Party states that the income derived by it from operations under
this  Agreement  can  be  adequately   determined  without  the  computation  of
partnership taxable income.

                                   ARTICLE 21

                                  CONTRIBUTIONS

      21.1     Notice  of   Contributions   Other  Than  Advances  for  Sale  of
Production.  Each Party shall promptly notify the other Parties of all offers of
contributions  that it may obtain,  or contributions it is attempting to obtain,
for  drilling  a well on the  Lease.  Payments  received  as  consideration  for
entering into a contract for the sale of production from the Lease,  loans,  and
other  financial  arrangements  shall not be  considered  contributions  for the
purpose of this Article 21. No Party shall release or obligate itself to

                                       30
<PAGE>

release  Confidential  Data in return for a contribution  from a third party for
drilling a well without prior written  consent of the  Participating  Parties or
Parties having the right to participate in the well.

      21.2     Cash  Contributions.  If a Party receives a cash contribution for
drilling a well on the Lease,  the cash  contribution  shall be paid to Operator
and Operator  shall credit the amount  thereof to the Parties in  proportion  to
their  Participating  Interests in the well. If the well is a Non-Consent  Well,
the amount of the  contribution  shall be deducted  from the cost  specified  in
Subsection  12.2.1(a)  before  computation  of the amount to be recouped  out of
production.

      21.3     Acreage   Contributions.   If  a  Party   receives   an   acreage
contribution for the drilling of a well on the Lease,  the acreage  contribution
shall be shared by each Participating Party that accepts it in proportion to its
Participating  Interest in the well. As between the Participating  Parties, this
Agreement shall apply separately to the acreage.

                                   ARTICLE 22

                           DISPOSITION OF PRODUCTION

      22.1     Facilities  to Take in Kind.  A Party  may,  at its sole cost and
risk,  construct  Facilities  and  Platforms to take its share of  production in
kind,  but the  Facilities  and  Platforms at the time of  installation  may not
interfere with continuing operations on the Lease.

      22.2     Duty to Take in Kind.  Each Party  shall own and, at its own cost
and risk, shall take in kind or separately dispose of its share of the oil, gas,
and condensate  produced and saved from the Lease,  exclusive of production used
by Operator in developing and producing operations, subject to this Article 22.

      22.3     Failure  to Take  Oil and  Condensate  in  Kind.  Notwithstanding
Section 22.2 (Duty to Take in Kind), if a Party fails to take in kind or dispose
of its share of the oil or condensate,  Operator  shall have the right,  but not
the  obligation,  subject  to  revocation  at  will  by  the  Party  owning  the
production,  to  purchase  for its own  account,  sell to others,  or  otherwise
dispose of all or part of the  production  at the same  price at which  Operator
calculates  and  pays  lessor's  royalty  on  its  own  portion  of  the  oil or
condensate.  Operator  shall  notify  the  non-taking  Party  when the option is
exercised.  A purchase or sale by Operator of any other Party's share of the oil
or condensate  shall be for such  reasonable  periods of time as are  consistent
with the minimum needs of the industry under the circumstances,  but in no event
shall a contract be for a period in excess of one (1) year.  Proceeds of the oil
or condensate  purchased,  sold, or otherwise disposed of by Operator under this
Section  22.3 shall be paid to the Party  that had,  but did not  exercise,  the
right to take in kind and separately dispose of the oil or condensate. Operator,
in disposing of another Party's oil or condensate,  shall not be responsible for
making any filing with regulatory  agencies not required by law to be made by it
in respect to another  Party's share of oil or  condensate.  Unless  required by
governmental  authority  having  jurisdiction or by judicial  process,  no Party
shall be forced to share an available market with a non-taking Party.

      22.4     Failure to Take Gas in Kind.  Section  22.3  (Failure to Take Oil
and  Condensate in Kind) shall not apply to gas produced  from the Lease.  In no
event shall  Operator be  responsible  for, or obligated to dispose of,  another
Party's  share of gas  production.  If for any  reason a Party  fails to take or
market its full share of gas as produced,  that Party may later take, market, or
receive a cash accounting for its full share in accordance with Exhibit "E".

      22.5     Expenses of Delivery in Kind. A cost that is incurred by Operator
in making delivery of a Party's share of oil, gas, or condensate or disposing of
same shall be paid by the Party.

                                   ARTICLE 23

                                 APPLICABLE LAW

      This  Agreement  shall be  governed  by and  construed,  interpreted,  and
applied under the laws of the State of Texas, excluding choice of law rules that
would refer the matter to the laws of another jurisdiction.

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<PAGE>

                                   ARTICLE 24

                    LAWS, REGULATIONS, AND NONDISCRIMINATION

      24.1     Laws and  Regulations.  This Agreement and operations  under this
Agreement are subject to applicable  laws,  rules,  regulations,  and orders.  A
provision of this  Agreement  found to be contrary to or  inconsistent  with any
such law,  rule,  regulation,  or order  shall be  deemed to have been  modified
accordingly.

      24.2     Nondiscrimination.  In performing work under this Agreement,  the
Parties shall comply and Operator shall require each  independent  contractor to
comply  with the  governmental  requirements  in Exhibit  "D" and with  Sections
202(1) to (7), inclusive, of Executive Order 11246, as amended.

                                   ARTICLE 25

                                  FORCE MAJEURE

      If a Party is unable, wholly or in part by force majeure, to carry out its
obligations  under  this  Agreement,  other  than the  obligation  to make money
payments,  that Party shall give the other Parties  prompt written notice of the
force majeure with full particulars about 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.
"Force  majeure"  means 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 or
restraint, unavailability of equipment, and any other cause, whether of the kind
specifically  enumerated above or otherwise,  that is not reasonably  within the
control of the Party claiming suspension. It is, however,  expressly agreed that
promptness of  performance is of the essence under this Agreement and that every
reasonable  effort will be made by the Parties to avoid delay or  suspension  of
any work or acts to be performed under this Agreement.  The requirement that the
force majeure be remedied with all reasonable dispatch shall not require a Party
to settle strikes or other labor difficulties.

                                   ARTICLE 26

                  SUCCESSORS, ASSIGNS, AND PREFERENTIAL RIGHTS

      26.1     Successors and Assigns.  This  Agreement  binds and inures to the
benefit of the Parties and their respective heirs,  successors,  and assigns and
shall constitute a covenant running with the Lease. Each Party shall incorporate
in each  assignment of an interest in the Lease a provision  that the assignment
is subject to this Agreement.

      26.2     Transfer  of  Interest.   No  transfer,   assignment,   or  other
disposition  of interest by a Party shall relieve the Party of  liabilities  and
obligations it has incurred or that are attributable to the interest transferred
before the date of the  transfer,  and the  obligation to pay and bear all costs
and risks  attributable  to an operation in which the Party was a  Participating
Party before making the transfer,  and the lien and security  rights granted  by
Section 8.6 (Security Rights) shall continue to burden the interest  transferred
to secure payment of the  obligations.  The  transferor  shall be liable for all
costs, expenses, and liabilities for well plugging and abandonment, Platform and
Facilities  removal and disposal,  and site clearance for property and equipment
attributable to the assigned  interest  before the date of the transfer,  net of
salvage proceeds.

      26.3     Consent to  Assign.  A Party may not  sell,  transfer,  farm out,
assign, or otherwise dispose of all or part of its interest in the Lease without
the prior written consent of the other Parties, unless:

      (a)      the transferee is financially capable of assuming the obligations
               hereunder  and,  in  accordance  with  Subsection   263(c),   the
               transferor  furnishes  the Parties  with proof of such  financial
               capability that, in the case of Outer  Continental  Shelf leases,
               shall be proof that the transferee is currently  qualified by the
               Minerals  Management  Service,  an  agency of the  United  States
               Department  of  the  Interior,   or  a  successor  agency  having
               jurisdiction  (hereinafter "MMS"), to own Outer Continental Shelf
               leases and that the transferee has on

                                       32
<PAGE>

               file with the MMS the appropriate  lessee and Operator bonds; the
               transferee  presents a written  commitment from a bonding company
               engaged in the issuance of  performance  bonds  pertaining to oil
               and gas operations that it will issue a bond in favor of the then
               Party to this  Agreement  in a penalty sum equal to the  proposed
               assignee's share of all estimated  plugging and abandonment costs
               as of the date of the proposed  assignment  or other  transfer to
               the proposed transferee;

      (b)      the transferee  agrees in writing to assume all  obligations  and
               liabilities   under  this  Agreement   related  to  the  interest
               acquired; and

      (c)      the transferor has given the other Parties  written notice of the
               transfer  at  least  fifteen  (15)  days  before  the date of the
               transfer,  such  notice  to  include  the  name of each  proposed
               transferee, a description of the interests to be transferred, and
               the proof set forth in Subsection 26.3(a).

The   requirements   of  this   Section  26.3  shall  not  apply  to  a  merger,
consolidation, reorganization, sale or transfer to an Affiliate, a mortgage by a
Party of its interest in the Lease,  a sale of all, or  substantially  all, of a
Party's  domestic  exploration  and  production  properties,  or a  transfer  or
disposition between the Parties hereto.

      26.4     Transfers Between Parties. A transfer,  relinquishment,  or other
disposition  of  interests  in the Lease  between  Parties  under  Section  10.5
(Operations  by Fewer  Than  All  Parties);  Section  12.11  (Lease  Maintenance
Operations);  Section 12.12 (Retention of Lease by Non-Consent Well); Article 15
(Withdrawal);  or Section 16.4  (Non-Participation  in  Payments)  shall be made
without warranty of title. Any such transfer between the Parties, if applicable,
shall be free and dear of ad  Subsequently  Created  Interests,  as  defined  in
Section 16.2  (Subsequently  Created  Interest),  and all mortgages,  liens, and
encumbrances.

      26.5     Division of Interest. If, at any time, the interest of a Party is
divided  among  and  owned  by four  (4) or  more  co-owners,  Operator,  at its
discretion,  may require the co-owners to appoint a single trustee or agent with
full authority to receive notices,  approve expenditures,  receive billings for,
and  approve  and pay the  Party's  share  of the  joint  expenses,  and to deal
generally  with,  and with power to bind the  co-owners of the Party's  interest
within  the  scope  of the  operations  embraced  in this  Agreement.  All  such
co-owners may separately dispose of their respective shares of the oil, gas, and
condensate produced from the Lease and may receive,  separately,  payment of the
sale proceeds thereof.

      26.6     Preferential  Rights.  If a  Party  desires  to  transfer,  sell,
farmout,  assign,  or otherwise  dispose of all or part of its Working  Interest
("Disposing  Party"), it shall promptly give written notice to the other Parties
with full information about the proposed transaction, including, but not limited
to, the name and  address  of the  prospective  transferee,  (who must be ready,
willing,  and able to acquire the interest and deliver the stated  consideration
therefor),  the consideration for the transfer and all other terms of the offer.
In the case of a package sale of oil and gas interests that includes all or part
of the Disposing  Party's Working  Interest,  or if the proposed  transaction is
structured as a  non-simultaneous,  like-kind exchange under Section 1031 of the
Internal Revenue Code of 1986, as amended ("Code"), the Working interest that is
subject to this  preferential  right shall be  separately  valued and the notice
shall state the value attributed to the interest by the prospective  transferee.
The other Parties  shall then have the right,  for a period of fifteen (15) days
after  receipt of the notice,  to elect to purchase or acquire on the same terms
and conditions,  or on equivalent terms for a non-cash  transaction,  all of the
Working  Interest  that the  Disposing  Party is proposing to transfer.  If this
preferential  right is exercised by a Party, the purchasing or acquiring Parties
shall share the  purchased  or acquired  interest  in the  proportions  that the
Working  Interest of each bears to the total  Working  Interest of all acquiring
Parties,  or in such proportions as the acquiring  Parties otherwise agree. This
preferential  right  shall apply  separately  to each  Working  Interest or part
thereof covered by this  Agreement,  regardless of whether it is included in the
proposed  transaction  along  with  other oil and gas  interests,  whether  as a
transfer,  sale,  assignment,  or  other  disposal,  and no  provision  in  this
Agreement shall be interpreted to defeat this preferential  right. Upon exercise
of this  preferential  right,  the acquiring  Parties shall agree to perform all
obligations of the prospective  transferee  under the proposed  transaction only
for the Working Interest subject to the

                                       33
<PAGE>

proposed transaction. This preferential right, however, shall not exist or apply
when a Party  proposes  (a) to  mortgage  its  interest;  (b) to  dispose  of or
transfer its interest to an Affiliate; or (c) to sell all, or substantially all,
of its  exploration  and production  properties  located in the United States of
America.  If the proposed  transaction is not consummated  within six (6) months
after receipt of the notice by the other  Parties,  the Working  Interest  shall
again be governed by this  Section 26.6 and the  preferential  right shall again
arise for the offered interest as herein described.

                                   ARTICLE 27

                                      TERM

      This Agreement shall remain in effect so long as the Lease remains in full
force and effect and thereafter until all materials,  equipment,  supplies,  and
property belonging to the Parties have been disposed of and final settlement has
been made under this Agreement, including, but not limited to, settlement of gas
imbalances under Exhibit "E".  Termination of this Agreement shall not relieve a
Party of any liability or obligation accrued or incurred before termination.

                                   ARTICLE 28

                            MISCELLANEOUS PROVISIONS

      28.1     Plurals  and  Headings.  Except  for the  headings  contained  in
Article  2  (Definitions),  the  headings  and  table of  contents  used in this
Agreement  are  inserted  for  convenience  only  and  shall be  disregarded  in
construing this Agreement.  Reference to the plural form of a noun,  pronoun, or
verb shall,  whenever  appropriate,  be deemed to include the singular form, and
vice versa.

      28.2     Other  Miscellaneous.  This Agreement shall be considered for all
purposes as prepared  through the joint  efforts of the Parties and shall not be
construed  against  one (1) Party or the  other as a result of the  preparation,
submittal,  or other event of negotiation,  drafting,  or execution hereof. This
Agreement is not intended to benefit or create  rights in a person or entity not
a Party  to this  Agreement.  This  Agreement  contains  the  final  and  entire
agreement of the Parties for the matters covered by this Agreement and, as such,
supersedes  all prior  written or oral  communications  and  agreements  in this
regard.  This  Agreement  may not be  modified  or  changed  except  by  written
amendment signed by the Parties.

                                   ARTICLE 29

                                    EXECUTION

This Agreement may be executed by signing the original or a counterpart thereof.
If this Agreement is executed in counterparts,  all counterparts  taken together
shall have the same effect as if all Parties had signed the same agreement,  but
no Party  shall be bound to this  Agreement  unless and until all  Parties  have
executed a counterpart or the original.

IN WITNESS  WHEREOF,  the  Parties  have caused  this  Agreement  to be executed
effective as of the date hereinabove stated.

                                      OPERATOR:
WITNESSES:                            APACHE CORPORATION

____________________                  /s/ C. R. Harden
                                      ---------------------------
                                      By:     C. R. Harden
____________________                  Title:  Attorney-in-Fact

                                       34
<PAGE>

                                      NON-OPERATORS:

WITNESSES:                            RIDGEWOOD ENERGY CORPORATION

____________________                  By: /s/ W.Greg Tabor
                                          -----------------------
                                      Name:  W.Greg Tabor
____________________                  Title: Executive Vice-president

WITNESSES:                            MOUNTAIN ENERGY, LLC

____________________                  By:________________________
                                      Name:  John P. Lockridge
____________________                  Title: Manager

WITNESSES:                            WILLIFORD ENERGY COMPANY

____________________                  By:________________________
                                      Name:  P. Douglas Stouts
____________________                  Title: Senior V.P., Operations

WITNESSES:                            EXCESS ENERGY, LTD.

____________________                  By: /s/ Norman R. Rowlinson
                                         ------------------------
                                      Name:  Norman R. Rowlinson
____________________                  Title: President, Excess Energy
                                             GP, LLC, Managing Partner of
                                             Excess Energy, Ltd.

WITNESSES:                            TIGRE ENERGY, LLC

____________________                  By: /s/ Jeffrey W. Wheelock
                                         ------------------------
                                      Name:  Jeffrey W. Wheelock
____________________                  Title: Manager

WITNESSES:                            TRANSITION ENERGY, LLC

____________________                  By: /s/ Jeffrey W. Wheelock
                                         ------------------------
                                      Name:  Jeffrey W. Wheelock
____________________                  Title: Manager

WITNESSES:                            LOWE PARTNERS L.P.

____________________                  By:________________________
                                      Name:  Mary Ralph Lowe
____________________                  Title: President of Maralo, LLC, Managing
                                             Partner of Lowe Partners, LP

                                       35
<PAGE>

                                      NON-OPERATORS:

WITNESSES:                            RIDGEWOOD ENERGY CORPORATION

____________________                  By: _______________________
                                      Name:  W.Greg Tabor
____________________                  Title: Executive Vice-president

WITNESSES:                            MOUNTAIN ENERGY, LLC

____________________                  By: /s/ John P. Lockridge
                                         ------------------------
                                      Name:  John P. Lockridge
____________________                  Title: Manager

WITNESSES:                            WILLIFORD ENERGY COMPANY

____________________                  By:________________________
                                      Name:  P. Douglas Stouts
____________________                  Title: Senior V.P., Operations

WITNESSES:                            EXCESS ENERGY, LTD.

____________________                  By:________________________
                                      Name:  Norman R. Rowlinson
____________________                  Title: President, Excess Energy
                                             GP, LLC, Managing Partner of
                                             Excess Energy, Ltd.

WITNESSES:                            TIGRE ENERGY, LLC

____________________                  By: _______________________
                                      Name:  Jeffrey W. Wheelock
____________________                  Title: Manager

WITNESSES:                            TRANSITION ENERGY, LLC

____________________                  By: _______________________
                                      Name:  Arthur S. Dickinson
____________________                  Title: Chairman

WITNESSES:                            LOWE PARTNERS L.P.

____________________                  By:________________________
                                      Name:  Mary Ralph Lowe
____________________                  Title: President of Maralo, LLC, Managing
                                             Partner of Lowe Partners, LP

                                       35
<PAGE>

                                      NON-OPERATORS:

WITNESSES:                            RIDGEWOOD ENERGY CORPORATION

____________________                  By: _______________________
                                      Name:  W.Greg Tabor
____________________                  Title: Executive Vice-president

WITNESSES:                            MOUNTAIN ENERGY, LLC

____________________                  By:________________________
                                      Name:  John P. Lockridge
____________________                  Title: Manager

WITNESSES:                            WILLIFORD ENERGY COMPANY

____________________                  By: /s/ P. Douglas Stouts
                                         ------------------------
                                      Name:  P. Douglas Stouts
____________________                  Title: Senior V.P., Operations

WITNESSES:                            EXCESS ENERGY, LTD.

____________________                  By:________________________
                                      Name:  Norman R. Rowlinson
____________________                  Title: President, Excess Energy
                                             GP, LLC, Managing Partner of
                                             Excess Energy, Ltd.

WITNESSES:                            TIGRE ENERGY, LLC

____________________                  By: _______________________
                                      Name:  Jeffrey W. Wheelock
____________________                  Title: Manager

WITNESSES:                            TRANSITION ENERGY, LLC

____________________                  By: _______________________
                                      Name:  Arthur S. Dickinson
____________________                  Title: Chairman

WITNESSES:                            LOWE PARTNERS L.P.

____________________                  By:________________________
                                      Name:  Mary Ralph Lowe
____________________                  Title: President of Maralo, LLC, Managing
                                             Partner of Lowe Partners, LP

                                       35
<PAGE>

                                      NON-OPERATORS:

WITNESSES:                            RIDGEWOOD ENERGY CORPORATION

____________________                  By: W.G. Tabor

____________________                  Title: Executive Vice-president

WITNESSES:                            MOUNTAIN ENERGY, LLC

____________________                  By:________________________
                                      Name:  John Lockridge
____________________                  Title: Manager

WITNESSES:                            WILLIFORD ENERGY COMPANY

____________________                  By:________________________
                                      Name:  P. Douglas Stouts
____________________                  Title: Senior V.P., Operations

WITNESSES:                            EXCESS ENERGY, LTD.

____________________                  By:________________________
                                      Name:  Norman R. Rowlinson
____________________                  Title: President, Excess Energy
                                             GP, LLC, Managing Partner of
                                             Excess Energy, Ltd.

WITNESSES:                            TIGRE ENERGY, LLC

____________________                  By:________________________
                                      Name:  Jeffrey W. Wheelock
____________________                  Title: Manager

WITNESSES:                            HUERFANO CORPORATION

____________________                  By:________________________
                                      Name:  Arthur S. Dickinson
____________________                  Title: Chairman

WITNESSES:                            LOWE PARTNERS L.P.

____________________                  By /s/ Mary Ralph Lowe
                                         ------------------------
                                      Name:  Mary Ralph Lowe
____________________                  Title: President of Maralo, LLC, Managing
                                             Partner of Lowe Partners, LP

                                       35
<PAGE>

                                   EXHIBIT "A"

      Attached to and made a part of that certain Operating Agreement dated
      September 22,2004, by and between Apache Corporation, as Operator, and
              Ridgewood Energy Corporation, et al, as Non-Operators

I.    OPERATOR

      Apache Corporation.

II.   IDENTIFICATION OF LANDS SUBJECT TO AGREEMENT

      State  Lease  16672,  covering  a  portion  of  Block 7,  Vermilion  Area,
      containing  approximately 1,703.67 acres and State Lease 17058, covering a
      portion of Block 8,  Vermilion  Area,  containing  approximately  1,046.75
      acres.

III.  RESTRICTION AS TO DEPTH

      None

IV.   INTEREST OF PARTIES

               Company              Working Interest        Working Interest
                                  Before Project Payout   After Project Payout
    Apache Corporation                   45.00%                  36.00%
    Ridgewood Energy Corporation         20.00%                  16.00%
    Mountain Energy LLC                  10.00%                   8.00%
    Williford EnergxCompany              12.00%                   9.60%
    Transition Energy, LLC                3.00%                   2.40%
    Excess Energy, Ltd.                   5.00%                   4.00%
    Lowe Partners, L.P.                   5.00%                   4.00%
    Tigre Energy, LLC                     0.00%                  20.00%
    Total                               100.00%                 100.00%

v.    NAMES AND ADDRESSES OF PARTIES FOR NOTIFICATION PURPOSES

APACHE CORPORATION
2000 Post Oak Blvd., Suite 100
Houston, TX 77056-4400
Attn: Land Manager - Gulf Coast Region
Tax ID# ____________________________
Phone: (713)296-6349
Fax: (713)296-7024
EMAIL: becky.harden@apachecorp.com

RIDGEWOOD ENERGY CORPORATION
5300 Memorial Drive, 3rd Floor
Houston, TX 77007
Attn: Randy Bennett
Tax ID# ___________________________
Telephone: 713-863-9563
Fax: 713-863-9781
EMAIL: rbennett@ridgewoodenergy.com

TIGRE ENERGY, LLC
7 Hedwig Circle
Houston, TX 77024
Attn: Art Dickinson
Tax ID# ___________________________
Telephone: 713-468-8017
Fax: _____________________________
EMAIL: adickirson@sbcglobal.net

<PAGE>

WILLIFORD ENERGY COMPANY
5314 S. Yale Avenue, Suite 900
Tulsa, OK 74135-6257
Attn: Doug Storts
Tax ID# 73-1062-169
Telephone: 918-493-2300 Ext 118
Fax: 918-493-7281
EMAIL: dstorts@willifordenergy.com

MOUNTAIN ENERGY, LLC
PO Box 1499
Pebble Beach, CA 93953
Attn: John Lockridge
Tax ID# ###-##-####
Telephone:________________________
Fax:______________________________
EMAIL: ilock@netpipe.com

TRANSITION ENERGY, LLC
952 Echo Lane - Suite 420
Houston, TX 77024
Attn; Jeffrey W. Wheelock
Tax ID#___________________________
Telephone: 713-722-8118
Fax: _____________________________
EMAIL:jwheelock@dwlegal.com

LOWE PARTNERS, L.P.
223 W. Wall Street, Suite 900
Midland, Texas 79701
Attn: Joe C. Pulido
Tax ID#_____________________
Telephone: 432-684-7441 ext. 14
Fax:______________________________
EMAIL: joepulido@maralo.com

EXCESS ENERGY, LTD.
14825 St. Mary's Lane, Suite 270
Houston, TX 77079
Attn: Norman Rowlinson
Tax ID# 20-0204983
Telephone: 281-679-7601
Fax: _____________________________
EMAIL: nrowlinson@bigcity.net

<PAGE>

WILLIFORD ENERGY COMPANY
5314 S. Yale Avenue, Suite 900
Tulsa, OK 74135-6267
Attn: Doug Storts
Tax ID# 73-1062-169
Telephone: 918-493-2300 Ext 118
Fax: 918-495-7231
EMAIL: dstorts@willifordenergy.com

MOUNTAIN ENERGY, LLC
PO Box 1499
Pebble Beach, CA 93953
Attn: John Lockridge
Tax ID# ###-##-####
Telephone:________________________
Fax:______________________________
EMAIL: ilock@netpipe.com

TRANSITION ENERGY, LLC
952 Echo Lane - Suite 420
Houston, TX 77024
AttN: Jeffrey W. Wheelock
Tax ID#___________________________
Telephone: 713-722-8118
Fax: _____________________________
EMAIL: jwheelock@dwlegal.com

LOWE PARTNERS, L.P.
223 W, Wall Street, Suite 900
Midland, Texas 79701
Attn: Joe C. Pulido
Tax ID#______________________________
Telephone: 432-684-7441 ext. 14
Fax:_________________________________
EMAIL: joepulido@maralo.com

EXCESS ENERGY, LTD.
14825 St. Mary's Lane, Suite 270
Houston, TX 77079
Attn: Norman Rowllnson
Tax ID# 20-0204983
Telephone: 281-879-7601
Fax:_________________________________
EMAIL: nrowlinson@bigcity.net

<PAGE>

                                   EXHIBIT "B"

Attached to and made a part of that certain Operating Agreement dated September
 22,2004, by and between Apache Corporation, as Operator,, and Ridgewood Energy
                      Corporation, et al, as Non-Operators

                             INSURANCE REQUIREMENTS

1.    As to all operations  hereunder,  the Operator shall carry for the benefit
of the  Joint  Account  and of the  Parties  of this  Agreement,  the  following
insurance coverage, subject to market availability and reasonable cost;

a.    Worker's   Compensation   Insurance  in   accordance   with  the  laws  of
      governmental bodies having  jurisdiction,  including,  if applicable,  the
      United States  Longshore and Harbor  Workers'  Compensation  Act, with the
      Outer  Continental  Shelf Extension,  Employers'  Liability  Insurance and
      coverage  for its  employees  as "Master  and member of vessels - Maritime
      Employer's  liability  coverages".   Employers'  Liability  Insurance  and
      Maritime  Employer's  Liability  coverage shall provide coverage limits of
      $1,000,000 per accident.

2.    Operator shall not be required or authorized to obtain or carry, on behalf
of  the  Joint  Account,  any  additional  insurance  covering  the  Parties  or
operations to be conducted  hereunder,  without the consent and agreement of all
Parties.

3.    Each Party, individually, may acquire, at its own expense and for its sole
benefit,  such insurance as it deems proper to protect  itself  against  claims,
losses,  damage to or destruction of property and/or personal injury or death of
third persons arising out of the joint operations.

4.    Each Party  understands and agrees that each Party will be responsible for
its own  proportionate  interest  in the  event of any  losses,  liabilities  or
expenses  arising  out of Joint  Operations;  and will assume its portion of any
such losses, liabilities  and/or expenses that occur. All losses and all damages
to jointly  owned  property  shall also be borne by the Parties in proportion to
their respective interests.

5.    Each  Party  hereby  agrees  that  all  insurance  policies  covering  the
operations  contemplated herein will be suitably endorsed to effectuate a waiver
of subrogation rights against all other Parties to the Agreement.

6.    Operator shall require all  contractors  engaged in operations  under this
Agreement to comply with the  applicable  Workers'  Compensation  and Employers'
Liability laws, including Maritime coverage if applicable,  and to maintain such
other insurance,  and in such amounts,  that the Operator deems  necessary.  All
such insurance policies shall provide for a waiver of subrogation rights against
the Parties to this Agreement.

<PAGE>

                                  EXHIBIT " C "

Attached  to and made  part of that  certain  Operating  Agreement  dated by and
between Apache  Corporation,  as Operator and Ridgewood Energy Corporation et al
as Non-Operator

                              ACCOUNTING PROCEDURE

                           OFFSHORE JOINT OPERATIONS

                              I. GENERAL PROVISIONS

1.    Definitions

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

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

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

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

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

      "Parties" shall mean Operator and Non-Operators.

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

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

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

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

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

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

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

2.    Statements and Billings

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

3     Advances and Payments by Non-Operators

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

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

4     Adjustments

      Payment  of  any  such  bills  shall  not   prejudice  the  right  of  any
      Non-Operator  to protest or question the  correctness  thereof;  provided,
      however,  all bills and statements  rendered to  Non-Operators by Operator
      during any calendar year shall

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      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  adjustments of
            accounts as  provided  for in  Paragraph 4 of this  Section I. Where
            there are two or more  Non-Operators,  the Non-Operators  shall make
            every  reasonable  effort to conduct a joint audit in a manner which
            will result in a minimum of inconvenience to the Operator.  Operator
            shall  bear no  portion of the  Non-Operators'  audit cost  incurred
            under this  paragraph  unless agreed to by the Operator.  The audits
            shall not be  conducted  more than  once  each  year  without  prior
            approval of Operator,  except upon the resignation or removal of the
            Operator,  and shall be made at the  expense of those  Non-Operators
            approving such audit.

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

6.    Approval by Non-Operators

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

                               II. DIRECT CHARGES

      Operator shall charge the Joint Account with the following items:

1.    Rentals and Royalties

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

2.    Labor

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

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

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

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

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

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

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

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

3.    Employee Benefits

      Operator's  current costs of established  plans for 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

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      the Joint Account  under  Paragraphs 2A and 2B 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 Joint Property
      as provided under Section IV. Only such Material shall be purchased for or
      transferred to the Joint Property as may be required for immediate use and
      is  reasonably  practical and  consistent  with  efficient and  economical
      operations. The accumulation of surplus stocks shall be avoided.

5.    Transportation

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

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

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

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

6.    Services

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

7.    Equipment and Facilities Furnished by Operator

      A.    Operator  shall charge the Joint  Account for use of  Operator-owned
            equipment  and  facilities,  including  Shore Base  and/or  Offshore
            Facilities,  at  rates  commensurate  with  costs of  ownership  and
            operation. Such rates may include labor, maintenance, repairs, other
            operating expense,  insurance,  taxes,  depreciation and interest on
            gross investment less  accumulated  depreciation not to exceed eight
            percent ( 8 %) per annum. In addition,  for platforms only, the rate
            may   include  an  element  of  the   estimated   cost  of  platform
            dismantlement.  Such rates shall not exceed average commercial rates
            currently prevailing in the immediate area of the Joint Property.

      B.    In lieu of charges in Paragraph 7A above,  Operator may elect to use
            average commercial  rates  prevailing in the  immediate  area of the
            Joint Property less twenty percent (20%). For automotive  equipment,
            Operator  may elect to use rates  published by the  Petroleum  Motor
            Transport Association.

8.    Damages and Losses to Joint Property

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

9.    Legal Expense

      Expense of  handling,  investigating  and settling  litigation  or claims,
      discharging  of  liens,   payments  of  judgments  and  amounts  paid  for
      settlement of claims  incurred in or resulting from  operations  under the
      Agreement or necessary to protect or recover the Joint  Property,  *except
      that no charge for services of  Operator's  legal staff or fees or expense
      of outside  attorneys  shall be made  unless  previously  agreed to by the
      Parties.  All other  legal  expense  is  considered  to be  covered by the
      overhead  provisions  of  Section  III unless  otherwise  agreed to by the
      Parties,  except as provided in Section 1, Paragraph 3. *and the costs and
      expenses  incurred in connection  with hearings and other  matters  before
      governmental agencies and bodies.

10.   Taxes

      All  taxes  of  every  kind  and  nature  assessed  or  levied  upon or in
      connection  with  the  Joint  Property,  the  operation  thereof,  or  the
      production  therefrom,  and which taxes have been paid by the Operator for
      the benefit of the Parties. If the ad

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      valorem  taxes are based in whole or in part upon  separate  valuations of
      each  party's  working  interest,  then  notwithstanding  anything  to the
      contrary  herein,  charges to the Joint  Account shall be made and paid by
      the Parties  hereto in  accordance  with the tax value  generated  by each
      party's working interest.

11.   Insurance

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

12.   Communications

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

13.   Ecological and Environmental

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

14.   Abandonment and Reclamation

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

15.   Other Expenditures

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

                                  III. OVERHEAD

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

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

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

            (   ) shall be covered by the overhead rates.
            ( X ) shall not be covered by the overhead rates.

      ii.   Except as otherwise provided in Paragraph 2 of this Section 111, the
            salaries,  wages and Personal Expenses of Technical Employees and/or
            costs of professional  consultant  services and contract services of
            technical  personnel either  temporarily or permanently  assigned to
            and directly employed in the operation of the Joint Property:

            ( X ) shall be covered by the overhead rates.
            (   ) shall not be covered by the overhead rates,

1.    Overhead - Drilling and Producing Operations

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

      ( X ) Fixed Rate Basis, Paragraph 1A, or
      (   ) Percentage Basis, Paragraph 1B

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A.    Overhead - Fixed Rate Basis

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

            Drilling Well Rate $ 29,500 (Prorated for less than a Full month)
            Producing Well Rate $ 2,950

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

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

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

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

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

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

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

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

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

      (4)   The well rates  shall be  adjusted as of the first day of April each
            year  following  the  effective  date of the agreement to which this
            Accounting Procedure is attached by the percent increase or decrease
            published by COPAS.

*     Notwithstanding  anything herein contained to the contrary, the reasonable
      and  customary  fees and expenses  incurred by contract  personnel  and/or
      professional  consultants  as such fees and  expenses  relate  to  matters
      before or involving  governmental  agencies  (including but not limited to
      the  Minerals  Management  Service),  and to the extent this such fees and
      expenses are  "associated  with  Operation of the Joint  Property shall be
      chargeable to the Joint Account.

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2.    Overhead - Major Construction

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

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

            (1)   5 % of total  costs if such  costs are more than $ 25,000  but
                  less than $100,000; plus

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

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

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

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

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

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

      Total 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.

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

3.    Overhead - Catastrophe

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

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

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

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

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

4.    Amendment of Rates

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

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

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

1.    Purchases

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

2.    Transfers and Dispositions

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

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      A.    New Material (Condition A)

            (1)   Tubular Goods Other than Line Pipe

                  (a)   Tubular goods, sized 2 3/8 inches OD and larger,  except
                        line  pipe,  shall be priced at Eastern  mill  published
                        carload  base  prices  effective  as of date of movement
                        plus  transportation cost using the 80,000 pound carload
                        weight basis to the railway  receiving point nearest the
                        Joint  Property  for  which  published  rail  rates  for
                        tubular  goods  exist.  If the 80,000 pound rail rate is
                        not offered,  the 70,000 pound or 90,000 pound rail rate
                        may  be  used.   Freight  charges  for  tubing  will  be
                        calculated from Lorain, Ohio and casing from Youngstown,
                        Ohio.

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

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

                  (d)   Macaroni  tubing (size less than 2 3/8 inch OD) shall be
                        priced  at  the  lowest  published  out-of-stock  prices
                        f.o.b. the supplier plus transportation costs, using the
                        Oil Field Haulers Association  interstate truck rate per
                        weight of tubing  transferred,  to the railway receiving
                        point nearest the Joint Property.

            (2)   Line Pipe

                  (a)   Line pipe  movements  (except size 24 inch OD and larger
                        with  walls  3/4 inch and  over)  30,000  pounds or more
                        shall  be  priced  under  provisions  of  tubular  goods
                        pricing in Paragraph A.(l)(a) as provided above. Freight
                        charges shall be calculated from Lorain, Ohio.

                  (b)   Line pipe  movements  (except size 24 inch OD and larger
                        with  walls 3/4 inch and over) less than  30,000  pounds
                        shall be priced at Eastern Mill  published  carload base
                        prices  effective  as of  date  of  shipment,  plus  the
                        percent  most  recently   recommended  by  COPAS,   plus
                        transportation costs based on freight rates as set forth
                        under  provisions  of tubular goods pricing in Paragraph
                        A.(l)(a) as provided  above.  Freight  charges  shall be
                        calculated from Lorain, Ohio.

                  (c)   Line  pipe 24 inch OD and  over  and 3/4  inch  wall and
                        larger shall be priced f.o.b.  the point of  manufacture
                        at current new published prices plus transportation cost
                        to  the  railway   receiving  point  neatest  the  Joint
                        Property.

                  (d)   Line pipe,  including  fabricated line pipe,  drive pipe
                        and conduit not listed on published price lists shall be
                        priced at quoted  prices  plus  freight  to the  railway
                        receiving  point nearest the Joint Property or at prices
                        agreed to by the Parties.

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

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

      B.    Good Used Material (Condition 8)

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

            (1)   Material moved to the Joint Property

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

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

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

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

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

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

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

      C.    Other Used Material

            (1)   Condition C

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

            (2)   Condition D

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

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

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

            (3)   Condition E

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

      D.    Obsolete Material

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

      E.    Pricing Conditions

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

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

3.    Premium Prices

      Whenever Material is not readily  obtainable at published or listed prices
      because of  national  emergencies,  strikes or other  unusual  causes over
      which the  Operator  has no  control,  the  Operator  may charge the Joint
      Account for the required  Material at the Operator's  actual cost incurred
      in providing such  Material,  in making it suitable for use, and in moving
      it to the Joint  Property;  provided  notice in  writing is  furnished  to
      Non-Operators  of the proposed charge prior to billing  Non-Operators  for
      such Material.  Each Non-Operator shall have the right, by so electing and
      notifying  Operator within ten days after receiving  notice from Operator,
      to furnish in kind all or part of his share of such Material  suitable for
      use and acceptable to Operator. *

4.    Warranty of Material Furnished By Operator

      Operator  does not warrant the  Material  furnished.  In case of defective
      Material, credit shall not be passed to the Joint Account until adjustment
      has been received by Operator from the manufacturers nor their agents.

*     Provided  however,  if a Non-Operator  elects to furnish material in kind,
      such  material must (a) meet the quality  specifications  set by Operator,
      and (b) be inspected by Operator with inspection costs to be billed to
      the Joint Account.

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                                 V. INVENTORIES

      The Operator shall maintain detailed records of Controllable Material.

1.    Periodic Inventories, Notice and Representation

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

2.    Reconciliation and Adjustment of Inventories

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

3.    Special Inventories

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

4.    Expense of Conducting Inventories

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

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

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                                  EXHIBIT " C "

Attached  to and made  part of that  certain  Operating  Agreement  dated by and
between Apache Corporation,  as Operator and Ridgewood Energy Corporation  et al
as Non-Operator

                              ACCOUNTING PROCEDURE

                            OFFSHORE JOINT OPERATIONS

                              I. GENERAL PROVISIONS

1.    Definitions

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

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

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

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

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

      "Parties" shall mean Operator and Non-Operators.

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

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

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

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

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

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

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

2.    Statements and Billings

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

3.    Advances and Payments by Non-Operators

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

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

4.    Adjustments

      Payment  of  any  such  bills  shall  not   prejudice  the  right  of  any
      Non-Operator  to protest or question the  correctness  thereof;  provided,
      however,  all bills and statements  rendered to  Non-Operators by Operator
      during any calendar year shall

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      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  adjustments of
            accounts as  provided  for in  Paragraph 4 of this  Section I. Where
            there are two or more  Non-Operators,  the Non-Operators  shall make
            every  reasonable  effort to conduct a joint audit in a manner which
            will result in a minimum of inconvenience to the Operator.  Operator
            shall  bear no  portion of the  Non-Operators'  audit cost  incurred
            under this  paragraph  unless agreed to by the Operator.  The audits
            shall not be  conducted  more than  once  each  year  without  prior
            approval of Operator,  except upon the resignation or removal of the
            Operator,  and shall be made at the  expense of those  Non-Operators
            approving such audit.

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

6.    Approval by Non-Operators

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

                               II. DIRECT CHARGES

      Operator shall charge the Joint Account with the following items:

1.    Rentals and Royalties

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

2.    Labor

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

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

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

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

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

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

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

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

3.    Employee Benefits

      Operator's  current costs of established  plans for 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

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      the Joint Account  under  Paragraphs 2A and 2B 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 Joint Property
      as provided under Section IV. Only such Material shall be purchased for or
      transferred to the Joint Property as may be required for immediate use and
      is  reasonably  practical and  consistent  with  efficient and  economical
      operations. The accumulation of surplus stocks shall be avoided.

5.    Transportation

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

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

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

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

6.    Services

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

7.    Equipment and Facilities Furnished by Operator

      A.    Operator  shall charge the Joint  Account for use of  Operator-owned
            equipment  and  facilities,  including  Shore Base  and/or  Offshore
            Facilities,  at  rates  commensurate  with  costs of  ownership  and
            operation, Such rates may include labor, maintenance, repairs, other
            operating expense,  insurance,  taxes,  depreciation and interest on
            gross investment less  accumulated  depreciation not to exceed eight
            percent (8 %) per annum. In addition,  for platforms  only, the rate
            may   include  an  element  of  the   estimated   cost  of  platform
            dismantlement.  Such rates shall not exceed a wage commercial  rates
            currently prevailing in the immediate area of the Joint Property.

      B.    In lieu of charges in Paragraph 7A  above, Operator may elect to use
            average  commercial  rates  prevailing in the immediate  area of the
            Joint Property less twenty percent (20%). For automotive  equipment,
            Operator  may elect to use rates  published by the  Petroleum  Motor
            Transport Association.

8.    Damages and Losses to Joint Property

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

9.    Legal Expense

      Expense of  handling,  investigating  and settling  litigation  or claims,
      discharging  of  liens,   payments  of  judgments  and  amounts  paid  for
      settlement of claims  incurred in or resulting from  operations  under the
      Agreement or necessary  to protect or recover the Joint  Property, *except
      that no charge for services of  Operator's  legal staff or fees or expense
      of outside  attorneys  shall be made  unless  previously  agreed to by the
      Parties.  All other  legal  expense  is  considered  to be  covered by the
      overhead  provisions  of  Section  III unless  otherwise  agreed to by the
      Parties,  except as provided in Section 1, Paragraph 3. *and the costs and
      expenses  incurred in connection  with  hearings and other matters  before
      governmental agencies and bodies.

10.   Taxes

      All  taxes  of  every  kind  and  nature  assessed  or  levied  upon or in
      connection  with  the  Joint  Property,  the  operation  thereof,  or  the
      production  therefrom,  and which taxes have been paid by the Operator for
      the benefit of the Parties, if the ad

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      valorem  taxes are based in whole or in part upon  separate  valuations of
      each  party's  working  interest,  then  notwithstanding  anything  to the
      contrary  herein,  charges to the Joint  Account shall be made and paid by
      the Parties  hereto in  accordance  with the tax value  generated  by each
      party's working interest.

11.   Insurance

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

12.   Communications

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

13.   Ecological and Environmental

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

14.   Abandonment and Reclamation

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

5.    Other Expenditures

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

                                  III. OVERHEAD

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

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

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

            (    ) shall be covered by the overhead rates.
            ( X  ) shall not be covered by the overhead rates.

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

            ( X  ) shall be covered by the overhead rates.
            (    ) shall not be covered by the overhead rates.

I.    Overhead - Drilling and Producing Operations

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

      ( X  ) Fixed Rate Basis, Paragraph 1A, or
      (    ) Percentage Basis, Paragraph IB

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A.    Overhead - Fixed Rate Basis

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

            Drilling Well Rate $ 29,500 (Prorated for less than a Full month)
            Producing Well Rate $ 2.950

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

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

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

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

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

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

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

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

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

      (4)   The well  rates shall be adjusted  as of the first day of April each
            year  following  the  effective  date of the agreement to which this
            Accounting Procedure is attached by the percent increase or decrease
            published by COPAS.

*     Notwithstanding  anything herein contained to the contrary, the reasonable
      and  customary  fees and expenses  incurred by contract  personnel  and/or
      professional  consultants  as such fees and  expenses  relate  to  matters
      before or involving  governmental  agencies  (including but not limited to
      the  Minerals  Management  Service),  and to the extent that such fees and
      expenses are associated  with the operation of the Joint Property shall be
      chargeable to the Joint Account.

COPYRIGHT(C) 1987, 2004 by the Council of Petroleum Accountants Societies, Inc.

                                       -5-
<PAGE>

2.    Overhead - Major Construction

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

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

            (1)   5 % of total  costs if such  costs are more than $ 25 ,000 but
                  less than $ 100,000; plus

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

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

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

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

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

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

      Total 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.

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

3.    Overhead - Catastrophe

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

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

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

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

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

4.    Amendment of Rates

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

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

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

1.    Purchases

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

2.    Transfers and Dispositions

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

COPYRIGHT (C) 1987, 2004 by the Council of Petroleum Accountants Societies, Inc.

                                       -6-
<PAGE>

      A.    New Material (Condition A)

            (1)   Tubular Goods Other than Line Pipe

                  (a)   Tubular goods, sized 2 3/8 inches OD and larger,  except
                        line  pipe,  shall be priced at Eastern  mill  published
                        carload  base  prices  effective  as of date of movement
                        plus  transportation cost using the 80,000 pound carload
                        weight basis to the railway  receiving point nearest the
                        Joint  Property  for  which  published  rail  rates  for
                        tubular  goods  exist.  If the 80,000 pound rail rate is
                        not offered,  the 70,000 pound or 90,000 pound rail rate
                        may  be  used.   Freight  charges  for  tubing  will  be
                        calculated from Lorain, Ohio and casing from Youngstown,
                        Ohio.

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

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

                  (d)   Macaroni  tubing (size less than 2 3/8 inch OD) shall be
                        priced  at  the  lowest  published  out-of-stock  prices
                        f.o.b. the supplier plus transportation costs, using the
                        Oil Field Haulers Association  interstate truck rate per
                        weight of tubing  transferred,  to the railway receiving
                        point nearest the Joint Property.

            (2)   Line Pipe

                  (a)   Line pipe  movements  (except size 24 inch OD and larger
                        with  walls  3/4 inch and  over)  30,000  pounds or more
                        shall  be  priced  under  provisions  of  tubular  goods
                        pricing in Paragraph A.(l)(a) as provided above. Freight
                        charges shall be calculated from Lorain, Ohio.

                  (b)   Line pipe  movements  (except size 24 inch OD and larger
                        with  walls 3/4 inch and over) less than  30,000  pounds
                        shall be priced at Eastern Mill  published  carload base
                        prices  effective  as of  date  of  shipment,  plus  the
                        percent  most  recently   recommended  by  COPAS,   plus
                        transportation costs based on freight rates as set forth
                        under  provisions  of tubular goods pricing in Paragraph
                        A.(l)(a) as provided  above.  Freight  charges  shall be
                        calculated from Lorain, Ohio.

                  (c)   Line pipe 24 inch OD and over and % inch wall and larger
                        shall be  priced  f.o.b.  the  point of  manufacture  at
                        current new published prices plus transportation cost to
                        the railway receiving point nearest the Joint Property.

                  (d)   Line pipe,  including  fabricated line pipe,  drive pipe
                        and conduit not listed on published price lists shall be
                        priced at quoted  prices  plus  freight  to the  railway
                        receiving  point nearest the Joint Property or at prices
                        agreed to by the Parties.

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

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

      B.    Good Used Material (Condition B)

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

            (1)   Material moved to the Joint Property

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

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

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

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

COPYRIGHT (C) 1987, 2004 by the Council of Petroleum Accountants Societies, Inc.

                                      -7-
<PAGE>

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

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

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

      C.    Other Used Material

            (1)   Condition C

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

            (2)   Condition D

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

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

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

            (3)   Condition E

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

      D.    Obsolete Material

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

      E.    Pricing Conditions

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

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

3.    Premium Prices

      Whenever Material is not readily  obtainable at published or listed prices
      because of  national  emergencies,  strikes or other  unusual  causes over
      which the  Operator  has no  control,  the  Operator  may charge the Joint
      Account for the required  Material at the Operator's  actual cost incurred
      in providing such  Material,  in making it suitable for use, and in moving
      it to the Joint  Property;  provided  notice in  writing is  furnished  to
      Non-Operators  of the proposed charge prior to billing  Non-Operators  for
      such Material.  Each Non-Operator shall have the right, by so electing and
      notifying  Operator within ten days after receiving  notice from Operator,
      to furnish in kind all or part of his share of such Material  suitable for
      use and acceptable to Operator. *

4.    Warranty of Material Furnished By Operator

      Operator does not warrant the  Material  furnished.  In case of  defective
      Material, credit shall not be passed to the Joint Account until adjustment
      has been received by Operator from the manufacturers nor their agents.

*     Provided  however,  if a Non-Operator  elects to furnish material in kind,
      such material must (a) meet the quality specifications set by Operator, to
      and (b) be inspected by Operator with inspection costs to be billed to the
      Joint Account.

COPYRIGHT (C) 1987, 2004 by the Council of Petroleum Accountants Societies, Inc.

                                      -8-
<PAGE>
                                 V. INVENTORIES

      The Operator shall maintain  detailed  records of  Controllable  Material.

1.    Periodic inventories, Notice and Representation

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

2.    Reconciliation and Adjustment of Inventories

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

3.    Special Inventories

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

4.    Expense of Conducting Inventories

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

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

COPYRIGHT (C) 1987, 2004 by the Council of Petroleum Accountants Societies, Inc.

                                      -9-
<PAGE>

                                   EXHIBIT "D"

      Attached to and made a part of that certain Operating Agreement dated
           September 22, 2004, by and between Apache Corporation, as
              Operator, and Ridgewood Energy Corporation, et al, as
                                  Non-Operators

                          Non-Discrimination Provisions

During  the  performance  of  this  Agreement,  the  "contractor"  (meaning  and
referring  separately to each party hereto) agrees,  unless exempt  therefrom to
comply with all  provisions  of  Executive  Order  11246 which are  incorporated
herein  by  reference,  and (a) if  contractor  has more  than 50  employees  or
contracts with another party hereto in excess of $10,000,  contractor  must file
Standard  Form 100 (EEO-1),  (b) if  contractor  has 50 or more  employees and a
contract  of  $50,000  or more,  contractor  is  required  to  develop a written
"Affirmative Action Compliance Program" for each of its establishments according
to the Rules and Regulations  published by the United States Department of Labor
in 41 CFR, Chapter 60. Further, contractor hereby certifies that it does not now
and will not maintain any facilities  provided for its employees in a segregated
manner or permit its employees to perform their  services at any location  under
its control where  segregated  facilities  are  maintained,  as such  segregated
facilities are defined in Title 41, Chapter 60-1.8, Code of Federal Regulations,
revised as of  January 1, 1969,  unless  exempt  therefrom.  Contractor  further
warrants that no other law, regulation or ordinance of the United States, or any
state,  or any  governmental  authority  or  agency  has  been  violated  in the
manufacture,  procurement  or sale of any  good  furnished,  work  performed  or
service rendered pursuant to this contract.

Unless exempt by rules,  regulations or orders of the United States Secretary of
Labor,  issued pursuant to Section 204 of Executive Order 11246, dated September
24, 1965,  during the  performance  of this contract,  the contractor  agrees as
follows:

(1)   The contractor will not discriminate against any employee or applicant for
      employment because of race, color,  religion,  sex or national origin. The
      contractor  will take  affirmative  action to ensure that  applicants  are
      employed and that employees are treated during employment,  without regard
      to their race,  color,  religion,  sex or national  original.  Such action
      shall  include,  but  not  be  limited  to,  the  following:   Employment,
      upgrading,  demotion,  transfer,  recruitment or recruitment  advertising;
      layoff or termination;  rates of pay or other forms of  compensation;  and
      selection for training, including apprenticeship. The contractor agrees to
      post in  conspicuous  places,  available to employees and  applicants  for
      employment,  notices to be provided  by the  contracting  officer  setting
      forth the provisions of this nondiscrimination clause."

(2)   The contractor will, in all solicitations or advertisements  for employees
      placed  by or on  behalf  of the  contractor,  state  that  all  qualified
      applicants  will receive  consideration  for employment  without regard to
      race, color, religion, sex or national origin."

(3)   The contractor will send to each labor union or  representative of workers
      with which he has a collective  bargaining  agreement or other contract or
      understanding,  a notice to be provided by the agency contracting officer,
      advising the labor union or workers'  representative  of the  contractor's
      commitments  under  Section 202 of Executive  Order 11246 of September 24,
      1965, and shall post copies of the notice in conspicuous  places available
      to employees and applicants for employment."

(4)   The contractor will comply with all provisions of Executive Order 11246 of
      September  24,1965,  and of the rules,  regulations and relevant orders of
      the Secretary of Labor."

(5)   The  contractor  will  furnish  all information  and  reports  required by
      Executive Order 11246 of September 24, 1965, and by the rules, regulations
      and orders of the Secretary of Labor, or pursuant thereto, and will permit
      access to his books,  records and accounts by the  contracting  agency and
      the  Secretary  of  Labor  for  purposes  of  investigating  to  ascertain
      compliance with such rules, regulations and orders."

(6)   In the event of the contractor's  noncompliance with the nondiscrimination
      clauses of this contract or with any of such rules, regulations or orders,
      this contract may be canceled, terminated or suspended in whole or in part
      and the  contractor  may be declared  ineligible  for  further  Government
      contracts in accordance  with  procedures  authorized  in Executive  Order
      11246  of  September  24,  1965,  or by rule,  regulation  or order of the
      Secretary of Labor, or as otherwise provided by law."

(7)   The contractor will include the provisions of paragraph (1) through (8) in
      every subcontract or purchase order unless exempted by rules,  regulations
      or orders of the  Secretary  of Labor  issued  pursuant  to Section 204 of
      Executive  Order 11246 of September 24, 1965, so that such provisions will
      be binding upon each  subcontractor  or vendor.  The contractor  will take
      such  action with  respect to any  subcontract  or  purchase  order as the
      contracting  agency may  direct as a means of  enforcing  such  provisions
      including  sanctions for  noncompliance;  provided,  however,  that in the
      event the contractor  becomes  involved in, or is result of such direction
      by the contracting agency, the contractor may request the United States to
      enter into such litigation to protect the interests of the United States."

(8)   Contractor agrees and covenants that none of its employees or employees of
      its  subcontractors  who provided  services  pursuant to this contract are
      unauthorized aliens, as defined in the Immigration, Reform and Control Act
      of 1986.

<PAGE>

                                  EXHIBIT "F"

      Attached to and made a part of that certain Operating Agreement dated
            September 22, 2004, by and between Apache Corporation, as
              Operator, and Ridgewood Energy Corporation, et al, as
                                  Non-Operators

           MEMORANDUM OF OPERATING AGREEMENT AND FINANCING STATEMENT

    To be filed in the conveyance records and in the mortgage records and as
   a non-standard financing statement in accordance with Paragraph 6.0 herein.

1.0   This  Memorandum  of Operating  Agreement and  Financing  Statement  (this
      "Memorandum")  is  effective  as of the  effective  date of the  Operating
      Agreement  referred  to in  Paragraph  2.0  below and is  executed  by the
      undersigned,  duly authorized  representative  of Apache  Corporation (the
      "Operator"),        whose       taxpayer       identification       number
      is_____________________________________________________  and whose address
      is  2000  Post  Oak,  Suite  100,   Houston,   Texas  77056-4400  and  the
      undersigned,        duly        authorized        representative        of
      ________________________________.  whose  taxpayer  identification  number
      is_____________________________________and      whose      address      is
      _________,____________,________________________(the "Non-Operator").

2.0   The Operator and the  Non-Operator  are parties to that certain  Operating
      Agreement  effective   _____________________,__________   (the  "Operating
      Agreement"),  which Operating  Agreement  provides for the development and
      production of crude oil,  natural gas and associated  substances  from the
      lands and oil and gas lease(s)  described in Exhibit "A" of the  Operating
      Agreement and in Attachment "1" to this Memorandum (hereinafter called the
      "Contract Area") and which designates Apache Corporation, as the Operator,
      to conduct  such  operations  for itself  and the  Non-Operator.  All such
      leases and any future oil and gas leases  covering lands  included  within
      the  Contract   Area  that  may  be  acquired  by  the  Operator  and  the
      Non-Operator  (including  substitutions  for or  replacements  of existing
      leases) are hereinafter collectively called the "Leases."

3.0   Among other provisions,  the Operating  Agreement (a) provides for certain
      liens, mortgages,  pledges and security interests to secure payment by the
      parties of their respective share of Costs and other obligations under the
      Operating  Agreement,   (b)  contains  an  Accounting   Procedure,   which
      establishes,  among other things,  interest to be charged on indebtedness,
      certain Costs,  and other  expenses  under the Operating  Agreement at the
      rate  set  forth  therein,  and (c)  includes  Non-Consent  clauses  which
      establish that parties who elect not to participate in certain  operations
      shall (i) be deemed to have  relinquished  their  interest  in  production
      until  the  carrying  consenting  parties  recover  their  Costs  of  such
      operations  plus a  specified  amount or (ii)  forfeit  their  interest in
      certain Leases or portions thereof involved in such operations.

4.0   The  Operator  hereby  certifies  that  a true  and  correct  copy  of the
      Operating  Agreement is on file and is available  for  inspection by third
      parties at the  offices of the  Operator  at the address set forth in this
      Memorandum.

5.0   In addition to any other security rights and remedies  provided for by law
      with respect to services  rendered or materials  and  equipment  furnished
      under the Operating  Agreement,  for and in consideration of the covenants
      and mutual  undertakings of the Operator and the Non-Operator set forth in
      the Operating Agreement, the Operator and the Non-Operator hereby agree as
      follows:

      5.1   To secure the performance of and payment by the  Non-Operator of all
            obligations  and  indebtedness of the  Non-Operator  pursuant to the
            Operating  Agreement,  whether now owed or hereafter arising, and to
            the extent susceptible under applicable law, the Non-Operator hereby
            grants to the Operator a mortgage,  hypothec, and pledge of and over
            all of its rights,  titles,  and interests in and to (a) the Leases,
            (b) the oil and gas in, on, under, and that may be produced from the
            lands  covered by the Leases or included  within the Contract  Area,
            and  (c)  all  other  immovable  property  susceptible  of  mortgage
            situated within the Contract Area.

      5.2   To secure the performance of and payment by the  Non-Operator of all
            obligations  and  indebtedness of the  Non-Operator  pursuant to the
            Operating  Agreement,  whether now owed or hereafter arising, and to
            the extent susceptible under applicable law, the Non-Operator hereby
            grants to the Operator a continuing  security interest in and to all
            of its  rights,  titles,  interests,  claims,  general  intangibles,
            proceeds,  and products  thereof,  whether now existing or hereafter
            acquired,  in and to (a) all oil and gas  produced  from  the  lands
            covered by the Leases or the Contract  Area or  attributable  to the
            Leases  or  the  Contract  Area  when  produced,  (b)  all  accounts
            receivable  accruing  or arising as a result of the sale of such oil
            and gas (including,  without  limitation,  accounts arising from gas
            imbalances or from the sale of oil and gas at the wellhead), (c) all
            cash or other proceeds

<PAGE>

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

      3.5   Notwithstanding the provisions of Section 3.3 hereof, no
Overproduced  Party  shall be entitled in any month to take any Gas in excess of
three hundred percent (300%) of its Percentage  Interest of the Balancing Area's
then-current Maximum Monthly Availably;  provided, however, that this limitation
shall not apply to the extent that it would preclude production that is required
to maintain  leases in effect,  to protect the  producing  capacity of a well or
reservoir,  to  preserve  correlative  rights,  or to maintain  oil  production.
"Maximum  Monthly  Availability"  shall mean the maximum average monthly rate of
production at which Gas can be delivered from the Balancing  Area, as determined
by the  Operator  considering  the  maximum  efficient  well rate for each well
within the  Balancing  Area,  the maximum  allowable(s)  set by the  appropriate
regulatory  agency,  mode of operation,  production  facility  capabilities  and
pipeline pressures.

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

4. IN-KIND BALANCING

      4.1   Effective the first day of any calendar month following at least
thirty (30 ) days' prior written notice to the Operator, any Underproduced Party
may begin taking, in addition to its Full Share of Current Production and any
Makeup Gas taken pursuant to Section 3.3 of this Agreement, a share of current
production determined by multiplying fifty percent (50%) of the Full Shares of
Current Production of all Overproduced Parties by a fraction, the numerator of
which is the Percentage Interest of all Underproduced Party and the denominator
of which is the total of the Percentage interest of such Underproduced Parties
desiring to take Makeup Gas. In no event will an Overproduced Party be required
to provide more than fifty percent ( 50 %) of its Full Share of Current
Production for Makeup Gas. The Operator will promptly notify all Overproduced
Parties of the election of an Underproduced Party to begin taking Makeup Gas.

      4.2   X (Optional) - Seasonal Limitation on Makeup - Option 2)
Notwithstanding the provisions of Section 4.1, no Overproduced Party will be
required to provide more than fifteen percent (15 %) of its Full Share of
Current Production for Makeup Gas during the Winter Period.

      4.3   | | (Optional) Notwithstanding any other provision of this
Agreement,  at such time and for so long as  Operator,  or  (insofar as concerns
production by the Operator) any  Underproduced  Party,  determines in good faith
that an  Overproduced  Party has  produced  all of its  share of the  ultimately
recoverable  reserves in the  Balancing  Area,  such  Overproduced  Party may be
required to make  available  for Makeup Gas,  upon the demand of the Operator or
any Underproduced  Party, up to seventy-five percent (75,%) of such Overproduced
Party's Full Share of Current Production.

5. STATEMENT OF GAS BALANCES

      5.1   The Operator will maintain appropriate accounting on a monthly and
cumulative basis of the volumes of Gas that each Party is entitled to receive
and the volumes of Gas actually taken or sold for each Party's account. Within
thirty (30) days after the month of production, the Operator will furnish a
statement for such month showing (1) each Party's Full Share of Current
Production, (2) the total volume of Gas actually taken or sold for each Party's
account, (3) the difference between the volume taken by each Party and that
Party's Full Share of Current Production and (4) the Overproduction or
Underproduction of each Party, Each Party taking Gas will promptly provide to
the Operator any data required by the Operator for preparation of the
statements, required hereunder.

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

6. PAYMENTS ON PRODUCTION

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

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

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

 7. CASH SETTLEMENTS

      7.1   Upon the earlier of the plugging and abandonment of the last
producing interval in the Balancing Area, the termination of the Operating
Agreement & any pooling or unit agreement covering the Balancing Area, or upon
the election to abandon under the Joint Operating Agreement or at any time no
Gas is taken from the Balancing Area for a period of four (4) consecutive
months, any Party may give written notice calling for cash settlement of the Gas
production imbalances among the Parties. Such notice shall be given to all
Parties in the Balancing Area,

      7.2   Within one-hundred and twenty (120) days after the notice calling
for cash settlement under Section 7.1, the Operator will distribute to each
Party a Final Gas Settlement Statement detailing the quantity of Overproduction
owed by each Overproduced Party to each Underproduced Party and identifying the
month to which such Overproduction is attributed, pursuant to the methodology
set out in Section 7.4.

<PAGE>

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

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

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

      12.4  This Agreement shall remain in full force and effect for as long as
the Operating Agreement shall remain in force and effect as to the Balancing
Area, and thereafter until the Gas accounts between the Parties are settled in
full, and shall inure to the benefit of and be binding upon the Parties hereto,
and their respective heirs, successors, legal representatives and assigns, if
any. The Parties hereto agree to give notice of the existence of this Agreement
to any successor in Interest of any such Party and to provide that any such
successor shall be bound by this Agreement, and shall further make any transfer
of any interest subject to the Operating Agreement, or any part thereof, also
subject to the terms of this Agreement.

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

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

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

      12.9  In the event Internal Revenue Service regulations require a uniform
method of computing taxable income by all Parties, each Party agrees to compute
and report income to the Internal Revenue Service based on the quantity of Gas
taken for its account in accordance with such regulations, insofar as same
relate to sales method tax computations.

13. ASSIGNMENT AND RtGHTS UPON ASSIGNMENT

      13.1  Subject to the provisions of Sections 13.2 (if elected) and 13.3
hereof, and notwithstanding anything in this Agreement or in the Operating
Agreement to the contrary, if any Party assigns (including any sale, exchange or
other transfer) any of its working interest in the Balancing Area when such
Party is an Underproduced or Overproduced Party, the assignment or other act of
transfer shall, insofar as the Parties hereto are concerned, include all
interest of the assigning or transferring Party in the Gas, all rights to
receive or obligations to provide or take Makeup Gas and all rights to receive
or obligations to make any monetary payment which may ultimately be due
hereunder, as applicable. Operator and each of the other Parties hereto shall
thereafter treat the assignment accordingly, and the assigning or transferring
Party shall look solely to its assignee or other transferee for any interest in
the (Gas or monetary payment that such Party may have or to which it may be
entitled, and shall cause its assignee or other transferee to assume its
obligations hereunder,

      13.2  | | (Optional - Cash Settlement Upon Assignment) Notwithstanding
anything in this Agreement (including but not limited to the provisions of
Section 13.1 hereof) or in the Operating Agreement to the contrary, and subject
to the provisions of Section 13.3 hereof, in the event an Overproduced Party
intends to sell, assign, exchange or otherwise transfer any of its interest in a
Balancing Area, such Overproduced Party shall notify in writing the other
working interest owners who are Parties hereto in such Balancing Area of such
fact at least sixty (60 ) days prior to closing the transaction. Thereafter, any
Underproduced Party may demand from such Overproduced Party in writing, within
thirty (30) days after receipt of the Overproduced Party's notice, a cash
settlement of its Underproduction from the Balancing Area. The Operator shall be
notified of any such demand and of any cash settlement pursuant to this Section
13, and the Overproduction and Underproduction of each Party shall be adjusted
accordingly. Any cash settlement pursuant to this Section 13 shall be paid by
the Overproduced Party on or before the earlier to occur (i) of sixty (60) days
after receipt of the Underproduced Party's demand or (ii) at the closing of the
transaction in which the Overproduced Party sells, assigns, exchanges or
otherwise transfers its interest in a Balancing Area on the same basis as
otherwise set forth in Sections 7.3 through 7.6 hereof, and shall bear interest
at the rate set forth in Section 7.7 hereof, beginning sixty (60) days after the
Overproduced Party's sale, assignment, exchange or transfer of its interest in
the Balancing Area for any amounts not paid. Provided, however, if any
Underproduced Party does not so demand such cash settlement of its
Underproduction from the Balancing Area, such Underproduced Party shall look
exclusively to the assignee or other successor in interest of the Overproduced
Party giving notice hereunder for the satisfaction of such Underproduced Party's
Underproduction in accordance with the provisions of Section 13.1 hereof.

      13.3  The provisions of this Section 13 shall not be applicable in the
event any Party mortgages its interest or disposes of its interest by merger,
reorganization, consolidation or sale of substantially all of its assets to a
subsidiary or parent company, or to any company in which any parent or
subsidiary of such Party owns a majority of the stock of such company.

<PAGE>

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

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

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

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

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

      7.6   To the extent the Overproduced Party did not sell all Overproduction
under an  Arm's  Length  Agreement,  the  cash  settlement  will be based on the
weighted average price received by the Overproduced  Party for any gas sold from
the Balancing Area under Arm's Length Agreements during the months to which such
Overproduction  is  attributed.  In the event that no sales under  Arm's  Length
Agreements  were made during any such month,  the cash settlement for such month
will be based on the spot sales prices  published for She applicable  geographic
area during such month in a mutually acceptable pricing bulletin.

      7.7   Interest compounded at the rate of Chase Manhattan Bank prime plus
one percent (1%) per annum or the maximum law ful rate of interest applicable to
the Balancing Area, whichever is less, will accrue for all amounts due under
Section 7.1 beginning the first day following the date payment is due pursuant
to Section 7.3. Such interest shall be borne by the Overproduced Party for
delays beyond the deadlines set out in Sections 7.2 and 7.3.

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

8.    TESTING

      Notwithstanding any provision of this Agreement to the contrary, any Party
shall have the right, from time to time, to produce and take up to one hundred
percent (100%) of a well's entire Gas stream to meet the reasonable
deliverability test(s) required by such Party's Gas purchaser, and the right to
take any Makeup Gas shall be subordinate to the right of any Party to conduct
such tests; provided, however, that such tests shall be conducted in accordance
with prudent operating practices only after seven (7) days' prior written
notice to the Operator and shall last no longer than twenty-four (24) hours.

9.    OPERATING COSTS

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

10.   LIQUIDS

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

11.  AUDIT RIGHTS

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

12. MISCELLANEOUS

<PAGE>

                                   EXHIBIT "E"

      Attached to and made a part of that certain Operating Agreement dated
       September 22, 2Q04, by and between Apache Corporation, as Operator,
            and Ridgewood Energy Corporation, et al, as Non-Operators

                            GAS BALANCING PROVISIONS

1.    DEFINITIONS

      The following definitions shall apply to this Agreement:

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

      1.02  "Balancing Area" shall mean all of the acreage and depths subject to
            the Operating Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

      1.16  | | (Optional) "Winter Period" shall mean the month(s) of November
            and December in one calendar year and the month(s) of January and
            February in the succeeding calendar year.

2.          BALANCING AREA

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

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

3.          RIGHT OF PARTIES TO TAKE GAS

      3.1   Each Party desiring to take Gas will notify the Operator, or cause
the Operator to be notified, of the volumes nominated, the name of the
transporting pipeline and the pipeline contract number (If available) and meter
station relating to such delivery, sufficiently in advance for the Operator,
acting with reasonable diligence, to meet all nomination and other requirements.
Operator is authorized to deliver the volumes so nominated and confirmed (if
confirmation is required) to the transporting pipeline in accordance with the
terms of this Agreement.

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

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

<PAGE>

      from the sale of such oil and gas once  produced,  and (d) all  platforms,
      wells, facilities,  fixtures, other corporeal property, whether movable or
      immovable,  whether now or hereafter placed on the property covered by the
      Leases or the Contract Area or  maintained or used in connection  with the
      ownership,  use, or  exploitation  of the Leases or the Contract Area, and
      other surface and sub-surface  equipment of any kind or character  located
      on or  attributable  to the Leases or the Contract  Area,  and the cash or
      other proceeds realized from any sale, transfer, disposition or conversion
      thereof.  The  interest  of the  Non-Operator  in and to the  oil  and gas
      produced  from or  attributable  to the Leases or the  Contract  Area when
      extracted and the accounts receivable accruing or arising as the result of
      the sale  thereof  shall be financed at the  wellhead of the well or wells
      located  on the Leases or the  Contract  Area.  To the extent  permissible
      under  applicable law, the security  interest  granted by the Non-Operator
      hereunder covers (i) all  substitutions,  replacements,  and accessions to
      the property of the Non-Operator described herein and is intended to cover
      all of the  rights,  titles,  and  interests  of the  Non-Operator  in all
      movable property now or hereafter  located upon or used in connection with
      the Contract Area, whether corporeal or incorporeal, (ii) all rights under
      any gas  balancing  agreement,  farmout  rights,  option  farmout  rights,
      acreage and cash contributions,  and conversion rights of the Non-Operator
      in  connection  with the Leases or the Contract  Area,  or the oil and gas
      produced from or attributable to the Leases or the Contract Area,  whether
      now owned or existing or hereafter acquired or arising, including, without
      limitation,  all interests of the  Non-Operator  in any  partnership,  tax
      partnership,  limited  partnership,  association,  joint venture, or other
      entity or  enterprise  that holds,  owns,  or controls any interest in the
      Contract  Area, and (iii) all rights,  claims,  general  intangibles,  and
      proceeds,  whether now existing or hereafter acquired, of the Non-Operator
      in and to the contracts, agreements, permits, licenses, rights-of-way, and
      similar rights and privileges  that relate to or are appurtenant to any of
      the Leases or the Contract Area, including the following:

            (1)   all rights, titles, and interests of the Non-Operator, whether
                  now owned and existing or hereafter  acquired or arising,  in,
                  to, and under or derived from any present or future operating,
                  farmout,  bidding, pooling,  unitization,  and communitization
                  agreements,   assignments,   and  subleases,  whether  or  not
                  described in  Attachment  "1," to the extent,  and only to the
                  extent, that such agreements, assignments, and subleases cover
                  or include any of its rights,  titles, and interests,  whether
                  now owned and  existing or hereafter  acquired or arising,  in
                  and to all or any portion of the Leases or the Contract  Area,
                  and all units  created by any such pooling,  unitization,  and
                  communitization agreements, and all units formed under orders,
                  regulations, rules, or other official acts of any governmental
                  authority having  jurisdiction,  to the extent and only to the
                  extent  that such units cover or include all or any portion of
                  the Leases or the Contract Area;

            (2)   all rights, titles, and interests of the Non-Operator, whether
                  now owned and existing or hereafter  acquired or arising,  In,
                  to,  and under or  derived  from all  presently  existing  and
                  future advance payment  agreements,  and oil,  casinghead gas,
                  and  gas  sales,   exchange,   and  processing  contracts  and
                  agreements, including, without limitation, those contracts and
                  agreements  that  are  described  on  Attachment  "1,"  to the
                  extent,  and only to the  extent,  that  those  contracts  and
                  agreements  cover or include  all or any portion of the Leases
                  or the Contract Area; and

            (3)   all rights, titles, and interests of the Non-Operator, whether
                  now owned and existing or hereafter  acquired or arising,  in,
                  to, and under or derived from all existing and future permits,
                  licenses,  rights-of-way,  and similar  rights and  privileges
                  that relate to or are  appurtenant to any of the Leases or the
                  Contract Area.

5.3   This Memorandum (including a carbon,  photographic,  or other reproduction
      thereof and hereof)  shall  constitute  a  non-standard  form of financing
      statement under the terms of Chapter 9 of the Louisiana  Commercial  Laws,
      La. R.S.  10:9-101 et seq, (the "Uniform  Commercial  Code," as adopted in
      the State of  Louisiana)  and, as such,  for the  purposes of the security
      interest in favor of the  Operator,  may be filed for record in the office
      of the Clerk of Court of any  parish in the State of  Louisiana,  with the
      Operator  being the secured  party and the  Non-Operator  being the debtor
      with respect to such filing.

5.4   The  maximum  amount  for  which  the  mortgage   herein  granted  by  the
      Non-Operator shall be deemed to secure the obligations and indebtedness of
      such  Non-Operator to the Operator as stipulated herein is hereby fixed in
      an amount  equal to  Twenty-Five  Million  Dollars  ($25,000,000.00)  (the
      "Limit of the Mortgage of the  Non-Operator").  Except as provided in the
      previous  sentence  (and  then only to the  extent  such  limitations  are
      squired by law), the entire amount of obligations and  indebtedness of the
      Non-Operator

<PAGE>

      to the Operator is secured hereby without limitation.  Notwithstanding the
      foregoing Limit of the Mortgage of the Non-Operator,  the liability of the
      Non-Operator  under this Memorandum and the mortgage and security interest
      granted hereby shall be limited to (and the Operator shall not be entitled
      to enforce the same against the Non-Operator for, an amount exceeding) the
      actual  obligations  and  indebtedness  (including  all interest  charges,
      Costs,  attorneys' fees, and other charges provided for in this Memorandum
      or in the  Operating  Agreement)  outstanding  and  unpaid  and  that  are
      attributable  to or  charged  against  the  interest  of the  Non-Operator
      pursuant to the Operating Agreement.

5.5   To  secure  the  performance  of  and  payment  by  the  Operator  of  all
      obligations  and  indebtedness  of the Operator  pursuant to the Operating
      Agreement,  whether  now  owed or  hereafter  arising,  and to the  extent
      susceptible  under  applicable  law,  the  Operator  hereby  grants to the
      Non-Operator  a  mortgage,  hypothec,  and  pledge  of and over all of its
      rights,  titles,  and interests in and to (a) the Leases,  (b) the oil and
      gas in, on, under,  and that may be produced from the lands covered by the
      Leases or included  within the Contract Area, and (c) all other  immovable
      property susceptible of mortgage situated within the Contract Area.

5.6   To  secure  the  performance  of  and  payment  by  the  Operator  of  all
      obligations  and  indebtedness  of the Operator  pursuant to the Operating
      Agreement,  whether  now  owed or  hereafter  arising,  and to the  extent
      susceptible  under  applicable  law,  the  Operator  hereby  grants to the
      Non-Operator a continuing  security  interest in and to all of its rights,
      titles,  interests,  claims,  general intangibles,  proceeds, and products
      thereof, whether now existing or hereafter acquired, in and to (a) all oil
      and gas produced from the lands covered by the Leases or the Contract Area
      or attributable to the Leases or the Contract Area when produced,  (b) all
      accounts  receivable  accruing  or arising as a result of the sale of such
      oil and gas  (including,  without  limitation,  accounts  arising from gas
      imbalances or from the sale of oil and gas at the wellhead),  (c) all cash
      or other proceeds from the sale of such oil and gas once produced, and (d)
      all platforms,  wells,  facilities,  fixtures,  other corporeal  property,
      whether  movable or  immovable,  whether  now or  hereafter  placed on the
      property  covered by the Leases or the Contract Area or maintained or used
      in connection with the ownership, use or exploitation of the Leases or the
      Contract Area, and other surface and sub-surface  equipment of any kind or
      character  located on or  attributable  to the Leases or the Contract Area
      and  the  cash  or  other  proceeds  realized  from  any  sale,  transfer,
      disposition or conversion thereof.  The interest of the Operator in and to
      the  oil and  gas  produced  from or  attributable  to the  Leases  or the
      Contract  Area when  extracted  and the  accounts  receivable  accruing or
      arising  as the  result  of the  sale  thereof  shall be  financed  at the
      wellhead of the well or wells located on the Leases or the Contract  Area.
      To the extent  permissible  under  applicable  law, the security  interest
      granted  by  the  Operator   hereunder   covers  (a)  all   substitutions,
      replacements,  and  accessions  to the property of the Operator  described
      herein and is intended to cover all of the rights, titles and interests of
      the Operator in all movable property now or hereafter located upon or used
      in connection  with the Contract Area,  whether  corporeal or incorporeal,
      (b) all rights under any gas balancing agreement,  farmout rights,  option
      farmout rights,  acreage and cash contributions,  and conversion rights of
      the Operator in  connection  with the Leases or the Contract  Area, or the
      oil and gas produced  from or  attributable  to the Leases or the Contract
      Area,  whether  now owned or existing  or  hereafter  acquired or arising,
      including,  without  limitation,  all  interests  of the  Operator  in any
      partnership,  tax partnership,  limited  partnership,  association,  joint
      venture,  or other entity or enterprise that holds,  owns, or controls any
      interest  in the  Contract  Area,  and (c)  all  rights,  claims,  general
      intangibles,  and  proceeds  of the  Operator,  whether  now  existing  or
      hereafter  acquired,  in  and  to  the  contracts,   agreements,  permits,
      licenses,  rights-of-way, and similar rights and privileges that relate to
      or are  appurtenant to any of the Leases or the Contract  Area,  including
      the following;

               (i)  all rights,  titles, and interests of the Operator,  whether
                    now owned and existing or hereafter acquired or arising, in,
                    to,  and  under  or  derived  from  any  present  or  future
                    operating,   farmout,  bidding,  pooling,  unitization,  and
                    communitization  agreements,   assignments,  and  subleases,
                    whether or not described in  Attachment  "1," to the extent,
                    and only to the extent,  that such agreements,  assignments,
                    and  subleases  cover or include any of its rights,  titles,
                    and  interests,  whether now owned and existing or hereafter
                    acquired  or  arising,  in and to all or any  portion of the
                    Leases or the Contract  Area,  and all units  created by any
                    such pooling,  unitization,  and communitization  agreements
                    and all units formed under orders,  regulations,  rules,  or
                    other  official acts of any  governmental  authority  having
                    jurisdiction, to the extent and only to the extent that such
                    units  cover or include  all or any portion of the Leases or
                    the Contract Area;

              (ii)  all rights,  titles, and interests of the Operator,  whether
                    now owned and existing or hereafter acquired or arising, in,
                    to, and under or derived  from all  presently  existing  and
                    future advance payment agreements, and oil,

<PAGE>

                    casinghead  gas,  and gas sales,  exchange,  and  processing
                    contracts and  agreements,  including,  without  limitation,
                    those   contracts  and  agreements  that  are  described  on
                    Attachment "1," to the extent, and only to the extent,  that
                    those  contracts and agreements  cover or include all or any
                    portion of the Leases or the Contract Area; and

             (iii)  all rights,  titles, and interests of the Operator,  whether
                    now owned and existing or hereafter acquired or arising, in,
                    to,  and  under or  derived  from all  existing  and  future
                    permits,  licenses,  rights-of-way,  and similar  rights and
                    privileges  that relate to or are  appurtenant to any of the
                    Leases or the Contract Area.

      5.7   For  the  purposes  of  the  security   interest  in  favor  of  the
            Non-Operator,  this Memorandum (including a carbon, photographic, or
            other   reproduction   thereof   and  hereof)  may  be  filed  as  a
            non-standard  form of  financing  statement  pursuant to the Uniform
            Commercial Code in the office of the Clerk of Court of any parish in
            the State of  Louisiana,  with the  Non-Operator  being the  secured
            party and the Operator being the debtor with respect to such filing.

      5.8   The maximum  amount for which the mortgage  herein  granted shall be
            deemed to secure the obligations and indebtedness of the Operator to
            the  Non-Operator as stipulated  herein is hereby fixed in an amount
            equal  to  Twenty-Five  Million  Dollars   ($25,000,000.00)  in  the
            aggregate   (the  "Limit  of  the   Mortgage   of  the   Operator"),
            irrespective  of the  total  number  of  Non-Operators  party to the
            Operating  Agreement at any time. Except as provided in the previous
            sentence (and then only to the extent such  limitations are required
            by law), the entire amount of obligations  and  indebtedness  of the
            Operator to the  Non-Operator is secured hereby without  limitation.
            Notwithstanding the foregoing Limit of the Mortgage of the Operator,
            the liability of the Operator under this Memorandum and the mortgage
            and security  interest  granted  hereby shall be limited to (and the
            Non-Operator  shall not be  entitled  to  enforce  the same  against
            Operator  for,  an amount  exceeding)  the  actual  obligations  and
            indebtedness  (including  all interest  charges,  Costs,  attorneys'
            fees,  and other charges  provided for in this  Memorandum or in the
            Operating   Agreement)   outstanding   and   unpaid   and  that  are
            attributable  to or charged  against the  interest  of the  Operator
            pursuant to the Operating Agreement.

6.0   To serve as notice of the existence of the Operating Agreement as a burden
      on the title of the Operator and the  Non-Operator  to their  interests in
      and to the Leases,  and the Contract  Area, and for purposes of satisfying
      otherwise  relevant  recording and filing  requirements of applicable law,
      this Memorandum is to be filed or recorded, as the case may be, in (a) the
      conveyance records of the parish or parishes in which the lands covered by
      the Leases or included  within the  Contract  Area are located or adjacent
      pursuant  to La. R.S.  9:2731 et seq.,  (b) the  mortgage  records of such
      parish  or  parishes,  and (c) the  appropriate  Uniform  Commercial  Code
      records.  All  parties  to  the  Operating  Agreement  are  identified  on
      Attachment "1" hereto.

7.0   If performance of any obligation under the Operating  Agreement or payment
      of any indebtedness  created thereunder does not occur or is not made when
      due under the  Operating  Agreement  or upon  default of any  covenant  or
      condition  of the  Operating  Agreement,  in addition to any other  remedy
      afforded by law, each party to the  Operating  Agreement and any successor
      to such party by assignment,  operation of law, or otherwise,  shall have,
      and is hereby given and vested with,  the power and authority to foreclose
      the  mortgage,  pledge,  and security  interest  established  in its favor
      herein and in the Operating Agreement in the manner provided by law and to
      exercise all rights of a secured party under the Uniform  Commercial Code.
      If  the  Non-Operator  does  not  pay  its  indebtedness  or  perform  its
      obligations  under the Operating  Agreement  when due, the Operator  shall
      have the  additional  right to notify the  purchaser or  purchasers of the
      Non-Operator's  production  and  collect  such  indebtedness  out  of  the
      proceeds from the sale of the Non-Operator's share of production until the
      amount owed has been paid. The Operator shall have the right to offset the
      amount owed against the proceeds from the sale of the Non-Operator's share
      of production.  Any purchaser of such production shall be entitled to rely
      on the Operator's  statement concerning the amount of indebtedness owed by
      the  Non-Operator  and payment made to the Operator by any purchaser shall
      be binding and conclusive as between such purchaser and the Non-Operator.

8.0   Upon  expiration of the Operating  Agreement and the  satisfaction  of all
      obligations and indebtedness arising thereunder,  the Operator,  on behalf
      of all  parties  to the  Operating  Agreement,  shall  file of  record  an
      appropriate  release and  termination  of all  security  and other  rights
      created under the Operating  Agreement and this Memorandum executed by all
      parties to the  Operating  Agreement.  Upon the filing of such release and
      termination instrument, all benefits and obligations under this Memorandum
      shall  terminate  as to all  parties who have  executed  or ratified  this
      Memorandum.  In addition,  at any time prior to the filing of such release
      and  termination  instrument,  each of the Operator  and the  Non-Operator
      shall have the right to (i) file a continuation  statement pursuant to the
      Uniform Commercial Code with respect to any financing

<PAGE>

      statement filed in their favor under the terms of this Memorandum and (ii)
      reinscribe this act in the appropriate mortgage records.

9.0   It is understood and agreed by the parties hereto that if any part,  term,
      or provision of this  Memorandum is held by the courts to be illegal or in
      conflict  with  any law of the  state  where  made,  the  validity  of the
      remaining portions or provisions shall not be affected, and the rights and
      obligations  of the  parties  shall be  construed  and  enforced as if the
      Memorandum did not contain the particular part, term, or provision held to
      be invalid.

10.0  This  Memorandum  shall be binding  upon and shall inure to the benefit of
      the parties hereto and their respective Segal representatives,  successors
      and  permitted  assigns.  The  failure  of one or more  persons  owning an
      interest in the Contract Area to execute this Memorandum  shall not in any
      manner  affect the  validity  of the  Memorandum  as to those  persons who
      execute this Memorandum.

11.0  A party having an interest in the Contract Area may ratify this Memorandum
      by execution and delivery of an instrument of  ratification,  adopting and
      entering into this Memorandum,  and such ratification  shall have the same
      effect  as if the  ratifying  party  had  executed  this  Memorandum  or a
      counterpart thereof. By execution or ratification of this Memorandum, such
      party hereby  consents to its  ratification  and adoption by any party who
      acquires or may acquire any interest in the Contract Area.

12.0  This  Memorandum  may be executed or ratified in one or more  counterparts
      and all of the executed or ratified counterparts shall together constitute
      one instrument. For purposes of recording in each of the records described
      in Paragraph 6 above,  duplicate copies of this Memorandum with individual
      signature pages attached thereto may be filed of record,  one copy of each
      to be indexed in the name of the  Operator,  as  grantor,  and one copy of
      each to be  indexed  in the  name of the  Non-Operator,  as  grantor,  and
      duplicate  copies  of this  Memorandum  with  individual  signature  pages
      attached thereto may be filed in the appropriate  Uniform  Commercial Code
      records, one filing for the Operator, as secured party, and another filing
      for the  Non-Operator,  as secured party. The respective  addresses of the
      Operator, as both secured party and debtor, and the Non-Operator,  as both
      debtor  and  secured  party,  at which  information  with  respect  to the
      security interests created in the Operating Agreement may be obtained, are
      set forth in Paragraph 1.0 of this Memorandum.

13.0  The Operator and the Non-Operator hereby agree to execute, acknowledge and
      deliver  or  cause  to  be  executed,   acknowledged  and  delivered,  any
      instrument or take any action  necessary or  appropriate to effectuate the
      terms of the Operating Agreement or any Exhibit,  instrument,  certificate
      or other document pursuant thereto.

14.0  Whenever the context requires,  reference herein made to the single number
      shall be understood to include the plural,  and the plural shall  likewise
      be understood to include the singular,  and specific enumeration shall not
      exclude the general, but shall be construed as cumulative.

EXECUTED on the dates set forth below each  signature  but made  effective as of
July 1, 2003.

                               OPERATOR:

WITNESSES:                     APACHE CORPORATION

__________________________     By:________________________________
                                      C. R, Harden

__________________________            Attorney-in-Fact
                               Date:______________________________

                               NON-OPERATOR:

WITNESSES:                     RIDGEWOOD ENERGY CORPOPRTION-

__________________________     By:________________________________
                               Name:  W. Greg Tabor
__________________________     Title: Executive Vice-President

<PAGE>

                                 ACKNOWLEDGMENT
                                    OPERATOR:

STATE OF TEXAS

COUNTY OF HARRIS

      On this_________ day of September,  2004,, before me, appeared C.R. Harden
to me personally  known,  who,  being by me duly sworn,  did say that she is the
Attorney-in-Fact of Apache  Corporation,  a Delaware  corporation,  and that the
foregoing instrument was signed on behalf of the corporation by authority of its
Board of Directors and that C.R.  Harden  acknowledged  the instrument to be the
free act and deed of the corporation.

                                           ________________________________
                                           NOTARY PUBLIC in and for the
                                           State of Texas

 My Commission expires:

                                 ACKNOWLEDGMENT
                                  NON-OPERATOR:

STATE OF TEXAS

COUNTY OF HARRIS

      On  this__________day  of September,  2004,  before me, appeared NORMAN R.
ROWLINSON,  to me personally known, who, being by me duly sworn, did say that he
is President of EXCESS ENERGY GP, LLC, Managing Partner of EXCESS ENERGY,  LTD.,
and that the foregoing  instrument  was signed on behalf of the  corporation  by
authority of its Board of Directors  and that NORMAN R.  ROWLINSON  acknowledged
the instrument to be the free act and deed of said company.

                                           ________________________________
                                           NOTARY PUBLIC in and for the
                                           State of Texas

My Commission expires:

STATE OF TEXAS

COUNTY OF HARRIS

      On this__________day of____________, 2004, before me, appeared__________.,
to me  personally  known,  who,  being  by me duly  sworn,  did  say  that he is
_________ of  ____________  ,  a______________________  , and that the foregoing
instrument was signed on behalf of the  corporation by authority of its Board of
Directors and  that_______________,  acknowledged  the instrument to be the free
act and deed of the______________.

                                           ________________________________
                                           NOTARY PUBLIC in and for the
                                           State of Texas

My Commission expires:

STATE OF TEXAS

COUNTY OF HARRIS

      On this___________day  of_________________,  2004, before me,  appeared
______________.,  to me personally  known,  who, being by me duly sworn, did say
that he is ________ of  ___________,  a________________,  and that the foregoing
instrument was signed on behalf of the  corporation by authority of its Board of
Directors and  that____________________,  acknowledged  the instrument to be the
free act and deed of the_________________.

                                           ________________________________
                                           NOTARY PUBLIC in and for the
                                           State of Texas

<PAGE>

                                 State of Texas

My Commission expires:

STATE OF TEXAS

COUNTY OF HARRIS

      On   this______________   day   of_________,2004,  before   me,   appeared
___________.,  to me personally known, who, being by me duly sworn, did say that
he is _____________ of _____________, a _______________,  and that the foregoing
instrument was signed on behalf of the  corporation by authority of its Board of
Directors and  that_______________,  acknowledged  the instrument to be the free
act and deed of the___________________.

                                           ________________________________
                                           NOTARY PUBLIC in and for the
                                           State of Texas
My Commission expres:

STATE OF TEXAS

COUNTY OF HARRIS

      On   this____________day    of________,    2004,   before   me,   appeared
_________________., to me personally known, who, being by me duly sworn, did say
that he is  __________  of  _________________,  a_______________,  and  that the
foregoing instrument was signed on behalf of the corporation by authority of its
Board of Directors and that_____________________, acknowledged the instrument to
be the free act and deed of the_________________.

                                           ________________________________
                                           NOTARY PUBLIC in and for the
                                           State of Texas

My Commission expires:

STATE OF TEXAS

COUNTY OF HARRIS

      On   this____________day    of________,    2004,   before   me,   appeared
_________________., to me personally known, who, being by me duly sworn, did say
that he is  __________  of  _________________,  a_______________,  and  that the
foregoing instrument was signed on behalf of the corporation by authority of its
Board of Directors and that_____________________, acknowledged the instrument to
be the free act and deed of the_________________.

                                           ________________________________
                                           NOTARY PUBLIC in and for the
                                           State of Texas

<PAGE>

COUNTY OF HARRIS

      On this___________day of , 2004, before me, appeared_________________., to
me  personally  known,  who,  being  by  me  duly  sworn,  did  say  that  he is
____________________  of  ______________,  a  _________________,  and  that  the
foregoing instrument was signed on behalf of the corporation by authority of its
Board of Directors and that ____________,  acknowledged the instrument to be the
free act and deed of the____________________.

                                           ________________________________
                                           NOTARY PUBLIC in and for the
                                           State of Texas

My Commission expires:

COUNTY OF HARRIS

      On this __________ day of _________,  2004, before me, appeared_________.,
to  me  personally  known,  who,  being  by me  duly  sworn,  did  say  that  he
is__________ of ___________ , a____________ , and that the foregoing  instrument
was signed on behalf of the  corporation  by authority of its Board of Directors
and that ___________________, acknowledged the instrument to be the free act and
deed of the__________________.

                                           ________________________________
                                           NOTARY PUBLIC in and for the
                                           State of Texas

My Commission expires:

<PAGE>

                          ATTACHMENT "1" TO EXHIBIT "F"

    Attached to and made a part of the Memorandum of Operating Agreement and
       Financing Statement by and between Apache Corporation, as Operator,
            and Ridgewood Energy Corporation, et al, as Non-Operators

I.    DESCRIPTION OF LANDS AND LEASES WITHIN THE CONTRACT AREA

State Lease 16672, covering a portion of Block 7, Vermilion Area, containing
approximately 1,703.67 acres and State Lease 17058, covering a portion of Block
8, Vermilion Area, containing approximately 1,046.75 acres

II.   OPERATOR

      Apache Corporation

III.  PARTIES, REPRESENTATIVES, ADDRESSES, AND INTERESTS

APACHE CORPORATION                       45% WI BPO           36% WI APO

2000 Post Oak Blvd., Suite 100
Houston, TX 77056-4400
Attn: Land Manager - Gulf Coast Region
TaxID# _______________
Phone: (713)296-6349
Fax: (713)296-7024
EMAIL: becky.harden@apachecorp.com

RIDGEWOOD ENERGY CORPORATION             20% Wl BPO           16% WI APO

5300 Memorial Drive, 3rd Floor
Houston, TX 77007
Attn: Randy Bennett
Tax ID#________________
Telephone: 713-863-9563
Fax:713-863-9781
EMAIL: rbennett@ridgewcodenergy.com

TIGRE ENERGY, LLC                        0% Wl BPO            20% Wl APO

7 Hedwig Circle
Houston, TX 77024
Attn: Art Dickinson
Tax ID#_______________
Telephone: 713-468-8017
Fax:_____________________
EMAIL: adickinson@sbcglobal.net

WILLIFORD ENERGY COMPANY                 12% WI BPO           9.6% Wl APO

5314 S. Yale Avenue, Suite 900
Tulsa, OK 74135-6257
Attn: Doug Storts
Tax ID# 73-1062-169
Telephone: 918-493-2300 Ext 118
Fax:____________________________
EMAIL: dstorts@willifordenergv.com

MOUNTAIN ENERGY, LL                      10% WI BPO           8% Wl APO

PO Box 1499
Pebble Beach, CA93953
Attn: John Lockridge
Tax ID# ###-##-####
Telephone:___________________
Fax:__________________________
EMAIL: ilock@netope.com

<PAGE>

WITNESSES:                     MOUNTAIN ENERGY, LLC

__________________________     By:__________________________________
                               Name:  John Lockridge
__________________________     Title: Manager

WITNESSES:                     WILLIFORD ENERGY COMPANY

__________________________     By:__________________________________
                               Name:  P. Douglas Stouts
                               Title: Senior V.P., Operations

WITNESSES:                     EXCESS ENERGY, LTD.

__________________________     By:___________________________________
                               Name:  Norman R. Rowlinson
__________________________     Title: President, Excess Energy
                                      GP, LLC, Managing Partner of
                                      Excess Energy, Ltd.

WITNESSES:                     TIGRE ENERGY, LLC

__________________________     By:__________________________________
                               Name:  Jeffrey W. Wheelock
__________________________     Title: Manager

WITNESSES:                     HUERFANO CORPORATION

__________________________     By:__________________________________
                               Name:  Arthur S. Dickinson
__________________________     Title: Chairman

WITNESSES:                     LOWE PARTNERS L.P.

__________________________     By:__________________________________
                               Name:  Mary Ralph Lowe
__________________________     Title: President of Maralo, LLC, Managing Partner
                                      of Lowe Partners, LP[LOGO]
                                        bhpbilliton
                                         Dwight Pickle
September 9, 2004                        BHP Billilon Petroleum (Deepwater) Inc.
                                         1360 Post Oak Blvd., Suite 150
                                         Houston, TX 77056-3020
VIA EXPRESS MAIL                         Phone:(713)961-8437
                                         Fax: (713) 961-8339
                                         dwight.p,pickle@bhpbiiton.com

Ms. Michelle Mauzy
The Houston Exploration Company
1100 Louisiana, Suite 2000
Houston, TX 77002-5219

Mr. Greg Tabor                        Mr. Melvin Baiamonte
Ridgewood Energy Corporation          Dominion Exploration & Production Inc.
5300 Memorial Drive, Suite 1070       1450 Poydras Street
Houston, TX 77007                     New Orleans, LA 70112-6000

RE:   Joint Development Agreement
      Mustang Prospect
      West Cameron Block 77
      Gulf of Mexico

Ladies and Gentlemen:

Attached  hereto for your execution is an original Joint  Development  Agreement
("JDA") covering the Mustang Prospect with three additional  signature pages for
your  execution.  In addition to signing the JDA, please sign the three enclosed
signature pages for the Offshore Operating Agreement ("OOA") attached as Exhibit
"A" to the JDA. After you have executed all the signature  pages,  please return
three  originals of both the JDA and the OOA  signature  pages to my  attention.
Upon receipt of all the signature  pages,  I will  distribute  originals to each
company.

Very truly yours,

BHP BILLITON PETROLEUM (DEEPWATER) INC.

/s/ Dwight Pickle

Dwight Pickle
Senior Staff Negotiator

<PAGE>

                           JOINT DEVELOPMENT AGREEMENT

THIS JOINT  DEVELOPMENT  AGREEMENT  is made and entered  into as of September 1,
2004, by and between Dominion Exploration & Production,  Inc.  ("Dominion),  BHP
Billiton  Petroleum  (Americas) Inc. ("BHP"),  The Houston  Exploration  Company
("THEX") and Ridgewood Energy Corporation  ("Ridgewood")  hereinafter  sometimes
referred to collectively as "Parties" or individually as "Party".

                                   WITNESSETH:

WHEREAS, the Parties own an interest in and to that certain oil and gas lease
described as follows:

      Oil and Gas Lease dated  effective  June 1, 1988,  bearing  serial  number
      OCS-G 9387 by and between the United States of America,  as Lessor and BHP
      Billiton  Petroleum  (Americas)  Inc., et al, as Lessees,  covering all of
      Block 77, West Cameron Area, OCS Official Leasing Map, Louisiana Map No. 1
      (hereinafter referred to as "WC 77"); and

WHEREAS,  the  Parties  own  varying  interest  in and to  portions  of WC 77 as
follows:

N/2 and the N/2S/2: Limited from the surface down to 40,000'

BHP              33.76%
Dominion         40.00%
THEX             15.00%
Ridgewood        11.24%

S/2S/2: As to all depths

BHP              56.26%
THEX             25.00%
Ridgewood        18.74%

<PAGE>

WHEREAS,  the  Parties  desire to jointly  explore  and  develop  the  Objective
Horizons and any other prospective targets within the joint development area, as
hereinafter defined, as outlined below.

NOW, THEREFORE,  for and in consideration of the sum of ten dollars ($10.00) and
other good and valuable consideration,  the receipt and sufficiency of which are
hereby   acknowledged  and  confessed,   together  with  the  mutual  covenants,
conditions and obligations contained herein, the Parties agree as follows:

                         I. JOINT DEVELOPMENT AGREEMENT

1.1   The Parties hereby agree to enter into a Joint Development  Agreement (the
      "Agreement")  covering  a joint  development  area (the  "Contract  Area")
      established between the Parties covering the following portion of WC 77:

                West Cameron Block 77: S/2N/2SW/4 and N/2S/2SW/4

      Insofar,  and  only  insofar,  as the  Contract  Area  is  limited  to the
      following depths:

      From  the  surface  down  to  but  not  including  the  depths  below  the
      stratigraphic  equivalent seen at a two way time of 3861 ms (approximately
      16,400' SSTVD) on the Fairfield 3D Pre-Stack  Time Migration  In-Line 3170
      at CrossLine 1600;

      In the event the Test Well is drilled and does not encounter  hydrocarbons
      in commercial  quantities  (sufficient to satisfy 30 CFR 250.115 or 30 CFR
      250.116),  or the  participating  parties  agree not to complete  the Test
      Well, then the Contract Area shall terminate,

1.2   A fixed interest  allocation of fifty-six  percent (56%) to the S/2N/2SW/4
      of WC 77 and forty-four  percent (44%) to the N/2S/2SW/4 of WC 77 shall be
      utilized for the

                                        2
<PAGE>

      allocation of drilling and completion costs, operating costs, platform and
      facilities  costs  required to produce  well(s) from the Contract Area and
      working interest  ownership of production and reserves  developed.  Unless
      agreed otherwise, there shall be no equity interest redetermination within
      the Contract  Area.  Based upon the current  ownership and proposed  fixed
      interest  allocation,  the working interest  ownership within the Contract
      Area shall be as follows:

              BHP               43.66%
              Dominion          22.40%
              THEX              19.40%
              Ridgewood         14.54%

                                  II. TEST WELL

2.1   Subject to the limitations set out herein, BHP shall commence, or cause to
      be commenced on or before December 1, 2004, the drilling of an approximate
      16,200' SSTVD ("Test  Well").  BHP shall be designated  operator under the
      Operating   Agreement  (defined  in  Article  111  below)  and  shall  use
      reasonable  efforts to commence actual drilling of the Test Well,  subject
      to rig availability and obtaining all requisite permits.

2.2   The Test Well is deemed to be an  Exploratory  Well for the Contract Area,
      as  referred  to in Article 10 of the  Operating  Agreement  described  in
      Article III below. An AFE and well plan for the Test Well will be provided
      to each of the Parties for their election in accordance  with the terms of
      the Operating  Agreement.  In the event that the Test Well is proposed and
      drilled in  accordance  with this  Article,  the interest of any party not
      electing to  participate in the drilling of the Test Well shall be subject
      to the  production  reversion  penalties as set forth in Article 13.2.1 of
      the Operating Agreement.

                                       3
<PAGE>

2.3   In the event the Test Well  should  encounter  rock salt,  heaving  shale,
      excessive water flow,  excessive  pressure,  igneous or other impenetrable
      formation or conditions at a lesser depth which would render impracticable
      and preclude the Test Well from reaching the Objective Depth,  then and in
      such event any party to the Operating  Agreement  described in Article III
      below may propose  within sixty (60) days  following  abandonment  of such
      well the drilling of a substitute well  ("Substitute  Well") provided same
      is  drilled  to the same  objective  zone or zones as the Test  Well,  The
      proposing party shall provide the  non-proposing  parties of its intent to
      drill a Substitute  Well,  along with an AFE for the Substitute  Well. The
      AFE for the Substitute Well shall include,  at a minimum,  the surface and
      bottomhole location of the Substitute Well and the estimated costs for the
      Substitute Well as a dry hole and as a producer. The non-proposing parties
      shall have thirty (30) days, or forty-eight (48) hours in the event that a
      rig is on location,  from receipt of such written  notice to elect whether
      it shall  participate in such Substitute  Well.  Failure to respond within
      the  time  period  allowed  shall  be  deemed  to be an  election  not  to
      participate in the Substitute Well.

      If one (1) or more party with a combined  working interest in the Contract
      Area of 14% or greater elect to participate in the Substitute  Well,  then
      the Operator shall commence the drilling of the Substitute  Well within 60
      days and this Joint  Development  Agreement shall remain in full force and
      effect as though the  Substitute  Well was the Test Well. In the event the
      Operator  of the  Test  Well  becomes  a  Non-Participating  Party  in the
      Substitute  Well, the  Participating  Parties in the Substitute Well shall
      designate a new  operator in  accordance  with the terms of the  Operating
      Agreement.  Accordingly,  in the event that no proposal is made to drill a
      Substitute  Well  within  the time frame  provided  above,  the  requisite
      percentage to participate in the Substitute  Well is not reached or in the
      event that the drilling of the  Substitute  Well is not timely  commenced,
      then  the  Parties'  rights  and  further  obligations  under  this  Joint
      Development Agreement shall terminate.

      In the  event  that  the  Substitute  Well  is  proposed  and  drilled  in
      accordance  with this  Article,  the interest of any party not electing to
      participate in the drilling of the

                                       4
<PAGE>

      Substitute Well shall be subject to the production  reversion penalties as
      set out in Article 13.2.1 of the Operating Agreement as described below.

                        III. OFFSHORE OPERATING AGREEMENT

3.1   Subject to the terms and provisions of this  Agreement,  all operations on
      the Test Well, any Substitute  Well, and all subsequent  operations on the
      Contract  Area  shall  be  conducted  in  accordance  with the  terms  and
      provisions of the Offshore  Operating  Agreement  dated  September 1, 2004
      attached hereto as Exhibit "A" (the "Operating Agreement").  The Operating
      Agreement shall supercede and replace all previous operating agreements to
      which the Parties may be subject,  insofar and only insofar as they relate
      to the drilling of the Test Well and other operations  within the Contract
      Area.  In the  event  there is a  conflict  between  a  provision  of this
      Agreement and the Operating Agreement,  the applicable  provisions of this
      Agreement shall prevail to the extent of such conflict.

                       IV. CONTRACTUAL INTEREST OWNERSHIP

4.1   For the  purposes of this  Agreement,  the Parties  will each retain their
      respective  Record Title and/or  Operating Rights Interest in and to their
      respective  portions of WC 77  contributed  to the Contract  Area.  By the
      execution  of, and for the  duration of this  contract  and the  Operating
      Agreement,  the parties  will own a  contractual  interest in each other's
      respective portions of WC 77 contributed to the Contract Area. The Parties
      agree to execute and file of record in the appropriate  venue a Memorandum
      of  Joint  Development   Agreement,   Operating  Agreement  and  Financing
      Statement to recognize and notice the formation of this  Agreement.  There
      shall be no obligation for any cross assignment of interest.

                                       5
<PAGE>

                                V. LEASE BURDENS

5.1   Except as allowed herein, each Party will bear any burdens or encumbrances
      that they created or that encumber  their  interest in the lease.  For any
      well drilled  within the Contract  Area,  the Parties will each bear their
      respective share of Lessor's royalty based upon their contractual  working
      interest  ownership  as  set  out  hereinabove.  If  the  portions  of  WC
      77contributed  by each of the Parties as set out  hereinabove are burdened
      by additional  burdens as further defined on Exhibit "B",  attached hereto
      and made a part hereof (the  "Additional  Burdens"),  the Parties agree to
      bear  its  Additional  Burdens  out of its  contractual  working  interest
      ownership as created herein. . In the event that any Party should become a
      Non- Participating  Party to any operation  hereunder which is burdened by
      any Additional Burdens,  then the Parties assuming the contractual working
      interest share of the Non-Participating  Party shall bear their respective
      share of  Additional  Burdens  which  the  Non-Participating  Party  would
      otherwise be subject to.

5.2   All other  overriding  royalties or other burdens  created by any Party to
      this  Agreement,  other  than those set out as  Additional  Burdens on the
      attached  Exhibit "B", shall be considered a  subsequently  created burden
      and shall be borne  solely by the Party  creating  same,  with said  Party
      holding the remaining  Parties  harmless in the event said Party becomes a
      Non-Participating Party.

5.3   Any royalty relief secured from the MMS as to Lessor's royalty upon either
      of the respective lands contributed to the Contract Area shall be credited
      to the  participating  Parties  of the  qualifying  well  based upon their
      contractual working interest ownership as set out hereinabove. The Parties
      recognize  that there may be competing  production  for the royalty relief
      and that any royalty  suspension  shall be applied in accordance  with the
      MMS order creating the relief.

                                        6
<PAGE>

                              VI. OTHER AGREEMENTS

6.1   This Agreement and its respective  Exhibits  hereto,  set forth the entire
      agreement of the Parties  relating to the Contract Area and the Test Well,
      and shall supersede any prior letters of intent or understandings,  either
      written or oral between the Parties.  This  Agreement may be modified only
      by written agreement executed by all Parties.

                             VII. TERM OF AGREEMENT

7.1   This  Agreement  shall be effective as of the  execution by all Parties of
      this Agreement.  In the event the Test Well or Substitute Well therefor is
      drilled and is  qualified  by the  Minerals  Management  Service as a well
      capable of producing in accordance  with 30 CFR 250.115 or 30 CFR 250.116,
      or upon mutual  agreement by the  participating  Parties,  this  Agreement
      shall be continued in force and effect for a sufficient  period of time to
      allow production  facilities to be installed and production  commenced and
      so  long  thereafter  as  oil or gas is  produced.  This  Agreement  shall
      terminate  when oil and gas is no longer being  produced from the Contract
      Area  or  drilling  or  well-reworking  operations  are  no  longer  being
      conducted  with  lapses of no more than 180 days per  lapse  between  such
      producing,  drilling or well-reworking operations on the Contract Area and
      no  Suspension of Operation is being  utilized to perpetuate  the Contract
      Area.

                         VIII. MISCELLANEOUS PROVISIONS

8.1   Delay Rentals & Minimum  Royalty.  The Parties hereby agree that BHP shall
      maintain  responsibility  for the payment of minimum royalties on WC 77 in
      the same percentages as are currently paid under the existing West Cameron
      Unit  Operating  Agreement  covering the West Cameron 76 Unit. If any well
      drilled  hereunder is the sole well  perpetuating  the lease,  the parties
      agree that  responsibility  for the payment of minimum  royalties shall be
      based upon the percentages of ownership within the Contract Area.

                                       7
<PAGE>

8.2   Relationship  of the  Parties.  It is not the purpose or intention of this
      Agreement  to  create,  and this  Agreement  will  never be  construed  as
      creating,  a joint  venture,  mining  partnership  or  other  relationship
      whereby any Party will be held liable for the acts,  either of omission or
      commission, of any other Party, and the liabilities of each of the Parties
      hereto shall be several and not joint or  collective.  Each of the Parties
      hereto  elects,  under the  authority  of Section 761 (a) of the  Internal
      Revenue Code of 1986, to be excluded from all the provisions of Subchapter
      K of Chapter I of Subtitle A of said Internal  Revenue Code of 1986.  This
      Agreement and  operations  hereunder  relate solely to the Leases,  and no
      Party  hereto  shall have any  obligation  of any kind to any other  Party
      hereto as to any other lease, land or minerals (whether in the vicinity of
      such  Leases or not) by virtue of this  Agreement  or such  operations  or
      otherwise  except  as  may  be  provided  in the  Operating  Agreement  or
      evidenced by written agreement of such Parties.

8.3   Notices. Any notices,  communications or documents that may be required to
      be delivered to any of the Parties to fulfill any  obligations  under this
      Agreement  will be sent via  facsimile,  delivered  in  person  or sent by
      United  States Mail,  certified  mail,  postage  prepaid,  return  receipt
      requested, or an equivalent delivery service,  addressed to the Parties at
      the following respective addresses:

              Dominion Exploration & Production, Inc.
              1450 Poydras Street
              New Orleans, LA 70112-6000
              Attn: Mr. Michael A. Ackal, Jr.
              Telephone: 504-593-7768
              Facsimile: 504-593-7449

              BHP Billiton Petroleum (Americas) Inc.
              1360 Post Oak Blvd, Suite 150
              Houston, Texas 77056
              Attn: Mr. Dwight Pickle
              Telephone: 713-961-8437
              Facsimile: 713-961-8339

                                       8
<PAGE>

              The Houston Exploration Company
              1100 Louisiana, Suite 2000
              Houston, Texas 77002
              Attn: Ms. Michelle Mauzy
              Telephone: 713-830-6841
              Facsimile: 713-659-7201

              Ridgewood Energy Corporation
              5300 Memorial Drive, Suite 1070
              Houston, Texas 77007
              Attn: Mr. Greg Tabor
              Telephone: 713-862-9856
              Facsimile: 713-802-9734

      If facsimile  or personal  delivery is not  possible,  then refusal by any
      Party to accept  correspondence  sent by certified  mail, or an equivalent
      delivery service, or two unsuccessful  attempts by the U.S. Postal Service
      to serve any  communication  sent by certified mail will be deemed receipt
      of the  correspondence.  Any Party may change its  address  for notices by
      written notice to the others.  The notice  provisions do not supersede the
      notice  provisions  of the  Operating  Agreement  for the matters  covered
      thereby.

8.4   Successors.  The  terms  and  provisions  of this  Agreement  inure to the
      benefit  of and will be  binding  upon the  Parties  and their  respective
      successors and assigns;  provided,  however,  that during the term of this
      Agreement,  no assignment may be made by any Party of its rights hereunder
      without  first  obtaining  the  consent of the  remaining  Parties,  which
      consent will not be unreasonably withheld.

8.5   Laws.  This  Joint  Development  Agreement  is made  subject  to all valid
      applicable federal,  state and local laws, rules,  orders, and regulations
      of any  duly  constituted  federal,  state  or  local  regulatory  body or
      authority  having  jurisdiction,  and all operations  will be conducted in
      conformity  therewith,   including,   without  limitation,   the  Minerals
      Management Service.

                                       9
<PAGE>

8.6   Choice of Law. This  Agreement was  negotiated  and entered into in Harris
      County, Texas, and will be construed under and governed by the laws of the
      State of Texas without giving effect to conflicts of law principles  which
      might apply the law of a different jurisdiction.

8.7   Severability,  If any  provision of this  Agreement is held to be illegal,
      invalid or unenforceable under the present or future laws effective during
      the term of this  Agreement,  then the provision will be fully  severable;
      this Agreement will be modified, construed and enforced as if the illegal,
      invalid or  unenforceable  provision had never been in the Agreement;  and
      the remaining provisions will remain in full force and effect.

8.8   Counterpart  Execution.  The Parties may execute this Agreement by signing
      the  original  or  a  counterpart.   If  this  Agreement  is  executed  in
      counterparts, all counterparts taken together will have the same effect as
      if all the Parties had signed the same instrument.

WITNESS THE EXECUTION HEREOF as of the respective dates indicated by each
signature below: provided that this Joint Development Agreement shall be
effective as of September 1,2004.

WITNESS:                                Dominion Exploration & Production, Inc.

____________________                    By:    _____________________________

                                               Michael A. Ackal, Jr.
____________________                    Title: Attorney in Fact
                                        Date:  _____________________________

                                        BHP Billiton Petroleum (Americas) Inc.

/s/                                     By:    /s/ Scott H. Cornwell
____________________                           -----------------------------
                                               Scott H. Cornwell
/s/
____________________                    Title: Negotiations Manager
                                        Date:        9/9/2004
                                               -----------------------------

                                       10
<PAGE>

                                        The Houston Exploration Company

____________________                    By:    _____________________________

                                               Tracy Price
____________________                    Title: Senior Vice President - Land

                                        Date:  _____________________________

                                        Ridgewood Energy Corporation

                                        By:    /s/ W. Greg Tabor
____________________                           -----------------------------
                                               W. Greg Tabor
____________________                    Title: Executive Vice President
                                        Date:        9/9/04
                                               -----------------------------

                                       11
<PAGE>

                                   Exhibit "A"

  Attached to and made a part of that certain Joint Development Agreement dated
  September 1, 2004 by and between Dominion Exploration & Production, Inc., BHP
    Billiton Petroleum (Americas) Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

                          OFFSHORE OPERATING AGREEMENT

                                MUSTANG PROSPECT

                                 By and Between
                    BHP Billiton Petroleum (Deepwater) Inc.,
              Dominion Exploration & Production, Inc., The Houston
                               Exploration Company
                                       And
                          Ridgewood Energy Corporation

                        Dated Effective September 1, 2004

                             Outer Continental Shelf
                                 Gulf of Mexico

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<S>                                                                                                      <C>
TABLE OF CONTENTS ......................................................................................   1

WITNESSETH: ............................................................................................   7

ARTICLE 1 APPLICATION ..................................................................................   7

  1.1    APPLICATION TO EACH CONTRACT AREA .............................................................   7

ARTICLE 2 DEFINITIONS ..................................................................................   7

  2.1    ADDITIONAL TESTING ............................................................................   7
  2.2    AFFILIATE .....................................................................................   7
  2.3    AUTHORIZATION FOR EXPENDITURE (AFE) ...........................................................   8
  2.4    COMPLETE, COMPLETING, COMPLETION ..............................................................   8
  2.5    COMPLETION EQUIPMENT ..........................................................................   8
  2.6    CONFIDENTIAL DATA .............................................................................   8
  2.7    CONTRACT AREA .................................................................................   8
  2.8    DEEPEN, DEEPENING .............................................................................   8
  2.9    DEVELOPMENT FACILITIES ........................................................................   8
  2.10   DEVELOPMENT OPERATION .........................................................................   9
  2.11       DEVELOPMENT WELL ..........................................................................   9
  2.12       EXPLORATORY OPERATION .....................................................................   9
  2.13       EXPLORATORY WELL ..........................................................................   9
  2.14       EXPORT PIPELINES ..........................................................................   9
  2.15       FORCE MAJEURE .............................................................................   9
  2.16       HYDROCARBONS ..............................................................................   9
  2.17       JOINT ACCOUNT .............................................................................   9
  2.18       LEASE .....................................................................................   9
  2.19       MMS .......................................................................................  10
  2.20       NON-CONSENT OPERATION .....................................................................  10
  2.21       NON-CONSENT PLATFORM ......................................................................  10
  2.22       NON-CONSENT WELL ..........................................................................  10
  2.23       NON-OPERATOR ..............................................................................  10
  2.24       NON-PARTICIPATING PARTY ...................................................................  10
  2.25       NON-PARTICIPATING PARTY'S SHARE ...........................................................  10
  2.26       OBJECTIVE DEPTH ...........................................................................  10
  2.27       OBJECTIVE HORIZON .........................................................................  10
  2.28       OFFSITE HOST FACILITIES ...................................................................  10
  2.29       OPERATOR ..................................................................................  10
  2.30       PARTICIPATING INTEREST ....................................................................  10
  2.31       PARTICIPATING PARTY .......................................................................  11
  2.32       PLATFORM ..................................................................................  11
  2.33       PRODUCIBLE RESERVOIR ......................................................................  11
  2.34       PRODUCIBLE WELL ...........................................................................  11
  2.35       PRODUCTION INTERVAL .......................................................................  11
  2.36       RECOMPLETE, RECOMPLETING, RECOMPLETION ....................................................  11
  2.37       REWORK, REWORKING .........................................................................  11
  2.38       SIDETRACK, SIDETRACKING ...................................................................  11
  2.39       TAKE-IN-KIND FACILITIES ...................................................................  12
  2.40       TRANSFER OF INTEREST ......................................................................  12
  2.41       WORKING INTEREST ..........................................................................  12
</TABLE>

                                       1
<PAGE>

<TABLE>
<S>                                                                                                      <C>
ARTICLE 3 EXHIBITS .....................................................................................  12

  3.1 EXHIBITS .........................................................................................  12
    3.1.1    Exhibit "A" ...............................................................................  12
    3.1.2    Exhibit "B" ...............................................................................  12
    3.1.3    Exhibit "C" ...............................................................................  12
    3.1.4    Exhibit "D" ...............................................................................  12
    3.1.5    Exhibit "E" ...............................................................................  12
    3.1.6    Exhibit "F" ...............................................................................  12
    3.1.7    Exhibit "G" ...............................................................................  12
    3.1.8    Exhibit "H" ...............................................................................  13
  3.2 CONFLICTS ........................................................................................  13

ARTICLE 4 OPERATOR .....................................................................................  13

  4.1    OPERATOR ......................................................................................  13
  4.2    SUBSTITUTE OPERATOR ...........................................................................  13
    4.2.1    Circumstances Under Which the Operator Must Conduct a Non-Consent Operation ..............   14
    4.2.2    Operator's Conduct of a Non-Consent Operation in Which it is a Non-participating Party ....  14
    4.2.3    Appointment of a Substitute Operator ......................................................  14
    4.2.4    Redesignation of Operator .................................................................  14
  4.3    RESIGNATION OF OPERATOR .......................................................................  15
  4.4    REMOVAL OF OPERATOR ...........................................................................  15
  4.5    SELECTION OF SUCCESSOR ........................................................................  15
  4.6    EFFECTIVE DATE OF RESIGNATION OR REMOVAL ......................................................  16
  4.7    DELIVERY OF PROPERTY ..........................................................................  16

ARTICLE 5 AUTHORITY AND DUTIES OF OPERATOR .............................................................  17

  5.1    EXCLUSIVE RIGHT TO OPERATE ....................................................................  17
  5.2    WORKMANLIKE CONDUCT ...........................................................................  17
  5.3    LIENS AND ENCUMBRANCES ........................................................................  17
  5.4    EMPLOYEES AND CONTRACTORS .....................................................................  17
  5.5    RECORDS .......................................................................................  17
  5.6    COMPLIANCE ....................................................................................  17
  5.7    CONTRACTORS ...................................................................................  18
  5.8    GOVERNMENTAL REPORTS ..........................................................................  18
  5.9    INFORMATION TO PARTICIPATING PARTIES ..........................................................  18
  5.10     INFORMATION TO NON-PARTICIPATING PARTIES ....................................................  19

ARTICLE 6 VOTING AND VOTING PROCEDURES .................................................................  19

  6.1    VOTING PROCEDURES .............................................................................  19
    6.1.1    Voting Interest ...........................................................................  19
    6.1.2    Vote Required .............................................................................  19
    6.1.3    Votes .....................................................................................  20
    6.1.4    Meetings ..................................................................................  20

ARTICLE 7 ACCESS .......................................................................................  20

  7.1    ACCESS TO LEASE ...............................................................................  20
  7.2    REPORTS .......................................................................................  20
  7.3    CONFIDENTIALITY ...............................................................................  21
  7.4    LIMITED DISCLOSURE ............................................................................  21
  7.5    LIMITED RELEASES TO OFFSHORE SCOUT ASSOCIATION ................................................  21
  7.6    MEDIA RELEASES ................................................................................  22
</TABLE>

                                       2
<PAGE>

<TABLE>
<S>                                                                                                      <C>
ARTICLE 8 EXPENDITURES .................................................................................  22

  8.1    BASIS OF CHARGE TO THE PARTIES ................................................................  22
  8.2    AFES ..........................................................................................  22
  8.3    EMERGENCY AND REQUIRED EXPENDITURES ...........................................................  23
  8.4    ADVANCE BILLINGS ..............................................................................  23
  8.5    COMMINGLING OF FUNDS ..........................................................................  23
  8.6    SECURITY RIGHTS (LA) ..........................................................................  23
  8.7    OVEREXPENDITURES ..............................................................................  23

ARTICLE 9 NOTICES ......................................................................................  24

  9.1    GIVING AND RECEIVING NOTICES ..................................................................  24
  9.2    CONTENT OF NOTICE .............................................................................  25
  9.3    RESPONSE TO NOTICES............................................................................  25
    9.3.1    Platform and/or Development Facilities Proposals ..........................................  25
    9.3.2    Well Proposals ............................................................................  25
    9.3.3    Proposal for Multiple Operations ..........................................................  26
    9.3.4    Other Matters .............................................................................  26
  9.4    FAILURE TO RESPOND ............................................................................  26
  9.5    RESPONSE TO COUNTERPROPOSALS ..................................................................  26
  9.6    TIMELY WELL OPERATIONS ........................................................................  26
  9.7    TIMELY PLATFORM/DEVELOPMENT FACILITIES OPERATIONS .............................................  26

ARTICLE 10 EXPLORATORY OPERATIONS ......................................................................  27

 10.1    PROPOSING OPERATIONS ..........................................................................  27
 10.2    COUNTERPROPOSALS ..............................................................................  27
 10.3    OPERATIONS BY ALL PARTIES .....................................................................  28
 10.4    SECOND OPPORTUNITY TO PARTICIPATE .............................................................  28
 10.5    OPERATIONS BY FEWER THAN ALL PARTIES ..........................................................  28
 10.6    EXPENDITURES APPROVED .........................................................................  29
 10.7    CONDUCT OF OPERATIONS .........................................................................  29
 10.8    COURSE OF ACTION AFTER REACHING OBJECTIVE DEPTH ...............................................  29
    10.8.1   Election by Participating Parties .........................................................  29
    10.8.2   Priority of Operations ....................................................................  29
    10.8.3   Second Opportunity to Participate .........................................................  30
    10.8.4   Operations by Fewer Than All Parties ......................................................  30
    10.8.5   Subsequent Operations .....................................................................  31
    10.8.6   Restoration of Damaged Well ...............................................................  31
 10.9    WELLS PROPOSED BELOW DEEPEST PRODUCIBLE RESERVOIR .............................................  32

ARTICLE 11  DEVELOPMENT OPERATIONS .....................................................................  33

 11.1    PROPOSING OPERATIONS ..........................................................................  33
 11.2    COUNTERPROPOSALS ..............................................................................  33
 11.3    OPERATIONS BY ALL PARTIES .....................................................................  33
 11.4    SECOND OPPORTUNITY TO PARTICIPATE .............................................................  33
 11.5    OPERATIONS BY FEWER THAN ALL PARTIES ..........................................................  34
 11.6    EXPENDITURES APPROVED .........................................................................  34
 11.7    CONDUCT OF OPERATIONS .........................................................................  34
 11.8    COURSE OF ACTION AFTER REACHING OBJECTIVE DEPTH ...............................................  34
    11.8.1   Election by Fewer Than All Parties ........................................................  35
    11.8.2   Priority of Operations ....................................................................  35
    11.8.3   Second Opportunity to Participate .........................................................  36
    11.8.4   Operations by Fewer Than All Parties ......................................................  36
    11.8.5   Subsequent Operations .....................................................................  37
    11.8.6   Restoration of Damaged Well ...............................................................  37
</TABLE>

                                       3
<PAGE>

<TABLE>
<S>                                                                                                      <C>
ARTICLE 12 PLATFORM AND DEVELOPMENT FACILITIES .........................................................  38

 12.1    PROPOSAL ......................................................................................  38
 12.2    COUNTERPROPOSALS ..............................................................................  38
    12.2.1   Operations by All Parties .................................................................  38
    12.2.2   Second Opportunity to Participate .........................................................  38
    12.2.3   Operations by Fewer Than All Parties ......................................................  39
 12.3    OWNERSHIP AND USE OF THE PLATFORM AND DEVELOPMENT FACILITIES ..................................  39
 12.4    RIGHTS TO TAKE IN KIND ........................................................................  40
 12.5    EXPANSION OR MODIFICATION OF A PLATFORM AND/OR DEVELOPMENT FACILITIES .........................  41
 12.6    OFFSITE HOST FACILITIES .......................................................................  41

ARTICLE 13 NON-CONSENT OPERATIONS ......................................................................  42

 13.1    NON-CONSENT OPERATIONS ........................................................................  42
    13.1.1   Non-interference ..........................................................................  42
    13.1.2   Multiple Completion Limitation ............................................................  42
    13.1.3   Metering ..................................................................................  42
    13.1.4   Non-consent Well ..........................................................................  42
    13.1.5   Cost Information ..........................................................................  42
    13.1.6   Completions ...............................................................................  43
 13.2    RELINQUISHMENT OF INTEREST ....................................................................  43
    13.2.1   Production Reversion Recoupment ...........................................................  43
    13.2.2   Non-production Reversion ..................................................................  44
 13.3    DEEPENING OR SIDETRACKING OF NON-CONSENT WELL .................................................  44
 13.4    DEEPENING OR SIDETRACKING COST ADJUSTMENTS ....................................................  45
 13.5    SUBSEQUENT OPERATIONS IN NON-CONSENT WELL .....................................................  45
 13.6    OPERATIONS IN A PRODUCTION INTERVAL ...........................................................  46
 13.7    OPERATIONS UTILIZING A NON-CONSENT PLATFORM AND/OR DEVELOPMENT FACILITIES .....................  46
 13.8    DISCOVERY OR EXTENSION FROM NON-CONSENT DRILLING ..............................................  47
 13.9    ALLOCATION OF PLATFORM/DEVELOPMENT FACILITIES COSTS TO NON-CONSENT OPERATIONS .................  47
    13.9.1   Charges ...................................................................................  47
    13.9.2   Operating and Maintenance Charges .........................................................  49
 13.10   ALLOCATION OF COSTS BETWEEN ZONES .............................................................  49
 13.11   LEASE MAINTENANCE OPERATIONS ..................................................................  49
    13.11.1  Participation in Lease Maintenance Operations .............................................  49
    13.11.2  Accounting for Non-participation ..........................................................  50

ARTICLE 14 ABANDONMENT, SALVAGE, AND SURPLUS ...........................................................  50

14.1     PLATFORM SALVAGE AND REMOVAL COSTS ............................................................  50
14.2     ABANDONMENT OF PLATFORMS, DEVELOPMENT FACILITIES OR WELLS .....................................  50
14.3     ASSIGNMENT OF INTEREST ........................................................................  51
14.4     ABANDONMENT OPERATIONS REQUIRED BY GOVERNMENTAL AUTHORITY .....................................  51
14.5     DISPOSAL OF SURPLUS MATERIAL ..................................................................  51

ARTICLE 15 WITHDRAWAL ..................................................................................  52

 15.1    RIGHT TO WITHDRAW .............................................................................  52
 15.2    RESPONSE TO WITHDRAWAL NOTICE .................................................................  52
    15.2.1   Unanimous Withdrawal ......................................................................  52
    15.2.2   No Additional Withdrawing Parties .........................................................  53
    15.2.3   Acceptance of the Withdrawing Parties' Interests ..........................................  53
    15.2.4   Effects of Withdrawal .....................................................................  53
 15.3  LIMITATION UPON AND CONDITIONS OF WITHDRAWAL ....................................................  54
    15.3.1   Prior Expenses ............................................................................  54
    15.3.2   Confidentiality ...........................................................................  54
    15.3.3   Emergencies and Force Majeure .............................................................  55
</TABLE>

                                       4
<PAGE>

<TABLE>
<S>                                                                                                      <C>
ARTICLE 16 RENTALS, ROYALTIES, AND OTHER PAYMENTS ......................................................  55

 16.1    OVERRIDING ROYALTY AND OTHER BURDENS ..........................................................  55
 16.2    SUBSEQUENTLY CREATED INTEREST .................................................................  55
 16.3    PAYMENT OF RENTALS AND MINIMUM ROYALTIES ......................................................  56
 16.4    NON-PARTICIPATION IN PAYMENTS .................................................................  56
 16.5    ROYALTY PAYMENTS ..............................................................................  56

ARTICLE 17 TAXES .......................................................................................  57

 17.1    PROPERTY TAXES ................................................................................  57
 17.2    CONTEST OF PROPERTY TAX VALUATION .............................................................  57
 17.3    PRODUCTION AND SEVERANCE TAXES ................................................................  57
 17.4    OTHER TAXES AND ASSESSMENTS ...................................................................  57

ARTICLE 18 INSURANCE ...................................................................................  57

 18.1    INSURANCE .....................................................................................  57
 18.2    BONDS .........................................................................................  57

ARTICLE 19 LIABILITY, CLAIMS, AND LAWSUITS .............................................................  58

 19.1    INDIVIDUAL OBLIGATIONS ........................................................................  58
 19.2    NOTICE OF CLAIM OR LAWSUIT ....................................................................  58
 19.3    SETTLEMENTS ...................................................................................  58
 19.4    DEFENSE OF CLAIMS AND LAWSUITS ................................................................  58
 19.5    LIABILITY FOR DAMAGES .........................................................................  59
 19.6    INDEMNIFICATION FOR NON-CONSENT OPERATIONS ....................................................  59
 19.7    DAMAGE TO RESERVOIR, LOSS OF RESERVES AND PROFIT ..............................................  60
 19.8    NON-ESSENTIAL PERSONNEL .......................................................................  60
 19.9    DISPUTE RESOLUTION PROCEDURE ..................................................................  60

ARTICLE 20 INTERNAL REVENUE PROVISION ..................................................................  60

 20.1    INTERNAL REVENUE PROVISION ....................................................................  60

ARTICLE 21  CONTRIBUTIONS ..............................................................................  61

 21.1    NOTICE OF CONTRIBUTIONS OTHER THAN ADVANCES FOR SALE OF PRODUCTION ............................  61
 21.2    CASH CONTRIBUTIONS ............................................................................  61
 21.3    ACREAGE CONTRIBUTIONS .........................................................................  61

ARTICLE 22 DISPOSITION OF PRODUCTION ...................................................................  62

 22.1    TAKE-IN-KIND FACILITIES .......................................................................  62
 22.2    DUTY TO TAKE IN KIND ..........................................................................  62
 22.3    FAILURE TO TAKE OIL AND CONDENSATE IN KIND ....................................................  62
 22.4    FAILURE TO TAKE GAS IN KIND ...................................................................  63
 22.5    EXPENSES OF DELIVERY IN KIND ..................................................................  63

ARTICLE 23 APPLICABLE LAW ..............................................................................  63

 23.1    APPLICABLE LAW ................................................................................  63

ARTICLE 24 LAWS, REGULATIONS, AND NONDISCRIMINATION ....................................................  63

 24.1    LAWS AND REGULATIONS ..........................................................................  63
 24.2    NONDISCRIMINATION .............................................................................  64

ARTICLE 25 FORCE MAJEURE ...............................................................................  64

 25.1    FORCE MAJEURE .................................................................................  64

ARTICLE 26 SUCCESSORS AND ASSIGNS ......................................................................  64

 26.1    TRANSFER OF INTEREST ..........................................................................  64
</TABLE>

                                       5
<PAGE>

<TABLE>
<S>                                                                                                      <C>
    26.1.1   Exceptions to Transfer Notice .............................................................  64
    26.1.2   Effective Date of Transfer of Interest ....................................................  65
    26.1.3   Form of Transfer of Interest ..............................................................  65
    26.1.4   Warranty ..................................................................................  65
    26.1.5   Minimum Transfer of Interest ..............................................................  65
 26.2    Preferential Right to Purchase ................................................................  66
    26.2.1   Notice of Proposed Transfer of Interest ...................................................  66
    26.2.2   Exercise of Preferential Right to Purchase ................................................  66
    26.2.3   Transfer of Interest Not Affected by Preferential Right to Purchase .......................  67
    26.2.4   Completion of Transfer of Interest ........................................................  67

ARTICLE 27 ADMINISTRATIVE PROVISIONS ...................................................................  68

 27.1    TERM ..........................................................................................  68
 27.2    WAIVER ........................................................................................  68
 27.3    WAIVER OF RIGHT TO PARTITION ..................................................................  68
 27.4    COMPLIANCE WITH LAWS AND REGULATIONS ..........................................................  69
    27.4.1   Severance of Invalid Provisions ...........................................................  69
    27.4.2   Fair and Equal Employment .................................................................  69
 27.5    CONSTRUCTION AND INTERPRETATION OF THIS AGREEMENT .............................................  69
    27.5.1   Headings for Convenience ..................................................................  69
    27.5.2   Article References ........................................................................  69
    27.5.3   Gender and Number .........................................................................  69
    27.5.4   Future References .........................................................................  70
    27.5.5   Currency ..................................................................................  70
    27.5.6   Optional Provisions .......................................................................  70
    27.5.7   Joint Preparation .........................................................................  70
    27.5.8   Integrated Agreement ......................................................................  70
    27.5.9   Binding Effect ............................................................................  70
    27.5.10    Further Assurances ......................................................................  70
    27.5.11    Counterpart Execution ...................................................................  71
</TABLE>

                                       6
<PAGE>

                          OFFSHORE OPERATING AGREEMENT

THIS AGREEMENT, made effective the 1st day of June, 2004, by the signers hereof,
their respective heirs, successors,  legal representatives,  and assigns, herein
referred to collectively as the "Parties" and individually as a "Party."

                                   WITNESSETH:

WHEREAS, the Parties have entered into that certain Joint Development  Agreement
dated effective June 1,2004("JDA"); and

WHEREAS,  the Parties own a leasehold interest in one or more oil and gas Leases
identified in Exhibit "A" and desire to explore,  develop,  produce, and operate
those Leases pursuant to this Agreement.

NOW,  THEREFORE,  in  consideration  of the premises and the mutual covenants in
this Agreement, the Parties agree as follows:

                                    ARTICLE 1

                                   APPLICATION

1.1   Application to Each Contract Area

      This Agreement applies separately to the entire Contract Area as described
      in Exhibit "A" attached hereto. For purposes of this Agreement, operations
      affecting one (1) Lease are considered  operations or activities affecting
      all the Leases in the Contract Area.

                                    ARTICLE 2

                                   DEFINITIONS

2.1   Additional Testing

      An  operation  not  previously  approved in the AFE and  proposed  for the
      specific purpose of obtaining additional subsurface data.

2.2   Affiliate

      For a person,  another person that controls, is controlled by, or is under
      common control with that person.  In this definition,  (a) "control" means
      the ownership by one person,  directly or  indirectly,  of more than fifty
      percent  (50%) of the voting  securities  of a  corporation  or, for other
      persons,   the   equivalent   ownership   interest  (such  as  partnership
      interests), and (b) "person" means an

                                       7
<PAGE>

      individual,   corporation,   partnership,  trust,  estate,  unincorporated
      organization, association, or other legal entity.

2.3   Authorization For Expenditure (AFE)

      An authority to expend funds  prepared by a Party to estimate the costs to
      be incurred in conducting an operation under this Agreement.

2.4   Complete, Completing, Completion

      An operation to complete a well for initial Hydrocarbon  production in one
      or more  Producible  Reservoirs,  including,  but not limited to,  setting
      production   casing,   perforating  the  casing,   stimulating  the  well,
      installing Completion Equipment, and/or conducting production tests.

2.5   Completion Equipment

      That  certain  equipment  on an  Exploratory  Well or a  Development  Well
      required to be installed  prior to the movement of a  well-completion  rig
      off that well

      (a)     under 30 CFR 250.502, or any succeeding order or regulation issued
              by the MMS, up to and including the tree, and

      (b)     by any other regulatory agency having jurisdiction, including, but
              not limited to, a caisson and navigational aids.

2.6   Confidential Data

      The information and data obtained under this Agreement, including, but not
      limited to, geological,  geophysical, and reservoir information; originals
      and copies of logs;  core and core  analysis;  and other well  information
      including,  but not limited to, the progress,  tests, or results of a well
      drilled or an operation  conducted  under this  Agreement,  except data or
      information  that becomes public other than by breach of this Agreement or
      as agreed to in writing by the Participating Parties.

2.7   Contract Area

      The Outercontinental  Shelf block, or portions thereof,  listed on Exhibit
      "A", attached hereto and covered by the Leases.

2.8   Deepen, Deepening

      A drilling operation conducted in an existing wellbore below the Objective
      Depth to which the well was previously drilled.

 2.9  Development Facilities

      Production  equipment other than Completion Equipment that is installed on
      or outside  the  Contract  Area in order to handle or process  Hydrocarbon
      production. Development Facilities include, but are not limited to,

      (a)     compression,   separation,   dehydration,   generators,  treaters,
              skimmers, bunkhouses and metering equipment,

      (b)     the  flowlines,  gathering  lines or lateral  lines  that  deliver
              Hydrocarbons and water

              1      from the Completion Equipment to the Platform or to Offsite
                     Host Facilities, or

              2      from the Platform to Export Pipelines; and

                                       8
<PAGE>

      (c)     injection and disposal wells.

      Development Facilities exclude Export Pipelines.

2.10  Development Operation

      An operation on the Contract Area other than an Exploratory Operation.

2.11  Development Well

      A well or portion of a well proposed as a Development Operation.

2.12  Exploratory Operation

      An operation that is conducted on the Contract Area and that is any of the
      following:

      (a)     proposed to Complete an Exploratory Well;

      (b)     proposed  for  an  Objective  Horizon  that  is  not a  Producible
              Reservoir; or

      (c)     proposed for an Objective  Horizon that has a Producible Well, but
              that will be penetrated at a location  where the distance  between
              the  midpoint of the  Objective  Horizon to be  penetrated  by the
              proposed  operation and the midpoint of the same Objective Horizon
              where it is actually  penetrated  by a Producible  Well will be at
              least two thousand  (2,000) feet for a gas Completion and at least
              one thousand (1,000) feet for an oil Completion.

2.13  Exploratory Well

      A well or portion of a well proposed as an Exploratory Operation.

2.14  Export Pipelines

      Pipelines  to which a gathering  line or lateral  line  downstream  of the
      Platform and/or  Development  Facilities or, if there is no Platform,  the
      Completion  Equipment,  is  connected  and  which  are  used to  transport
      Hydrocarbons or produced water to shore.

2.15  Force Majeure

      An event or cause  that is  reasonably  beyond  the  control  of the Party
      claiming the existence of such event or cause, which includes,  but is not
      limited to, a flood, storm, hurricane, loop current/eddy,  or other act of
      God,  a fire,  loss of well  control,  oil spill,  or other  environmental
      catastrophe, a war, terrorist act, a civil disturbance, a labor dispute, a
      strike,  a lockout,  compliance  with a law,  order,  rule, or regulation,
      governmental  action  or delay in  granting  necessary  permits  or permit
      approvals, and the inability to secure materials or a rig.

2.16  Hydrocarbons

      Oil  and/or gas and  associated  liquid and  gaseous  by-products  (except
      helium)  which may be  produced  from a wellbore  located on the  Contract
      Area.

2.17  Joint Account

      This term has the same  definition  as the defined term "Joint  Account in
      Exhibit "C" (Accounting Procedure).

2.18  Lease

      The oil and gas lease  identified  in Exhibit "A" and the lands covered by
      that lease.

                                       9
<PAGE>

2.19  MMS

      The Minerals Management Service,  United States Department of Interior, or
      its  successor  agency.  Where  appropriate,  the  reference  to MMS shall
      include the appropriate state agency.

2.20  Non-consent Operation

      An operation  conducted  on the  Contract  Area by fewer than all Parties,
      which  subjects  the  Non-participating  Party to Article 13  (Non-Consent
      Operations).

2.21  Non-consent Platform

      A Platform owned by fewer than all Parties.

2.22  Non-consent Well

      An Exploratory Well or a Development Well owned by fewer than all Parties.

2.23  Non-operator

      A Party other than the Operator.

2.24  Non-participating Party

      A Party other than a Participating Party.

2.25  Non-participating Party's Share

      The Participating  Interest that a Non-participating  Party would have had
      if all Parties had participated in the operation.

2.26  Objective Depth

      A depth  sufficient  to test the  lesser of the  Objective  Horizon or the
      specific footage depth stated in the AFE and approved by the Participating
      Parties.

2.27  Objective Horizon

      The interval consisting of the deepest zone,  formation,  or horizon to be
      tested in an Exploratory Well,  Development Well, Deepening operation,  or
      Sidetracking  operation,  as  stated  in  the  AFE  and  approved  by  the
      Participating Parties.

2.28  Offsite Host Facilities

      Development and handling  facilities that (a) are located off the Contract
      Area and (b) are either  owned by one or more  third  parties or by one or
      more  Participating  Parties in a well, whose interests in the development
      and handling  facilities  differ from their  respective  Working  Interest
      shares in the well.

2.29  Operator

      The Party  designated  in Article 4.1  (Designation  of the  Operator),  a
      successor  Operator  selected  under  Article 4.5  (Selection of Successor
      Operator),  and, if  applicable,  a  substitute  Operator  selected  under
      Article 4.2 (Substitute Operator).

2.30  Participating Interest

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

                                       10
<PAGE>

2.31  Participating Party

      A Party that executes an AFE for a proposed operation or otherwise agrees,
      or  becomes  liable,  to pay and bear a share of the  costs  and  risks of
      conducting an operation under this Agreement.

2.32  Platform

      An offshore structure on the Contract Area that supports Wells, Completion
      Equipment,  or  Development  Facilities,   whether  fixed,  compliant,  or
      floating, and the components of that structure, including, but not limited
      to,  caissons or well  protectors  to the extent  same are not  Completion
      Equipment,  rising  above  the  water  line and used for the  exploration,
      development, or production of Hydrocarbons. The term "Platform" shall also
      mean any offshore  equipment  or template  (excluding  templates  used for
      drilling  operations)  and any component  thereof,  other than  Completion
      Equipment (including, but not limited to, flow lines and control systems),
      that is  resting  on or  attached  to the sea  floor  and  used to  obtain
      production of Hydrocarbons.

2.33  Producible Reservoir

      An underground  accumulation of Hydrocarbons  (a) in a single and separate
      natural  pool  characterized  by a distinct  pressure  system,  (b) not in
      Hydrocarbon  communication with another accumulation of Hydrocarbons,  and
      (c) into which a Producible Well has been drilled.

2.34  Producible Well

      A well that is drilled  under  this  Agreement  and that (a) is  producing
      Hydrocarbons;  (b) is  determined  to be, or meets the  criteria for being
      determined to be, capable of producing  Hydrocarbons in paying  quantities
      under  an  applicable  order  or  regulation  issued  by the  governmental
      authority  having  jurisdiction;  or (c) is  determined to be a Producible
      Well by two (2) or more  Participating  Parties having a combined  Working
      Interest of sixty percent (60%) or more, even if the well has been plugged
      and permanently or temporarily abandoned.

2.35  Production Interval

      A zone or interval  producing or capable of producing  Hydrocarbons from a
      well without Reworking operations.

2.36  Recomplete, Recompleting, Recompletion

      An operation whereby a Completion in one Producible Reservoir is abandoned
      in order to  attempt a  Completion  in a  different  Producible  Reservoir
      within the existing wellbore.

2.37  Rework, Reworking

      An operation  conducted in a well,  after it has been  Completed in one or
      more Producible Reservoirs,  to restore,  maintain, or improve Hydrocarbon
      production  from  one  or  more  of  those  Producible   Reservoirs,   but
      specifically excluding drilling,  Sidetracking,  Deepening, Completing, or
      Recompleting the well.

2.38  Sidetrack, Sidetracking

      The directional control and intentional  deviation of a well to change the
      bottom-hole  location,  whether it be to the original  Objective  Depth or
      formation or another bottom-hole location not

                                       11
<PAGE>

      deeper than the  stratigraphic  equivalent of the initial Objective Depth,
      unless the  intentional  deviation  is done to  straighten  the hole or to
      drill   around  junk  in  the  hole  or  to  overcome   other   mechanical
      difficulties.

2.39  Take-in-Kind Facilities

      Facilities  which (i) are not paid for by the Joint  Account  and (ii) are
      installed for the benefit and use of a particular Party or Parties to take
      its or their share of Hydrocarbon production in kind.

2.40  Transfer of Interest

      A  conveyance,   assignment,   transfer,   farmout,   exchange,  or  other
      disposition of all or part of a Party's Working Interest.

2.41  Working Interest

      The record title interest,  or where  applicable,  the operating rights of
      each  Party  in and to the  Contract  Area  (expressed  as the  percentage
      provided in Exhibit "A"). If a Party's  record title interest is different
      from its  operating  rights,  the  Working  Interest  of each Party is the
      interest provided in Exhibit "A".

                                    ARTICLE 3

                                    EXHIBITS

3.1   Exhibits

      The following  exhibits are attached to this  Agreement  and  incorporated
      into this Agreement by reference:

      3.1.1   Exhibit "A"

                     Operator, Description of Leases, Division of Interests, and
                     Notification Addresses

              Exhibit "A-1"

                     Additional Burdens.

      3.1.2   Exhibit "B"

                     Insurance provisions.

      3.1.3   Exhibit "C"

                     Accounting procedure.

      3.1.4   Exhibit "D"

                     Non-discrimination Provisions.

      3.1.5   Exhibit "E"

                     Gas Balancing Agreement.

      3.1.6   Exhibit "F"

                     Memorandum of Operating Agreement and Financing Statement.

                                       12
<PAGE>

      3.1.7   Exhibit "G"

                     Other (e.g. Dispute Resolution).

      3.1.8   Exhibit "H"

                     Security  Rights;   Default'  Unpaid  Charges'   Carved-out
                     Interests

3.2   Conflicts

      If a provision of an exhibit, except Exhibits "D" or "E," is inconsistent
      with a provision in the body of this Agreement, the provision in the body
      of this Agreement shall prevail. If a provision of Exhibit "D" or "E," is
      inconsistent with a provision in the body of this Agreement, however, the
      provision of the exhibit shall prevail.

                                    ARTICLE 4

                                    OPERATOR

4.1   Operator

      BHP Billiton  Petroleum  (Americas)  Inc. is designated as the Operator of
      the Contract Area. The Parties shall promptly execute and provide Operator
      with all documents  required by the MMS in connection with the designation
      of Newfield as  Operator or with the  designation  of any other Party as a
      substitute  or successor  Operator.  Unless  agreed to the contrary by all
      Parties  hereto,  Operator  shall  also be  classified  as the  designated
      applicant  for  oil  spill  financial  responsibility  purposes  and  each
      Non-operating  Party shall promptly execute the appropriate  documentation
      reflecting  this  designation  and  promptly  provide same to Operator for
      filing with MMS.

4.2   Substitute Operator

      Except as otherwise provided in Article 4.2.1  (Circumstances  Under Which
      the  Operator  Must  Conduct a  Non-Consent  Operation),  if the  Operator
      becomes  a  Non-participating  Party  in  a  Non-consent  Operation,   the
      Participating  Parties may approve the  designation  of any  Participating
      Party  as the  substitute  Operator  by the vote of two (2) or more of the
      Participating Parties having a combined fifty percent (50%) or more of the
      Participating  Interests. The substitute Operator shall serve only (a) for
      the  Non-consent  Operation,  (b) on the Contract Area, or that portion of
      the Contract Area, affected by the Non-consent Operation, and (c) with the
      same  authority,  rights,  obligations,  and duties as the Operator.  If a
      Non-operator is the only Participating  Party in a Non-consent  Operation,
      then the Non-operator  shall be designated as the substitute  Operator for
      that Non-consent Operation, with no vote required, unless the Non-operator
      elects  not to accept  the  designation.  No  Non-operator  shall  ever be
      designated  as a  substitute  Operator  against its will.  If a substitute
      Operator is not designated  under the foregoing  procedures,  the Operator
      shall, upon the unanimous  agreement of the Participating  Parties and the
      Operator, conduct the Non-consent

                                       13
<PAGE>

      Operation on behalf of the Participating  Parties and at the Participating
      Parties' sole cost and risk under Article 13 (Non-Consent Operations).

      4.2.1   Circumstances Under Which the Operator  Must Conduct a Non-Consent
              Operation

              If:

              (a)    a  drilling  rig  is  on location and the Operator  becomes
                     a  Non-participating  Party  In a  supplemental  AFE for an
                     Exploratory Operation, a substitute well proposed under the
                     JDA or Development Operation, or

              (b)    the  Operator  becomes  a  Non-participating  Party  in  an
                     operation to be conducted  from a Platform  operated by the
                     Operator,

              the  Operator,  as a  Non-participating  Party,  shall conduct the
              Non-consent  Operation on behalf of the Participating  Parties and
              at the Participating  Parties' sole cost and risk under Article 13
              (Non-Consent Operations).

      4.2.2   Operator's  Conduct  of a  Non-Consent Operation  in Which it is a
              Non-participating Party

              When,  under  Article 4.2  (Substitute  Operator) or Article 4.2.1
              (Circumstances Under Which the Operator Must Conduct a Non-Consent
              Operation), the Operator conducts a Non-consent Operation in which
              it is a Non-participating Party, it shall follow the practices and
              standards   in   Article   5   (Exclusive   Right   to   Operate).
              Notwithstanding  anything  to the  contrary  in Exhibit  "C",  the
              Operator  shall not be  required to proceed  with the  Non-consent
              Operation until the Participating  Parties have advanced the total
              estimated costs of the Non-consent Operation to the Operator.  The
              Operator  shall never be  obligated to expend any of its own funds
              for the Non-consent  Operation in which it is a  Non-participating
              Party.

      4.2.3   Appointment of a Substitute Operator

              After  expiration  of all  applicable  response  periods  for  the
              Non-consent Operation and selection of a substitute Operator, each
              Party shall  promptly  provide the  substitute  Operator  with the
              appropriate  MMS  designation of operator forms and designation of
              oil spill  responsibility  forms.  The Operator and the substitute
              Operator  shall  coordinate  the change of  operatorship  to avoid
              interfering  with  ongoing  activities  and  operations,  if  any,
              including  but not limited to, lease  maintenance  activities  and
              operations.

      4.2.4   Redesignation of Operator

              Within  fifteen  (15) days  after  conclusion  of the  Non-consent
              Operation, all Parties shall execute and provide the Operator with
              the  appropriate MMS designation of operator forms and designation
              of oil spill  responsibility  forms to return  operatorship to the
              Operator,  thereby  superseding  the Parties'  designation  of the
              substitute   Operator  under  Article  4.2.3   (Appointment  of  a
              Substitute Operator).

                                       14
<PAGE>

4.3   Resignation of Operator

      Subject to Article 4.5 (Selection of  Successor),  the Operator may resign
      at any time by giving  written  notice  to the  Parties,  except  that the
      Operator may not resign during a Force Majeure or an emergency  that poses
      a threat to life, safety,  property,  or the environment.  If the Operator
      ceases to own a Working  Interest,  the  Operator  automatically  shall be
      deemed  to  have  resigned  as the  Operator  without  any  action  by the
      Non-operators.

4.4   Removal of Operator

      Operator  may be removed by an  affirmative  vote of the Parties  owning a
      combined  Working Interest of fifty percent (50%) or more of the remaining
      Working Interest after excluding the Operator's Working Interest if:

      (a)     Operator  becomes  insolvent  or  unable  to pay its debts as they
              mature, makes an assignment for the benefit of creditors,  commits
              an act of bankruptcy, or seeks relief under laws providing for the
              relief of debtors;

      (b)     a receiver is appointed for Operator or for  substantially  all of
              its property or affairs;

      (c)     a Transfer  of  Interest by the  Operator  (excluding  an interest
              assigned to an Affiliate)  reduces the Operator's Working Interest
              to less than the  Working  Interest  of a Non-  operator,  whether
              accomplished by one or more Transfer of Interest.

      (d)     Operator commits a substantial  breach of a material  provision of
              this Agreement and fails to cure the breach within sixty (60) days
              after notice of the breach.

      If a petition for relief under the federal  bankruptcy laws is filed by or
      against Operator,  and if a federal  bankruptcy court prevents the removal
      of Operator,  all  Non-operators  and Operator  shall  comprise an interim
      operating  committee  to operate  until  Operator has elected to reject or
      assume this Agreement  under the Bankruptcy  Code. An election by Operator
      as a  debtor-in-possession  or by a trustee in  bankruptcy  to reject this
      Agreement  shall be deemed to be a  resignation  by  Operator  without any
      action by the  Non-operators,  except the selection of a successor.  To be
      effective, a vote to remove Operator for any cause described above must be
      taken  within  thirty  (30)  days  after a  Non-operator  receives  actual
      knowledge  of the  cause.  A change  of  corporate  name or  structure  of
      Operator or a transfer of Operator's  interest to a single Affiliate shall
      not be deemed to be a resignation or basis for removing Operator.  Subject
      to  Article  8.6.2  (Default)  &  Article  8.6.3  (Unpaid  Charges),   the
      resignation or removal of Operator  shall become  effective at the earlier
      of (a) 7:00 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 Non-operators to remove Operator, or (b) the time
      when a successor Operator assumes the duties of Operator.

4.5   Selection of Successor

      Upon  resignation  or removal of Operator,  a successor  Operator shall be
      selected from among the Parties by an affirmative  vote of two (2) or more
      Parties having a combined Working Interest of

                                       15
<PAGE>

      fifty percent  (50%) or more.  If the resigned or removed  Operator is not
      entitled to vote, fails to vote, or votes only to succeed itself, then the
      successor  Operator  shall  be  selected  by the  affirmative  vote of the
      Parties owning a combined  Working Interest of fifty percent (50%) or more
      of the remaining  Working Interest after excluding the Working Interest of
      the resigned or removed Operator. If the Operator assigns all or a part of
      its Working Interest,  then under Article 4.3 (Resignation of Operator) or
      Article  4.4.(c),  the  Party  who  acquired  all or a part of the  former
      Operator's  Working  Interest  shall not be  excluded  from  voting  for a
      successor  Operator.  If there are only two Parties to this Agreement when
      the Operator resigns or is removed,  then the  Non-operator  automatically
      has the right, but not the obligation, to become the Operator. If no Party
      is willing to become the Operator,  this Agreement  shall  terminate under
      Article 27.1 (Term).

4.6   Effective Date of Resignation or Removal

      The resignation or removal of the Operator shall become  effective as soon
      as  practical  but no later  than 7:00 a.m.  on the first day of the month
      following  a period of ninety (90) days after the date of  resignation  or
      removal,  unless a longer  period is  required  for the  Parties to obtain
      approval of the  designation  of the successor  Operator,  and  designated
      applicant for oil spill  financial  responsibility  purposes,  by the MMS;
      however,  in no event shall the  resignation or removal of Operator become
      effective  until a successor  Operator has assumed the duties of Operator.
      The  resignation  or removal of the outgoing  Operator shall not prejudice
      any rights,  obligations,  or liabilities resulting from its operatorship.
      The successor  Operator may charge the Joint Account for reasonable  costs
      incurred in  connection  with copying or obtaining  the former  Operator's
      records,  information  or data except when the change of Operator  results
      from a merger,  consolidation,  reorganization  or sale or  transfer to an
      Affiliate of the Operator.

4.7   Delivery of Property

      On the  effective  date of  resignation  or removal of the  Operator,  the
      outgoing  Operator  shall  deliver or transfer to the  successor  Operator
      custodianship  of the Joint Account and possession of all items  purchased
      for the Joint Account under this Agreement,  all Hydrocarbons that are not
      the  separate  property  of  a  Party,  all  equipment,   materials,   and
      appurtenances purchased for the Joint Account under this Agreement,  which
      are not already in the possession of the successor Operator.  The outgoing
      Operator  shall  further  use its  reasonable  efforts to  transfer to the
      successor  Operator,  as of  the  effective  date  of the  resignation  or
      removal,  its rights as Operator under all contracts  exclusively relating
      to the activities or operations  conducted under this  Agreement,  and the
      successor  Operator shall assume all  obligations of the Operator that are
      assignable  under the  contracts.  The Parties may audit the Joint Account
      and conduct an inventory of all property and all Hydrocarbons that are not
      the separate  property of a Party,  and the inventory shall be used in the
      accounting to all Parties by the outgoing Operator of the property and the
      Hydrocarbons  that are not the separate property of a Party. The inventory
      and audit shall be conducted under Exhibit "C".

                                       16
<PAGE>

                                    ARTICLE 5

                        AUTHORITY AND DUTIES OF OPERATOR

5.1   Exclusive Right to Operate

      Unless  otherwise  provided  in this  Agreement,  Operator  shall have the
      exclusive  right  and duty to  conduct  operations  (or  cause  them to be
      conducted)  under  this  Agreement.  In  performing  services  under  this
      Agreement  for  the  Non-operators,   Operator  shall  be  an  independent
      contractor,  not subject to the  control or  direction  of  Non-operators,
      except for the type of operation to be undertaken  in accordance  with the
      voting and election procedures in this Agreement. No Party shall be deemed
      to be, or hold itself out as, the agent or fiduciary of another Party.

5.2   Workmanlike Conduct

      Operator  shall timely  commence and conduct all  operations in a good and
      workmanlike  manner, as would a prudent operator under the same or similar
      circumstances.  OPERATOR SHALL NOT BE LIABLE TO  NON-OPERATORS  FOR LOSSES
      SUSTAINED OR LIABILITIES  INCURRED,  EXCEPT AS MAY RESULT FROM  OPERATOR'S
      GROSS NEGLIGENCE OR WILLFUL  MISCONDUCT.  Operator shall never be required
      under this  Agreement  to conduct an operation  that it believes  would be
      unsafe or would  endanger  persons,  property or the  environment.  Unless
      otherwise  provided  in  this  Agreement,   Operator  shall  consult  with
      Non-operators and keep them informed of all important matters.

5.3   Liens and Encumbrances

      Operator  shall  endeavor to keep the  Contract  Area,  wells,  Platforms,
      Development Facilities,  and other equipment free from all liens and other
      encumbrances occasioned by operations hereunder,  except those provided in
      Article 8.6 (Security Rights).

5.4   Employees and Contractors

      Operator  shall select  employees  and  contractors  and  determine  their
      number, hours of labor, and compensation. The employees shall be employees
      of Operator.

5.5   Records

      The Operator shall keep or cause to be kept accurate books,  accounts, and
      records of  activities or  operations  under this  Agreement in compliance
      with the Accounting Procedure in Exhibit "C". Unless otherwise provided in
      this  Agreement,  all records of the Joint Account shall be available to a
      Non-operator as provided in Exhibit "C". The Operator shall use good-faith
      efforts to ensure the settlements,  billings, and reports rendered to each
      Party under this Agreement are complete and accurate.

5.6   Compliance

      Operator  shall comply,  and shall require all agents and  contractors  to
      comply,  with all  applicable  laws,  rules,  regulations,  and  orders of
      governmental authorities having jurisdiction.

                                       17
<PAGE>

5.7   Contractors

      Operator  may  enter  into  contracts   with  qualified  and   responsible
      independent  contractors  for  the  design,  construction,   installation,
      drilling,  production  or operation of wells,  Platforms  and  Development
      Facilities. Insofar as possible, Operator shall use competitive bidding to
      procure  goods and services  for the benefit of the Parties.  All drilling
      operations  conducted  under this Agreement shall be conducted by properly
      qualified and responsible  drilling  contractors under current competitive
      contracts.  A drilling contract will be deemed to be a current competitive
      contract  if it  (a)  was  made  within  twelve  (12)  months  before  the
      commencement  of the well and (b) contains  terms,  rates,  and provisions
      that,  when  the  contract  was  made,  did  not  exceed  those  generally
      prevailing in the area for operations involving  substantially  equivalent
      rigs  that are  capable  of  conducting  the  drilling  operation.  At its
      election,  Operator may use its own or an Affiliate's  drilling equipment,
      derrick barge, tools, or machinery to conduct drilling operations, but the
      work shall be (i)  performed  by  Operator or its  Affiliate  acting as an
      independent  contractor,  (ii)  approved  by  written  agreement  with the
      Participating   Parties  before  commencement  of  operations,   and (iii)
      conducted under the same terms and conditions and at the same rates as are
      customary and prevailing in  competitive  contracts of third parties doing
      work of similar nature.

5.8   Governmental Reports, Litigation and/or Administrative Proceedings

      Operator shall make reports to  governmental  authorities it has a duty to
      make  as  Operator  and  shall  furnish  copies  of  the  reports  to  the
      Participating  Parties.  Operator  shall give timely written notice to the
      Parties of litigation  and/or  administrative  proceedings of which it has
      notice affecting the Contract Area or operations hereunder.

5.9   Information to Participating Parties

      Except  as  provided  in  Article  8.6,   Operator   shall   furnish  each
      Participating  Party the following  information,  if applicable,  for each
      activity or operation conducted by Operator:

      5.9.1   A copy of the  application  for permit to drill and all amendments
              thereto.

      5.9.2   A daily  drilling  report  (or  Reworking  report or  Recompletion
              report,   if   applicable),   giving  the   depth,   corresponding
              lithological information,  data on drilling fluid characteristics,
              information about drilling or operational  difficulties or delays,
              if any, and other pertinent information, by facsimile transmission
              or electronic mail within eight (8) hours (exclusive of Saturdays,
              Sundays,  and federal  holidays) for well operations  conducted in
              the preceding twenty-four (24) hour period.

      5.9.3   A complete report of each core analysis.

      5.9.4   A copy of each electrical survey, currently as it is run; all data
              for each  radioactivity  log,  temperature  survey,  deviation  or
              directional survey,  caliper log, and other log or survey obtained
              during the drilling of the well; and, upon completion of the well,
              a composite of all electrical-type  logs, insofar as is reasonable
              and customary.

                                       18
<PAGE>

      5.9.5   A copy of all well test results, bottom-hole pressure surveys, and
              fluid analyses.

      5.9.6   Upon written request  received by Operator before  commencement of
              drilling,  samples of  cuttings  and cores taken from the well (if
              sufficient cores are retrieved),  packaged in containers furnished
              by Operator at the expense of the requesting  Party,  marked as to
              the depths from which they were taken,  and shipped at the expense
              of  the  requesting  Party  by  express  courier  to  the  address
              designated by the requesting Party.

      5.9.7   To the extent possible, twenty-four (24) hours' advance notice of,
              and access to, logging, coring, and testing operations.

      5.9.8   A monthly report on the volume of Hydrocarbons  and water produced
              from each well.

      5.9.9   A copy of each  report  made to a  governmental  authority  having
              jurisdiction.

      5.9.10  Upon written  request,  other pertinent  information  available to
              Operator,  including,  but not limited to,  those  portions of the
              contracts  to be used for the  benefit  of the Joint  Account  and
              which pertain to the Contract  Area,  but excluding the Operator's
              proprietary   or   secret    information    and   its   subsurface
              interpretations.

5.10  Information to Non-participating Parties

      Operator  shall  furnish  each  Non-participating  Party  a copy  of  each
      Operator's  governmental  report  that  is  available  to the  public  and
      associated with the applicable Non-consent Operation. Until the applicable
      recoupment  under  Article 13  (Non-consent  Operations)  is  complete,  a
      Non-participating  Party shall not receive or review any other information
      specified by Article 5.9 (Information to Participating Parties), except as
      may be necessary for a payout audit of the Non-consent Operation.

                                    ARTICLE 6

                          VOTING AND VOTING PROCEDURES

6.1   Voting Procedures

      Unless  otherwise  provided  in  this  Agreement,  each  matter  requiring
      approval of the Parties shall be determined as follows:

      6.1.1   Voting Interest

              Subject to Article 8.6 (Security Rights),  each Party shall have a
              voting interest equal to its Working Interest or its Participating
              Interest, as applicable.

      6.1.2   Vote Required

              Unless expressly stated to the contrary herein, a matter requiring
              approval of the Parties shall be decided by the  affirmative  vote
              of two (2) or more Parties  having a combined  voting  interest of
              fifty-one  percent  (51 %) or  more.  If  there  are  only two (2)
              Parties to this

                                       19
<PAGE>

              Agreement,  the matter shall be  determined  by the Party having a
              majority  voting  interest  or, if the  interests  are equal,  the
              matter shall require unanimous consent.

      6.1.3   Votes

              The  Parties  may  vote  at  a  meeting;  by  telephone,  promptly
              confirmed  in writing to Operator;  or by facsimile  transmission.
              Operator shall give each Party prompt notice of the results of the
              voting.

      6.1.4   Meetings

              Meetings of the  Parties  may be called by  Operator  upon its own
              motion or at the  request of a Party  having a voting  interest of
              not less  than ten  percent  (10%).  Except  in an  emergency,  no
              meeting  shall be  called  on less  than  five (5)  days'  advance
              written  notice,  and the  notice of  meeting  shall  include  the
              meeting agenda  prepared by the Operator or the requesting  Party.
              The  representative of Operator shall be chairman of each meeting.
              Only matters included in the agenda may be discussed at a meeting,
              but the  agenda  and items  included  in the agenda may be amended
              prior to or during  the  meeting  by  unanimous  agreement  of all
              Parties.

                                    ARTICLE 7

                                     ACCESS

7.1   Access to Contract Area

      Except as provided in Article 8.6,  each Party shall have  access,  at its
      sole risk and expense and at all reasonable  times,  to the Contract Area,
      Platform,  Development  Facilities  and Joint  Account  assets to  inspect
      activities,  operations  and  wells  in  which  it  participates,  and  to
      pertinent  records and data. A  Non-operator  shall give Operator at least
      twenty-four  (24) hours' notice of the  Non-operator's  intention to visit
      the  Contract  Area.  To  protect  Operator  and  the  Non-operators  from
      unnecessary lawsuits,  claims, and legal liability, if it is necessary for
      a person who is not performing  services for Operator  directly related to
      the joint operations, but is performing services solely for a Non-operator
      or pertaining to the business or operations of a  Non-operator,  to visit,
      use, or board a rig, well, Platform, or Development  Facilities subject to
      this Agreement, the Non-operator shall give Operator advance notice of the
      visit,  use, or boarding,  and shall secure from that person an agreement,
      in a form satisfactory to Operator,  indemnifying and holding Operator and
      Non-operators harmless, or shall itself provide the same hold harmless and
      indemnification  in favor of Operator and other  Non-operators  before the
      visit, use, or boarding.

7.2   Reports

      On  written  request,  Operator  shall  furnish  a  requesting  Party  any
      information not otherwise  furnished under Article 5 (Authority and Duties
      of Operator) to which that Party is entitled under

                                       20
<PAGE>

      this  Agreement.  The costs of gathering and  furnishing  information  not
      furnished  under  Article  5 shall be  charged  to the  requesting  Party.
      Operator  is  not  obligated  to  furnish  interpretative  data  that  was
      generated by Operator at its sole cost.

7.3   Confidentiality

      Except as otherwise provided in Article 7.4 (Limited Disclosure),  Article
      7.5 (Limited Releases to Offshore Scout  Association),  Article 7.6 (Media
      Releases),  and Article 21.1 (Notice of Contributions  Other Than Advances
      for  Sale  of  Production),   and  except  for  necessary  disclosures  to
      governmental  authorities  having  jurisdiction,  or  except  as agreed in
      writing by all Participating Parties, no Party or Affiliate shall disclose
      Confidential Data to a third party.

7.4   Limited Disclosure

      A Party may make  Confidential  Data to which it is  entitled  under  this
      Agreement available to:

      (a)     outside professional  consultants and reputable  engineering firms
              for the purpose of evaluations and/or submitting bids;

      (b)     gas  transmission  companies  for  Hydrocarbon  reserve  or  other
              technical evaluations;

      (c)     reputable  financial  institutions for study before  commitment of
              funds;

      (d)     governmental authorities having jurisdiction or the public, to the
              extent  required  by  applicable  laws  or by  those  governmental
              authorities;

      (e)     the  public,  to  the  extent  required  by the  regulations  of a
              recognized stock exchange;

      (f)     third  parties  with whom a Party is engaged in a bona fide effort
              to effect a merger  or  consolidation,  sell all or a  controlling
              part of that  Party's  stock,  or sell  all or  substantially  all
              assets of that Party or an Affiliate of that Party; and

      (g)     an Affiliate of a Party.

      Confidential  Data  made  available  under  Articles  7.4(f)  shall not be
      removed from the custody or premises of the Party making the  Confidential
      Data available to third parties described in those Articles. A third party
      permitted  access under  Articles 7.4, (a), (b), (c), and (f), shall first
      agree in writing neither to disclose the  Confidential  Data to others nor
      to use the  Confidential  Data,  except for the  purpose  for which it was
      disclosed.  The  disclosing  Party  shall give  prior  notice to the other
      Parties that it intends to make the Confidential Data available.

7.5   Limited Releases to Offshore Scout Association

      The  Operator may  disclose  Confidential  Data to the Offshore Oil Scouts
      Association at their regularly scheduled  meetings.  The Confidential Data
      that may be disclosed is limited to information concerning well locations,
      well  operations,  and  well  completions  to the  extent  reasonable  and
      customary  in  industry  practice  or  required  under the  by-laws of the
      Offshore Oil Scouts Association.

                                       21
<PAGE>

7.6   Media Releases

      Except as  unanimously  agreed by the  Participating  Parties or otherwise
      permitted by this  Article,  no Party shall issue a news or media  release
      about operations on the Contract Area. In an emergency involving extensive
      property or environmental damage,  operations failure, loss of human life,
      or other  clear  emergency,  and for which there is  insufficient  time to
      obtain  the prior  approval  of the  Parties,  Operator  may  furnish  the
      minimum, strictly factual, information necessary to satisfy the legitimate
      public  interest  of  the  media  and  governmental   authorities   having
      jurisdiction. Operator shall then promptly advise the other Parties of the
      information furnished in response to the emergency.

      7.6.1   Required Media Releases

              Notwithstanding   anything  to  the  contrary  contained  in  this
              Agreement,  should  a Party  be  required  to make a news or media
              release  concerning   operations  covered  by  this  Agreement  in
              compliance  with any laws,  orders,  rules and  regulations of any
              federal, state, local government authority or stock exchange, said
              Party may release such information.  Any required release shall be
              delivered to all  Participating  Parties within  forty-eight  (48)
              hours before being issued.

                                    ARTICLE 8

                                  EXPENDITURES

 8.1  Basis of Charge to the Parties

      Subject to the other provisions of this Agreement,  Operator shall pay all
      costs  incurred  under  this  Agreement,  and each Party  shall  reimburse
      Operator  in  proportion  to  its  Participating  Interest.  All  charges,
      credits,  and accounting for expenditures  shall be made and done pursuant
      to Exhibit "C".

 8.2  AFEs

      Before  undertaking  an operation or making a single  expenditure to be in
      excess  of  One  Hundred  Thousand  Dollars   ($100,000.00),   and  before
      conducting an activity or operation to drill, Sidetrack, Deepen, Complete,
      Rework or Recomplete a well (regardless of the estimated  cost),  Operator
      shall submit an AFE for the  operation or  expenditure  to the Parties for
      approval.  Operator shall also furnish an informational AFE to all Parties
      for an  operation  or single  expenditure  estimated  to cost One  Hundred
      Thousand  Dollars  ($100,000.00)  or less, but in excess of Fifty Thousand
      Dollars  ($50,000.00).  Operator shall notify the Participating Parties as
      soon  as  reasonably  possible  when it  appears  the  cost of an  ongoing
      activity or operation,  prior to its completion,  will exceed the original
      AFE by more than 10 percent  (10%) or Two Hundred Fifty  Thousand  Dollars
      ($250,000.00),  whichever  is the  greater  amount.  This  overexpenditure
      notice shall be furnished to

                                       22
<PAGE>

      the Participating Parties as a supplemental AFE for informational purposes
      only and is not subject to an election by any of the Parties.

8.3   Emergency and Required Expenditures

      Notwithstanding  anything in this  Agreement to the contrary,  Operator is
      hereby  authorized to conduct  operations  and incur  expenses that in its
      opinion are  reasonably  necessary to safeguard  life,  property,  and the
      environment  in  case  of an  actual  or  imminently  threatened  blowout,
      explosion, accident, fire, flood, storm, hurricane,  catastrophe, or other
      emergency, and the expenses shall be borne by the Participating Parties in
      the  affected  operation.  Operator  shall  report  to  the  Participating
      Parties,  as promptly as  possible,  the nature of the  emergency  and the
      action taken.  Operator is also authorized to conduct operations and incur
      expenses  reasonably  required by statute,  regulation,  order,  or permit
      condition  or  by a  governmental  authority  having  jurisdiction,  which
      expenses  shall be  borne by the  Participating  Parties  in the  affected
      operation, subject to Exhibit "C".

8.4   Advance Billings

      Operator  may  require  each  Party to  advance  its  respective  share of
      estimated expenditures pursuant to Exhibit "C".

8.5   Commingling of Funds

      Funds received by Operator under this Agreement may be commingled with its
      own funds.

8.6   Security Rights (Louisiana)

      Exhibit "H" (LOUISIANA)

8.7   Overexpenditures

      Operator  shall  notify the  Participating  Parties  when it appears  that
      actual  expenditures  for  an  approved  operation  in an  Exploratory  or
      Development  Well or for the design,  construction,  and installation of a
      Platform  (other  than  a  Platform  that  solely   supports   Development
      Facilities)   will  exceed  the  AFE   estimate   (the  excess   being  an
      "Overexpenditure"). If it appears that the Overexpenditure will be no more
      than the greater of Two Hundred Fifty Thousand  Dollars  ($250,000.00)  or
      fifteen  percent  (15%),  or in the  case of an  operation  involving  the
      design,  construction,  and  installation  of a Platform,  or  Development
      Facilities,  no more than the  greater of Five  Hundred  Thousand  Dollars
      ($500,000.00)  or  ten  percent  (10%),  hereinafter  referred  to as  the
      "Allowable Variance," Operator's notice shall be forwarded for information
      only.  If Operator  determines  that the  Overexpenditure  will exceed the
      Allowable  Variance,  Operator  shall  submit  a new AFE  for the  current
      operation  ("Supplemental AFE") for approval of the Participating Parties.
      The   Participating   Parties  may  then  elect  whether  to  continue  to
      participate  within thirty (30) days or forty-eight (48) hours if a rig is
      on location, exclusive of Saturdays,  Sundays, and federal holidays, after
      receipt of the  Supplemental  AFE. If fewer than all,  but one (1) or more
      Participating  Parties  elect to  continue to  participate  in the current
      operation  and  agree to pay and bear one  hundred  percent  (100%) of the
      costs and risks of conducting it, Operator shall continue to conduct

                                       23
<PAGE>

      the  current   operation.   Otherwise,   the  operation   shall  cease.  A
      Participating  Party that  elects not to continue  to  participate  in the
      current operation shall become a Non-participating Party in the operation,
      from and after the date when the  Overexpenditure  exceeds  the  Allowable
      Variance,   not  including  emergency   expenditures,   and  Article  13.2
      (Relinquishment  of Interest)  shall apply to the Party only to the extent
      that the costs of the  operation  exceed the  Allowable  Variance.  Unless
      otherwise agreed by the Participating  Parties,  each Participating  Party
      electing to continue to participate  in the current  operation may, but is
      not  obligated  to,  pay and bear  that  portion  of the  costs  and risks
      attributable  to the  interests  of the  Non-participating  Parties in the
      ratio that the Participating Party's interest bears to the total interests
      of all  Participating  Parties  electing to continue  participating in the
      current operation.  If it appears to Operator that actual expenditures for
      an approved operation will exceed the Supplemental AFE estimate,  Operator
      shall again repeat the  procedure of this Article 8.8,  using the estimate
      in  the  most  recently  approved   Supplemental  AFE  as  the  basis  for
      determining  the  Overexpenditure  and  Allowable  Variance.   An  initial
      Participating Party in an operation shall remain responsible for its share
      of all  costs  and  risks  for  plugging,  replugging,  capping,  burying,
      disposing,   abandoning,  removing,  and  restoring  associated  with  the
      operation,  subject to Article 14  (Abandonment,  Salvage,  and  Surplus),
      regardless of its subsequent election on a Supplemental AFE, except to the
      extent such costs were  increased  by  subsequent  operations  in which it
      elected not to  participate.  Notwithstanding  anything in this Article to
      the  contrary,  if  expenditures  exceed  the  Allowable  Variance  for an
      emergency,   as   provided  in  Article  8.3   (Emergency   and   Required
      Expenditures),  Operator  shall not be required to secure the  approval of
      the  Participating  Parties,  as the  expenditures  will be  borne  by all
      Participating  Parties.   However,  once  stabilization  takes  place  and
      emergency  expenditures  are no  longer  being  incurred,  Operator  shall
      promptly furnish a Supplemental AFE to the Participating Parties for their
      review and election, as provided above.

                                    ARTICLE 9

                                     NOTICES

9.1   Giving and Receiving Notices

      Except as  otherwise  provided  in this  Agreement,  all AFEs and  notices
      required or permitted by this  Agreement  shall be in writing and shall be
      delivered   in  person  or  by  mail,   courier   service,   or  facsimile
      transmission,  with postage and charges prepaid,  addressed to the Parties
      at the  addresses in Exhibit  "A".  When a drilling rig is on location and
      standby charges are accumulating,  however,  notices pertaining to the rig
      shall be given  orally or by  telephone.  All  telephone  or oral  notices
      permitted by this Agreement shall be confirmed  immediately  thereafter by
      written notice.  A notice shall be deemed to have been delivered only when
      received by the Party to whom it was

                                       24
<PAGE>

      directed,  and the period for a Party to deliver a response thereto begins
      on the date the  notice  is  received.  "Receipt",  for oral or  telephone
      notice,  means  actual  and  immediate  communication  to the  Party to be
      notified,  and for written notice,  means actual delivery of the notice to
      the address of the Party to be notified,  as specified in this  Agreement,
      or to the facsimile  machine of that Party.  A responsive  notice shall be
      deemed to have been  delivered when the Party to be notified is in receipt
      of same.  When a response is required in  forty-eight  (48) hours or less,
      however,  the response  shall be given orally or by telephone or facsimile
      transmission  within  that  period.  If a Party is  unavailable  to accept
      delivery of a notice  required  to be given  orally or by  telephone,  the
      notice may be delivered by any other method specified in this Article 9.1.
      A message  left on an answering  machine or with an  answering  service or
      other third person shall not be deemed to be adequate  telephonic  or oral
      notice.

9.2   Content of Notice

      An AFE or notice  requiring a response shall indicate the maximum response
      time  specified in Article 9.3  (Response  to  Notices).  A proposal for a
      Platform and/or Development  Facilities shall include an AFE, containing a
      description of the Platform and/or Development Facilities,  including, but
      not limited to, location, and the estimated costs of design,  fabrication,
      transportation,  and  installation.  A proposal for a well operation shall
      include an AFE,  describing the estimated  commencement date, the proposed
      depth,  the objective  formation or formations to be penetrated or tested,
      the Objective  Horizon,  the surface and  bottomhole  locations,  proposed
      directional or horizontal drilling operations, the type of equipment to be
      used, and the estimated costs of the operation, including, but not limited
      to, the estimated costs of drilling, testing, and Completing or abandoning
      the well.  If a proposed  operation  is subject  to Article  13.11  (Lease
      Maintenance  Operations),  the notice shall specify that the proposal is a
      Lease Maintenance  Operation.  A proposal for multiple  operations on more
      than one well  location  by the same rig shall  contain  separate  AFEs or
      notices for each  operation and shall specify in writing in what order the
      operations  will be  conducted.  Each Party shall respond to each proposed
      multiple  operation in the manner  provided in Article 9.3.3 (Proposal for
      Multiple Operations).

9.3   Response to Notices

      Except as provided in Article  9.1,  each  Party's  response to a proposal
      shall be in writing to the proposing Party.  Unless otherwise  provided in
      this Agreement, the response time shall be as follows:

      9.3.1   Platform and/or Development Facilities Proposals

              Each Party shall respond within ninety (90) days after its receipt
              of the AFE or notice for a Platform and/or Development Facilities.

      9.3.2   Well Proposals

              Except  as  provided  in  Article  9.3.3  (Proposal  for  Multiple
              Operations),  each Party  shall  respond  within  thirty (30) days
              after receipt of the well. Rework or Recompletion proposal,

                                       25
<PAGE>

              but if (a) a drilling rig is on location, (b) the proposal relates
              to the same well or its  substitute,  and (c) standby  charges are
              accumulating,  a response  shall be made within  forty-eight  (48)
              hours  after  receipt of the  proposal,  exclusive  of  Saturdays,
              Sundays, and federal holidays.

      9.3.3   Proposal for Multiple Operations

              When a proposal is made to conduct multiple Development Operations
              at separate  well  locations  using the same rig, each Party shall
              respond (a) to the well operation taking precedence, within thirty
              (30)  days  after  receipt  of  the  proposal;  and  (b)  to  each
              subsequent  well  location,  within  forty-eight  (48) hours after
              completion  of  approved  operations  at the  prior  location  and
              notification thereof by Operator.

      9.3.4   Other Matters

              For all other matters requiring  notice,  each Party shall respond
              within thirty (30) days after receipt of notice.

9.4   Failure to Respond

      Failure  of a Party to respond to a  proposal  or notice,  to vote,  or to
      elect to participate within the period required by this Agreement shall be
      deemed to be a negative response, vote, or election.

9.5   Response to Counterproposals

      Should a  counterproposal  be allowed under this  Agreement,  responses to
      that  counterproposal  must be made  within  the  response  period for the
      original proposal.

9.6   Timely Well Operations

      Unless otherwise provided,  an approved well shall be commenced within one
      hundred twenty (120) days after the date when the last applicable election
      on that well may be made.  Wells shall be deemed to have  commenced on the
      day charges  commence  under the drilling  contract for that well.  If the
      Operator does not commence the drilling of an approved well within the one
      hundred twenty (120) day time frame,  the other  Participating  Parties in
      that well may select a substitute  Operator to drill the approved well. In
      all events, including the occurrence of a Force Majeure, if the substitute
      Operator fails to commence actual drilling  operations on an approved well
      within one  hundred  fifty (150) days from the  proposal  of the  approved
      well,  the  proposal of the well and its  approval  will be deemed to have
      been withdrawn. Subject to Exhibit "C", if a proposal for a well is deemed
      to have been  withdrawn,  all costs incurred in the  preparation for or in
      furtherance  of that well will be  chargeable  to the Parties who voted to
      participate in the well proposal for that well.

9.7   Timely Platform/Development Facilities Operations

      Unless otherwise provided,  Operator shall commence, or cause to commence,
      the  construction,  acquisition,  or refurbishment of an approved proposal
      for a Platform  and/or  Development  Facilities  within one hundred  fifty
      (150)  days  after  the date  when the last  applicable  election  on that
      Platform  and/or  Development  Facilities may be made.  The  construction,
      acquisition,  or refurbishment of an approved Platform and/or  Development
      Facilities proposal shall be deemed to have commenced

                                       26
<PAGE>

      on  the  date  the  contract  is  awarded  for  the  design,  acquisition,
      fabrication,   or  refurbishment   of  the  Platform  and/or   Development
      Facilities.   If  the  Operator   does  not  commence  the   construction,
      acquisition,  or refurbishment of an approved Platform and/or  Development
      Facilities proposal within the one hundred fifty (150) day time frame, the
      other Participating Parties in that Platform and/or Development Facilities
      proposal may select a substitute  Operator to commence the Platform and/or
      Development Facilities. In all events, including the occurrence of a Force
      Majeure,  if the substitute  Operator fails to commence the  construction,
      acquisition,  or refurbishment of an approved Platform and/or  Development
      Facilities  within one hundred  fifty (150) days from the  proposal of the
      approved  Platform  and/or  Development  Facilities,  the  proposal of the
      Platform and/or  Development  Facilities and their approval will be deemed
      to have been withdrawn.  Subject to Exhibit "C",  regardless of whether or
      not the construction,  acquisition,  or refurbishment of a Platform and/or
      Development  Facilities  is  commenced,  all costs  incurred by  Operator,
      attributable to that activity, shall be paid by the Participating Parties.

                                   ARTICLE 10

                             EXPLORATORY OPERATIONS

10.1  Proposing Operations

      Subject to the provisions of the JDA, any Party may propose an Exploratory
      Operation in accordance  with Article 9 (Notices) to the other Parties who
      are entitled to vote or make an election in regard to that operation.

10.2  Counterproposals

      When an  Exploratory  Operation is proposed,  a Party may,  within fifteen
      (15) days after  receipt of the AFE or notice for the  original  proposal,
      make a counterproposal to conduct an alternative  Exploratory Operation by
      sending an AFE or notice to such  Parties  in  accordance  with  Article 9
      (Notices).  The AFE or  notice  shall  indicate  that  the  proposal  is a
      counterproposal to the original proposal.  If one or more counterproposals
      are  made,  such  Parties  shall  elect  to  participate  in the  original
      proposal,  one  counterproposal,  or neither the  original  proposal nor a
      counterproposal.  If two or more  proposals  receive  the  approval of the
      number of Parties and combined Working Interests  required by Article 10.5
      (Operations by Fewer Than All Parties), the proposal receiving the largest
      percentage of Working Interest approval shall take precedence,  and in the
      event of a tie between two (2) or more  approved  proposals,  the proposal
      first  received  by the  Parties  shall  take  precedence.  Except for the
      response period provided in this Article 10.2, a counterproposal  shall be
      subject to the same terms and conditions as the original proposal.

                                       27
<PAGE>

10.3  Operations by All Parties

      If all Parties elect to  participate in the proposed  operation,  Operator
      shall conduct the operation at their cost and risk.

10.4  Second Opportunity to Participate

      If there are more than two (2) Parties to this Agreement and if fewer than
      all but one (1) or more  Parties  having a combined  Working  Interest  of
      fourteen  percent (14%) or more elect to  participate,  then the proposing
      Party shall notify the Parties of the  elections  made,  whereupon a Party
      originally  electing not to  participate  may then elect to participate by
      notifying the proposing Party within forty-eight (48) hours,  exclusive of
      Saturdays, Sundays, and federal holidays, after receipt of such notice. If
      all Parties elect to participate in the proposed operation, Operator shall
      conduct the  operation  at their cost and risk.  If there are only two (2)
      Parties to this Agreement, then there shall not be a second opportunity to
      elect to  participate,  and if the  Participating  Party agrees to pay and
      bear one hundred  percent  (100%) of the costs and risks of the operation,
      then the Operator,  subject to Article 4.2  (Substitute  Operator),  shall
      conduct the  operation as a  Non-consent  Operation for the benefit of the
      Participating  Party,  and  the  provisions  of  Article  13  (Non-consent
      Operations) shall apply.

10.5  Operations by Fewer Than All Parties

      If there are more than two (2) Parties to this Agreement,  then, after the
      election  made under  Article 10.4 (Second  Opportunity  to  Participate),
      fewer  than  all but one (1) or more  Parties  having a  combined  Working
      Interest of fourteen  percent (14%) or more have elected to participate in
      the proposed operation, the proposing Party shall notify the Participating
      Parties,  and each Participating  Party shall have forty-eight (48) hours,
      exclusive of Saturdays,  Sundays,  and federal holidays,  after receipt of
      the notice to notify the proposing Party of the portion of costs and risks
      attributable to the total  Non-participating  Parties' interests it elects
      to pay and bear.  Unless  otherwise agreed by the  Participating  Parties,
      each Participating  Party may, but shall not be obligated to, pay and bear
      that   portion  of  the  costs  and  risks   attributable   to  the  total
      Non-participating  Parties'  interests in the ratio that the Participating
      Party's interest bears to the total interests of all Participating Parties
      who elect to pay and bear a portion of costs and risks attributable to the
      total  Non-participating  Parties' interests.  Failure to respond shall be
      deemed to be an election not to pay or bear any additional costs or risks.
      If the  Participating  Parties  agree to pay and bear one hundred  percent
      (100%)  of the  costs and risks of the  operation,  Operator,  subject  to
      Article  4.2  (Substitute  Operator),  shall  conduct the  operation  as a
      Non-consent  Operation for the benefit of the Participating  Parties,  and
      the provisions of Article 13 (Non-consent Operations) shall apply. If such
      agreement is not obtained,  however,  the operation shall not be conducted
      and the effect shall be as if the proposal had not been made.

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<PAGE>

10.6  Expenditures Approved

      Approval  of  an   Exploratory   Operation   shall  cover  all   necessary
      expenditures  associated with the operation  proposed in the AFE or notice
      that are  incurred by Operator in  connection  with (a)  preparations  for
      drilling;  (b) the actual  drilling;  (c)  evaluations,  such as  testing,
      coring,  and logging;  and (d) plugging  and  abandonment,  subject to any
      limitation that may exist as provided under Article 8 above.

10.7  Conduct of Operations

      After  commencement  of  drilling  an  Exploratory  Well,  Operator  shall
      diligently conduct the operation without unreasonable delay until the well
      reaches  the  Objective  Depth,  unless the well  encounters,  at a lesser
      depth,  impenetrable  conditions or mechanical difficulties that cannot be
      overcome by  reasonable  and prudent  operations  and that render  further
      operations impracticable,  except as may otherwise be provided in optional
      provision Article 8.8 (Overexpenditures),  if selected. If a well does not
      reach its Objective Depth as a result of the conditions  mentioned in this
      Article  10.7,  the operation  shall be deemed to have been  completed and
      Article 13 (Non-consent  Operations) shall apply to each Non-participating
      Party for the portion of the well drilled.

10.8  Course of Action After Reaching Objective Depth

      When an  Exploratory  Well has been  drilled  to its  Objective  Depth and
      reasonable  testing,  coring, and logging have been completed as set forth
      in  the  approved  AFE  and  the  results  have  been   furnished  to  the
      Participating Parties,  Operator shall notify the Participating Parties of
      Operator's  recommendation  for further  operations  in the well,  and the
      following provisions shall apply:

      10.8.1  Election by Participating Parties

              A  Participating  Party  shall have the right to  propose  another
              operation  by notifying  the Operator and the other  Participating
              Parties of its proposed  operation within  twenty-four (24) hours,
              exclusive of Saturdays,  Sundays, and federal holidays, of receipt
              of the Operator's notice.  The Participating  Parties shall notify
              Operator within  forty-eight  (48) hours,  exclusive of Saturdays,
              Sundays,  and  federal  holidays,  of  receipt  of the  Operator's
              proposal   whether  the   Participating   Parties   elect  to  (a)
              participate in a recommended operation,  or (b) not participate in
              a recommended operation.  Failure to respond shall be deemed to be
              an  election  not  to  participate  in  any  of  the   recommended
              operations.

      10.8.2  Priority of Operations

              If all  Participating  Parties  elect to  participate  in the same
              proposed operation,  Operator shall conduct the operation at their
              cost and risk.  If more than one (1)  operation is approved by one
              (1) or  more  Participating  Parties  having  a  combined  Working
              Interest  of fourteen  percent  (14%) or more,  then the  approved
              operation  with the lowest  number as  indicated  below shall take
              precedence:

              1.     Additional  Testing,  coring,  or logging.  (If conflicting
                     proposals are approved,  the proposal receiving the largest
                     percentage of Working Interest approval shall take

                                       29
<PAGE>

                     precedence,  and  in the event  of a tie between two (2) or
                     more  approved   proposals,  the  approved   proposal first
                     received by the Parties shall take precedence.)

              2.     Deepen within the Contract Area. (If conflicting  proposals
                     are approved,  the operation  proposed to the deepest depth
                     shall take precedence.  If proposals to deepen and complete
                     at Objective  Horizon are both  approved,  a vote by two or
                     more with  combined  voting  interest of fifty-one  percent
                     (51%) will  determine  whether  deepening or  completing at
                     objective depth will take priority.)

              3.     Complete at the Objective Horizon.

              4.     Complete  above  the  Objective  Horizon.  (If  conflicting
                     proposals  are  approved,  the  operation  proposed  at the
                     deepest depth shall take precedence.)

              5.     Sidetrack.  (If  conflicting  proposals are  approved,  the
                     proposal  receiving the largest percentage Working Interest
                     approval shall take  precedence,  and in the event of a tie
                     between two (2) or more  approved  proposals,  the approved
                     proposal   first   received  by  the  Parties   shall  take
                     precedence.)

              6.     Other operations:  (If conflicting  proposals are approved,
                     the  proposal  receiving  the  largest  percentage  Working
                     Interest  approval shall take precedence,  and in the event
                     of a tie between two (2) or more  approved  proposals,  the
                     approved  proposal first received by the Parties shall take
                     precedence.)

              7.     Temporarily abandon.

              8.     Plug and abandon.

      10.8.3  Second Opportunity to Participate

              If fewer than all but one (1) or more Participating Parties having
              a combined  Working  Interest  of fourteen  percent  (14%) or more
              elect to  participate in an operation,  the proposing  Party shall
              notify the Participating  Parties of the elections made, whereupon
              a Party  originally  electing not to  participate  in the proposed
              operation may then elect to participate by notifying the proposing
              Party  within  forty-eight  (48) hours,  exclusive  of  Saturdays,
              Sundays,  and federal  holidays,  after receipt of such notice. If
              all  Parties  elect  to  participate  in the  proposed  operation,
              Operator shall conduct the operation at their cost and risk.

      10.8.4  Operations by Fewer Than All Parties

              If, after the election (if  applicable)  made under Article 10.8.3
              (Second Opportunity to Participate), fewer than all but one (1) or
              more  Parties  having a  combined  Working  Interest  of  fourteen
              percent  (14%)  or  more  elect  to  participate  in the  proposed
              operation that takes precedence,  the proposing Party shall notify
              the Participating  Parties and each Participating Party shall have
              forty-eight  (48) hours,  exclusive  of  Saturdays,  Sundays,  and
              federal  holidays,  after  receipt  of the  notice to  notify  the
              proposing Party of the portion of the costs and risks attributable
              to the total Non-participating Parties' interests It elects

                                       30
<PAGE>

              to pay and bear.  Unless  otherwise  agreed  by the  Participating
              Parties,  each Participating Party may, but shall not be obligated
              to, pay and bear that portion of the costs and risks  attributable
              to the total  Non-participating  Parties'  interests  in the ratio
              that  the  Participating  Party's  interest  bears  to  the  total
              interests of all Participating Parties who elect to pay and bear a
              portion of costs and risks  attributable to the  Non-participating
              Parties'  interests.  Failure to respond  shall be deemed to be an
              election not to pay or bear any additional  costs or risks. If the
              Participating  Parties agree to bear one hundred percent (100%) of
              the costs and risks of the operation, Operator, subject to Article
              4.2  (Substitute  Operator),  shall  conduct  the  operation  as a
              Non-consent   Operation  for  the  benefit  of  the  Participating
              Parties, and the provisions of Article 13 (Non-consent Operations)
              shall apply.  If such  agreement  is not  obtained,  however,  the
              operation shall not be conducted and the effect shall be as if the
              proposal  had not been made.  If a  Participating  Party in a well
              elects  not  to  participate  in  the  Deepening  or  Sidetracking
              operation in the well,  such  non-consenting  Party shall become a
              Non-participating   Party  In  all  operations  conducted  in  the
              Deepened or  Sidetracked  portion of the well after that election.
              If the Non-consent Operation is an Additional Testing,  coring, or
              logging operation,  Article 13 (Non-consent  Operations) shall not
              apply,  however,  a  Party  electing  not  to  participate  in the
              Additional  Testing,  coring,  or logging shall not be entitled to
              information resulting from the operation.

      10.8.5  Subsequent Operations

              Upon  completion  of an  operation  conducted  under  Article 10.8
              (Course of Action After Reaching  Objective Depth), if the well is
              not either (a) Completed as a Producible  Well, or (b) temporarily
              abandoned or  permanently  plugged and  abandoned,  Operator shall
              notify the Participating Parties of Operator's  recommendation for
              further  operations  in the well  under  Articles  10.8.1  through
              10.8.4,  which again shall apply.  If  sufficient  approval is not
              obtained  to conduct a  subsequent  operation  in a well or if all
              Participating  Parties elect to plug and abandon the well, subject
              to  Article  14   (Abandonment   and  Salvage),   Operator   shall
              permanently  plug and abandon the well at the cost and risk of all
              Participating   Parties.   Each   Participating   Party  shall  be
              responsible  for  its  proportionate  share  of the  plugging  and
              abandonment  costs  associated  with  the  operation  in  which it
              participated.

      10.8.6  Restoration of Damaged Well

              Notwithstanding  anything  to the  contrary in Article  19.7,  if,
              during Additional  Testing,  or during a Deepening or Sidetracking
              which does not result in the well being  Completed as a Producible
              Well,  the well is damaged to the extent that the well is rendered
              incapable of having a  lower-priority  operation  conducted  and a
              Party (a) who  participated  in the well, but not in the operation
              being  conducted  when  the  well  was  damaged,  (b)  who  has  a
              sufficient  percentage  of the  Working  Interest  to  approve  an
              operation,  and  (c)  who  elected  to  conduct  a  lower-priority
              operation  still desires to conduct the  lower-priority  operation
              after the well has been  damaged may  conduct  the  lower-priority
              operation, which would

                                       31
<PAGE>

              include  operations to either restore the well to a condition that
              will allow the  lower-priority  operation  to be  conducted  or to
              drill a new well to a sufficient depth to allow the lower-priority
              operation to be conducted.  Upon conclusion of the  lower-priority
              operation,  the  Participating  Parties  in  the  operation  being
              conducted   when  the  well  was  damaged   shall   reimburse  the
              Participating Parties conducting the lower-priority  operation all
              their costs  associated with  restoration of the well to the point
              prior  to the  lower-priority  operation  being  conducted.  In no
              event,  however,  shall the Participating Parties in the operation
              being conducted when the well was damaged be required to reimburse
              the Participating Parties conducting the lower-priority operations
              an amount  greater than what was actually  incurred in the damaged
              well.

10.9  Wells Proposed Below Deepest Producible Reservoir

      If a proposal is made to conduct an  Exploratory  Operation  involving the
      drilling of a well to an Objective  Horizon  below the base of the deepest
      Producible  Reservoir,  a Party may elect within the applicable  period to
      limit its  participation  in the operation down to the base of the deepest
      Producible  Reservoir.  For  purposes of this  Article  10.9,  a Party who
      elects to limit its participation in the operation down to the base of the
      deepest Producible Reservoir shall be referred to as "Shallow Participant"
      and a Party who elects to  participate  in the entire  operation  shall be
      referred  to as  "Deep  Participant".  If a  Party  elects  to  limit  its
      participation to the base of the deepest  Producible  Reservoir,  Operator
      shall  prepare and submit to the Shallow  Participant,  for  informational
      purposes,   a  separate  AFE  covering  operations  down  to  the  deepest
      Producible  Reservoir.  The Shallow  Participant  shall be a Participating
      Party in, and shall pay and bear the costs and risks of, each operation to
      the  base  of  the  deepest   Producible   Reservoir,   according  to  its
      Participating    Interest.    The   Shallow   Participant   shall   be   a
      Non-participating  Party in each  operation  below the deepest  Producible
      Reservoir,  and the operation shall be considered a Non-consent Operation,
      and the provisions of Article 13 (Non-consent  Operations) shall apply. If
      the well is Completed and produces  Hydrocarbons  from a horizon below the
      deepest  Producible  Reservoir,  the Deep Participant  shall reimburse the
      Shallow  Participant for its share of the actual well costs to the base of
      the deepest Producible Reservoir.  Payment shall be due within thirty days
      after  receipt of notice of the well  being  completed  below the  deepest
      Producible  Reservoir.  If the well is Completed and produces Hydrocarbons
      from a  horizon  below  the  deepest  Producible  Reservoir,  the  Shallow
      Participant  shall reimburse the Deep Participant for its Working Interest
      share of the  actual  well  costs to the  base of the  deepest  Producible
      Reservoir in accordance with Article 13.4 (Deepening or Sidetracking  Cost
      Adjustments),  upon the  earlier  of the time that (a) the well is plugged
      back to a horizon above the base of the deepest Producible  Reservoir,  as
      determined  when the original well was  proposed,  (b) the well is plugged
      and  abandoned,  or (c) the amount to be recouped by the Deep  Participant
      under Article 13 (Non-consent Operations) is recovered.

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                                   ARTICLE 11

                             DEVELOPMENT OPERATIONS

11.1  Proposing Operations

      A Party may propose a Development  Operation in accordance  with Article 9
      (Notices)  to the  other  Parties  who  are  entitled  to  vote or make an
      election in regard to that operation.

11.2  Counterproposals

      When a Development  Operation is proposed, a Party may, within twenty (20)
      days after receipt of the AFE or notice for the original proposal,  make a
      counterproposal to conduct an alternative Development Operation by sending
      an AFE or notice to such Parties in  accordance  with Article 9 (Notices).
      The AFE or notice shall indicate that the proposal is a counterproposal to
      the original  proposal.  If one or more  counterproposals  are made,  such
      Parties shall elect to  participate in either the original  proposal,  one
      counterproposal,  or neither the original proposal nor a  counterproposal.
      If two or more proposals receive the approval of the number of Parties and
      combined Working  Interests  required by Article 11.5 (Operations By Fewer
      Than All Parties),  the proposal  receiving the largest percentage Working
      interest approval shall take precedence, and in the event of a tie between
      two (2) or more approved  proposals,  the approved proposal first received
      by the Parties shall prevail.  Except for the response  period provided in
      this Article  11.2, a  counterproposal  shall be subject to the same terms
      and conditions as the original proposal.

11.3  Operations by All Parties

      If all Parties elect to  participate in the proposed  operation,  Operator
      shall conduct the operation at their cost and risk.

11.4  Second Opportunity to Participate

      If there are more than two (2) Parties to this Agreement and if fewer than
      all but one (1) or more  Parties  having a combined  Working  Interest  of
      fourteen  percent (14%) or more elect to  participate,  then the proposing
      Party shall notify the Parties of the  elections  made,  whereupon a Party
      originally  electing not to  participate  may then elect to participate by
      notifying the proposing Party within forty-eight (48) hours,  exclusive of
      Saturdays, Sundays, and federal holidays, after receipt of such notice. If
      all Parties elect to participate in the proposed operation, Operator shall
      conduct the  operation  at their cost and risk.  If there are only two (2)
      Parties to this Agreement, then there shall not be a second opportunity to
      elect to  participate,  and if the  Participating  Party agrees to pay and
      bear one hundred  percent  (100%) of the costs and risks of the operation,
      then the Operator,  subject to Article 4.2  (Substitute  Operator),  shall
      conduct the  operation as a  Non-consent  Operation for the benefit of the
      Participating  Party,  and  the  provisions  of  Article  13  (Non-consent
      Operations) shall apply.

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<PAGE>

11.5  Operations by Fewer Than All Parties

      If there are more than two (2) Parties to this Agreement,  then, after the
      election  made under  Article 11.4 (Second  Opportunity  to  Participate),
      fewer  than  all but one (1) or more  Parties  having a  combined  Working
      Interest of fourteen  percent (14%) or more have elected to participate in
      the proposed operation, the proposing Party shall notify the Participating
      Parties,  and each Participating  Party shall have forty-eight (48) hours,
      exclusive of Saturdays,  Sundays,  and federal holidays,  after receipt of
      the notice to notify the  proposing  Party of the portion of the costs and
      risks  attributable to the total  Non-participating  Parties' interests it
      elects  to pay and bear.  Unless  otherwise  agreed  by the  Participating
      Parties,  each Participating Party may, but shall not be obligated to, pay
      and bear  that  portion  of costs  and  risks  attributable  to the  total
      Non-participating  Parties'  interests in the ratio that the Participating
      Party's interest bears to the total interests of all Participating Parties
      who elect to pay and bear a portion of the costs and risks attributable to
      the total Non-participating  Parties' interests.  Failure to respond shall
      be deemed to be an  election  not to pay or bear any  additional  costs or
      risks.  If the  Participating  Parties  agree to pay and bear one  hundred
      percent (100%) of the costs and risks of the operation.  Operator, subject
      to Article 4.2  (Substitute  Operator)  shall  conduct the  operation as a
      Non-consent  Operation for the benefit of the Participating  Parties,  and
      the provisions of Article 13 (Non-consent Operations) shall apply. If such
      agreement is not obtained,  however,  the operation shall not be conducted
      and the effect shall be as if the proposal had not been made.

11.6  Expenditures Approved

      Approval of a Development Operation shall cover all necessary expenditures
      associated  with the  operation  proposed  in the AFE or  notice  that are
      incurred by Operator in connection with (a) preparations for drilling; (b)
      the  actual  drilling;  (c)  evaluations,  such as  testing,  coring,  and
      logging; and (d) plugging and abandonment,  subject to any limitation that
      may exist as provided under Article 8 above.

11.7  Conduct of Operations

      After  commencement  of a  Development  Well,  Operator  shall  diligently
      conduct the operation  without  unreasonable  delay until the well reaches
      the  Objective  Depth,  unless  the well  encounters,  at a lesser  depth,
      impenetrable conditions or mechanical difficulties that cannot be overcome
      by  reasonable  and  prudent  operations  and  render  further  operations
      impracticable,  except as may otherwise be provided in optional  provision
      Article 8.8  (Overexpenditures),  if elected. If a well does not reach its
      Objective  Depth as a result of the  conditions  mentioned in this Article
      11.7, the operation  shall be deemed to have been completed and Article 13
      (Non-consent  Operations) shall apply to each Non-participating  Party for
      the portion of the well drilled.

11.8  Course of Action After Reaching Objective Depth

      When a  Development  Well has been  drilled  to its  Objective  Depth  and
      reasonable  testing,  coring,  and  logging  have been  completed  and the
      results have been furnished to the Participating Parties,

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<PAGE>

      Operator   shall   notify  the   Participating   Parties   of   Operator's
      recommendation  for  further  operations  in the  well  and the  following
      provisions shall apply:

      11.8.1  Election by Fewer Than All Parties

              A  Participating  Party  shall have the right to  propose  another
              operation  by notifying  the Operator and the other  Participating
              Parties of its proposed  operation within  twenty-four (24) hours,
              exclusive of Saturdays,  Sundays, and federal holidays, of receipt
              of the Operator's notice.  The Participating  Parties shall notify
              Operator within  forty-eight  (48) hours,  exclusive of Saturdays,
              Sundays,  and  federal  holidays,  of  receipt  of the  Operator's
              proposal   whether  the   Participating   Parties   elect  to  (a)
              participate in a recommended operation,  or (b) not participate in
              a recommended operation.  Failure to respond shall be deemed to be
              an  election  not  to  participate  in  any  of  the   recommended
              operations.

      11.8.2  Priority of Operations

              If all  Participating  Parties  elect to  participate  in the same
              proposed operation,  Operator shall conduct the operation at their
              cost and risk.  If more than one (1)  operation is approved by one
              (1) or  more  Participating  Parties  having  a  combined  Working
              Interest  of fourteen  percent  (14%) or more,  then the  approved
              operation  with the lowest  number as  indicated  below shall take
              precedence:

              (Indicate the order of preference.)

              1.     Additional  Testing,  coring,  or logging.  (If conflicting
                     proposals are approved,  the proposal receiving the largest
                     percentage  of  Working   Interest   approval   shall  take
                     precedence,  and in the event of a tie  between  two (2) or
                     more  approved  proposals,   the  approved  proposal  first
                     received by the Parties shall take precedence.)

              2.     Complete at the Objective Horizon.

              3.     Complete  above  the  Objective  Horizon.  (If  conflicting
                     proposals  are  approved,  the  operation  proposed  to the
                     deepest/shallowest depth shall take precedence.)

              4.     Deepen the well to a new Objective Horizon. (If conflicting
                     proposals  are  approved,  the  operation  proposed  to the
                     deepest/shallowest depth shall take precedence.)

              5.     Sidetrack  the  well to  another  bottomhole  location  not
                     deeper than the  stratigraphic  equivalent  of the original
                     Objective  Depth.  (If conflicting  proposals are approved,
                     the proposal  receiving  the largest  percentage of Working
                     Interest  approval shall take precedence,  and in the event
                     of a tie between two (2) or more  approved  proposals,  the
                     approved  proposal first received by the Parties shall take
                     precedence.)

              6.     Other operations:  (If conflicting  proposals are approved,
                     the proposal  receiving  the largest  percentage of Working
                     Interest approval shall take precedence, and in

                                       35
<PAGE>

                     the  event  of a tie  between  two  (2)  or  more  approved
                     proposals,  the  approved  proposal  first  received by the
                     Parties shall take precedence.)

              7.     Temporarily abandon.

              8.     Plug and abandon.

      11.8.3  Second Opportunity to Participate

              If fewer than all but one (1) or more Participating Parties having
              a combined  Working  Interest  of fourteen  percent  (14%) or more
              elect to  participate in an operation,  the proposing  Party shall
              notify the Participating  Parties of the elections made, whereupon
              a Party  originally  electing not to  participate  in the proposed
              operation may then elect to participate by notifying the proposing
              Party  within  forty-eight  (48) hours,  exclusive  of  Saturdays,
              Sundays,  and federal  holidays,  after receipt of such notice. If
              all  Parties  elect  to  participate  in the  proposed  operation,
              Operator shall conduct the operation at their cost and risk.

      11.8.4  Operations by Fewer Than All Parties

              If, after the election (if  applicable)  made under Article 11.8.3
              (Second Opportunity to Participate), fewer than all but one (1) or
              more  Parties  having a  combined  Working  Interest  of  fourteen
              percent  (14%)  or  more  elect  to  participate  in the  proposed
              operation that takes precedence,  the proposing Party shall notify
              the Participating  Parties and each Participating Party shall have
              forty-eight  (48) hours,  exclusive  of  Saturdays,  Sundays,  and
              federal  holidays,  after  receipt  of the  notice to  notify  the
              proposing Party of the portion of the costs and risks attributable
              to the total Non-participating Parties' interests it elects to pay
              and bear.  Unless otherwise agreed by the  Participating  Parties,
              each  Participating  Party may, but shall not be obligated to, pay
              and bear that portion of the costs and risks  attributable  to the
              total  Non-participating  Parties' interests in the ratio that the
              Participating Party's interest bears to the total interests of all
              Participating Parties who elect to pay and bear a portion of costs
              and  risks   attributable   to  the   Non-participating   Parties'
              interests.  Failure to respond  shall be deemed to be an  election
              not  to  pay  or  bear  any  additional  costs  or  risks.  If the
              Participating  Parties  agree to pay and bear one hundred  percent
              (100%) of the costs and risks of the operation.  Operator, subject
              to Article 4.2 (Substitute Operator),  shall conduct the operation
              as a Non-consent  Operation  for the benefit of the  Participating
              Parties, and the provisions of Article 13 (Non-consent Operations)
              shall apply.  If such  agreement  is not  obtained,  however,  the
              operation shall not be conducted and the effect shall be as if the
              proposal  had not been made.  If a  Participating  Party in a well
              elects  not  to  participate  in  the  Deepening  or  Sidetracking
              operation in the well,  such  non-consenting  Party shall become a
              Non-participating   Party  in  all  operations  conducted  in  the
              Deepened or Sidetracked portion of the well after that election.

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<PAGE>

              If the Non-consent  Operation is an Additional  Testing operation,
              Article 13 (Non-consent  Operations) shall not apply,  however,  a
              Party electing not to participate in the Additional  Testing shall
              not be entitled to information resulting from the operation.

      11.8.5  Subsequent Operations

              Upon the completion of an operation  conducted  under Article 11.8
              (Course of Action After Reaching  Objective Depth), if the well is
              not  either  (a)   Completed   as  a  well  capable  of  producing
              Hydrocarbons in paying quantities, or (b) temporarily abandoned or
              permanently  plugged  and  abandoned,  Operator  shall  notify the
              Participating Parties of Operator's  recommendation for operations
              in the well under  Articles  11.8.1  through  11.8.4,  which again
              shall apply.  If sufficient  approval is not obtained to conduct a
              subsequent  operation in a well, or if all  Participating  Parties
              elect  to plug  and  abandon  the  well,  subject  to  Article  14
              (Abandonment,  Salvage,  and Surplus),  Operator shall permanently
              plug and  abandon  the well at the  expense  of all  Participating
              Parties.  Each  Participating  Party shall be responsible  for its
              proportionate   share  of  the  plugging  and  abandonment   costs
              associated with the operation in which it participated.

      11.8.6  Restoration of Damaged Well

              Notwithstanding  anything  to the  contrary in Article  19.7,  if,
              during Additional  Testing,  or during a Deepening or Sidetracking
              operation  which does not result in the well being  Completed as a
              Producible  Well,  the well is damaged to the extent that the well
              is  rendered  incapable  of  having  a  lower-priority   operation
              conducted and a Party (a) who participated in the well, but not in
              the operation being  conducted when the well was damaged,  (b) who
              has a sufficient  percentage of the Working Interest to approve an
              operation,  and  (c)  who  elected  to  conduct  a  lower-priority
              operation,  still desires to conduct the lower-priority  operation
              after the well has been  damaged,  may conduct the  lower-priority
              operation,  which would include  operations to either  restore the
              well to a condition that will allow the  lower-priority  operation
              to be conducted  or to drill a new well to a  sufficient  depth to
              allow  the   lower-priority   operation  to  be  conducted.   Upon
              conclusion  of the  lower-priority  operation,  the  Participating
              Parties in the operation being conducted when the well was damaged
              shall   reimburse  the   Participating   Parties   conducting  the
              lower-priority   operation   all  their  costs   associated   with
              restoration  of the well to the point prior to the  lower-priority
              operation   being   conducted.   In  no  event,   however,   shall
              Participating  Parties in the operation  being  conducted when the
              well was  damaged  be  required  to  reimburse  the  Participating
              Parties conducting the lower-priority operations an amount greater
              than what was actually incurred in the damaged well.

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<PAGE>

                                   ARTICLE 12

                      PLATFORM AND DEVELOPMENT FACILITIES

12.1  Proposal

      A Party may propose the fabrication or acquisition  and  installation of a
      Platform and/or Development Facilities, by sending an AFE or notice to the
      other Parties in accordance with Article 9 (Notices).

12.2  Counterproposals

      When a Platform  and/or  Development  Facilities is proposed under Article
      12.1,  a Party may,  within  thirty (30) days after  receipt of the AFE or
      notice for the original  proposal,  make a counterproposal to fabricate or
      otherwise acquire and install said Platform and/or Development  Facilities
      by  sending  an AFE or notice  to the other  Parties  in  accordance  with
      Article 9 (Notices). The AFE or notice shall indicate that the proposal is
      a   counterproposal   to  the   original   proposal.   If   one  or   more
      counterproposals are made, each Party shall elect to participate in either
      the  original  proposal,  one  counterproposal,  or neither  the  original
      proposal  nor a  counterproposal.  If two or more  proposals  receive  the
      approval of the number of Parties and combined Working Interests  required
      by Article  12.2.3  (Operations  By Fewer Than All Parties),  the proposal
      receiving the largest percentage Working Interest approval shall be deemed
      approved,  and in the event two (2) or more approved proposals receive the
      same Working Interest  approval,  the approved  proposal first received by
      the Parties shall be deemed approved.

      12.2.1  Operations by All Parties

              If all Parties  elect to  participate  in the proposed  operation,
              Operator shall conduct the operation at their cost and risk.

      12.2.2  Second Opportunity to Participate

              If there are more than two (2)  Parties  and if fewer than all but
              one (1) or more  Parties  having a combined  Working  Interest  of
              fourteen  percent  (14%)  or  more  elect  to  participate  in the
              Platform and/or Development  Facilities,  then the proposing Party
              shall notify the Parties of the elections made,  whereupon a Party
              originally   electing  not  to  participate   may  then  elect  to
              participate  by notifying the proposing  Party within  forty-eight
              (48) hours, exclusive of Saturdays, Sundays, and federal holidays,
              after receipt of such notice.  If all Parties elect to participate
              in the Platform  and/or  Development  Facilities,  Operator  shall
              timely commence the  fabrication and  installation of the Platform
              and/or Development Facilities at their cost and risk. If there are
              only two (2) Parties to this Agreement,  then there shall not be a
              second   opportunity   to  elect  to   participate,   and  if  the
              Participating  Party  agrees to pay and bear one  hundred  percent
              (100%) of the costs and risks of the operation, then the Operator,
              subject to Article 4.2 (Substitute Operator), shall

                                       38
<PAGE>

              conduct the operation as a  Non-consent  Operation for the benefit
              of the  Participating  Party,  and the  provisions  of  Article 13
              (Non-consent Operations) shall apply.

      12.2.3  Operations by Fewer Than All Parties

              If there are more than two (2)  Parties to this  Agreement,  then,
              after the election made under Article 12.2.2  (Second  Opportunity
              to Participate), fewer than all but one (1) or more Parties having
              a combined  Working  Interest  of fourteen  percent  (14%) or more
              elect  to   participate   in  the  Platform   and/or   Development
              Facilities,  the  proposing  Party shall notify the  Participating
              Parties,  and each Participating Party shall have forty-eight (48)
              hours,  exclusive of  Saturdays,  Sundays,  and federal  holidays,
              after receipt of the notice to notify the  proposing  Party of the
              portion  of  the  costs  and  risks   attributable  to  the  total
              Non-participating  Parties'  interests  it elects to pay and bear.
              Unless  otherwise  agreed  by  the  Participating   Parties,  each
              Participating  Party may, but shall not be  obligated  to, pay and
              bear that  portion  of costs and risks  attributable  to the total
              Non-participating   Parties'  interests  in  the  ratio  that  the
              Participating Party's interest bears to the total interests of all
              Participating  Parties  who elect to pay and bear a portion of the
              costs  and  risks  attributable  to  the  total  Non-participating
              Parties'  interests.  Failure to respond  shall be deemed to be an
              election not to pay or bear any additional  costs or risks. If the
              Participating  Parties  agree to pay and bear one hundred  percent
              (100%)  of the costs and  risks of the  operation,  the  Operator,
              subject to Article 4.2  (Substitute  Operator),  shall conduct the
              operation  as a  Non-consent  Operation  for  the  benefit  of the
              Participating  Parties,  and except as  provided  in Article  12.4
              (Rights to Take in Kind),  the  provisions  of Article  13.2.1.(b)
              shall apply.  If such  agreement  is not  obtained,  however,  the
              fabrication and  installation  of the Platform and/or  Development
              Facilities  shall not be commenced,  and the effect shall be as if
              the proposal had not been made.

12.3  Ownership and Use of the Platform and Development Facilities

      The  Participating  Parties in the  Development  Facilities own all of the
      excess capacity of the Development Facilities and the excess weight, space
      and buoyancy of the Platform.  Each Participating Party in the Development
      Facilities does not have the right to use its Participating Interest share
      of the  excess  capacity,  weight,  space  and  buoyancy  for  hydrocarbon
      production from outside the Contract Area. Each Participating Party in the
      Development  Facilities or Platform must obtain the unanimous  approval of
      the other Participating Parties in the Development  Facilities or Platform
      in order to utilize any portion of the excess capacity,  weight, space and
      buoyancy.  It must  negotiate the payment of a fee with the  Participating
      Parties in the Development  Facilities or Platform in order to utilize any
      portion of the excess capacity,  weight,  space and buoyancy.  Each of the
      Participating  Parties in the  Development  Facilities  or Platform  shall
      receive its  Participating  Interest  share of all fees  derived  from the
      utilization  of the  excess  capacity,  weight,  space and  buoyancy.  All
      hydrocarbon production from outside the Contract Area

                                       39
<PAGE>

      shall  be  processed  under  a  "Facilities  Use and  Production  Handling
      Agreement"  unanimously  agreed  to by the  Participating  Parties  in the
      Development Facilities.

12.4  Rights to Take in Kind

      Nothing  in this  Article  12 shall  act to limit a Party's  rights  under
      Article 22 (Disposition of Production), or to otherwise separately dispose
      of its  share of  Hydrocarbon  production.  If a Party  elects  (a) not to
      participate  in an approved  Development  Facilities  proposal  and (b) to
      separately dispose of its share of Hydrocarbon production (the "Separately
      Disposing Party"),  the Separately Disposing Party shall not be subject to
      the  provisions  of  Article  13.2.1.(b),  but must  provide  proof to the
      Participating  Parties in the approved  Development  Facilities  proposal,
      within  thirty  (30) days from the last  applicable  response  date to the
      Development  Facilities  proposal that it has entered into fabrication and
      transportation  contracts  to  separately  dispose  of its  own  share  of
      Hydrocarbon  production.  If a Separately Disposing Party fails to provide
      such proof by that  deadline and if there is  sufficient  capacity for the
      Development  Facilities to accommodate  the Separately  Disposing  Party's
      share of the Hydrocarbons, it shall immediately (I) become a Participating
      Party in the Development Facilities and utilize the Development Facilities
      for its share of  Hydrocarbon  production,  (II) pay to the  Participating
      Parties in the approved Development Facilities proposal an amount equal to
      two  hundred  percent  (200%)  of what  would  have  been  the  Separately
      Disposing  Party's  share of the  costs  and  expense  of the  Development
      Facilities  had it elected to participate  in the  Development  Facilities
      under  Article  12.1 or 12.2,  and (III) assume its share of the risks and
      liabilities   associated  with  the  construction  and  ownership  of  the
      Development Facilities as of the date of commencement of the operations to
      construct  same.  The  Participating  Parties in the original  Development
      Facilities  and  the   Separately   Disposing   Party,   which  becomes  a
      Participating Party in the original  Development  Facilities under Article
      12.4 (i),  shall own the original  Development  Facilities  based on their
      Participating Interest share in the original Development Facilities.  If a
      Separately  Disposing  Party fails to provide such proof by that  deadline
      and if there is insufficient  capacity for the  Development  Facilities to
      accommodate the Separately  Disposing  Party's share of the  Hydrocarbons,
      the Separately  Disposing Party shall (i) become a Participating  Party in
      the original Development  Facilities and utilize the available capacity in
      the original Development Facilities,  if any, for its share of Hydrocarbon
      production,  (ii)  pay one  hundred  percent  (100%)  of the  costs  of an
      expansion or modification of the Development Facilities, which is required
      to  accommodate  all or a portion  of its share of the  Hydrocarbons,  and
      assume one hundred percent (100%) of the risks and liabilities  associated
      with (A) the construction,  installation and commissioning of the expanded
      or modified Development Facilities and (B) the utilization of the expanded
      or  modified  Development  Facilities  for one hundred  eighty  (180) days
      subsequent to the  commencement  of Hydrocarbon  production  through same,
      (iii)  pay to  the  Participating  Parties  in  the  approved  Development
      Facilities  proposal an amount equal to two hundred percent (200%) of what
      would have been the  Separately  Disposing  Party's share of the costs and
      expense  of  the  original  Development   Facilities  had  it  elected  to
      participate in the

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<PAGE>

      original  Development  Facilities  under Article 12.1 or 12.2, (iv) assume
      its share of the risks and liabilities  associated  with the  construction
      and  ownership of the original  Development  Facilities  as of the date of
      commencement  of the  operations  to construct  the  original  Development
      Facilities.   The  Participating   Parties  in  the  original  Development
      Facilities  and  the   Separately   Disposing   Party,   which  becomes  a
      Participating Party in the original  Development  Facilities under Article
      12.4(i),  shall own the expanded or modified Development  Facilities based
      on  their  Participating   Interest  share  in  the  original  Development
      Facilities,  and the  Participating  Parties in the  original  Development
      Facilities  shall assume their  Participating  Interest share of the risks
      and liabilities  associated with the ownership of the expanded or modified
      Development  Facilities  one  hundred  eighty  (180)  days  after that the
      expanded or modified Development Facilities have been utilized.

12.5  Expansion or Modification of a Platform and/or Development Facilities

      After  installation  of a  Platform  and/or  Development  Facilities,  any
      Participating  Party in that Platform  and/or  Development  Facilities may
      propose the expansion or modification of that Platform and/or  Development
      Facilities by written notice (along with its associated  AFE) to the other
      Participating Parties in that Platform and/or Development Facilities. That
      proposal requires approval by two (2) or more of the Participating Parties
      in the Platform and/or Development Facilities with more than fifty percent
      (50%) of the  Participating  Interest in the Platform  and/or  Development
      Facilities.   If  approved,   that   proposal   will  be  binding  on  all
      Participating Parties in that Platform and/or Development Facilities,  and
      the Operator  shall commence that  expansion or  modification  at the sole
      cost and risk of all of the Participating  Parties in that Platform and/or
      Development Facilities unless otherwise agreed.

12.6  Offsite Host Facilities

      In the event that two (2) or more  Parties  with more than  fifty  percent
      (50%) of the Participating  Interest in Hydrocarbon  production agree that
      Hydrocarbon production can most effectively be processed and handled by an
      Offsite Host  Facilities,  the  Operator,  on behalf of the  Participating
      Parties,  shall use reasonable  efforts to secure a formal "Facilities Use
      and  Production  Handling  Agreement*  from the owners of the Offsite Host
      Facilities.  If the Operator does secure access to Offsite Host Facilities
      in a Facilities Use and Production Handling Agreement,  each Participating
      Party  shall  have the  right,  but not the  obligation,  to  utilize  its
      Participating Interest share of the capacity so secured. This Article 12.6
      shall  not  constitute  a limit  on a  Party's  right to  install  its own
      Take-in-Kind Facilities under Article 22 (Disposition of Production).

                                       41
<PAGE>

                                   ARTICLE 13

                             NON-CONSENT OPERATIONS

13.1  Non-consent Operations

      Operator or substitute Operator under Article 4.2 (Substitute Operator)
      shall conduct Non-consent Operations at the sole cost and risk of the
      Participating Parties in accordance with the following provisions:

      13.1.1  Non-interference

              Non-consent  Operations  shall  not  interfere  unreasonably  with
              operations approved by all of the Parties.

      13.1.2  Multiple Completion Limitation

              Subject to Article  10.9,  a  Non-consent  Operation  shall not be
              conducted in a well having  multiple  Completions  unless (a) each
              Completion  is owned by the same Parties in the same  proportions;
              (b) the well is incapable of producing from any Completion; or (c)
              all Participating Parties in the well consent to the operation.

      13.1.3  Metering

              In  Non-consent   Operations,   Hydrocarbon  production  shall  be
              determined  upon  the  basis of  appropriate  well  tests,  unless
              separate metering devices are required by a governmental authority
              having jurisdiction.

      13.1.4  Non-consent Well

              Operations  on a  Non-consent  Well  shall not be  conducted  in a
              Producible  Reservoir  without  approval of all Parties unless (a)
              the  Producible  Reservoir  is  designated  in  the  notice  as  a
              Completion objective; (b) Completion of the well in the Producible
              Reservoir  will not increase the rates of  Hydrocarbon  production
              that are prescribed  and approved for the Producible  Reservoir by
              the  governmental  authority  having  jurisdiction;  and  (c)  the
              horizontal  distance  between  the  vertical  projections  of  the
              midpoint of the  Producible  Reservoir in the well and an existing
              well currently completed in and producing from the same Producible
              Reservoir  will be at  least  one  thousand  (1,000)  feet  for an
              oil-well  Completion  or two thousand  (2,000) feet for a gas-well
              Completion.

      13.1.5  Cost Information

              Operator  shall,  within  one  hundred  twenty  (120)  days  after
              completion of a Non-consent Operation,  furnish the Parties either
              (a) an  inventory  and an  itemized  statement  of the cost of the
              Non-consent  Operation and equipment  pertaining thereto, or (b) a
              detailed   statement  of  the  monthly   billings.   Each  quarter
              thereafter,  while the Participating  Parties are being reimbursed
              under Article 13.2.1 (Production Reversion  Recoupment),  Operator
              shall furnish the Non-participating  Parties a quarterly statement
              detailing all costs and  liabilities  incurred in the  Non-consent
              Operation, together with a statement of the

                                       42
<PAGE>

              quantities of Hydrocarbons  produced from it and the amount of the
              proceeds   from  the  sale  of  the   Non-participating   Parties'
              relinquished Hydrocarbon production from the Non-consent Operation
              for the preceding  quarter.  Operator  shall prepare the quarterly
              statement  of the  quantities  of  Hydrocarbons  produced  and the
              amounts  of  the  proceeds  from  the  sale  of  Non-participating
              Parties' relinquished Hydrocarbon production based on the proceeds
              received for the Operator's share of Hydrocarbon production.  When
              Operator's payout calculation  indicates that payout has occurred,
              Operator  shall  promptly  notify all Parties.  The  Participating
              Parties  who assumed a portion of the  Non-participating  Parties'
              relinquished  interest shall then provide Operator all information
              pertaining to the  cumulative  proceeds  received from the sale of
              the   Non-participating    Parties'    relinquished    Hydrocarbon
              production. Operator shall revise the payout date using the actual
              proceeds   from  the  sale  of  the   Non-participating   Parties'
              relinquished  Hydrocarbon production and administer any subsequent
              adjustments between the Parties.

      13.1.6  Completions

              For  determinations  under Article 13.1 (Non-consent  Operations),
              each Non-consent Operation in a single wellbore shall be accounted
              for separately.

13.2  Relinquishment of Interest

      Upon  commencement  of  Non-consent  Operations,  other  than  Non-consent
      Operations  governed by Article 13.7  (Operations  Utilizing a Non-consent
      Platform and/or Development  Facilities),  each Non-participating  Party's
      interest and leasehold  operating rights in the Non-consent  Operation and
      title to Hydrocarbon  production resulting therefrom;  and if Article 13.8
      (Discovery or Extension from Non-consent Drilling) is effective,  one-half
      (1/2) of each  Non-participating  Party's interest and leasehold operating
      rights and title to Hydrocarbon production from wells mentioned in Article
      13.8 (Discovery or Extension from Non-consent Drilling); shall be owned by
      and vested in each Participating  Party in proportion to its Participating
      Interest,  or in the  proportions  otherwise  agreed by the  Participating
      Parties,  for as long as the  Non-Consent  Operation is being conducted or
      Hydrocarbon production is obtained therefrom, subject to the following:

      13.2.1  Production Reversion Recoupment

              When the  Participating  Parties have recouped out of  Hydrocarbon
              production  from the  Non-consent  Operations  attributable to the
              Non-participating  Party's interest an amount, which when added to
              amounts  received under Article 13.3 (Deepening or Sidetracking of
              Non-consent Well), equals the sum of the following:

              (a)    Eight  hundred  percent  (800%)  of  the  Non-participating
                     Party's  share of the  costs of the  following  Non-consent
                     Exploratory  Operations,  or six hundred  percent (600%) of
                     the  Non-participating  Party's  share of the  costs of the
                     following  Non-consent  Development  Operations:  drilling,
                     testing, Completing, Recompleting,

                                       43
<PAGE>

                     Deepening,  Sidetracking,  Reworking,  plugging  back,  and
                     temporarily    abandoning   a   well,    reduced   by   the
                     Non-participating  Party's  Share  of a  cash  contribution
                     received under Article 21.2 (Cash Contributions);

              (b)    if   applicable,    three   hundred   percent   (300%)   of
                     Non-participating  Party's  Share of the cost of  Platforms
                     and/or Development  Facilities  approved under Article 12.1
                     (Proposal)   or  Article  12.2   (Counterproposals);   such
                     recoupment  is  limited  to the  Non-participating  Party's
                     Share  of the  Hydrocarbon  production  that  utilize  such
                     Platform and/or Development Facilities;

              (c)    Three  hundred  percent  (300%)  of  the  Non-participating
                     Party's  Share  of the  cost  charged  in  accordance  with
                     Article 13.9 (Allocation of Platform/Development Facilities
                     Costs to  Non-consent  Operations)  of  using  an  existing
                     Platform/Development Facilities; and

              (d)    the  Non-participating   Party's  Share  of  the  costs  of
                     operation,  maintenance,  treating, processing,  gathering,
                     and  transportation,  including,  but not  limited  to,  an
                     Offsite Host Facilities' handling fees, as well as lessor's
                     royalties and severance, Hydrocarbon production, and excise
                     taxes,   then,   the   relinquished    interests   of   the
                     Non-participating  Party shall automatically  revert to the
                     Non-participating  Party as of 7:00  a.m.  of the day after
                     the recoupment occurs.  Thereafter,  the Non- participating
                     Party shall own the same interest in the Non-consent  Well,
                     equipment  pertaining thereto,  including,  but not limited
                     to,  any  Platform  or  Development  Facilities,   and  the
                     Hydrocarbon  production therefrom as the Non- participating
                     Party  would  have  owned  or  been  entitled  to if it had
                     participated in the Non-consent Operation.  Upon reversion,
                     the  Non-participating  Party shall become a  Participating
                     Party  and,   as  such,   shall   become   liable  for  its
                     proportionate  share of the further  costs of the operation
                     as set forth in this Agreement and Exhibit "C".

      13.2.2  Non-production Reversion

              If  the  Non-consent   Operation   fails  to  obtain   Hydrocarbon
              production or if the operation  results in Hydrocarbon  production
              that  ceases  before  complete  recoupment  by  the  Participating
              Parties under Article 13.2.1  (Production  Reversion  Recoupment),
              such   leasehold   operating   rights   shall   revert   to   each
              Non-participating   Party,  except  that  all  Non-consent  Wells,
              Platforms,  and Development  Facilities shall remain vested in the
              Participating  Parties (but the salvage value in excess of the sum
              remaining under Article 13.2.1 shall be credited to all Parties).

13.3  Deepening or Sidetracking of Non-consent Well

      If a  Participating  Party  proposes to Deepen or Sidetrack a  Non-consent
      Well,  a  Non-participating  Party may then  elect to  participate  in the
      Deepening or  Sidetracking  operation by notifying  Operator within thirty
      (30) days,  or within  forty-eight  (48) hours,  exclusive  of  Saturdays,
      Sundays,

                                       44
<PAGE>

      and  federal  holidays,  if a rig is on location  and standby  charges are
      being   incurred,    after   receiving   notice   of   the   proposal.   A
      Non-participating  Party  that  elects  to  participate  in  Deepening  or
      Sidetracking   the  well,   as  proposed,   shall   immediately   pay  the
      Participating  Parties,  in  accordance  with Article 13.4  (Deepening  or
      Sidetracking Cost Adjustments),  its Working Interest share of actual well
      costs (excluding logging, coring, testing, and Completion costs other than
      the cost of setting any casing or Completion Equipment that is used in the
      Deepening   or   Sidetracking),   less  all  amounts   recovered   by  the
      Participating Parties from the proceeds of Hydrocarbon production from the
      well, as if the Non-participating Party had originally participated to the
      initial  objective  depth  or  formation,  in  the  case  of  a  Deepening
      operation,  or the depth at which the Sidetracking operation is initiated.
      Thereafter,   the  Non-participating   Party  shall  be  deemed  to  be  a
      Participating  Party for the  Deepening or  Sidetracking  operations,  and
      Article  13.2.1  (a)  shall not apply to that  Party for the  Deepened  or
      Sidetracked  portion  of the  well.  The  initial  Participating  Parties,
      however,  shall  continue  to recoup out of the  proceeds  of  Hydrocarbon
      production  from the  non-consent  portion of the well any balance for the
      Non-consent   Well   remaining  to  be  recovered   under  Article  13.2.1
      (Production   Reversion   Recoupment),   less  the  amounts  paid  by  the
      Non-participating Party under this Article 13.3.

13.4  Deepening or Sidetracking Cost Adjustments

      If a proposal is made to Deepen or  Sidetrack a  Non-consent  Well, a well
      cost adjustment will be performed as follows:

      (a)     Intangible  drilling will be valued at the actual cost incurred by
              the Participating Parties.

      (b)     Tangible   materials  will  be  valued  in  accordance   with  the
              provisions of Exhibit "C".

      (c)     For  Sidetracking  operations,  the values  determined in Articles
              13.4(a) and 13.4(b)  shall be reduced by the amount  allocated  to
              that  portion  of the well from the  surface to one  hundred  feet
              (100') below the point at which the  Sidetracking  was  initiated.
              Such   allocations   shall  be  consistent   with  the  guidelines
              recommended  by the  applicable  Council of Petroleum  Accountants
              Societies ("COPAS") Guideline, as amended from time to time.

      (d)     Amortization/depreciation  shall be applied to both intangible and
              tangible values at the rate of twelve percent (12%) per annum from
              the date the well  commenced  Hydrocarbon  production  to the date
              operations  commence to Deepen or  Sidetrack  the well,  provided,
              however,   the  value  of  tangible   materials   after   applying
              depreciation  shall never be less than fifty  percent (50%) of the
              value determined in Article 13.4(b).

13.5  Subsequent Operations in Non-consent Well

      Except  as  provided  in  Article  13.3   (Deepening  or  Sidetracking  of
      Non-consent  Well),  an  election  not to  participate  in  the  drilling,
      Sidetracking, or Deepening of a well shall be deemed to be an election not
      to  participate  in any  subsequent  operations  in the well  before  full
      recovery by the  Participating  Parties of the  Non-participating  Party's
      recoupment amount.

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<PAGE>

13.6  Operations in a Production Interval

      A  Participating  Party in a  Production  Interval  may propose  Rework or
      Sidetrack  operations within that Production  Interval,  or to permanently
      plug  and  abandon  that  Production  Interval  in  a  well;  however,  no
      Production  Interval in a well shall be  abandoned  without the  unanimous
      approval of the  Participating  Parties in the Production  interval,  if a
      proposal,  estimated to exceed the amount specified in Article 8.2 (AFEs),
      is  made  to  Rework  or   Sidetrack  a  Production   Interval,   and  the
      Participating  Parties  elect to  participate  in the proposed  operation,
      Operator shall conduct the operation at their sole cost and risk. If fewer
      than  all but two (2) or more  Parties  having  a  combined  Participating
      Interest of seventy-one  percent (71%) or more elect to participate in the
      proposed  operation,  Operator shall conduct the Reworking or Sidetracking
      operation  at the cost and risk of the  Participating  Parties  owning  an
      interest in the  Production  Interval.  A proposal to Rework an  interval,
      other than a Production Interval, shall be made and approved in accordance
      with Article 11.5 (Operations by Fewer Than All Parties).

13.7  Operations Utilizing a Non-consent Platform and/or Development Facilities

      Except as otherwise  provided in Article 12.4 (Rights to Take in Kind) and
      this  Article  13.7,  if  applicable,  a Party  that  did  not  originally
      participate  in  a  Platform  and/or  Development  Facilities  shall  be a
      Non-participating  Party for all operations  utilizing the Platform and/or
      Development   Facilities   and   shall  be   subject   to   Article   13.2
      (Relinquishment  of  Interest).  Notice,  in  accordance  with  Article  9
      (Notices),  shall be given to the  Non-participating  Party  for all wells
      proposed  to be drilled  from or  tied-back  to the  Non-consent  Platform
      and/or   handled   by   non-consent   Development    Facilities.    If   a
      Non-participating  Party  in a  Non-consent  Platform  and/or  Development
      Facilities  desires  to  participate  in the  drilling  of any  such  well
      proposed by the Participating  Parties in the Platform and/or  Development
      Facilities,  the Non-participating  Party desiring to join in the proposed
      well shall  first pay the  Participating  Parties in the  Platform  and/or
      Development Facilities its proportionate share of the cost of the Platform
      and/or  Development  Facilities,  including,  but not limited to, costs of
      material, fabrication, transportation, and installation plus any remaining
      amounts to be recouped  under  Article  13.2.1(b).  The  Non-participating
      Party shall remit payment to Operator and Operator shall (a) reimburse the
      Participating Parties in the Platform and/or Development Facilities in the
      same  proportions  they are sharing in the  Platforms  and/or  Development
      Facilities  recoupment  account,  and (b)  credit  the  applicable  payout
      account. Upon payment of that amount, the original Non-participating Party
      shall become an owner and a  Participating  Party in the  Platform  and/or
      Development  Facilities in the same manner as if  recoupment  had occurred
      under  Article  13.2.1   (Production   Reversion   Recoupment),   and  may
      participate in all future wells drilled from or tied back to the Platform.
      As to well  operations  conducted  from the  Platform  and/or  Development
      Facilities  prior  to  payment  under  this  Article  13.7,  the  original
      Non-participating  Party shall  remain a  Non-participating  Party in such
      Non-consent  Operations until such time as the entire  recoupment  balance
      applicable to all such Non-

                                       46
<PAGE>

      consent  Operations  in the  aggregate  has  occurred,  as provided for in
      Articles 13.2.1 (a) and 13.2.1 (d).

13.8  Discovery or Extension from Non-consent Drilling

      If a  Non-consent  Well (a)  discovers a new  Producible  Reservoir or (b)
      extends an existing Producible Reservoir beyond its recognized boundaries,
      as unanimously  agreed by the Participating  Parties in all existing wells
      currently  producing  from  the  existing   Producible   Reservoir  before
      commencement of drilling operations,  the recoupment of costs for the well
      shall be governed by Article 13.2  (Relinquishment  of Interest) and shall
      be recovered by the Participating Parties in one of the following ways:

      (a)     if the Non-consent Well is not completed and produced,  recoupment
              shall be out of one- half (1/2) of each Non-participating  Party's
              interest in Hydrocarbon  production from all subsequently  drilled
              and completed wells on the Contract Area that are completed in the
              Producible Reservoir  discovered,  or in that portion extended, by
              the Non-consent Well and in which the Non-participating  Party has
              a Participating Interest; or

      (b)     if the  Non-consent  Well is completed  and  produced,  recoupment
              shall  be out of  the  Non-  participating  Party's  Share  of all
              Hydrocarbon  production  from the  Non-consent  Well and  one-half
              (1/2) of the  Non-participating  Party's  interest in  Hydrocarbon
              production  from all  subsequently  drilled and completed wells on
              the Contract Area that are completed in the  Producible  Reservoir
              discovered,  or in that portion extended,  by the Non-consent Well
              and in  which  the  Non-participating  Party  has a  Participating
              Interest.

13.9  Allocation of Platform/Development Facilities Costs to Non-consent
      Operations

      Non-consent Operations shall be subject to further conditions  as follows:

      13.9.1  Charges

              In the event a well is drilled or produced from a Platform  and/or
              is produced through  Development  Facilities  whose  Participating
              Parties are different from the Participating  Parties in that well
              or if the Participating  Parties' Participating Interest shares in
              that Platform  and/or  Development  Facilities  are different from
              their  Participating  Interest  shares in that well, the rights of
              the  Participating  Parties  in that well and the costs to use the
              Platform  and/or  Development  Facilities  for that well  shall be
              determined as follows:

              (a)    The  Participating  Parties  in that well  shall pay to the
                     Operator a one-time slot usage fee for the use of a slot on
                     the Platform  equal to two and one-half  percent  (2.5%) of
                     the cost of the Platform.  Within  fifteen (15) days of its
                     receipt of that fee, the Operator  shall  distribute to the
                     Participating  Parties in the Platform their  Participating
                     Interest share of that payment. For purposes of calculating
                     the slot usage fee, the total cost of the Platform shall be
                     reduced by 0.53333% per month,  commencing  on the date the
                     Platform  was   installed   and   continuing   every  month
                     thereafter  until the month actual  drilling  operations on
                     that well is

                                       47
<PAGE>

                     commenced;  however,  the total cost of the Platform  shall
                     not be  reduced  by more than  fifty  percent  (50%) of the
                     total  Platform's  costs.  The  cost  of  additions  to the
                     Platform shall be reduced in the same manner commencing the
                     first month after the addition is  installed.  If that well
                     is abandoned, having never produced Hydrocarbons, the right
                     of the  Participating  Parties  in  that  well  to use  the
                     Platform  slot  through  which the well was  drilled  shall
                     terminate   unless  those  Parties   commence   drilling  a
                     substitute  well for the  abandoned  well  through the same
                     slot within  ninety (90) days of the  abandonment.  If that
                     substitute   well  is  abandoned,   having  never  produced
                     Hydrocarbons,  the right of the  Participating  Parties  in
                     that well to use the Platform  slot through  which the well
                     was drilled shall  terminate.  The slot usage fee shall not
                     apply  to a slot  deemed  to be  "surplus."  A slot  may be
                     deemed  surplus  only  by the  unanimous  agreement  of the
                     Participating Parties in the Platform.

              (b)    The  Participating  Parties  in that well  shall pay to the
                     owners of the  Development  Facilities  a lump sum equal to
                     that  portion  of  the  total  cost  of  those  Development
                     Facilities  that the throughput  volume of the  Non-consent
                     Operation  bears to  current  the total  design  throughput
                     volume of the  Development  Facilities.  Throughput  volume
                     shall be estimated by the Operator in barrels  produced per
                     day (with 1 barrel of oil equaling  5.8 mcf of gas),  using
                     an  average  daily  volume  of the  first  three  months of
                     Hydrocarbon production from the Non-consent Operation.  For
                     purposes of calculating the Development Facilities lump sum
                     payment,  the  total  cost of the  Development  Facilities,
                     shall be reduced by 0.53333% per month, commencing from the
                     date when the  Development  Facilities  were  installed and
                     continuing  every  month  thereafter  until the first month
                     during which  Hydrocarbon  production  from the Non-consent
                     Operation commences,  but the total cost of the Development
                     Facilities  shall not be reduced  more than  fifty  percent
                     (50%)  of the  total  Development  Facilities'  cost.  If a
                     modification,  expansion,  or addition  to the  Development
                     Facilities  is  made  after  commencing  first  Hydrocarbon
                     production  and  before   connection  of  the   Non-consent
                     Operation to the  Development  Facilities,  the Development
                     Facilities  lump sum  payment  shall be reduced in the same
                     manner  described  above,  from  the  month  in  which  the
                     Development Facilities modification,  expansion or addition
                     Is completed until the first month during which Hydrocarbon
                     production from the Non-consent Operation Is commenced.

              Payment of sums under this Article  13.9.1 is not a purchase of an
              additional interest in the Platform or the Development Facilities.
              Such  payment  shall be  included  in the  total  amount  that the
              Participating  Parties are  entitled to recoup out of  Hydrocarbon
              production from the Non-consent Well.

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<PAGE>

      13.9.2  Operating and Maintenance Charges

              The Participating Parties shall pay all costs necessary to connect
              a Non-consent Well to the Platform and/or  Development  Facilities
              and  that  proportionate  part  of  the  costs  of  operating  and
              maintaining the Platform and/or Development  Facilities applicable
              to the Non-consent Well.  Platform operating and maintenance costs
              that are costs not directly  attributable  to a wellbore  shall be
              allocated equally to all actively producing Completions. Operating
              and  maintenance  costs for the  Development  Facilities  shall be
              allocated on a volume throughput basis, that is, in the proportion
              that the volume  throughput  of the well bears to the total volume
              throughput of all wells connected to the  Development  Facilities.
              Volume  throughput,  as used  in this  Article  13.9.2,  shall  be
              determined by considering all Hydrocarbons and water volumes.

13.10 Allocation of Costs Between Zones

      Except  as  provided  in  Article  10.9  (Wells   Proposed  Below  Deepest
      Producible  Reservoir),  if for any reason the Participating  Interests of
      the  Parties  in a well  are not the  same  for the  entire  depth  or the
      Completion thereof, the costs of drilling,  Completing,  and equipping the
      well shall be allocated in an equitable  manner, as agreed by the Parties,
      based on the value and  allocation  recommended  in the  applicable  COPAS
      Guideline, as amended from time to time.

13.11 Lease Maintenance Operations

      An  operation  proposed  within the last twelve (12) months of the primary
      term or, subsequent thereto, an operation proposed to perpetuate the Lease
      or portion thereof at its expiration date or otherwise, including, but not
      limited to, well  operations,  regulatory  relief (for example,  course of
      action  necessary to satisfy the statutory or regulatory  requirements  of
      the  governmental   authority  having   jurisdiction),   and  other  Lease
      operations,  shall be deemed  to be a "Lease  Maintenance  Operation."  To
      invoke this Article 13.11, a notice or AFE that proposes an operation must
      state that the proposed operation is a Lease Maintenance Operation.

      13.11.1 Participation in Lease Maintenance Operations

              A Party may propose a Lease Maintenance Operation by giving notice
              to  the  other  Parties.  If  fewer  than  all  Parties  elect  to
              participate  in the  proposed  Lease  Maintenance  Operation,  the
              proposing  Party shall notify the Parties of the  elections  made.
              Each Party  electing not to  participate  shall then have a second
              opportunity to participate in the proposed  operation by notifying
              the other Parties of its election  within  forty-eight  (48) hours
              after receipt of the notice. A Lease  Maintenance  Operation shall
              not require minimum  approval,  either of the number of Parties or
              the  percentage of the voting  interests of the Parties  otherwise
              required in Article 6.1.2 (Vote Required). For a Lease Maintenance
              Operation to be conducted, the Participating Parties must agree to
              pay and bear one hundred  percent (100%) of the costs and risks of
              the  operation.  If more than one Lease  Maintenance  Operation is
              proposed, the operation with the greatest

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              percentage  approval  shall  be  conducted.   Notwithstanding  the
              recoupment  provisions of this Agreement,  a Party electing not to
              participate  in a well operation  proposed as a Lease  Maintenance
              Operation  shall  promptly  assign,  effective  as of the date the
              operation  commences,  to  the  Participating  Parties  all of its
              right,  title, and interest in and to that portion of the Contract
              Area that would  otherwise  expire and the property and  equipment
              attributable  thereto,  in accordance with Article 26 (Successors,
              Assigns,  [and  Preferential  Rights]).  If more  than  one  Lease
              Maintenance  Operation  is proposed and there is a tie between two
              proposed  operations,  both operations  shall be conducted and the
              costs and risks of conducting  both  operations  shall be paid and
              borne by the Participating  Parties.  If the drilling of a well is
              undertaken as a Lease Maintenance  Operation,  further  operations
              conducted  by the  Participating  Parties  in the  well  shall  be
              governed  by  Article  10.9  (Course  of  Action  After   Reaching
              Objective  Depth) or Article 11.9 (Course of Action After Reaching
              Objective  Depth),  whichever  applies.  If  more  than  one  well
              operation is conducted, any of which would perpetuate the Lease or
              such portion  thereof,  an assignment shall not be required from a
              Party participating in any such well operation.

      13.11.2 Accounting  for  Non-participation  If  after  one (1)  year  from
              completion of a well  operation  conducted as a Lease  Maintenance
              Operation,  the Lease or portion thereof is being perpetuated by a
              Lease  Maintenance  Operation,  as  provided  in  Article  13.11.1
              (Participation  in Lease Maintenance  Operations),  Operator shall
              render a final  statement,  if applicable,  to the assigning Party
              for its share of all expenses  attributed to the assigned interest
              before the effective  date of the  assignment,  plus any credit or
              deficiency in salvage value calculated under Article 15.3.1 (Prior
              Expenses).  The assigning  Party shall settle any deficiency  owed
              the non-assigning Parties within thirty (30) days after receipt of
              Operator's statement.

                                   ARTICLE 14

                       ABANDONMENT, SALVAGE, AND SURPLUS

14.1  Platform Salvage and Removal Costs

      When the Parties owning wells,  Platforms  and/or  Development  Facilities
      unanimously  agree to dispose of the wells,  Platforms and/or  Development
      Facilities,  it shall be  disposed  of by  Operator in the time and manner
      approved by the Parties.  The costs, risks, and net proceeds,  if any, for
      the  disposal  shall be  shared  by the  Parties  in  proportion  to their
      Participating Interests therein.

14.2  Abandonment of Platforms, Development Facilities or Wells

      Except as provided in Article 10  (Exploratory  Operations) and Article 11
      (Development   Operations),   a   Participating   Party  may  propose  the
      abandonment of a Platform and Development

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<PAGE>

      Facilities  or wells by  notifying  the other  Participating  Parties.  No
      Platform and Development Facilities or wellbore shall be abandoned without
      the unanimous approval of the Participating  Parties. If the Participating
      Parties do not approve abandoning the Platform and Development  Facilities
      or wells, the Operator shall prepare a statement of the abandoning Party's
      share of estimated  abandonment costs, less its share of estimated salvage
      value,  as determined  by the Operator  pursuant to Exhibit "C". The Party
      desiring  to  abandon  it  shall  pay  the  Operator,  on  behalf  of  the
      Participating  Parties for that Party's share of the estimated abandonment
      costs, less its share of estimated salvage value,  within thirty (30) days
      after  receipt  of the  Operator's  statement.  If an  abandoning  Party's
      respective share of the estimated  salvage value is greater than its share
      of the estimated costs,  Operator, on behalf of the Participating Parties,
      shall pay a sum equal to the  deficiency  to the  abandoning  Party within
      thirty (30) days after the  abandoning  Party's  receipt of the Operator's
      statement.

14.3  Assignment of Interest.

      Each  Participating  Party desiring to abandon a Platform and  Development
      Facilities  or  wells  under  Article  14.2   (Abandonment  of  Platforms,
      Development  Facilities or Wells) shall  assign,  effective as of the last
      applicable election date, to the non-abandoning  Parties, in proportion to
      their   Participating   Interests,   its  interest  in  the  Platform  and
      Development  Facilities  or  wells  and  the  equipment  therein  and  its
      ownership  in the  Hydrocarbon  production  from  the  wells.  A Party  so
      assigning  shall be relieved  from further  liability for the Platform and
      Development  Facilities  or wells,  except  liability  for payments  under
      Article 14.2 (Abandonment of Platforms, Development Facilities or Wells).

14.4  Abandonment Operations Required by Governmental Authority

      A well abandonment or Platform and Development Facilities removal required
      by a governmental  authority having  jurisdiction shall be accomplished by
      Operator with the costs, risks, and net proceeds,  if any, to be shared by
      the Parties  owning the well or Platform  and  Development  Facilities  in
      proportion to their  Participating  Interests therein.  No approval by the
      Parties  will be necessary  for  Operator to proceed  with the  government
      required well abandonment, or Platform and Development Facilities removal.
      The Operator shall provide the Parties with an informational  AFE prior to
      commencing such an abandonment or removal.

14.5  Disposal of Surplus Material

      Material and equipment  acquired hereunder may be classified as surplus by
      Operator  when  deemed  no  longer   needed  in  present  or   foreseeable
      operations.  Operator  shall  determine the value and cost of disposing of
      the  materials  in  accordance  with  Exhibit  "C".  If  the  material  is
      classified as junk or if the value, less cost of disposal, is less than or
      equal  to One  Hundred  Thousand  Dollars  ($100,000.00),  Operator  shall
      dispose of the surplus  materials in any manner it deems  appropriate.  If
      the value, less the cost of disposal of the surplus  material,  is greater
      than One  Hundred  Thousand  Dollars  ($100,000.00),  Operator  shall give
      written notice thereof to the

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<PAGE>

      Parties  owning the material.  Unless  purchased by Operator,  the surplus
      material  shall be disposed of in  accordance  with the method of disposal
      approved by the Parties  owning the  material.  Proceeds  from the sale or
      transfer of surplus  material shall be promptly  credited to each Party in
      proportion  to its  ownership of the material at the time of retirement or
      disposition.

                                   ARTICLE 15

                                   WITHDRAWAL

15.1  Right to Withdraw

      Subject to this Article 15.1,  any Party may withdraw from this  Agreement
      as to one or more Leases (the "Withdrawing Party") by giving prior written
      notice to all  other  Parties  stating  its  decision  to  withdraw  ("the
      withdrawal notice"). The withdrawal notice shall specify an effective date
      of withdrawal  that is at least sixty (60) days,  but not more than ninety
      (90) days,  after the date of the  withdrawal  notice.  Within thirty (30)
      days of receipt of the  withdrawal  notice,  the other Parties may join in
      the  withdrawal  by giving  written  notice  of that fact to the  Operator
      ("written  notice  to join in the  withdrawal")  and upon  giving  written
      notice to join in the  withdrawal  are "Other  Withdrawing  Parties".  The
      withdrawal  notice and the written  notice to join in the  withdrawal  are
      unconditional  and  irrevocable  offers by the  Withdrawing  Party and the
      Other Withdrawing  Parties to convey to the Parties who do not join in the
      withdrawal ("the Remaining Parties") the Withdrawing Party's and the Other
      Withdrawing  Parties'  entire  Working  Interest  in all of the  Lease  or
      Leases,  Hydrocarbon  production,  and other property and equipment  owned
      under this Agreement.

15.2  Response to Withdrawal Notice

      Failure to respond to a withdrawal notice is deemed a decision not to join
      in the withdrawal.

      15.2.1  Unanimous Withdrawal

              If all the other Parties join in the withdrawal,

              (a)    no assignment of Working Interests shall take place;

              (b)    subject  to Article  14.4,  no  further  operations  may be
                     conducted  under  this  Agreement  unless  agreed to by all
                     Parties;

              (c)    the Parties shall  abandon all  activities  and  operations
                     within  the  Contract  Area  and  relinquish  all of  their
                     Working Interests to the MMS within ninety (90) days of the
                     conclusion of the thirty (30) day joining period; and

              (d)    notwithstanding  anything  to the  contrary  in  Article 14
                     (Abandonment, Salvage and Surplus), the Operator shall:

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<PAGE>

                     1)   furnish all Parties a detailed  abandonment  plan,  if
                          applicable,  and a  detailed  cost  estimate  for  the
                          abandonment   within   thirty   (30)  days  after  the
                          conclusion of the thirty (30) day joining period; and

                     2)   cease  operations  and begin to  permanently  plug and
                          abandon  all  wells  and  remove  all   Facilities  in
                          accordance with the abandonment plan.

      15.2.2  No Additional Withdrawing Parties

              If none of the  other  Parties  join in the  withdrawal,  then the
              Remaining Parties must accept an assignment of their Participating
              Interest share of the Withdrawing Party's Working Interest.

      15.2.3  Acceptance of the Withdrawing Parties' Interests.

              If one or  more  but  not  all of the  other  Parties  join in the
              withdrawal  and become  Other  Withdrawing  Parties,  then  within
              forty-eight  (48) hours  (exclusive  of  Saturdays,  Sundays,  and
              federal holidays) of the conclusion of the thirty (30) day joining
              period, each of the Remaining Parties shall submit to the Operator
              a written  rejection or acceptance of its  Participating  Interest
              share of the Withdrawing  Party's and Other  Withdrawing  Parties'
              Working  Interest.  Failure  to make  that  written  rejection  or
              acceptance shall be deemed a written acceptance.  If the Remaining
              Parties are unable to select a successor Operator,  if applicable,
              or if a Remaining Party submits a written  rejection and the other
              Remaining  Parties  do not agree to  accept  one  hundred  percent
              (100%) of the Withdrawing  Party's and Other Withdrawing  Parties'
              Working  Interest within thirty (30) days of the conclusion of the
              forty-eight  (48) hour  period to  submit a written  rejection  or
              acceptance, the Remaining Parties will be deemed to have joined in
              the withdrawal,  and Article 15.2.1  (Unanimous  Withdrawal)  will
              apply.

      15.2.4  Effects of Withdrawal

              Except as  otherwise  provided in this  Agreement,  after giving a
              withdrawal  notice or a written notice to join in the  withdrawal,
              the  Withdrawing  Party  and  Other  Withdrawing  Parties  are not
              entitled to approve or participate in any activity or operation in
              the Contract Area,  other than those  activities or operations for
              which they  retain a  financial  responsibility.  The  Withdrawing
              Party and Other Withdrawing Parties shall take all necessary steps
              to accomplish  their  withdrawal by the effective date referred to
              in Article 15.1 (Right to Withdraw)  and shall execute and deliver
              to the Remaining Parties all necessary instruments to assign their
              Working Interest to the Remaining Parties. A Withdrawing Party and
              Other Withdrawing  Parties shall bear all expenses associated with
              their withdrawal and the transfer of their Working Interest.

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<PAGE>

15.3  Limitation Upon and Conditions of Withdrawal

      15.3.1  Prior Expenses

              The Withdrawing Party and Other Withdrawing  Parties remain liable
              for  their  Participating  Interest  share  of  the  costs  of all
              activities,   operations,   rentals,  royalties,  taxes,  damages,
              Hydrocarbon imbalances,  or other liability or expense accruing or
              relating to (i)  obligations  existing as of the effective date of
              the  withdrawal,  (ii) operations  conducted  before the effective
              date  of  the  withdrawal,   (iii)  operations   approved  by  the
              Withdrawing  Party  and  Other  Withdrawing   Parties  before  the
              effective date of the withdrawal,  or (iv) operations commenced by
              the  Operator  under one of its  discretionary  powers  under this
              Agreement before the effective date of the withdrawal.  Before the
              effective  date of the  withdrawal,  the Operator  shall provide a
              statement to the Withdrawing Party and Other  Withdrawing  Parties
              for (1) their respective  shares of all  identifiable  costs under
              this  Article  15.3.1  and  (2)  their  respective   Participating
              Interest  shares of the  estimated  current  costs of plugging and
              abandoning  all  wells and  removing  all  Platforms,  Development
              Facilities,  and other  materiel and equipment  owned by the Joint
              Account,  less their respective  Participating  Interest Shares of
              the  estimated  salvage  value  of  the  assets  at  the  time  of
              abandonment,  as approved by vote.  This  statement  of  expenses,
              costs,  and salvage value shall be prepared by the Operator  under
              Exhibit "C". Before  withdrawing,  the Withdrawing Party and Other
              Withdrawing Parties shall either pay the Operator, for the benefit
              of the Remaining  Parties,  the amounts allocated to them as shown
              in  the  statement,   or  provide  security  satisfactory  to  the
              Remaining  Parties for all obligations  and liabilities  they have
              incurred and all obligations and liabilities  attributable to them
              before the effective date of the withdrawal.  All liens,  charges,
              and other  encumbrances,  including  but not limited to overriding
              royalties, net profits interest and production payments, which the
              Withdrawing Party and Other Withdrawing  Parties placed (or caused
              to be placed) on their Working  Interest shall be fully  satisfied
              or released prior to the effective date of its withdrawal  (unless
              the Remaining  Parties are willing to accept the Working  Interest
              subject to those liens, charges, and other encumbrances).

      15.3.2  Confidentiality

              The Withdrawing Party and Other Withdrawing  Parties will continue
              to be bound  by the  confidentiality  provisions  of  Article  7.3
              (Confidentiality)  after the effective  date of the withdrawal but
              will have no further access to technical  information  relating to
              activities or operations  under this  Agreement.  The  Withdrawing
              Party and Other Withdrawing  Parties are not required to return to
              the Remaining  Parties  Confidential  Data  acquired  prior to the
              effective date of the withdrawal.

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<PAGE>

      15.3.3  Emergencies and Force Majeure

              No Party may withdraw  during a Force  Majeure or  emergency  that
              poses a threat to life,  safety,  property or the  environment but
              may withdraw from this  Agreement  after  termination of the Force
              Majeure or emergency.  The Withdrawing Party and Other Withdrawing
              Parties remain liable for their share of all costs and liabilities
              arising from the Force  Majeure or  emergency,  including  but not
              limited to the drilling of relief wells,  containment  and cleanup
              of oil spills and pollution,  and all costs of debris removal made
              necessary by the Force Majeure or emergency.

                                   ARTICLE 16

                     RENTALS, ROYALTIES, AND OTHER PAYMENTS

16.1  Overriding Royalty and Other Burdens

      If the Working Interest or Participating Interest of a Party is subject to
      an  overriding  royalty,   Hydrocarbon  production  payment,  net  profits
      interest,   mortgage,   lien,  security  interest,   or  other  burden  or
      encumbrance,  other than  lessor's  royalty  and other  burdens  listed in
      Exhibit "A", the Party so burdened shall pay and bear all  liabilities and
      obligations  created or secured  by the  burden or  encumbrance  and shall
      indemnify and hold the other Parties  harmless from all claims and demands
      for payment  asserted by the owners of the burdens or  encumbrances.  If a
      Party becomes  entitled to an  assignment  under this  Agreement,  or as a
      result of Non-consent  Operations  hereunder becomes entitled to receive a
      relinquished  interest,  as provided in Article  13.2  (Relinquishment  of
      Interest),  otherwise belonging to a Non-participating Party whose Working
      Interest  in the  operations  is so  burdened  or  encumbered,  the  Party
      entitled to receive the assignment from the Non-participating Party or the
      relinquished  interest  of  the   Non-participating   Party's  Hydrocarbon
      production  shall  receive  same  free and clear of all such  burdens  and
      encumbrances, and the Non-participating Party whose interest is subject to
      the burdens and encumbrances shall hold the Participating Parties harmless
      for the burdens and encumbrances, and will bear same at its own expense.

16.2  Subsequently Created Interest

      Notwithstanding  anything in this  Agreement to the contrary,  if a Party,
      after  execution  of  this  Agreement,   creates  an  overriding  royalty,
      Hydrocarbon production payment, net profits interest, carried interest, or
      any other  interest out of its Working  Interest  which the Parties do not
      unanimously   agree  to  list  on   Exhibit   "A",   (hereinafter   called
      "Subsequently  Created Interest),  the Subsequently Created Interest shall
      be made  specifically  subject to this Agreement.  If the Party owning the
      interest  from which the  Subsequently  Created  Interest was  established
      fails to pay,  when due, its share of costs,  and if the proceeds from the
      sale of  Hydrocarbon  production  under Article 8.6 (Security  Rights) are
      insufficient for that purpose, or elects to abandon a well, or elects

                                       55
<PAGE>

      to relinquish its interest in the Contract Area, the Subsequently  Created
      Interest  shall be chargeable  with a pro rata portion of all costs in the
      same  manner  as if the  Subsequently  Created  Interest  were  a  Working
      Interest,  and  Operator  may  enforce  against the  Subsequently  Created
      Interest  the lien and other  rights  granted  or  recognized  under  this
      Agreement  to secure and enforce  collection  of costs  chargeable  to the
      Subsequently Created Interest. The rights of the owner of the Subsequently
      Created  Interest  shall be, and hereby  are,  subordinated  to the rights
      granted or recognized by Article 8.6 (Security Rights).

16.3  Payment of Rentals and Minimum Royalties

      Operator  shall  pay in a timely  manner,  for the  joint  account  of the
      Parties,  all  rental,  minimum  royalties,  and  other  similar  payments
      accruing under the Lease and shall,  on request,  submit  evidence of each
      such  payment to the  Parties.  Operator  shall not be held  liable to the
      other  Parties in damages  for loss of the Lease or  interest  therein if,
      through mistake or oversight,  a rental, minimum royalty, or other payment
      is not  paid or is  erroneously  paid.  The  loss of a Lease  or  interest
      therein resulting from the Operator's failure to pay, or erroneous payment
      of rental or minimum  royalty shall be a joint loss, and there shall be no
      readjustment of interests. For Hydrocarbon production delivered in kind by
      Operator  to  a   Non-operator   or  to  another  for  the  account  of  a
      Non-operator,  the  Non-operator  shall provide  Operator with information
      about the Non-operator's proceeds received or the value of the Hydrocarbon
      production  taken in kind in order  that  Operator  may make  payments  of
      minimum royalties due.

16.4  Non-participation in Payments

      A Party that desires not to pay its share of a rental, minimum royalty, or
      similar  payment  shall notify the other Parties in writing at least sixty
      (60) days before the payment is due.  Operator shall then make the payment
      for the benefit of the Parties  that do desire to maintain  the Lease.  In
      such event, the Non-participating  Party shall assign to the Participating
      Parties,  upon their  request,  the  portions of its interest in the Lease
      maintained by the payment.  The assigned  interest  shall be owned by each
      Participating  Party in  proportion  to its  Participating  Interest.  The
      assignment  shall  be made in  accordance  with  Article  27  (Successors,
      Assigns, [and Preferential Rights]).

16.5  Royalty Payments

      Each Party shall be responsible for and shall separately bear and properly
      pay or cause to be paid all royalty and other  amounts due on its share of
      Hydrocarbon   production   taken  in  accordance  with  state  or  federal
      regulations,  as may be amended from  time-to-time.  Adjustments  shall be
      made among the  Parties in  accordance  with  Exhibit  "E" (Gas  Balancing
      Agreement).  During a period when  Participating  Parties in a Non-consent
      Operation are receiving a  Non-participating  Party's share of Hydrocarbon
      production,  the  Participating  Parties  shall bear and properly  pay, or
      cause to be paid, the Lease royalty on the Hydrocarbon  production  taken,
      and shall hold the  Non-participating  Parties harmless from liability for
      the payment.

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<PAGE>

                                   ARTICLE 17

                                     TAXES

17.1  Property Taxes

      Operator  shall render  property  covered by this Agreement for ad valorem
      taxation, if applicable,  and shall pay the property taxes for the benefit
      of each  Party.  Operator  shall  charge  each  Party its share of the tax
      payments.  If the ad  valorem  taxes  are  based in whole or in part  upon
      separate valuations of each Party's Working Interest, then notwithstanding
      anything in this Agreement to the contrary, each Party's share of property
      taxes shall be in  proportion  to the tax value  generated by that Party's
      Working Interest.

17.2  Contest of Property Tax Valuation

      Operator shall timely and diligently protest to a final determination each
      tax valuation it deems unreasonable. Pending such determination,  Operator
      may elect to pay under protest.  Upon final determination,  Operator shall
      pay the taxes and the interest,  penalties,  and costs accrued as a result
      of the  protest.  In either  event,  Operator  shall charge each Party its
      share  of any  amounts  due,  and each  Party  shall  be  responsible  for
      reimbursing Operator for any such amounts paid.

17.3  Production and Severance Taxes

      Each Party shall pay, or cause to be paid,  all  production  and severance
      taxes due on Hydrocarbon production that it receives under this Agreement.

17.4  Other Taxes and Assessments

      Operator shall pay other applicable taxes (other than income taxes, excise
      taxes,  or other  similar types of taxes) or  assessments  and charge each
      Party its share.

                                   ARTICLE 18

                                    INSURANCE

18.1  Insurance

      Operator  shall provide and maintain the  insurance  prescribed in Exhibit
      "B" and charge those costs to the Joint Account.  No other insurance shall
      be carried for the benefit of the Parties under this Agreement,  except as
      provided in Exhibit "B".

18.2  Bonds

      Operator  shall  obtain and  maintain  all bonds or  financial  guarantees
      required by an  applicable  law,  regulation  or rule.  The costs of those
      bonds or  financial  guarantees  acquired  exclusively  for the conduct of
      activities  and operations  under this  Agreement  shall be charged to the
      Joint Account,

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<PAGE>

      including  an amount  equivalent  to the  reasonable  cost of that bond or
      financial guarantee if Operator provides that bond or guarantee itself and
      does  not  engage a third  party  to do so.  Operator  shall  require  all
      contractors  to obtain and  maintain all bonds  required by an  applicable
      law, regulation or rule.

                                   ARTICLE 19

                        LIABILITY, CLAIMS, AND LAWSUITS

19.1  Individual Obligations

      The  obligations,  duties,  and  liabilities  of the  Parties  under  this
      Agreement are several, not joint or collective.  Nothing in this Agreement
      shall ever be  construed  as  creating a  partnership  of any kind,  joint
      venture, agency relationship,  association, or other character of business
      entity  recognizable in law for any purpose.  In their relations with each
      other under this  Agreement,  the Parties  shall not be  considered  to be
      fiduciaries or to have established a confidential relationship,  except as
      specifically  provided  in Article 7.3  (Confidentiality)  and Article 7.4
      (Limited  Disclosure),  but rather shall be free to act at arm's length in
      accordance with their own respective self-interests. Each Party shall hold
      all other  Parties  harmless from liens and  encumbrances  on the Contract
      Area arising as a result of its acts.

19.2  Notice of Claim or Lawsuit

      If, on account of a matter  involving  activities or operations under this
      Agreement,  or  affecting  the  Contract  Area,  a claim is made against a
      Party,  or if a party outside of this Agreement  files a lawsuit against a
      Party,  or if a Party files a lawsuit,  or if a Party receives notice of a
      material  administrative  or judicial  hearing or other  proceeding,  that
      Party  shall  give  written  notice of the  claim,  lawsuit,  hearing,  or
      proceeding   ("Claim")  to  the  other   Parties  as  soon  as  reasonably
      practicable.

19.3  Settlements

      The Operator  may settle a Claim,  or multiple  Claims  arising out of the
      same incident,  involving activities or operations under this Agreement or
      affecting the Contract Area, if the aggregate  expenditure does not exceed
      One  Hundred  Fifty  Thousand  ($150,000.00)  and  if the  payment  is in
      complete settlement of these Claims. If the amount required for settlement
      exceeds this amount,  the Parties shall determine the further  handling of
      the Claims under Article 19.4 (Defense of Claims and Lawsuits).

19.4  Defense of Claims and Lawsuits

      The Operator shall supervise the handling, conduct, and prosecution of all
      Claims  involving   activities  or  operations  under  this  Agreement  or
      affecting the Contract Area. Claims may be settled in excess of the amount
      specified in Article 19.3 (Settlements) if the settlement is approved

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<PAGE>

      by vote in accordance with Article 6.1.2 of the  Participating  Parties in
      the  activity or operation  out of which the Claim arose,  but a Party may
      independently  settle  a  Claim  or  the  portion  of  a  Claim  which  is
      attributable  to its  Participating  Interest  share alone as long as that
      settlement  does not directly  adversely  affect the interest or rights of
      the other  Participating  Parties.  Charges for services  performed by the
      legal staff of a Party shall be made in  accordance  with Exhibit "C", but
      all other expenses  incurred by the Operator in the prosecution or defense
      of Claims for the  Parties,  together  with the amount paid to discharge a
      final  judgment,  are costs and shall be paid by the Parties in proportion
      to their Participating  Interest share in the activity or operation out of
      which the Claim arose.  The  employment  of outside  counsel,  but not the
      selection of that counsel,  requires approval by vote of the Participating
      Parties in the activity or operation out of which the Claim arose.  If the
      use of outside  counsel is approved,  the fees and expenses  incurred as a
      result  thereof  shall be charged to the  Parties in  proportion  to their
      Participating  Interest  share in the activity or  operation  out of which
      that Claim arose. Each Party has the right to hire its own outside counsel
      at its sole cost with respect to its own defense.

19.5  Liability for Damages

      UNLESS  SPECIFICALLY  PROVIDED OTHERWISE IN THIS AGREEMENT,  LIABILITY FOR
      LOSSES,  DAMAGES,  COSTS,  EXPENSES  OR  CLAIMS  INVOLVING  ACTIVITIES  OR
      OPERATIONS  UNDER THIS  AGREEMENT OR AFFECTING THE CONTRACT AREA WHICH ARE
      NOT COVERED BY OR IN EXCESS OF THE INSURANCE CARRIED FOR THE JOINT ACCOUNT
      SHALL BE BORNE BY EACH PARTY IN PROPORTION TO ITS  PARTICIPATING  INTEREST
      SHARE IN THE ACTIVITY OR  OPERATION  OUT OF WHICH THAT  LIABILITY  ARISES,
      EXCEPT  TO THE  EXTENT  LIABILITY  RESULTS  FROM THE GROSS  NEGLIGENCE  OR
      WILLFUL  MISCONDUCT  OF A PARTY,  IN WHICH CASE THAT PARTY SHALL BE SOLELY
      RESPONSIBLE FOR LIABILITY  RESULTING FROM ITS GROSS  NEGLIGENCE OR WILLFUL
      MISCONDUCT.

19.6  Indemnification for Non-Consent Operations

      TO THE EXTENT  ALLOWED BY LAW,  THE  PARTICIPATING  PARTIES  WILL HOLD THE
      NON-PARTICIPATING   PARTIES  (AND  THEIR  AFFILIATES,   AGENTS,  INSURERS,
      DIRECTORS,  OFFICERS,  AND EMPLOYEES)  HARMLESS AND RELEASE,  DEFEND,  AND
      INDEMNITY  THEM  AGAINST  ALL  CLAIMS,  DEMANDS,  LIABILITIES,  REGULATORY
      DECREES,  AND LIENS FOR  ENVIRONMENTAL  POLLUTION  AND PROPERTY  DAMAGE OR
      PERSONAL  INJURY,  INCLUDING  SICKNESS  AND DEATH,  CAUSED BY OR OTHERWISE
      ARISING OUT OF NON-CONSENT OPERATIONS, AND ANY LOSS AND COST SUFFERED BY A
      NON-PARTICIPATING  PARTY AS AN INCIDENT THEREOF, EXCEPT WHERE THAT LOSS OR
      COST  RESULTS FROM THE SOLE,  CONCURRENT,  OR JOINT  NEGLIGENCE,  FAULT OR
      STRICT LIABILITY OF THAT NON-PARTICIPATING PARTY, IN WHICH CASE EACH PARTY
      SHALL PAY OR CONTRIBUTE TO THE SETTLEMENT OR SATISFACTION OF

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      JUDGMENT IN THE PROPORTION THAT ITS NEGLIGENCE,  FAULT OR STRICT LIABILITY
      CAUSED OR CONTRIBUTED  TO THE INCIDENT.  IF AN INDEMNITY IN THIS AGREEMENT
      IS DETERMINED TO VIOLATE LAW OR PUBLIC POLICY,  THAT INDEMNITY  SHALL THEN
      BE ENFORCEABLE ONLY TO THE MAXIMUM EXTENT ALLOWED BY LAW.

19.7  Damage to Reservoir, Loss of Reserves and Profit

      NOTWITHSTANDING  ANY  CONTRARY  PROVISION  OF THIS  AGREEMENT,  OTHER THAN
      ARTICLES 10.8.6 AND 11.8.6,  IF SELECTED,  NO PARTY IS LIABLE TO ANY OTHER
      PARTY FOR DAMAGE TO A RESERVOIR, LOSS OF HYDROCARBONS, LOSS OF PROFITS, OR
      OTHER  CONSEQUENTIAL  DAMAGES,  DAMAGES  FOR  BUSINESS  INTERRUPTION,   OR
      PUNITIVE DAMAGES, EXCEPT TO THE EXTENT THAT THE DAMAGE OR LOSS ARISES FROM
      A PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN WHICH CASE THAT PARTY
      SHALL BE SOLELY  RESPONSIBLE  FOR  DAMAGE OR LOSS  ARISING  FROM ITS GROSS
      NEGLIGENCE  OR WILLFUL  MISCONDUCT;  NOR DOES A PARTY  INDEMNIFY ANY OTHER
      PARTY FOR THAT DAMAGE OR LOSS.

19.8  Non-Essential Personnel

      A NON-OPERATOR  THAT REQUESTS  TRANSPORTATION OR ACCESS TO A DRILLING RIG,
      PLATFORM,  VESSEL,  OR OTHER  FACILITY  USED FOR  ACTIVITIES OR OPERATIONS
      UNDER THIS  AGREEMENT  SHALL  HOLD THE OTHER  PARTIES  HARMLESS  AND SHALL
      RELEASE,  DEFEND, AND INDEMNIFY THEM AGAINST (I) ALL CLAIMS,  DEMANDS, AND
      LIABILITIES  FOR  PROPERTY  DAMAGE  AND  (II)  ALL  CLAIMS,  DEMANDS,  AND
      LIABILITIES  FOR ANY  LOSS  OR COST  SUFFERED  BY A PARTY  AS AN  INCIDENT
      THEREOF, INCLUDING, BUT NOT LIMITED TO, INJURY, SICKNESS AND DEATH, CAUSED
      BY OR OTHERWISE  ARISING OUT OF THAT  TRANSPORTATION  OR ACCESS,  OR BOTH,
      EXCEPT TO THE EXTENT THAT LOSS OR COST RESULTS  FROM THE GROSS  NEGLIGENCE
      OR WILLFUL MISCONDUCT OF THE PARTY SO INDEMNIFIED AND PROTECTED.

19.9  Dispute Resolution Procedure

      Any claim,  controversy  or dispute  arising  out of,  relating  to, or in
      connection with this Agreement or an activity or operation conducted under
      this Agreement shall be resolved under the Dispute Resolution Procedure in
      Exhibit "G" to this Agreement.

                                   ARTICLE 20

                           INTERNAL REVENUE PROVISION

20.1  Internal Revenue Provision

      Notwithstanding  any  provision  in this  Agreement to the effect that the
      rights  and  liabilities  of  the  Parties  are  several,   not  joint  or
      collective, and that the Agreement and the activities and

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      operations  under this  Agreement do not  constitute a  partnership  under
      state law, each Party elects to be excluded from the application of all or
      any part of the  provisions of Subchapter K, Chapter 1, Subtitle A, of the
      Internal  Revenue  Code of 1986,  as  amended,  or similar  provisions  of
      applicable  state  laws  regardless  of  whether  for  federal  income tax
      purposes  this  Agreement and the  activities  and  operations  under this
      Agreement are regarded as a partnership.

                                   ARTICLE 21

                                  CONTRIBUTIONS

21.1  Notice of Contributions Other Than Advances for Sale of Production

      Each  Party  shall  promptly  notify  the other  Parties  of all offers of
      contributions  that it may obtain,  or  contributions  it is attempting to
      obtain,  for the drilling of a well or the  conducting  of an operation on
      the Contract Area.  Payments received as consideration for entering into a
      contract for the sale of  Hydrocarbon  production  from the Contract Area,
      loans,   and  other  financial   arrangements   shall  not  be  considered
      contributions  for the purpose of this Article 21. No Party shall  release
      or  obligate  itself  to  release   Confidential  Data  in  return  for  a
      contribution  from a third  party  without  prior  written  consent of the
      Participating  Parties or Parties  having the right to  participate in the
      well.

21.2  Cash Contributions

      If a  Party  receives  a cash  contribution  for  drilling  a well  on the
      Contract Area or conducting an activity or operation on the Contract Area,
      the cash contribution shall be paid to Operator, and Operator shall credit
      the amount  thereof to the Parties in  proportion  to their  Participating
      Interests in the well or the Platform and/or  Development  Facilities.  If
      the well is a Non-consent  Well, the amount of the  contribution  shall be
      deducted from the cost specified in Article 13.2.1 (a) before  computation
      of the amount to be recouped out of Hydrocarbon production.

21.3  Acreage Contributions

      If a Party receives an acreage  contribution for the drilling of a well on
      the  Contract  Area,  the  acreage  contribution  shall be  shared by each
      Participating  Party that accepts it in  proportion  to its  Participating
      Interest in the well. As between the Participating Parties, this Agreement
      shall apply separately to the acreage.

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                                   ARTICLE 22

                            DISPOSITION OF PRODUCTION

22.1  Take-in-Kind Facilities

      Subject to Article 22.2, a Party may, at its sole cost and risk, construct
      Take-in-Kind  Facilities  to take its share of  Hydrocarbon  production in
      kind.

22.2  Duty to Take in Kind

      Each Party shall own and, at its own cost and risk,  shall take in kind or
      separately  dispose of its share of the oil, gas, and condensate  produced
      and saved from the Contract Area, exclusive of Hydrocarbon production used
      by Operator in activities or operations  conducted  under this  Agreement,
      subject to this Article 22. In order to avoid interference with operations
      on or regarding the Platform, the Development Facilities, and the Contract
      Area, a Party  exercising its right to construct  Take-in Kind  Facilities
      ("the Take in Kind  Party")  shall  provide  the  Operator  with a list of
      equipment  it  deems  necessary  for its  Take in  Kind  Facilities  ("the
      components")  along with its notice informing the Operator of its election
      to take in kind. If the Operator agrees to install and operate the Take-in
      Kind Facilities, the Operator shall purchase the components and install it
      on behalf of the Take in Kind Party at the Take in Kind  Party's sole risk
      and cost,  including,  but not  limited to, any fees,  penalties  or other
      costs incurred as a result of any  cancellation of placed orders as may be
      requested by the Take in Kind Party.  The Operator  shall provide the Take
      in Kind Party with  monthly  updates on the  progress of the  ordering and
      installation of the Take in Kind  Facilities.  The Operator,  based on the
      instructions  of Take in Kind Party,  shall install and operate all of the
      components.  The  Operator  shall  not be  responsible  for any  losses or
      damages  to the  components  or  the  Take  in  Kind  Party's  Hydrocarbon
      production  metered,  treated,  processed or transported by the components
      unless  such  losses or  damages  are the result of the  Operator's  gross
      negligence  or willful  misconduct.  If the  Operator  refuses or fails to
      install  the  Take-in  Kind  Facilities  by thirty  (30) days prior to the
      deadline  provided in Section 12.4,  the Take-in Kind Party shall have the
      right to install and operate the Take-in Kind  Facilities  providing  that
      such  operations  do not interfere  with  existing  operations or proposed
      operations that have been approved under terms of this Agreement.

22.3  Failure to Take Oil and Condensate in Kind

      Notwithstanding  Article 22.2 (Duty to Take in Kind),  if a Party fails to
      take in kind or  dispose of its share of the oil or  condensate,  Operator
      shall have the right,  but not the  obligation,  subject to  revocation at
      will by the Party owning the Hydrocarbon  production,  to purchase for its
      own account,  sell to others,  or otherwise  dispose of all or part of the
      Hydrocarbon  production at the same price at which Operator calculates and
      pays  lessor's  royalty  on its  own  portion  of the  oil or  condensate.
      Operator shall notify the non-taking Party when the option is exercised. A
      purchase  or sale by  Operator  of any other  Party's  share of the oil or
      condensate shall be for such

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      reasonable periods of time as are consistent with the minimum needs of the
      industry under the circumstances,  but in no event shall a contract be for
      a period  in excess of one (1)  year.  Proceeds  of the oil or  condensate
      purchased,  sold, or otherwise  disposed of by Operator under this Article
      22.3 shall be paid to the Party that had, but did not exercise,  the right
      to take in kind and separately dispose of the oil or condensate. Operator,
      in  disposing  of  another  Party's  oil  or  condensate,   shall  not  be
      responsible for making any filing with regulatory agencies not required by
      law to be  made  by it in  respect  to  another  Party's  share  of oil or
      condensate.  Unless required by governmental authority having jurisdiction
      or by judicial  process,  no Party  shall be forced to share an  available
      market with a non-taking Party.

22.4  Failure to Take Gas in Kind

      Article 22.3 (Failure to Take Oil and  Condensate in Kind) shall not apply
      to gas produced  from the  Contract  Area.  In no event shall  Operator be
      responsible  for, or obligated to dispose of, another Party's share of gas
      production.  If for any  reason a Party  fails to take or market  its full
      share of gas as produced,  that Party may later take, market, or receive a
      cash accounting for its full share in accordance with Exhibit "E".

22.5  Expenses of Delivery in Kind

      A cost that is incurred by Operator in making  delivery of a Party's share
      of Hydrocarbons or disposing of same shall be paid by the Party.

                                   ARTICLE 23

                                 APPLICABLE LAW

23.1  Applicable Law

      THIS  AGREEMENT AND THE  RELATIONSHIP  OF THE PARTIES UNDER THIS AGREEMENT
      SHALL BE GOVERNED BY AND  INTERPRETED  UNDER  FEDERAL LAWS AND LAWS OF THE
      STATE OF TEXAS,  WITHOUT  REGARD TO  PRINCIPLES  OF CONFLICTS OF LAWS THAT
      WOULD OTHERWISE REFER THE MATTER TO THE LAWS OF ANOTHER JURISDICTION.

                                   ARTICLE 24

                    LAWS, REGULATIONS, AND NONDISCRIMINATION

24.1  Laws and Regulations

      This  Agreement  and  operations  under this  Agreement are subject to all
      applicable  laws,  rules,  regulations,  and  orders  by all  governmental
      authorities claiming jurisdiction now and in the future.

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      A provision of this Agreement found to be contrary to or inconsistent with
      any such  law,  rule,  regulation,  or order  shall be deemed to have been
      modified accordingly.

24.2  Nondiscrimination

      In  performing  work under this  Agreement,  the Parties  shall comply and
      Operator  shall  require each  independent  contractor  to comply with the
      governmental  requirements in Exhibit "D" and with Articles 202(1) to (7),
      inclusive of Executive Order 11246, as amended.

                                   ARTICLE 25

                                  FORCE MAJEURE

25.1  Force Majeure

      If a Party is unable,  wholly or in part  because of a Force  Majeure,  to
      carry out its obligations under this Agreement,  other than the obligation
      to make money  payments,  that Party shall give the other  Parties  prompt
      written  notice  of the Force  Majeure  with  full  particulars  about it.
      Effective upon the date notice is given,  the obligations of the Party, so
      far as they are affected by the Force Majeure,  shall be suspended during,
      but no longer than, the  continuance of the Force Majeure.  Time is of the
      essence in the performance of this Agreement,  and every reasonable effort
      will be made by the Party to avoid delay or suspension of any work or acts
      to be  performed  under this  Agreement.  The  requirement  that the Force
      Majeure be remedied with all reasonable dispatch shall not require a Party
      to settle strikes or other labor difficulties.

                                   ARTICLE 26

                             SUCCESSORS AND ASSIGNS

26.1  Transfer of Interest

      Except as provided in 26.1.1  (Exceptions to Transfer Notice),  a Transfer
      of Interest  shall be preceded by written  notice to the  Operator and the
      other Parties ("the transfer  notice").  Any Transfer of Interest shall be
      made  to  a  party  financially  capable  of  assuming  the  corresponding
      obligations under this Agreement.  No Transfer of Interest shall release a
      Party from its obligations and liabilities  under this Agreement,  and the
      security  rights under  Article 8.6 (Security  Rights)  shall  continue to
      burden the Working Interest transferred and to secure the payment of those
      obligations  and  liabilities.

      26.1.1  Exceptions  to  Transfer  Notice

              Notwithstanding  any  contrary  provision of this  Agreement,  the
              transfer notice is not required when a Party proposes to mortgage,
              pledge, hypothecate or grant a security

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              interest  in all or a portion of its Working  Interest  (including
              Assignments of Hydrocarbon production executed as further security
              for  the  debt  secured  by  that  security  device),  any  wells,
              Platforms,  Development Facilities or other equipment. However, an
              encumbrance  arising  from  the  financing  transaction  shall  be
              expressly made subject and subordinated to this Agreement.

      26.1.2  Effective Date of Transfer of Interest

              A Transfer of Interest  becomes  effective  thirty (30) days after
              the day all  Parties  are In receipt of the  transfer  notice.  No
              Transfer of  Interest,  other than those  provided in Article 15.1
              (Right  to  Withdraw)  and  Article  26.1.1  (Exceptions  to Prior
              Written Notice),  is binding upon the Parties unless and until (i)
              the  assignor or assignee  provides all  remaining  Parties with a
              photocopy of a fully  executed  Transfer of Interest,  an executed
              MMS  "Designation of Operator" form and a designation of oil spill
              responsibility  form and (Ii) evidence of receipt of all necessary
              approvals by the MMS. The Parties  shall  promptly  undertake  all
              reasonable  actions  necessary to secure those approvals and shall
              execute and deliver all  documents  necessary to  effectuate  that
              Transfer  of  Interest.  All costs  attributable  to a Transfer of
              Interest are the sole  obligation of the assigning  Party.

      26.1.3  Form of  Transfer  of Interest

              Any Transfer of Interest  shall  incorporate  provisions  that the
              Transfer of Interest is subordinate to and made expressly  subject
              to this  Agreement and provide for the  assumption by the assignee
              of the  performance  of all of the assigning  Party's  obligations
              under this  Agreement.  Any Transfer of Interest not in compliance
              with this provision is voidable by the non-assigning Parties.

      26.1.4  Warranty

              Any Transfer of  Interest,  vesting or  relinquishment  of Working
              Interest  between the Parties under this  Agreement  shall be made
              without  warranty  of  title.  All  liens,   charges,   and  other
              encumbrances,  including but not limited to overriding  royalties,
              net profits interest and production payments, which a Party placed
              (or caused to be placed) on its  Working  Interest  shall be fully
              satisfied or released prior to the effective date of a Transfer of
              Interest,  vesting or  relinquishment  of Working Interest between
              that Party and  another  Party  under this  Agreement  (unless the
              other Party is willing to accept the Working  Interest  subject to
              those liens, charges, and other encumbrances).

      26.1.5  Minimum Transfer of Interest

              Unless unanimously agreed otherwise, any transfer to a third party
              shall be  limited to a minimum  Working  Interest  of ten  percent
              (10%). No assignment or transfer of any interest in this Agreement
              or any Lease subject to this  Agreement  shall be made that is not
              an undivided Working Interest in all of a Party's Working Interest
              in the entire Contract Area, unless otherwise  provided under this
              Agreement. If the Working Interest of any

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              Party is  subsequently  conveyed or distributed to other entities,
              so that any one of them owns a Working  Interest  of less than ten
              percent  (10%),  such entities  collectively  shall be entitled to
              only a single joint  representative at meetings of the Parties and
              shall vote or act  collectively on all matters or elections.  Such
              Parties  shall be entitled to only a single set of logs,  samples,
              information  and reports and shall be considered as only one Party
              for all purposes under this Agreement.

26.2  Preferential Right to Purchase

      Any Transfer of Interest shall be subject to the following provisions:

      26.2.1  Notice of Proposed  Transfer of Interest

              The transfer  notice  shall  provide  full  information  about the
              proposed Transfer of Interest,  including, but not limited to, the
              name and address of the  prospective  assignee (who must be ready,
              willing  and able to acquire the  interest  and deliver the stated
              consideration  therefor),  the full consideration for the Transfer
              of  Interest  and all other  terms of the offer.  In the case of a
              sale of oil and gas  interests  that  includes  all or part of the
              assigning Party's Working Interest, or if the proposed Transfer of
              Interest  is  structured  as a  like-kind  exchange,  the  Working
              Interest  that is subject to the  Transfer  of  Interest  shall be
              separately valued and the transfer notice shall state the monetary
              value  attributed  to the  Working  Interest  by that  prospective
              assignee.  Article 26.2  (Preferential  Right to  Purchase)  shall
              apply only to the Working Interest that is subject to the Transfer
              of Interest.

      26.2.2  Exercise of Preferential Right to Purchase

              Within twenty (20) days from receipt of the transfer notice,  each
              non-assigning   Party  may  exercise  its  preferential  right  to
              purchase its Participating  Interest share of the Working Interest
              offered (on the same terms and conditions,  or on equivalent terms
              for a  non-cash  transaction  as  stated  in the  notice)  without
              reservations  or conditions by written  notice of that fact to all
              of the Parties. If one or more non-assigning  Parties, but not all
              non-assigning  Parties,   exercise  their  preferential  right  to
              purchase (the "Acquiring Parties"),  then within fifteen (15) days
              of the  termination  of the twenty (20 day notice period set forth
              in the previous  sentence,  each Acquiring  Party may exercise its
              preferential right to purchase its Participating Interest share of
              the Working Interest offered based on its  Participating  Interest
              share as a  non-assigning  Party  or  based  on its  Participating
              Interest share as an Acquiring  Party. If, within the fifteen (15)
              day notice period set forth in the previous sentence, an Acquiring
              Party does not  exercise  its  preferential  right to purchase its
              Participating Interest share of the Working Interest offered based
              on its Participating Interest share as an Acquiring Party but does
              exercise  its  preferential  right to purchase  its  Participating
              Interest  share  of the  Working  Interest  offered  based  on its
              Participating  Interest share as a non-assigning  Party,  then the
              other Acquiring Parties shall have ten

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              (10)  days in  which to  agree  to pay the  remainder  of the full
              consideration   for  the  Transfer  of  Interest  and  notify  the
              assigning  Party of that fact.  If, within the ten (10) day period
              set forth in the previous sentence, the other Acquiring Parties do
              not agree to pay the remainder of the full  consideration  for the
              Transfer of Interest,  or if the other Acquiring  Parties do agree
              to pay the remainder of the full consideration for the Transfer of
              Interest but do not notify the  assigning  Party of the fact,  the
              assigning Party shall be free to complete the proposed  conveyance
              on the terms disclosed in the notice. If the non-assigning Parties
              or the Acquiring  Parties agree to pay the full  consideration for
              the  Transfer of Interest and accept all of the other terms of the
              third party offer,  the assigning Party shall transfer the Working
              Interest to the  non-assigning  Parties or  Acquiring  Parties who
              exercised their  preferential right to purchase under this Article
              26 (Successors,  Assigns and Preferential Rights). The Transfer of
              Interest shall be concluded within a reasonable time, but no later
              than  sixty  (60) days  after the  applicable  period in which the
              non-assigning  Parties or  Acquiring  Parties may  exercise  their
              preferential right to purchase.

      26.2.3  Transfer of Interest  Not  Affected by the  Preferential  Right to
              Purchase

              Article 26.2 (Preferential Right to Purchase) shall not apply when
              a Party proposes to:

              (a)    mortgage,  pledge, hypothecate or grant a security interest
                     in all or a  portion  of its  Working  Interest  (including
                     assignments of Hydrocarbon  production  executed as further
                     security for the debt secured by that security device), or

              (b)    grant an overriding  royalty, a net profits interest,  or a
                     production payment, or

              (c)    dispose of its Working Interest by:

                     (1)  a simultaneous like-kind exchange for all of a Party's
                          Working  Interest in the Contract  Area under  Section
                          1031 of the Internal Revenue Code of 1986, as amended,
                          ("Code");

                     (2)  a merger, reorganization or consolidation;

                     (3)  a  Transfer  of  Interest  of  substantially  all of a
                          Party's  exploration and production  properties in the
                          Gulf of Mexico; or

                     (4)  a Transfer of Interest to an Affiliate,  provided that
                          there  is  included  in the  Transfer  of  Interest  a
                          provision  that if for any reason the assignee  ceases
                          to be an  Affiliate of the  Transferring  Party within
                          one (1) year after Transfer of Interest,  those rights
                          shall be immediately  reassigned to the original Party
                          before the  assignee  ceases to be an  Affiliate,  and
                          that all  rights of the  assignee  in the Lease  shall
                          terminate if the re-assignment does not place.

      26.2.4  Completion of Transfer of Interest

              If the proposed  Transfer of Interest is not executed and filed of
              record with the MMS within three (3) months  after  receipt of the
              transfer notice by the non-assigning  Parties,  or if the terms of
              the  proposed  Transfer  of  Interest  conveyance  are  materially
              altered, the

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              proposed Transfer of Interest shall be deemed  withdrawn,  and the
              Working  Interest  included in the  proposed  Transfer of Interest
              shall again be governed by this Article 26.2  (Preferential  Right
              to Purchase).

                                   ARTICLE 27

                           ADMINISTRATIVE PROVISIONS

27.1  Term

      This  Agreement  shall remain in effect so long as a Contract Area remains
      in effect  and  thereafter  until (a) all wells  have been  abandoned  and
      plugged or turned over to the Parties  owning an interest in the  Contract
      Area on which  the  wells  are  located;  (b) all  Platforms,  Development
      Facilities, and equipment have been disposed by the Operator in accordance
      with Article 14  (Abandonment,  Salvage,  and Surplus);  (c) all Claims as
      defined in Article 19 (Liability,  Claims, and Lawsuits) have been settled
      or otherwise  disposed of; and (d) there has been a final  accounting  and
      settlement by all Parties.  In accordance  with Article 4.5  (Selection of
      Successor Operator),  this Agreement will terminate if no Party is willing
      to become Operator,  effective after all conditions in clauses (a) through
      (d)  above  have  been  completed.   In  accordance  with  Article  15.2.1
      (Unanimous Withdrawal), this Agreement will terminate if all Parties elect
      to withdraw,  effective  after all  conditions  in clauses (a) through (d)
      above have been completed. Termination of this Agreement shall not relieve
      a  Party  of  a  liability  or  obligation   accrued  or  incurred  before
      termination  and is without  prejudice to all  continuing  confidentiality
      obligations or other obligations in this Agreement.

27.2  Waiver

      A term,  provision,  covenant,  representation,  warranty, or condition of
      this  Agreement may be waived only by written  instrument  executed by the
      Party  waiving  compliance.  The  failure  or  delay  of a  Party  in  the
      enforcement or exercise of the rights  granted under this Agreement  shall
      not  constitute  a waiver of said rights nor shall it be  considered  as a
      basis for  estoppel.  Time is of the  essence in the  performance  of this
      Agreement and all time limits shall be strictly construed and enforced.

27.3  Waiver of Right to Partition

      Each  Party  waives  the right to bring an  action  for  partition  of its
      interest in the Contract Area, wells,  Platform,  Development  Facilities,
      and other equipment held under this  Agreement,  and covenants that during
      the  existence  of this  Agreement  it shall not  resort at any time to an
      action at law or in equity to partition any or all of the Leases and lands
      or personal property subject to this Agreement.

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27.4  Compliance With Laws and Regulations

      This Agreement,  and all activities or operations conducted by the Parties
      under this Agreement, are expressly subject to, and shall comply with, all
      laws,  orders,  rules,  and regulations of all federal,  state,  and local
      governmental authorities having jurisdiction over the Contract Area.

      27.4.1  Severance of Invalid Provisions

              If, for any reason  and for so long as, a clause or  provision  of
              this Agreement is held by a court of competent  jurisdiction to be
              illegal, invalid,  unenforceable or unconscionable under a present
              or future law (or interpretation  thereof),  the remainder of this
              Agreement  will not be affected by that  illegality or invalidity.
              An illegal or invalid  provision  will be deemed severed from this
              Agreement,  as if this  Agreement  had been  executed  without the
              illegal or invalid  provision.  The  surviving  provisions of this
              Agreement  will remain in full force and effect unless the removal
              of the  illegal  or  invalid  provision  destroys  the  legitimate
              purposes of this Agreement; in which event this Agreement shall be
              null and void.

      27.4.2  Fair and Equal Employment

              Each of the  Parties  is an Equal  Opportunity  Employer,  and the
              equal  opportunity  provisions  of 30 CFR 270 and 41 CFR 60-1,  as
              amended  or  modified,  are  incorporated  in  this  Agreement  by
              reference.  The  affirmative  action clauses  concerning  disabled
              veterans  and  veterans of the Vietnam era (41 CFR 60-250) and the
              affirmative   action   clauses   concerning   employment   of  the
              handicapped  (41  CFR  60-741)  are  also   incorporated  in  this
              Agreement by reference.  In performing  work under this Agreement,
              the Parties shall comply with (and the Operator shall require each
              independent   contractor   to  comply   with)   the   governmental
              requirements  in  Exhibit  "E"  that  pertain  to   non-segregated
              facilities.

27.5  Construction and Interpretation of this Agreement

      27.5.1  Headings for Convenience

              Except for the definition headings in Article 2 (Definitions), all
              the  table  of  contents,   captions,   numbering  sequences,  and
              paragraph  headings in this Agreement are inserted for convenience
              only and do not  define,  expand or limit the scope,  meaning,  or
              intent of this Agreement.

      27.5.2  Article References

              Except as otherwise provided in this Agreement,  each reference to
              an  article  of  this  Agreement  includes  all of the  referenced
              article and its sub-articles.

      27.5.3  Gender and Number

              The use of  pronouns  in  whatever  gender  or  number is a proper
              reference to the Parties to this Agreement  though the Parties may
              be individuals, business entities, or groups

                                       69
<PAGE>

              thereof.  Reference in this Agreement to the singular of a noun or
              pronoun includes the plural and vice versa.

      27.5.4  Future References

              A  reference  to a Party  includes  such  Party's  successors  and
              assigns  and,  in  the  case  of  governmental   bodies,   persons
              succeeding to their respective functions and capacities.

      27.5.5  Currency

              Any amounts due or payable under this  Agreement  shall be paid in
              United States currency.

      27.5.6  Optional Provisions

              In the event that any  "Optional"  provision of this  Agreement is
              not adopted by the Parties to this  Agreement by a typed,  printed
              or handwritten indication, such provision shall not form a part of
              this  Agreement,  and no inference  shall be made  concerning  the
              intent  of the  Parties  in regard  to the  subject  matter of the
              "Optional" provision

      27.5.7  Joint Preparation

              This  Agreement  shall be  deemed  for all  purposes  to have been
              prepared through the joint efforts of the Parties and shall not be
              construed for or against one Party or the other as a result of the
              preparation,  submittal,  drafting,  execution  or other  event of
              negotiation hereof.

      27.5.8  Integrated Agreement

              This  Agreement  is  attached  to and  made a  part  of the  Joint
              Development  Agreement and contains the final and entire agreement
              of the Parties for the matters  covered by this  Agreement and, as
              such,  supersedes  all prior  written or oral  communications  and
              agreements.  If there are any conflicts between this Agreement and
              the Joint Development  Agreement,  the terms and provisions of the
              Joint Development Agreement shall prevail and govern.

      27.5.9  Binding Effect

              To the  extent it is  assignable,  this  Agreement  shall bind and
              inure  to  the  benefit  of  the  Parties  and  their   respective
              successors and assigns,  and shall  constitute a covenant  running
              with the land  comprising the Contract  Area.  This Agreement does
              not benefit or create any rights in a person or entity that is not
              a Party to this Agreement.

      27.5.10 Further Assurances

              Each  Party  will  take all  actions  necessary  and will sign all
              documents  necessary  to  implement  this  Agreement.   Except  as
              otherwise provided in this Agreement, within (30) days after their
              receipt of a valid  written  request  for those  documents  from a
              Party, all other Parties shall prepare and execute the documents.

                                       70
<PAGE>

                                   EXHIBIT "A"

    Attached to and made a part of that certain Offshore Operating Agreement
   dated June 1, 2004, by and between BHP Billiton Petroleum (Americas) Inc.,
  Dominion Exploration & Production, Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

WORKING INTEREST OF THE PARTIES, OPERATOR AND REPRESENTATIVES

I.    Contract Area

West Cameron Block 77:        S/2 N/2SW/4 and N/2S/2SW/4

Insofar and only insofar as the Contract Area is limited to the following
depths:

From the surface down to but not  including  the depths below the  stratigraphic
equivalent  seen at a two way time of 3861 ms  (approximately  16,400' SSTVD) on
the Fairfield 3D Pre-Stack Time Migration In-line 3170 at CrossLine 1600.

II.   Working Interests of the Parties

BHP Billiton Petroleum (Americas) Inc.      43.66%
Dominion Exploration & Production, Inc.     22.40%
The Houston Exploration Company             19.40%
Ridgewood Energy Corporation                14.54%

III.  Operator

BHP Billiton Petroleum (Americas) Inc.

<TABLE>
<CAPTION>
IV.   Addresses                               Names of Representatives           Phone & Fax No.
      ---------                               ------------------------           ---------------
<S>                                                <C>                                 <C>
Dominion Exploration & Production, Inc.            Melvin Baiamonte                    Phone: (504) 593-7660
1450 Poydras Street                                Staff Landman                       Fax:   (504) 593-7449
New Orleans, LA 70112-6000

BHP Billiton Petroleum (Americas) Inc.             Dwight Pickle                       Phone: (713) 961-8437
1360 Post Oak Boulevard, Suite 150                 Senior Staff Negotiator             Fax:   (713) 961-8339
Houston, Texas 77056-3020
</TABLE>

                                       72
<PAGE>

<TABLE>
<S>                                                <C>                                 <C>
The Houston Exploration Company                    Michelle Mauzy                      Phone: (713) 830-6841
1100 Louisiana, Suite 2000                         Landman                             Fax:   (713) 659-7201
Houston, Texas 77002

Ridgewood Energy Corporation                       Greg Tabor                          Phone: (713) 862-9856
5300 Memorial Drive, Suite 1070                    Executive Vice President            Fax:   (713) 802-9734
Houston, Texas 77007
</TABLE>

                                       73
<PAGE>

                                   EXHIBIT A-2

    Attached to and made a part of that certain Offshore Operating Agreement
   dated June 1, 2004, by and between BHP Billiton Petroleum (Americas) Inc.,
  Dominion Exploration & Production, Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

                               ADDITIONAL BURDENS

      Working Interest Owner                         Burdens
      ----------------------                         -------
BHP Billiton Petroleum (Americas) Inc.

Ridgewood Energy Corporation

Dominion Exploration & Production Inc.

The Houston Exploration Company          1.56310% as to S/2 S/2 all depths; and
                                         1.21021% as to N/2 and N/2 S/2, from
                                         the surface to 40,000'

                                       74
<PAGE>

                                   EXHIBIT "B"

    Attached to and made a part of that certain Offshore Operating Agreement
   dated June 1, 2004, by and between BHP Billiton Petroleum (Americas) Inc.,
  Dominion Exploration & Production, Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

                              INSURANCE PROVISIONS

1.    Operator   shall  comply   with  all   Workers'  Compensation,  Employers'
Liability and similar laws relating to employee injury, illness,  disability and
buy either insurance or a qualified self-insured, claims-management program with
licensed  insurers  in  compliance  with such laws.  In the event that  Operator
utilizes qualified self-insurance, In the event that Operator utilizes qualified
self-insurance,  Operator  shall  charge the Joint  Account,  the cost of actual
incurred losses arising out of such self insurance.  Any fees and other non-loss
related expenses of such self insurance shall be Operator's sole cost.

2.    Operator   shall  not  be  obligated or  authorized  to obtain or carry on
behalf of the Joint Account any additional insurance covering the Parties or the
operations  to be conducted  hereunder  without the consent and agreement of all
Parties. Such insurance, if authorized,  shall contain waivers of subrogation in
favor of the other  Parties.  Each  Party  individually  may  acquire at its own
expense  such  insurance as it deems proper to protect  itself  against  claims,
losses,  damage to or  destruction  of  property of third  parties,  or personal
injury or death of third persons  arising out of the joint  operations  and such
insurance  shall contain  waivers of  subrogation in favor of the other Parties.
All uninsured losses,  claims and all damages to jointly owned property shall be
borne by the Parties in proportion to their respective interests.

3.    Operator shall  not  carry  control-of-well,  pollution,  liability, cargo
or physical damage  insurance on jointly owned property or operations,  it being
understood and agreed that each Party will be  responsible  for its own interest
in such  properties  and  operations  and will  assume its  portion of any loss,
damage or claim that  occurs.  Each Party  hereby  waives its rights of recovery
against  all other  Parties  to the  agreement,  and agrees  that all  insurance
policies covering its interest in the jointly owned property and operations will
be suitably  endorsed to effectuate this waiver.  Operator shall promptly notify
non-operators  in  writing  of all losses  involving  damage to a jointly  owned
property in excess of $100,000.

4.    Operator shall require  all  contractors  engaged in operations under this
Agreement to comply with the  applicable  Worker's  Compensation  and Employers'
liability  laws and to  maintain  such other  insurance  and in such  amounts as
Operator deems necessary.

5.    In  the  event   less   than  all  Parties  participate  in  an  operation
conducted under the terms of this Agreement,  then the insurance requirement and
costs, as well as all losses, liabilities and expenses incurred as the result of
such  operation,  shall be the  burden  of the  Party or  Parties  participating
therein.

                                       75
<PAGE>

6.    It is further  understood and  agreed  that the Operator  does not warrant
or guarantee the financial condition, performance of or coverage provided by any
insurer and that the Parties shall  indemnify the Operator for any claim arising
out of this  Agreement  not  paid  by  insurance  obtained  by the  Operator  or
contractors' insurance,  insurers, or reinsurers or due to the unavailability of
insurance required, policy terms, conditions,  warranties insolvency rescission,
lapse, delay or otherwise.

7.    In  the event that the Operator is  required  by law, license,  act, rule,
regulation  or agreement to provide  evidence,  bond or guarantee of  insurance,
performance  or  financial  responsibility  on behalf of the Parties for injury,
illness, death, damage, liability,  pollution,  environmental impairment, claim,
obligation  or expense,  each Party shall  provide such timely  evidence,  bond,
guarantee or insurance to the Operator  that will satisfy the  Obligation of the
Operator for the Joint Venture,  and shall  indemnify the Operator for the lack,
failure,  inadequacy or insufficiency of such evidence or guarantee  provided by
that Party.

                                       76
<PAGE>

                                   EXHIBIT "C"

    Attached to and made a part of that certain Offshore Operating Agreement
   dated June 1, 2004, by and between BHP Billiton Petroleum (Americas) Inc.,
  Dominion Exploration & Production, Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

                              ACCOUNTING PROCEDURE
                           OFFSHORE JOINT OPERATIONS

I. GENERAL PROVISIONS

1.    Definitions

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

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

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

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

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

"Parties" shall mean Operator and Non-Operators.

"First Level  Supervisors"  shall mean those employees whose primary function in
Joint  Operations is the direct  supervision of other employees  and/or contract
labor directly employed on the Joint Property in a field operating capacity. The
First  Level  Supervisor  shall  not be  required  to be  located  on the  Joint
Property, but shall be located at a field location near the Joint Property.

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

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

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

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

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

                                       76
<PAGE>

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

2.    Statements and Billings

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

3.    Advances and Payments by Non-Operators

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

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

4.    Adjustments

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

5.    Audits

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

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

                                       77
<PAGE>

6.    Approval by Non-Operators

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

II. DIRECT CHARGES

Operator shall charge the Joint Account with the following items:

1.    Rentals and Royalties

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

2.    Labor

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

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

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

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

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

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

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

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

3.    Employee Benefits

Operator's  current  costs  of  established  plans  for  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 2A and 2B of this Section H
shall be  Operator's  actual  cost  not to  exceed  the  percent  most  recently
recommended by the Council of Petroleum Accountants Societies.

                                       78
<PAGE>

4.    Material

Material  purchased or  furnished  by Operator for use on the Joint  Property as
provided  under  Section  IV.  Only  such  Material  shall be  purchased  for or
transferred  to the Joint  Property as may be required for  immediate use and is
reasonably  practical and consistent  with efficient and economical  operations.
The  accumulation  of surplus  stocks  shall be  avoided.  However,  all surplus
material  purchased  for the Joint  Account  will  remain  charged  to the Joint
Account until disposition of such surplus materials by Operator.  Operator shall
use its best  efforts to dispose of such surplus  materials on a reasonable  and
timely basis; however, Operator shall consult with and obtain the Non-Operator's
consent provided  Non-Operator's  consent is received within five (5) days after
receipt  of notice  from  Operator  of its  intent to  dispose  of such  surplus
material(s). Failure by Non-Operator to provide Operator with its consent within
said five (5) days shall be an indication that Non-Operator consents or approves
of the disposal of said surplus material.  Such Non-Operator's consent shall not
be unreasonably  withheld.  If a Non-Operator does not consent to the Operator's
proposal the  Non-Operator  must provide a written  explanation  and  reasonable
economic justification for its refusal to provide consent.

5.    Transportation

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

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

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

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

6.    Services

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

7.    Equipment and Facilities Furnished by Operator

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

                                       79
<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 Joint Property
less twenty percent (20%). For automotive  equipment,  Operator may elect to use
rates published by the Petroleum Motor Transport Association.

8.    Damages and Losses to Joint Property

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

 9.   Legal Expense

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

10.   Taxes

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

11.   Insurance

      Net  premiums  paid for  insurance  required  to be carried  for the Joint
Operations for the protection of the Parties.  In the event Joint Operations are
conducted at offshore  locations in which Operator may act as  self-insurer  for
Workers'  Compensation and Employers'  Liability,  Operator may include the risk
under its  self-insurance  program in providing coverage under State and Federal
laws and Operator  shall charge the Joint Account with actual  incuured  losses,
claims,  fees and expenses  arising out of activities  or operations  under this
Agreement.  Any fees and other non-loss  related expenses of such self insurance
shall be Operator's sole cost.

12.   Communications

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

13.   Ecological and Environmental

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

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14.   Abandonment and Reclamation

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

15.   Other Expenditures

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

III.  OVERHEAD

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

Unless otherwise agreed to by the Parties, such charge shall be in lieu of costs
and  expenses of all offices and salaries or wages plus  applicable  burdens and
expenses of all personnel, except those directly chargeable under Section 0. The
cost and expense of services from outside  sources in connection with matters of
taxation,  traffic,  accounting  or  matters  before or  involving  governmental
agencies,  except as herein  described,  shall be  considered as included in the
overhead rates provided for in this Section III unless such cost and expense are
agreed  to  by  the   Parties  as  a  direct   charge  to  the  Joint   Account.
Notwithstanding  anything  herein  contained to the contrary,  it is agreed that
such costs and services when directly  employed on the Joint  Property shall not
be covered by the overhead rates. Furthermore, the reasonable and customary fees
and expenses incurred by contract personnel and professional consultants as such
fees relate to matters before or involving  governmental agencies (including but
not limited to the Minerals  Management Service and other regulatory  agencies),
even if such  contract or  professional  consultants  are working in  Operator's
office,  shall be directly  chargeable to the Joint Account,  to the extent that
such fees and expenses are associated with the operation of the Joint Property.

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

                (   ) shall be covered by the overhead rates.
                ( x ) shall not be covered by the overhead rates.

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

                    ( x ) shall be covered by the overhead rates.
                    (   ) shall not be covered by the overhead rates.

1.    Overhead - Drilling and Producing Operations

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

      (   ) Fixed Rate Basis, Paragraph 1A, or
      ( x ) Percentage Basis, Paragraph IB

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A.    Overhead - Fixed Rate Basis

  (1) Operator  shall charge the Joint  Account at the  following  rates per
      well per month:
       Drilling Well Rate $________(Prorated for less than a full month)
       Producing Well Rate $________

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

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

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

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

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

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

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

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

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

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

B.    Overhead - Percentage Basis

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

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      (a)     Development

              Two and  three-quarters  Percent  (2.75%)of cost of Development of
the Joint Property  exclusive of costs  provided under  Paragraph 9 of Section H
and all salvage credits.

      (b)     Operating

              Twelve  and  three-quarters   Percent  (12.75%)  of  the  cost  of
Operating the Joint

      Property exclusive of costs provided  under Paragraphs 1 and 9  of Section
H, all salvage credits, the value of injected substances purchased for secondary
recovery and all taxes and assessments which are levied, assessed and paid upon
the mineral interest in and to the Joint Property.

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

For the purpose of determining  charges on a percentage basis under Paragraph IB
of this  Section III, development  shall  include all costs in  connection  with
drilling, redrilling, deepening, or any project with a primary purpose to extend
or expand a wellbore in order to recover new reserves not previously recoverable
by the wellbore;  also,  preliminary  expenditures  necessary in preparation for
drilling and expenditures  incurred in abandoning when the well is not completed
as a producer,  and  original  cost of  construction  or  installation  of fixed
assets, the expansion of fixed assets and any other project clearly  discernible
as a fixed asset,  except Major  Construction  as defined in Paragraph 2 of this
Section III. All other  costs  shall be  considered  as  Operating  except  that
catastrophe  costs  shall be  assessed  overhead  as  provided  in Section  III,
Paragraph 3.

2.    Overhead - Major Construction

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

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

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

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

(4)   2.5% of total costs.

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

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

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

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

(4)   2.0% of total costs.

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.

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

3.    Overhead - Catastrophe

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<PAGE>

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

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

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

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

(4)   2.5% of total costs.

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

4.    Amendment of Rates

      The Overhead  Parties  hereto if, in  practice,  the rates are found to be
insufficient  or excessive  rates provided for in this Section 1H may be amended
from time to time only by mutual agreement between the Parties.

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

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

1.    Purchases

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

2.    Transfers and Dispositions

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

A.    New Material (Condition A)

(1)   Tubular Goods Other than Line Pipe

(a) Tubular goods, sized 2 3/8 inches OD and larger,  except line pipe, shall be
priced at Eastern mill  published  carload  base prices  effective as of date of
movement plus transportation cost using the 80,000 pound carload weight basis to
the railway  receiving point nearest the Joint Property for which published rail
rates for tubular

                                       84
<PAGE>

goods exist.  If the 80,000 pound rail rate is not offered,  the 70,000 pound or
90,000  pound  rail  rate  may be  used.  Freight  charges  for  tubing  will be
calculated from Lorain, Ohio and casing from Youngstown, Ohio.

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

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

(d) Macaroni tubing (size less than 2 3/8 inch OD) shall be priced at the lowest
published  out-of-stock  prices f.o.b. the supplier plus  transportation  costs,
using the Oil Field  Haulers  Association  interstate  truck  rate per weight of
tubing transferred, to the railway receiving point nearest the Joint Property.

(2)   Line Pipe

(a) line pipe  movements  (except size 24 inch OD and larger with walls 3/4 inch
and Over)  30,000  pounds or more shall be priced  under  provisions  of tubular
goods pricing in Paragraph A.(l )(a) as provided above. Freight charges shall be
calculated from Lorain, Ohio.

      (b)     Line pipe movements (except  size 24 inch OD and larger with walls
3/4 inch and over)  less than  30,000  pounds  shall be priced at  Eastern  mill
published carload base prices effective as of date of shipment, plus 20 percent,
plus  transportation  costs based on freight rates as set forth under provisions
of tubular  goods  pricing in  Paragraph  A.(l)(a)  as provided  above.  Freight
charges shall be calculated from Lorain, Ohio.

(c) Line pipe 24 inch OD and over and 3/4 inch wall and  larger  shall be priced
f.o.b.   the  point  of  manufacture  at  current  new  published   prices  plus
transportation cost to the railway receiving point nearest the Joint Property.

      (d)     Line pipe, including fabricated line pipe,  drive pipe and conduit
not  listed on  published  price  lists  shall be priced at quoted  prices  plus
freight to the railway  receiving  point nearest the Joint Property or at prices
agreed to by the Parties.

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

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

      B.      Good Used Material (Condition B)

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

(1)   Material moved to the Joint  Property
                At   seventy-five   percent  (75%)  of  current  new  price,  as
                determined by Paragraph A.

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

                                       85
<PAGE>

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

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

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

            At seventy-five percent (75%) of current new price as determined by
            Paragraph A.
             The  cost  of  reconditioning,  if  any,  shall  be  absorbed by
             the transferring property.

      C.      Other Used Material

(1)   Condition C

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

(2)   Condition D

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

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

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

      (3)     Condition E

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

D. Obsolete Material

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

E. Pricing Conditions

(1)   Loading or unloading costs may be charged to the Joint Account at the rate
of twenty-five  cents ($0.25) per hundred weight on all tubular goods movements,
in lieu of actual loading or unloading  costs  sustained at the stocking  point.
The  above  rate  shall be  adjusted  as of the  first  day of April  each  year
following  January 1, 1985 by the same  percentage  increase or decrease used to
adjust  overhead  rates in  Section m,  Paragraph  l.A(4).  Each year,  the rate
calculated  shall be rounded to the nearest cent and shall be the rate in effect
until the first day of April next year.  Such rate shall be published  each year
by the Council of Petroleum Accountants Societies.

                                       86
<PAGE>

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

3.    Premium Prices

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

4.    Warranty of Material Furnished By Operator

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

V.    INVENTORIES

      The Operator shall maintain detailed records of Controllable Material.

1.    Periodic Inventories, Notice and Representation

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

2.    Reconciliation and Adjustment of Inventories

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

3.    Special Inventories

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

4.    Expense of Conducting Inventories

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

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

                                       87
<PAGE>

                                   EXHIBIT "D"

    Attached to and made a part of that certain Offshore Operating Agreement
   dated June 1, 2004, by and between BHP Billiton Petroleum (Americas) Inc.,
  Dominion Exploration & Production, Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

                      NON-DISCRIMINATION AND CERTIFICATION
                          OF NON-SEGREGATED FACILITIES

In order to ensure compliance with the Equal Employment  Opportunity  provisions
of Executive Orders 11246, 11375, 11598, 11141 and 11758, the Operator agrees to
and shall be bound by these provisions and all rules and regulations promulgated
thereunder,  and with all  amendments  and additions  thereto to the extent that
they are applicable.

I.    Equal Opportunity Clause

(Applicable to contracts in excess of $10,000)

Operator  shall be bound by and agrees to the following  provisions as contained
in Section 202 of Executive Order 11246, as amended, to-wit:

(1)   The Operator will not  discriminate  against any employee or applicant for
employment  because of race, color,  religion,  sex, age or national origin. The
Operator will take  affirmative  action to ensure that  applicants are employed,
and that employees are treated during employment,  without regard to their race,
color, religion,  sex, or national origin. Such action shall include, but not be
limited  to  the  following:  Employment,   upgrading,  demotion,  or  transfer,
recruitment or recruitment advertising;  layoff or termination;  rates of pay or
other  forms  of   compensation;   and   selection   for   training,   including
apprenticeship.  The Operator agrees to post in conspicuous places, available to
employees and applicants for employment, notices setting forth the provisions of
this nondiscrimination clause.

(2)   The Operator will, in all  solicitations or  advertisements  for employees
placed by or on behalf of the Operator, state that all qualified applicants will
receive  consideration for employment  without regard to race, color,  religion,
sex, age or national origin.

(3)   The Operator  will send to each labor union or  representative  of workers
with  which  he has a  collective  bargaining  agreement  or other  contract  or
understanding,  a notice,  to be  provided  by the agency  contracting  officer,
advising  the  labor  union  or  workers'   representative   of  the  Operator's
commitments  under Section 202 of Executive Order 11246 and shall post copies of
the notice in  conspicuous  places  available to employees  and  applicants  for
employment.

(4)   The Operator will comply with all provisions of Executive  Order 11246 and
of the rules, regulations, and relevant orders of the Secretary of Labor.

                                       88
<PAGE>

(5)   The  Operator  will  furnish  all  information  and  reports  required  by
Executive Order 11246 and by the rules, regulations, and orders of the Secretary
of Labor, or pursuant thereto,  and will permit access to his books, records and
accounts by the  contracting  agency and the  Secretary of Labor for purposes of
investigation to ascertain compliance with such rules, regulations and orders.

(6)   In the event of the Operator's  noncompliance with the  non-discrimination
clauses of this contract or with any of such rules, regulations, or orders, this
contract  may be canceled,  terminated  or suspended in whole or in part and the
Operator  may  be  declared  ineligible  for  further  Government  contracts  in
accordance  with  procedures  authorized in Executive Order 11246 and such other
sanctions  may be imposed and remedies  invoked as provided in  Executive  Order
11246  or by  rule,  regulation,  or  order of the  Secretary  of  Labor,  or as
otherwise provided by law.

(7)   The Operator will include the  provisions of paragraphs (1) through (7) in
every  subcontract or purchase order unless exempted by rules,  regulations,  or
orders of the  Secretary  of Labor  issued  pursuant to Section 204 of Executive
Order 11246 so that such provisions will be binding upon each  subcontractor  or
vendor.  The Operator will take such action with respect to any  subcontract  or
purchase order as the contracting agency may direct as a means of enforcing such
provisions including sanctions for noncompliance: PROVIDED, HOWEVER, that in the
event the Operator becomes involved in, or is threatened with, litigation with a
subcontractor or vendor as a result of such direction by the contracting agency,
the  Operator  may request the United  States to enter into such  litigation  to
protect the interests of the United States.

II.   Certification of Nonsegregated Facilities

Operator  certifies  that it does not maintain or provide for its  employees any
segregated facilities at any of its establishments,  and that it does not permit
its  employees to perform  their  services at any  location,  under its control,
where segregated  facilities are maintained.  It certifies  further that it will
not maintain or provide for its  employees any  segregated  facilities at any of
its  establishments,  and that it will not permit its employees to perform their
services at any location,  under its control,  where  segregated  facilities are
maintained.  Operator agrees that a breach of this  certification is a violation
of the Equal Opportunity Clause in this contract. As used in this certification,
the term "segregated facilities" means any waiting rooms, work areas, rest rooms
and wash rooms,  restaurants and other eating areas,  time clocks,  locker rooms
and  other  storage  or  dressing  areas,   parking  lots,  drinking  fountains,
recreation  or  entertainment  areas,   transportation  and  housing  facilities
provided for employees which are segregated by explicit directive or are in fact
segregated on the basis of race,  creed,  color, or national origin,  because of
habit,  local custom or otherwise.  It further  agrees that (except where it has
obtained identical certifications from proposed subcontractors for specific time
periods) it will obtain identical  certifications  from proposed  subcontractors
prior to the award of subcontracts  exceeding  $10,000 which are not exempt from
the  provisions  of  Equal  Opportunity   Clause;   that  it  will  retain  such
certifications  in its files;  and that it will forward the following  notice to
such  proposed  subcontractors  (except where the proposed  subcontractors  have
submitted identical certifications for specific time periods):

NOTICE TO  PROSPECTIVE  SUBCONTRACTORS  OF  REQUIREMENT  FOR  CERTIFICATIONS  OF
NONSEGREGATED FACILITIES.

                                       89
<PAGE>

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

III.  Employer Information Report (EEO-1, Standard Form 100)

If Operator has 50 or more  employees and is required  under Part 60 of Title 41
of the Code of Federal Regulations to file Employer  Information  Report,  EEO-1
(Standard  Form 100),  Operator  hereby  certifies that it has done so or if not
agrees  that  it will  file  such  Report  in  accordance  with  the  applicable
instructions  and will continue to file such Report unless or until  Operator is
not required by law or regulation to so file.

IV.   Affirmative Action Compliance Program

Operator  may be  required  under  Part 60 of Title  41 of the  Code of  Federal
Regulations  to develop a written  Affirmative  Action  Compliance  Program,  if
Operator has 50 or more  employees and the contracts  amount to $50,000 or more.
If Operator is so required,  it agrees to do so no later than 120 days after the
effectiveness  of the  contracts and maintain such Program until such time as it
is no longer required by law or regulations.

V.    Utilization of Minority Business Enterprises

(Applicable  to contracts  in excess of $5,000,  except  contracts  for services
which are personal in nature)

(a)   It is the policy of the  Government  that  minority  business  enterprises
shall have the maximum practicable opportunity to participate in the performance
of Government contracts.

(b)   The  Operator  agrees to use its best  efforts to carry out this policy in
the  award  of its  subcontracts  to the  fullest  extent  consistent  with  the
efficient  performance  of this  contract.  As used in this  contract,  the term
"minority business enterprise" means a business, at least 50 percent of which is
owned by a minority  group member or, in case of publicly owned  businesses,  at
least 51 percent of the stock of which is owned by minority group  members.  For
the  purposes  of  this   definition,   minority   group   members  are  Blacks,
Spanish-speaking   American   persons,   American-Orientals,   American-Indians,
American-Eskimos,   and   American-Aleuts.   Operator   may   rely  on   written
representations  by  subcontractors  regarding their status as minority business
enterprises in lieu of an independent investigation.

VI.   Minority Business Enterprises Subcontractor Program

(Applicable to contracts in excess of $500,000)

(a)   The Operator  agrees to establish  and conduct a program which will enable
minority business enterprises (as defined in the clause entitled "Utilization of
Minority Business

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Enterprises") to be considered fairly as subcontractors and suppliers under this
contract. In this connection, the Operator shall:

(1)   Designate a liaison  officer who will  administer the Operator's  minority
business enterprises program.

(2)   Provide adequate and timely  consideration of the  potentialities of known
minority business enterprises in all "make-or-buy" decisions.

(3)   Assure that known  minority  business  enterprises  will have an equitable
opportunity   to   compete   for   subcontracts,   particularly   by   arranging
solicitations, time for the preparation of bids, quantities, specifications, and
delivery  schedules so as to facilitate the  participation of minority  business
enterprises.

(4)   Maintain  records showing (i) procedures which have been adopted to comply
with the policies set forth in this clause,  including  the  establishment  of a
source list of minority business  enterprises,  (ii) awards to minority business
enterprises on the source list, and (iii) specific efforts to identify and award
contracts to minority business enterprises.

(5)   Include  the  Utilization  of  Minority  Business  Enterprises  clause  in
subcontracts   which   offer   substantial    minority   business    enterprises
subcontracting opportunities.

(6)   Cooperate with the  Contracting  Officer in any studies and surveys of the
Operator's  minority  business  enterprises  procedures  and practices  that the
Contracting Officer may from time to time conduct.

(7)   Submit  periodic  reports of  subcontracting  to known  minority  business
enterprises with respect to the records referred to in subparagraph  (4), above,
in such from and manner and at such time (not more often than  quarterly) as the
Contracting Officer may prescribe.

(b)   The Operator further agrees to insert, in any subcontract  hereunder which
may  exceed  $500,000,  provisions  which  shall  conform  substantially  to the
language  of this  clause,  including  this  paragraph  (b),  and to notify  the
Contracting Officer of the names of such subcontractors.

VII.  Employment of the Handicapped

(Applicable to contracts for $2,500 or more)

The  affirmative  action clause and  regulations  (as amended from time to time)
promulgated by the Secretary of Labor, or his or her designee,  and to implement
Section 503 of the  Rehabilitation  Act of 1973, P.L.  93-112,  as amended,  and
found  in  Part  60  of  Title  41 of  the  Code  of  Federal  Regulations,  are
incorporated by reference and made a part hereof,  and Operator agrees to comply
with such affirmative action clause and regulations to the extent applicable.

VIII. Disabled Veterans and Veterans of the Vietnam Era

(Applicable to contracts for $10,000 or more)

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The  affirmative  action clause and  regulations  (as amended from time to time)
promulgated  by the  Secretary of Labor,  or his or her  designee,  to implement
Section 2012 of the Vietnam Era Readjustment Act of 1974, P.L. 93-508, and found
in Part 60 of Title 41 of the Code of Federal  Regulations,  are incorporated by
reference  and made a part  hereof,  and  Operator  agrees to  comply  with such
affirmative action clause and regulations to the extent applicable.

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<PAGE>

                                   EXHIBIT "E"

    Attached to and made a part of that certain Offshore Operating Agreement
   dated June 1, 2004, by and between BHP Billiton Petroleum (Americas) Inc.,
  Dominion Exploration & Production, Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

                      GAS BALANCING AGREEMENT ("AGREEMENT")

1.    DEFINITIONS

      The following definitions shall apply to this Agreement:

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

1.02          Balancing Area: shall mean all of the acreage and depths within an
Operating Area, and after the Operating  Agreement  terminates it shall mean the
acreage and depths covered by the leases previously located within the Operating
Area.

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

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

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

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

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

1.08  Operating  Agreement:  shall mean the  Operating  Agreement  to which this
Exhibit "E" is attached and made a part thereof.

1.09  Operating Area: shall mean an area covered by the Operating Agreement that
(a) is  composed  of the  leases  set forth in  Exhibit  "A-1" to the  Operating
Agreement and (b) is operated separately under the Operating Agreement.

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

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

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

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

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

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

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

1.17  Winter  Period:  shall mean the  month(s) of November  and December in one
calendar year and the month(s) of January,  February and March in the succeeding
calendar year.

2.    BALANCING AREA

2.1   If this Agreement covers more than one Balancing Area, it shall be applied
as if each Balancing Area were covered by separate but identical agreements. All
balancing  hereunder  shall be on the basis of Gas taken from the Balancing Area
measured in MMBtus.

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

3.    RIGHT OF PARTIES TO TAKE GAS

3.1   Each Party  desiring  to take Gas will notify the  Operator,  or cause the
Operator to be notified of the volumes  nominated,  the name of the transporting
pipeline and the  pipeline  contract  number (if  available)  and meter  station
relating to such delivery, sufficiently in advance for the Operator, acting with
reasonable diligence, to meet all nomination and other requirements. Operator is
authorized to deliver the volumes so nominated and confirmed (if confirmation is
required)  to the  transporting  pipeline in  accordance  with the terms of this
Agreement.  Operator shall provide each Party with an estimate of its Full Share
of Current  Production and the estimated  sustainable Gas volumes for Makeup Gas
by the 20th  calendar  day of the month  prior to the month of  production.  The
Parties  recognize that  Operator's  estimates are no more than  estimates,  and
these  estimated  volumes may vary from the actual Gas sales volumes  during the
month.  Operator will, insofar as reasonably possible and practical,  notify (by
telephone or  facsimile)  the Parties of  significant  variances  in  production
volumes  relative to  nominations  where  these  variances  could be  reasonably
expected to result in penalties  being  imposed by pipelines  or  purchasers  or
both.  Operator will use  reasonable  efforts to notify all Parties of scheduled
operations that will impact sustained production.

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

3.3   When a Party  fails  for any  reason  to take  its Full  Share of  Current
Production  (as such Share may be  reduced by the right of the other  Parties to
make up for  Underproduction  as provided  herein),  the other  Parties shall be
entitled  to take  any Gas  which  such  Party  fails  to  take.  To the  extent
practicable, such

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<PAGE>

Gas  shall  be made  available  initially  to each  Underproduced  Party  in the
proportion that its Percentage Interest in the Balancing Area bears to the total
Percentage Interests of all Underproduced  Parties desiring to take such Gas. If
all such Gas is not taken by the  Underproduced  Parties,  the portion not taken
shall then be made available to the other Parties in the  proportion  that their
respective  Percentage  Interests  in the  Balancing  Area  bear  to  the  total
Percentage Interests of such Parties.

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

3.5   Notwithstanding  the  provisions  of Section 3.3 hereof,  no  Overproduced
Party shall be entitled in any month to take any Gas in excess of three  hundred
percent (300%) of its Percentage  Interest of the Balancing Area's  then-current
Maximum Monthly Availability;  provided, however, that this limitation shall not
apply to the  extent  that it would  preclude  production  that is  required  to
maintain  leases in  effect,  to protect  the  producing  capacity  of a well or
reservoir,  to  preserve  correlative  rights,  or to maintain  oil  production.
"Maximum  Monthly  Availability"  shall mean the maximum average monthly rate of
production at which Gas can be delivered from the Balancing  Area, as determined
by the  Operator,  considering  the  maximum  efficient  well rate for each well
within the  Balancing  Area,  the maximum  allowable(s)  set by the  appropriate
regulatory  agency,  mode of operation,  production  facility  capabilities  and
pipeline pressures.

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

4.    IN-KIND BALANCING

4.1   Effective  the first day of any calendar  month  following at least thirty
(30) days prior written  notice to the  Operator,  any  Underproduced  Party may
begin taking, in addition to its Full Share of Current Production and any Makeup
Gas  taken  pursuant  to  Section  3.3 of this  Agreement,  a share  of  current
production  determined by multiplying  fifty percent (50%) of the Full Shares of
Current Production of all Overproduced  Parties by a fraction,  the numerator of
which is the Percentage Interest of such Underproduced Party and the denominator
of which is the total of the Percentage  Interests of all Underproduced  Parties
desiring to take Makeup Gas. In no event will an Overproduced  Party be required
to provide more than fifty percent (50%) of its Full Share of Current Production
for Makeup Gas. The Operator will promptly  notify all  Overproduced  Parties of
the election of an Underproduced Party to begin taking Makeup Gas.

4.2   Notwithstanding  the provisions of Section 4.1, no Overproduced Party will
be required to provide more than twenty-five  percent (25%) of its Full Share of
Current Production for Makeup Gas during the Winter Period.

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<PAGE>

5.    STATEMENT OF GAS BALANCES

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

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

6.    PAYMENTS ON PRODUCTION

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

6.2   Each  Party  shall pay or cause to be paid  Royalty  due with  respect  to
Royalty  owners to whom it is  accountable  based on the volume of Gas  actually
taken for its account.

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

7.    CASH SETTLEMENTS

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

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

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

7.4   The amount of the cash settlement  will be based on the proceeds  received
by the Overproduced Party under an Arm's Length Agreement for the Gas taken from
time to time by the  Overproduced  Party in excess of the  Overproduced  Party's
Full Share of Current Production. Any Makeup Gas taken by the

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<PAGE>

Underproduced Party prior to monetary  settlement  hereunder will be  applied to
offset Overproduction chronologically in the order of accrual.

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

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

7.5.2 For Overproduction  processed for the account of the Overproduced Party at
a gas  processing  plant for the  extraction  of liquid  hydrocarbons,  the full
quantity of the Overproduction will be valued for purposes of cash settlement at
the prices  received by the  Overproduced  Party for the sale of the residue gas
and the sale of liquid hydrocarbons attributable to the Overproduction.

7.6   To the extent the Overproduced Party did not sell all Overproduction under
an Arm's Length  Agreement,  the cash  settlement  will be based on the weighted
average  price  received  by the  Overproduced  Party  for any gas sold from the
Balancing  Area under Arm's  Length  Agreements  during the months to which such
Overproduction  is  attributed.  In the event that no sales under  Arm's  Length
Agreements  were made during any such month,  the cash settlement for such month
will be based on the spot sales prices  published for the applicable  geographic
area in the first  issue of Inside  FERC's  Gas  Market  Report or  Natural  Gas
Intelligence  for such month.  Should  these  publications  cease to exist,  the
Parties shall mutually agree to a pricing bulletin.

7.7   Interest  compounded  at  the  rate  as  specified  in  COPAS,  Accounting
Procedures,  Exhibit "C" of the Operating  Agreement to which this Gas Balancing
Agreement is attached or the maximum  lawful rate of interest  applicable to the
Balancing Area, whichever is less, will accrue for all amounts due under Section
7.1,  beginning  the first day  following  the date  payment is due  pursuant to
Section 7.3.  Such interest  shall be borne by the Operator or any  Overproduced
Party in the proportion  that their  respective  delays beyond the deadlines set
out in Sections 7.2 and 7.3 contributed to the accrual of the interest.

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

8.    OPERATING COSTS

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

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<PAGE>

9.    LIQUIDS

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

10.   AUDIT RIGHTS

      Notwithstanding  any  provision in this  Agreement or any other  agreement
between the Parties  hereto,  and further  notwithstanding  any  termination  or
cancellation  of this  Agreement,  for a period of two (2) years from the end of
the calendar year in which any  information to be furnished under Section 5 or 7
hereof is  supplied,  any Party shall have the right to audit the records of any
other  Party  regarding  quantity,  including  but not  limited  to  information
regarding Btu-content. Any Underproduced Party shall have the right for a period
of two (2) years from the end of the calendar year in which any cash  settlement
is received pursuant to Section 7 to audit the records of any Overproduced Party
as to all matters  concerning  values,  including but not limited to information
regarding  prices and disposition of Gas from the Balancing Area. Any such audit
shall be conducted at the expense of the Party or Parties  desiring  such audit,
and shall be conducted, after reasonable notice, during normal business hours in
the office of the Party  whose  records  are being  audited.  Each Party  hereto
agrees to  maintain  records as to the volumes and prices of Gas sold each month
and the volumes of Gas used in its own  operations,  along with the Royalty paid
on any such Gas used by a Party in its own operations. The audit rights provided
for in this Section 10 shall be in addition to those provided for in Section 5.2
of this Agreement.

11.   MISCELLANEOUS

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

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

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

11.4  This  Agreement  shall  remain in full force and effect for as long as the
Operating  Agreement  shall remain in force and effect as to the Balancing Area,
and thereafter  until the Gas accounts  between the Parties are settled in full,
and shall inure to the benefit of and be binding  upon the Parties  hereto,  and
their respective heirs,  successors,  legal representatives and assigns, if any.
The Parties  hereto agree to give notice of the  existence of this  Agreement to
any  successor  in  interest  of any such  Party  and to  provide  that any such
successor shall be bound by this Agreement,  and shall further make any transfer
of any interest subject to the Operating  Agreement,  or any part thereof,  also
subject to the terms of this Agreement.

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

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<PAGE>

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

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

11.8  In the event federal tax regulations require a uniform method of computing
taxable income by all Parties, the Parties agree to negotiate in good faith upon
such a uniform  method that is in accordance  with the  requirement  of said tax
regulations.

12.   ASSIGNMENT AND RIGHTS UPON ASSIGNMENT

12.1  Subject  to  the  provisions  of  Sections  12.2  and  12.3  hereof,   and
notwithstanding  anything in this Agreement or in the Operating Agreement to the
contrary,  if any Party assigns (including any sale, exchange or other transfer)
any of its  working  interest  in the  Balancing  Area  when  such  Party  is an
Underproduced  or  Overproduced  Party,  the assignment or other act of transfer
shall, insofar as the Parties hereto are concerned,  include all interest of the
assigning or transferring Party in the Gas, all rights to receive or obligations
to provide or take Makeup Gas and all rights to receive or  obligations  to make
any monetary  payment which may  ultimately  be due  hereunder,  as  applicable.
Operator  and each of the  other  Parties  hereto  shall  thereafter  treat  the
assignment  accordingly,  and the  assigning  or  transferring  Party shall look
solely  to its  assignee  or other  transferee  for any  interest  in the Gas or
monetary  payment that such Party may have or to which it may be  entitled,  and
shall  cause  its  assignee  or  other  transferee  to  assume  its  obligations
hereunder.

12.2  Notwithstanding  anything in this Agreement  (including but not limited to
the  provisions  of Section  12.1 hereof) or in the  Operating  Agreement to the
contrary,  and subject to the provisions of Section 12.3 hereof, in the event an
Overproduced Party intends to sell,  assign,  exchange or otherwise transfer any
of its interest in a Balancing  Area,  such  Overproduced  Party shall notify in
writing  the  other  working  interest  owners  who are  Parties  hereto in such
Balancing  Area of such fact at least  sixty  (60)  days  prior to  closing  the
transaction.  Such notice shall contain a gas settlement statement detailing the
quantity of Overproduction  owed by the Overproduced Party to each Underproduced
Party  and the  value of such  Overproduction,  calculated  in  accordance  with
Sections 7.4 through 7.6 hereof.  Thereafter, any Underproduced Party may demand
from such Overproduced  Party in writing,  within thirty (30) days after receipt
of the  Overproduced  Party's notice,  a cash settlement of its  Underproduction
from the Balancing  Area.  The Operator shall be notified of any such demand and
of any cash settlement  pursuant to this Section 12, and the  Overproduction and
Underproduction of each Party shall be adjusted accordingly. Any cash settlement
pursuant  to this  Section  12  shall be paid by the  Overproduced  Party at the
closing of the  transaction  in which the  Overproduced  Party  sells,  assigns,
exchanges or otherwise  transfers  its interest in a Balancing  Area on the same
basis as otherwise set forth in Sections 7.3 through 7.6 hereof,  and shall bear
interest at the rate set forth in Section 7.7  hereof,  beginning  the first day
following the closing of the Overproduced Party's sale, assignment,  exchange or
transfer  of its  interest  in the  Balancing  Area for any  amounts  not  paid.
Provided,  however,  if any  Underproduced  Party  does not so demand  such cash
settlement of its  Underproduction  from the Balancing Area, such  Underproduced
Party shall look  exclusively to the assignee or other  successor in interest of
the  Overproduced  Party giving notice  hereunder for the  satisfaction  of such
Underproduced  Party's  Underproduction  in  accordance  with the  provisions of
Section 12.1 hereof.

12.3  The provisions of this Section 12 shall not be applicable in the event any
Party   mortgages   its   interest  or  disposes  of  its  interest  by  merger,
reorganization,  consolidation or sale of  substantially  all of its assets to a
subsidiary  or  parent  company,  or to any  company  in  which  any  parent  or
subsidiary of such Party owns a majority of the stock of such company.

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<PAGE>

                                   EXHIBIT "F"

    Attached to and made a part of that certain Offshore Operating Agreement
   dated June 1, 2004, by and between BHP Billiton Petroleum (Americas) Inc.,
  Dominion Exploration & Production, Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

                        MEMORANDUM OF OPERATING AGREEMENT
                             AND FINANCING STATEMENT
                                   (Louisiana)

To be filed in the  conveyance  records  and in the  mortgage  records  and as a
non-standard financing statement in accordance with Paragraph 11.0 herein.

1.0   This Memorandum of Operating Agreement and Financing Statement (Louisiana)
(this  "Memorandum")  is  effective  as of the  effective  date of the  Offshore
Operating  Agreement  referred to in Paragraph  2.0 below and is executed by BHP
Billiton  Petroleum  (Americas) Inc, (the "Operator"),  whose mailing address is
1360 Post Oak Blvd., Suite 150, Houston, TX 77056-3020,  Dominion  Exploration &
Production,   Inc.,  The  Houston  Exploration  Company,  and  Ridgewood  Energy
Corporation (the "Non-Operators").

2.0   The Operator and the  Non-Operators  are parties to that certain  Offshore
Operating  Agreement dated  effective June 1, 2004 (the  "Operating  Agreement")
providing  for the  development  and  production  of crude oil,  natural gas and
associated substances from the lands and oil and gas leases described in Exhibit
"A" of the Operating  Agreement (therein and herein called the "Contract Area"),
and described  more  particularly  on  Attachment  "1" to this  Memorandum,  and
designating BHP Billiton Petroleum  (Americas) Inc. as the Operator,  to conduct
such  operations for itself and the  Non-Operators.  Reference is made hereby to
the  Operating  Agreement  for all purposes,  and its terms and  provisions  are
incorporated  herein by this  reference  to the same extent as if the  Operating
Agreement were reproduced herein. Capitalized terms not otherwise defined herein
are defined and shall have the same meaning herein as set forth in the Operating
Agreement.

3.0   The  Operator  hereby  certifies  that  a true  and  correct  copy  of the
Operating  Agreement is on file and is available for inspection by third parties
at the offices of the Operator at the address set forth in this Memorandum.

4.0   Among other provisions,  the Operating  Agreement (i) provides for certain
liens  and  security  interests  to  secure  payment  by the  Parties  of  their
respective  share of  costs  and  performance  of other  obligations  under  the
Operating  Agreement  and contains a power of sale,  (ii) contains an Accounting
Procedure,  and (iii) includes  non-consent clauses which establish that Parties
who elect  not to  participate  in  certain  operations  shall be deemed to have
relinquished their interest in production until the carrying  consenting Parties
recover their costs of such operations plus a specified amount, or in some cases
to permanently forfeit their interest in all or

                                       100
<PAGE>

part  of  the  Lease.   Certain  provisions  of  Article  8.6  (Security  Rights
(Louisiana)) of the Operating Agreement are set forth as follows:

First Lien in Favor of the Operator. For valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and agreements  contained in this  Agreement,  each  Non-Operator,  to
secure the  performance of and payment by such  Non-Operator  to the Operator of
all obligations and indebtedness, whether now owed or hereafter arising, of such
Non-Operator to the Operator pursuant to this Agreement,  grants to the Operator
a lien upon the following described property:

(a)   all of its rights, titles, and interests,  including,  without limitation,
any Working  Interest,  whether now owned and existing or hereafter  acquired or
arising,  in and to (1) the  Lease,  subject  to any  surface  acreage  or depth
limitations set forth in Attachment "1", attached hereto and incorporated herein
for all purposes,  (2) all fixtures on or used or obtained for use in connection
with the Lease or the Contract Area, and (3) all other real property susceptible
of the lien granted hereby located within the Contract Area;

(b)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising, in and to any rights-of-way or other documents
described in Attachment" 1" and all renewals and extensions  thereof and all new
oil, gas and mineral leases,  rights-of-way,  or other documents (i) in which it
acquires  an  interest  after  the  termination  or  expiration  of  any  Lease,
right-of-way, or other document described in Attachment "1", and (ii) that cover
all or any part of the property  described in and covered by such  terminated or
expired Lease,  right-of-way,  or other document, to the extent, and only to the
extent, such new oil, gas and mineral leases, rights-of-way,  or other documents
may cover the property that was  described in and covered by such  terminated or
expired Lease, right-or-way or other document; and

(c)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter  acquired or arising,  in and to any of the oil,  gas, and minerals
in,  on,  or  under  the  Contract  Area,  including,  without  limitation,  all
contractual rights,  operating rights,  leasehold interests,  working interests,
royalty  interests,  overriding  royalty  interests,  non-participating  royalty
interests, mineral interests, production payments, net profits interests, or any
other  interest  measured by or payable out of  production of oil, gas, or other
minerals from the Lease or production attributable to the Contract Area (as such
interests  may be enlarged by the discharge of any payments out of production or
by the removal of any charges or encumbrances).

Security  Interest in Favor of the  Operator.  For valuable  consideration,  the
receipt and sufficiency of which are hereby  acknowledged,  and in consideration
of the  mutual  covenants  and  agreements  contained  in this  Agreement,  each
Non-Operator,  to secure the performance of and payment by such Non-Operators to
the Operator of all obligations and indebtedness,  whether now owed or hereafter
arising, of such Non-Operators to the Operator pursuant to this Agreement,  each
such Non-Operator  grants to the Operator a continuing  security interest in and
to all of its rights, titles, interests, claims, general intangibles,  proceeds,
and products thereof,  whether now existing or hereafter acquired or arising, in
and to (a) all oil, gas, and other  minerals  produced from the offshore  blocks
covered by the Lease or the Contract  Area or  attributable  to the Lease or the
Contract Area when produced;  (b) all accounts receivable accruing or arising as
a result of the sale of such oil, gas, and other  minerals  (including,  without
limitation,  accounts  arising from gas  imbalances or from the sale of oil, gas
and other minerals at the wellhead); (c)

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<PAGE>

all cash or other  proceeds from the sale of such oil,  gas, and other  minerals
once  produced;  and (d) all  platforms,  wells,  facilities,  fixtures,  tools,
tubular goods, other personal  property,  whether now or hereafter placed on the
offshore  blocks covered by the Lease or the Contract Area or maintained or used
or obtained for use in connection with the ownership, use or exploitation of the
Lease or the Contract Area, and other surface and  sub-surface  equipment of any
kind or character  located on or attributable to the Lease or the Contract Area,
and the cash or other proceeds realized from the sale, transfer,  disposition or
conversion  thereof,  excluding,  however,  any  platforms,  wells,  facilities,
fixtures,  equipment or property  located on the Lease or the Contract  Area and
used  exclusively  in connection  with the  ownership,  use or  exploitation  of
acreage or depths not included  within the Lease or Contract  Area. The interest
of the Non-Operators in and to the oil, gas, and other minerals produced from or
attributable to the Lease when extracted and the accounts receivable accruing or
arising as the result of the sale  thereof  shall be financed at the wellhead of
the well or wells  located  on the Lease or the  Contract  Area.  To the  extent
permissible  under  applicable  law,  the  security  interest  granted  by  each
Non-Operator  hereunder  covers:  (a)  all  substitutions,   replacements,   and
accessions  to the  property  of  such  Non-Operators  described  herein  and is
intended to cover all of the rights,  titles and interests of such Non-Operators
in all personal  property now or  hereafter  located upon or used in  connection
with the Contract Area, whether tangible or intangible, except for property used
exclusively  in  connection  with acreage or depths not included in the Lease or
Contract  Area as aforesaid;  (b) all rights under any gas balancing  agreement,
farmout rights,  option  farmout  rights,  acreage and cash  contributions,  and
conversion  rights  of such  Non-Operator  in  connection  with the Lease or the
Contract Area, or the oil, gas and other minerals  produced from or attributable
to the Lease or the Contract  Area,  whether now owned and existing or hereafter
acquired or arising, including, without limitation, all interests of each of the
Non-Operators  in  any  partnership,   tax  partnership,   limited  partnership,
association,  joint venture, or other entity or enterprise to the extent that it
holds,  owns, or controls any interest in the Contract Area; and (c) all rights,
claims,  general  intangibles,  and proceeds,  whether now existing or hereafter
acquired, in and to the contracts, agreements, permits, licenses, rights-of-way,
and similar rights and privileges that relate to or are appurtenant to the Lease
or the Contract Area, including the following:

(1)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising,  in, to, and under or derived from any present
or future operating, farmout, bidding, pooling, unitization, and communitization
agreements,  assignments,  and subleases, whether or not described in Attachment
"1", to the extent, and only to the extent,  that such agreements,  assignments,
and subleases cover or include any of its rights, titles, and interests, whether
now owned and  existing or hereafter  acquired or arising,  in and to all or any
portion of the Lease or the  Contract  Area,  and all units  created by any such
pooling,  unitization, and communitization agreements and all units formed under
orders, regulations, rules, or other official acts of any governmental authority
having jurisdiction,  to the extent and only to the extent that such units cover
or  include  and are  attributable  to all or any  portion  of the  Lease or the
Contract Area;

(2)   all of its rights,  titles, and interests,  whether now owned and existing
or  hereafter  acquired  or  arising,  in,  to,  and under or  derived  from all
presently existing and future advance payment  agreements,  oil, casinghead gas,
and gas sales,  exchange,  and processing  contracts and agreements,  including,
without  limitation,  those  contracts  and  agreements  that are  described  on
Attachment  "1", to the  extent,  and only to the extent,  those  contracts  and
agreements  cover or include  all or any  portion  of the Lease or the  Contract
Area; and

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<PAGE>

(3)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising, in, to, and under or derived from all existing
and future permits, licenses,  rights-of-way,  and similar rights and privileges
that relate to or are appurtenant to the Lease or the Contract Area.

              Obligations and  Indebtedness  of  Non-Operators  Secured.  To the
extent  permissible  under  applicable  law,  the liens and  security  interests
granted by each  Non-Operator in this Agreement shall secure (a) the performance
of and payment by such  Non-Operator  to the Operator of all of its  obligations
and  indebtedness,  whether  now  owed or  hereafter  arising  pursuant  to this
Agreement,  and (b) the payment of all expenses incurred by the Operator and the
Participating  Parties for (or on account of) any and all  operations  conducted
pursuant to this Agreement ("Costs") and other expenses properly charged to such
Non-Operator,  together with (1) interest on such indebtedness, Costs, and other
expenses at the rate set forth in Exhibit "C" attached  hereto (the  "Accounting
Procedure")  or the maximum  rate allowed by law,  whichever is the lesser,  (2)
reasonable  attorneys'  fees, (3) court costs,  and (4) other  directly  related
collection costs. If any Non-Operator does not pay such Costs and other expenses
when due, the Operator shall have the  additional  right to notify the purchaser
or purchasers of the defaulting Non-Operator's production and collect such Costs
and  other  expenses  out  of the  proceeds  from  the  sale  of the  defaulting
Non-Operator's  share of  production  until the amount  owed has been paid.  The
Operator  shall have the right to offset the amount owed  against  the  proceeds
from  the  sale of such  defaulting  Non-Operator's  share  of  production.  Any
purchaser  of such  production  shall  be  entitled  to  rely on the  Operator's
statement  concerning  the  amount  of  Costs  and  other  expenses  owed by the
defaulting  Non-Operator and payment made to the Operator by any purchaser shall
be  binding  and  conclusive  as  between  such  purchaser  and such  defaulting
Non-Operator.

First  Lien in Favor  of the  Non-Operators.  For  valuable  consideration,  the
receipt and sufficiency of which are hereby  acknowledged,  and in consideration
of the mutual  covenants and agreements  contained in this Agreement,  to secure
the performance of and payment by the Operator to each of the  Non-Operators  of
all obligations and indebtedness,  whether now owed or hereafter arising, of the
Operator to such Non-Operators  pursuant to this Agreement,  the Operator grants
to each such Non-Operator a lien upon the following described property:

(a)   all of its rights, titles, and interests,  including,  without limitation,
any Working  Interest,  whether now owned and existing or hereafter  acquired or
arising,  in and to (1) the  Lease,  subject  to any  surface  acreage  or depth
limitations set forth in Attachment "1", attached hereto and incorporated herein
for all purposes,  (2) all fixtures on or used or obtained for use in connection
with the Lease or the Contract Area, and (3) all other real property susceptible
of the lien granted hereby located within the Contract Area;

(b)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising, in and to any rights-of-way or other documents
described in Attachment "1" and all renewals and extensions  thereof and all new
oil, gas and mineral leases,  rights-of-way,  or other documents (1) in which it
acquires  an  interest  after  the  termination  or  expiration  of  any  Lease,
right-of-way,  or other document described in Attachment "1", and (2) that cover
all or any part of the property  described in and covered by such  terminated or
expired Lease,  right-of-way,  or other document, to the extent, and only to the
extent, such new oil, gas and mineral leases,

                                       103
<PAGE>

rights-of-way,  or other  documents may cover the property that was described in
and covered by such terminated or expired Lease, right-of-way or other document;
and

(c)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter  acquired or arising,  in and to any of the oil,  gas, and minerals
in,  on,  or  under  the  Contract  Area,  including,  without  limitation,  all
contractual rights,  operating rights,  leasehold interests,  working interests,
royalty  interests,  overriding  royalty  interests,  non-participating  royalty
interests, mineral interests, production payments, net profits interests, or any
other  interest  measured by or payable out of  production of oil, gas, or other
minerals from the Lease or production attributable to the Contract Area (as such
interests  may be enlarged by the discharge of any payments out of production or
by the removal of any charges or encumbrances).

              Security  Interest  in Favor of the  Non-Operators.  For  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in  consideration  of the mutual  covenants  and  agreements  contained  in this
Agreement,  to secure the  performance of and payment by the Operator to each of
the  Non-Operators  of all  obligations  and  indebtedness,  whether now owed or
hereafter  arising,  of the  Operator  to such  Non-Operators  pursuant  to this
Agreement,  the  Operator  grants  to each  of the  Non-Operators  a  continuing
security  interest  in and to all of  its  rights,  titles,  interests,  claims,
general  intangibles,  proceeds,  and products thereof,  whether now existing or
hereafter  acquired or arising,  in and to (a) all oil, gas, and other  minerals
produced from the offshore  blocks  covered by the Lease or the Contract Area or
attributable  to the Lease or the Contract Area when produced;  (b) all accounts
receivable  accruing  or arising as a result of the sale of such oil,  gas,  and
other  minerals  (including,  without  limitation,  accounts  arising  from  gas
imbalances or from the sale of oil, gas and other minerals at the wellhead); (c)
all cash or other  proceeds from the sale of such oil,  gas, and other  minerals
once  produced;  and (d) all  platforms,  wells,  facilities,  fixtures,  tools,
tubular goods, other personal  property,  whether now or hereafter placed on the
offshore  blocks covered by the Lease or the Contract Area or maintained or used
or obtained for use in connection with the ownership, use or exploitation of the
Lease or the Contract Area, and other surface and  sub-surface  equipment of any
kind or character  located on or attributable to the Lease or the Contract Area,
and the cash or other proceeds realized from the sale, transfer,  disposition or
conversion  thereof,  excluding,  however,  any  platforms,  wells,  facilities,
fixtures,  equipment or property  located on the Lease or the Contract  Area and
used  exclusively  in connection  with the  ownership,  use or  exploitation  of
acreage or depths not included  within the Lease or Contract  Area. The interest
of the Operator in and to the oil,  gas,  and other  minerals  produced  from or
attributable to the Lease when extracted and the accounts receivable accruing or
arising as the result of the sale  thereof  shall be financed at the wellhead of
the well or wells  located  on the Lease or the  Contract  Area.  To the  extent
permissible  under applicable law, the security interest granted by the Operator
hereunder covers:  (a) all  substitutions,  replacements,  and accessions to the
property of the  Operator  described  herein and is intended to cover all of the
rights,  titles and  interests of the  Operator in all personal  property now or
hereafter  located upon or used in connection  with the Contract  Area,  whether
tangible or intangible,  except for property used exclusively in connection with
acreage or depths not included in the Lease or Contract Area as  aforesaid;  (b)
all rights under any gas balancing  agreement,  farmout  rights,  option farmout
rights, acreage and cash contributions, and conversion rights of the Operator in
connection  with the  Lease or the  Contract  Area,  or the oil,  gas and  other
minerals  produced  from or  attributable  to the  Lease or the  Contract  Area,
whether now owned and  existing  or  hereafter  acquired or arising,  including,
without  limitation,  all  interests  of the  Operator in any  partnership,  tax
partnership, limited partnership,

                                       104
<PAGE>

association,  joint venture, or other entity or enterprise to the extent that it
holds,  owns, or controls any interest in the Contract Area; and (c) all rights,
claims,  general  intangibles,  and proceeds,  whether now existing or hereafter
acquired or arising,  in and to the contracts,  agreements,  permits,  licenses,
rights-of-way,  and  similar  rights  and  privileges  that  relate  to  or  are
appurtenant to the Lease or the Contract Area, including the following:

(1)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising,  in, to, and under or derived from any present
or future operating, farmout, bidding, pooling, unitization, and communitization
agreements,  assignments,  and subleases, whether or not described in Attachment
"1", to the extent, and only to the extent,  that such agreements,  assignments,
and subleases cover or include any of its rights, titles, and interests, whether
now owned and  existing or hereafter  acquired or arising,  in and to all or any
portion of the Lease or the  Contract  Area,  and all units  created by any such
pooling,  unitization, and communitization agreements and all units formed under
orders, regulations, rules, or other official acts of any governmental authority
having jurisdiction,  to the extent and only to the extent that such units cover
or  include  and are  attributable  to all or any  portion  of the  Lease or the
Contract Area;

(2)   all of its rights,  titles, and interests,  whether now owned and existing
or  hereafter  acquired  or  arising,  in,  to,  and under or  derived  from all
presently existing and future advance payment  agreements,  oil, casinghead gas,
and gas sales,  exchange,  and processing  contracts and agreements,  including,
without  limitation,  those  contracts  and  agreements  that are  described  on
Attachment  "1", to the  extent,  and only to the extent,  those  contracts  and
agreements  cover or include  all or any  portion  of the Lease or the  Contract
Area; and

(3)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising, in, to, and under or derived from all existing
and future permits, licenses,  rights-of-way,  and similar rights and privileges
that relate to or are appurtenant to the Lease or the Contract Area.

              Obligations  and  Indebtedness  of the  Operator  Secured.  To the
extent  permissible  under  applicable  law,  the liens and  security  interests
granted by the Operator in this  Agreement  shall secure (a) the  performance of
and  payment  by  the  Operator  to  each  of  the  Non-Operators  of all of its
obligations and indebtedness,  whether now owed or hereafter arising pursuant to
this  Agreement,  and (b) the payment of all Costs and other  expenses  properly
charged to the Operator, together with (1) interest on such indebtedness, Costs,
and other  expenses  at the rate set forth in the  Accounting  Procedure  or the
maximum rate allowed by law, whichever is the lesser, (2) reasonable  attorneys'
fees, (3) court costs, and (4) other directly related  collection  costs. If the
Operator does not pay such Costs and other  expenses when due, any  Non-Operator
shall have the  additional  right to notify the  purchaser or  purchasers of the
defaulting  Operator's  production and collect such Costs and other expenses out
of the proceeds from the sale of the defaulting  Operator's  share of production
until the amount owed has been paid.  The  Non-Operator  shall have the right to
offset the amount owed  against the  proceeds  from the sale of such  defaulting
Operator's  share of  production.  Any  purchaser  of such  production  shall be
entitled to rely on the Operator's  statement concerning the amount of Costs and
other  expenses  owed  by  the  defaulting  Operator  and  payment  made  to the
Non-Operator  by any purchaser  shall be binding and  conclusive as between such
purchaser and such defaulting Operator.

                                       105
<PAGE>

              Priority;  Successors.  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 security interest,  and
each Party  hereby  agrees to maintain  the  priority of said lien and  security
interest against all persons  acquiring an interest in the Lease or the Contract
Area by, through or under such Party.  All Parties  acquiring an interest in the
Lease or the Contract Area, whether by assignment,  merger, mortgage,  operation
of law,  or  otherwise,  shall be deemed to have  taken  subject to the lien and
security interest hereunder as to all obligations  attributable to such interest
hereunder whether or not such obligations arise before or after such interest is
acquired.

              Waiver.  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,  and any available  right to
require a marshaling of assets.

              Other Lien Rights.  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 adjacent to the Contract Area, or that is otherwise applicable,  to
enforce  the  obligations  and  indebtedness  of each Party  hereunder.  Without
limiting the generality of the foregoing,  to the extent permitted by applicable
law,  each of the  Non-Operators  agree that the Operator may invoice or utilize
the mechanics' or  materialmen's  lien law of the state adjacent to the Contract
Area,  or that is  otherwise  applicable,  in order to secure the payment to the
Operator of any sum due hereunder for services  performed or materials  supplied
by the Operator.

              Power of Sale.  To the extent  permitted by  applicable  law, each
Party hereby grants to the other Parties a power of sale ("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  these  Power of Sale
provisions  and in the manner  provided  by  applicable  law or  otherwise  in a
commercially reasonable manner and upon reasonable notice,  including reasonable
notice of intent to  foreclose  said lien or security  right by exercise of such
Power of Sale of not less than thirty (30) days.  Subject to the  provisions  of
this  Agreement,  if a Party  should  elect to  foreclose  the lien (the "Lien")
granted to such Party  (the  "Foreclosing  Party")  pursuant  to this  Agreement
against the interests in the leasehold  estate of the Lease or any future leases
comprising  the Contract  Area ("Real  Property  Interest")  of a Party that has
failed to pay any liquidated and undisputed  portion of its payment  obligations
hereunder (the "Defaulting  Party"), the Parties hereby authorize a non-judicial
sale under the laws of the State of Louisiana. The Foreclosing Party's Corporate
Secretary is hereby  appointed as Trustee for such purpose  (whether the Trustee
named herein or appointed as a substitute or successor  Trustee  pursuant to the
terms of this  Agreement,  the "Trustee").  The Foreclosing  Party may appoint a
substitute or successor  Trustee in the event the Trustee above named resigns or
is unable for any reason to serve, or if the  Foreclosing  Party should elect at
any time (with or without cause) to remove the Trustee.  Upon such default,  and
upon  request by the  Foreclosing  Party to the  Trustee to  foreclose  the Lien
pursuant to this Power of Sale, the Trustee shall, at least twenty-one (21) days
preceding the date of  non-judicial  sale,  serve written notice of the proposed
sale by certified mail on the Defaulting  Party  according to the records of the
Foreclosing  Party.  Service of such notice shall be deemed  completed  upon the
deposit in a post office or other official depository under the care and custody
of the United  States  Postal  Service of such  notice  enclosed  in a post-paid
wrapper

                                       106
<PAGE>

properly  addressed  to the  Defaulting  Party,  together  with each other Party
obligated to pay the obligations secured by the Lien, at the most recent address
or addresses shown on the records of the Foreclosing Party. The affidavit of any
person  having  knowledge  of the  facts to the  effect  that such  service  was
completed  shall be prima facie  evidence  of the facts of  service.  After such
notice,  the Trustee shall proceed to sell all of the Real Property  Interest of
the  Defaulting  Party in the  Contract  Area at public  auction to the  highest
bidder for cash after  having  given notice of the time and place of sale and in
the manner and after the  advertisement of such sale as required by the statutes
of the State of  Louisiana  in making sales of real estate under deeds of trust.
Sale of a part of the Defaulting  Party's Real Property Interest in the Contract
Area shall not exhaust the Power of Sale, and subsequent  sales may be made from
time to time until all of such Real Property Interest is sold or the obligations
of the Defaulting  Party secured by the Lien are paid in full. The Trustee shall
have  the  authority  to  appoint  an  attorney  in  fact to act as  Trustee  in
conducting the foreclosure  sale and executing a deed to the  purchasers.  It is
further agreed that the Trustee may sell the full Real Property  Interest of the
Defaulting Party in the Contract Area or may limit such sale to such portions of
the Real Property  Interest of the Defaulting  Party in the Contract Area as the
Trustee shall deem expedient.  After the completion of any sale pursuant hereto,
the Trustee shall make,  execute,  and deliver to the purchaser or purchasers of
the Real Property Interest of the Defaulting Party in the Contract Area good and
sufficient  deeds,  assignments,  or other  lawful  conveyances  to vest in such
purchaser  or  purchasers  title to such Real  Property  Interest  in fee simple
together with all personal property used or obtained in connection therewith and
together  with all of the  proceeds  of  production  attributable  thereto on or
subsequent to the effective  date of such sale.  From the proceeds of such sale,
the Trustee shall make disbursements in the following order:

(a)   pay all charges, costs, and expenses of executing these provisions;

(b)   pay any sums due and paid by the Trustee for taxes in the  preservation of
the security;

(c)   pay to the  Foreclosing  Party up to the amount  necessary  to satisfy the
Defaulting Party's obligations and indebtedness hereunder; and

      (d)     the balance, if any, shall be paid to the Defaulting Party.

      It is  agreed  that  such  sale  shall  be a  perpetual  bar  against  the
Defaulting Party and its heirs, successors, assigns, legal representatives,  and
all other persons claiming under him, them, or any of them. It is further agreed
that the Trustee,  or any holder or holders of the  obligation of the Defaulting
Party, or the Foreclosing  Party shall have the right to become the purchaser or
purchasers at such sale if such Party is the highest bidder or bidders, in which
event the bid or bids may be credited upon the  indebtedness  of the  Defaulting
Party.  It is  stipulated  and agreed  that,  in case of any sale  hereunder  by
Trustee or its successor,  all  prerequisites  of such sale shall be presumed to
have been  performed;  and any conveyance  given hereunder and all statements of
fact or recitals therein made as to (a) the nonpayment of money secured, (b) any
default under the terms hereof,  (c) the request by the Foreclosing Party to the
Trustee  to  foreclose  the Lien,  (d) the  proper  and due  appointment  of any
successor or substitute  Trustee,  (e) the  advertisement of sale, (f) the time,
place,  and terms of sale,  or (g) any other  preliminary  act or thing shall be
taken in all courts of law and equity as prima facie  evidence that the facts so
stated  are true.  If the  Foreclosing  Party  consists  of more than one Party,
actions and directions of the Foreclosing

                                       107
<PAGE>

Party under this Power of Sale shall  require  the  approval of the holders of a
majority in amount of the Defaulting  Party's  liquidated and undisputed payment
obligations which are then due.

5.0   This Memorandum is to be filed or recorded, as the case may be, in (a) the
conveyance  records of the parish or parishes  adjacent to the  offshore  blocks
covered by the Lease or contained  within the Contract Area pursuant to La. R.S.
9:2731 et seq., (b) the mortgage  records or other  appropriate  records of such
parish or parishes,  and (c) the appropriate  Louisiana Commercial  Laws-Secured
Transactions  records.  This Memorandum  (including a carbon,  photographic,  or
other  reproduction  thereof and hereof) shall constitute a non-standard form of
financing  statement  under  the  terms  of  Louisiana  Commercial  Laws-Secured
Transactions and, as such, for the purposes of the security interest in favor of
the Operator, may be filed for record in the office of the Secretary of State of
the  State of  Louisiana,  with the  Operator  being the  secured  party and the
Non-Operator  being the debtor with respect to such filing.  For the purposes of
the security interest in favor of the Non-Operator, this Memorandum (including a
carbon, photographic,  or other reproduction thereof and hereof) may be filed in
such office as a non-standard form of financing statement with the  Non-Operator
being the secured  party and the Operator  being the debtor with respect to such
filing.  With  respect to such filing as a  financing  statement,  the  security
interests  created  in the  Operating  Agreement  cover  minerals  or  the  like
(including  oil and gas) and  accounts  pursuant to La. R.S.  9:5131 et seq. and
9:5136 et seq.  In  addition,  this  Memorandum  also  constitutes  a  financing
statement filed as a fixture filing. All parties to the Operating  Agreement are
identified on Attachment "1" hereto.

6.0   If payment of any  indebtedness  created under the Operating  Agreement is
not made when due under the Operating Agreement, in addition to any other remedy
afforded by law, each Party to the Operating Agreement and any successor to such
Party by assignment,  operation of law, or otherwise,  shall have, and is hereby
given and  vested  with,  the  power and  authority  to  foreclose  the lien and
security  interest  established  in its favor in the Operating  Agreement in the
manner  provided by law or therein and to exercise all rights of a secured party
under Louisiana Commercial Laws-Secured Transactions..

7.0   Upon  expiration of the Operating  Agreement and the  satisfaction  of all
obligations and indebtedness established thereunder, on behalf of all Parties to
the Operating  Agreement,  the Operator and the  Non-Operators,  as appropriate,
shall file of record an appropriate  release and termination of all security and
other rights created under the Operating Agreement and this Memorandum. Upon the
filing of such release and termination instrument,  all benefits and obligations
under this  Memorandum  shall  terminate as to all Parties who have  executed or
ratified this Memorandum.  In addition,  at any time prior to the filing of such
release and termination  instrument,  the Operator and the  Non-Operators  shall
have the right to file a continuation statement pursuant to Louisiana Commercial
Laws-Secured Transactions with respect to any financing statement filed in their
favor under the terms of this Memorandum.

8.0   It is understood and agreed by the Parties hereto that if any part,  term,
or  provision  of this  Memorandum  is held by the  courts to be  illegal  or in
conflict  with any law of the state where made,  the  validity of the  remaining
portions or provisions shall not be affected,  and the rights and obligations of
the Parties shall be construed and enforced as if the Memorandum did not contain
the particular part, term or provision held to be invalid.

                                       108
<PAGE>

9.0   This  Memorandum  shall be binding  upon and shall inure to the benefit of
the Parties hereto and to their respective legal representatives, successors and
permitted assigns.  The failure of one or more persons owning an interest in the
Contract  Area to execute  this  Memorandum  shall not in any manner  affect the
validity of the Memorandum as to those persons who execute this Memorandum.

10.0  A Party having an interest in the Contract Area may ratify this Memorandum
by  execution  and  delivery of an  instrument  of  ratification,  adopting  and
entering into this Memorandum,  and such ratification shall have the same effect
as if the ratifying Party had executed this Memorandum or a counterpart thereof.
By execution or ratification of this  Memorandum,  such Party hereby consents to
its  ratification  and  adoption  by any Party who  acquires  or may acquire any
interest in the Contract Area.

11.0  This  Memorandum  may be executed or ratified in one or more  counterparts
and all of the executed or ratified  counterparts shall together  constitute one
instrument.  For  purposes of  recording,  in each of the records  described  in
Paragraph 5 above, duplicate copies of this Memorandum with individual signature
pages  attached  thereto  may be filed of record,  one copy to be indexed in the
name of the Operator,  as grantor, and one copy to be indexed in the name of the
Non-Operators,  as  grantors,  and  duplicate  copies  of this  Memorandum  with
individual  signature  pages  attached  thereto may be filed in the  appropriate
Louisiana  Commercial  Laws-Secured  Transactions  records,  one  filing for the
Operator, as secured party, and another filing for the Non-Operators, as secured
party.  The  respective  addresses of the  Operator,  as both secured  Party and
debtor,  and the  Non-Operators,  as both debtors and secured Parties,  at which
information  with respect to the  security  interests  created in the  Operating
Agreement may be obtained, are set forth in Paragraph 1.0 of this Memorandum.

12.0  The Operator and the  Non-Operators  hereby agree to execute,  acknowledge
and deliver or cause to be executed,  acknowledged and delivered any instrument,
or take any action  necessary  or  appropriate  to  effectuate  the terms of the
Operating  Agreement or any Exhibit,  instrument,  certificate or other document
pursuant thereto.

13.0  Whenever the context requires,  reference herein made to the single number
shall be  understood  to include the plural,  and the plural  shall  likewise be
understood to include the singular,  and specific  enumeration shall not exclude
the general, but shall be construed as cumulative.

      EXECUTED on the dates set forth below each signature but effective as of
the __________ day of ____________, 2004.

OPERATOR

                                       109
<PAGE>

BHP BILLITON PETROLEUM (AMERICAS) INC.

By:_____________________________

Date:___________________________

NON-OPERATORS:

DOMINION EXPLORATION & PRODUCTION, INC.

By:_____________________________

Date:___________________________

THE HOUSTON EXPLORATION COMPANY

By:_____________________________

Date:___________________________

RIDGEWOOD ENERGY CORPORATION

By:_____________________________

Date:___________________________

                                       110
<PAGE>

                                       1ll
<PAGE>

                                 ACKNOWLEDGMENT
                                    OPERATOR

STATE OF TEXAS      section
COUNTY OF HARRIS    section

      On   this   ______   day   of   ________,   2004,   before   me   appeared
__________________________, to me personally known, who, being by me duly sworn,
did  say  that  he is  the__________________________of  BHP  Billiton  Petroleum
(Americas) Inc., a Delaware  corporation,  and that the foregoing instrument was
signed on behalf of said  corporation by authority of its Board of Directors and
_________________  acknowledged  said  instrument to be the free act and deed of
said corporation.

      IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal of the day and year first above written.

                                             _________________________
Notary Public

                                 ACKNOWLEDGMENT
                                  NON-OPERATORS

STATE OF LOUISIANA  section
PARISH OF ORLEANS   section

      On this  ______ day of ____________________ ,  2004,  before  me  appeared
_____________________________,  to me personally  known,  who,  being by me duly
sworn, did say that he is the __________________________ of Dominion Exploration
&  Production,  Inc. and that the foregoing  instrument  was signed on behalf of
said  company by  authority  of its Board of  Directors  and  __________________
acknowledged said instrument to be the free act and deed of said company.

      IN WITNESS  WHEREOF,  I have  hereunto set my hand and affixed my official
seal of the day and year first above written.

                                             _________________________
Notary Public

                                       117
<PAGE>

STATE OF TEXAS      section
COUNTY OF HARRIS    section

      On this  _______ day of _____________________ , 2004,  before me  appeared
_____________________________,  to me personally  known,  who,  being by me duly
sworn,  did  say  that  he is  the  __________________________  of  The  Houston
Exploration  Company and that the foregoing  instrument  was signed on behalf of
said     company     by     authority     of    its    Board    of     Directors
and__________________acknowledged said instrument to be the free act and deed of
said company.

      IN WITNESS  WHEREOF,  I have  hereunto set my hand and affixed my official
seal of the day and year first above written.

                                             _________________________
Notary Public

STATE OF TEXAS      section
COUNTY OF HARRIS    section

      On this  _________ day of ________________________ ,   2004,   before   me
_____________________________,  to me personally  known,  who,  being by me duly
sworn,  did say that he is  the____________________________  of Ridgewood Energy
Corporation  and that the  foregoing  instrument  was  signed  on behalf of said
company      by      authority      of     its      Board      of      Directors
and____________________acknowledged  said instrument to be the free act and deed
of said company.

      IN WITNESS  WHEREOF,  I have  hereunto set my hand and affixed my official
seal of the day and year first above written.

                                             _________________________
Notary Public

                                       118
<PAGE>

                          ATTACHMENT "1" TO EXHIBIT "F"

    Attached to and made a part of the Memorandum of Operating Agreement and
  Financing Statement (Louisiana) dated effective June 1, 2004, by and between
   BHP Billiton Petroleum (Americas) Inc., Dominion Exploration & Production,
     Inc., The Houston Exploration Company and Ridgewood Energy Corporation

I.    Contract Area and Description of Leases

S/2N/2 SW/4 and the N/2S/2SW/4 OCS-G 09387, West Cameron Area, Block 77

Insofar  and only  insofar as the  Contract  Area is  limited  to the  following
depths:

Contract Area A: From the surface down to but not including the depths below the
stratigraphic  equivalent  seen  at a two way  time  of  3861 ms  (approximately
16,400'  SSTVD) on the  Fairfield 30 Pre-Stack  Time  Migration  In-Line 3170 at
CrossLine 1600

II.   Working Interests of the Parties

BHP Billiton Petroleum (Americas) Inc.           43.66%
Dominion  Exploration & Production,  Inc.        22.40%
The Houston Exploration Company                  19.40%
Ridgewood Energy Corporation                     14.54%

IV.   Operator

BHP Billiton Petroleum (Americas) Inc.

V.    Addresses                                  Names of Representatives
      BHP Billiton Petroleum (Americas) Inc.     Dwight Pickle
      1360 Post Oak Boulevard, Suite 150         Senior Negotiator
      Houston, Texas 77056-3020                  Phone: (713) 961-8437
                                                 Fax:   (713) 961-8339

      Dominion Exploration & Production, Inc.    Melvin Baiamonte
      1450 Poydras Street                        Staff Landman
      New Orleans, LA 70112-6000                 Phone: (504) 593-7660
                                                 Fax:   (504) 593-7449

      The Houston Exploration Company            Michelle Mauzy
      1100 Louisiana, Suite 2000                 Landman
      Houston, Texas 77002                       Phone: (713) 830-6841
                                                 Fax:   (713) 659-7201

      Ridgewood Energy Corporation               Greg Tabor
      5300 Memorial Drive, Suite 1070            Executive Vice President
      Houston, Texas 77007                       Phone: (713) 862-9856
                                                 Fax:   (713) 802-9734

                                       119
<PAGE>

                                   EXHIBIT "G"

    Attached to and made a part of that certain Offshore Operating Agreement
   dated June 1, 2004, by and between BHP Billiton Petroleum (Americas) Inc.,
  Dominion Exploration & Production, Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

                          DISPUTE RESOLUTION PROCEDURE

I.    OVERVIEW

      A.      Description  and Goals. Arbitration as used in this statement is a
procedure  whereby an  Arbitrator  resolves any  claim(s),  controversy(ies)  or
dispute(s) (the "Dispute")  between or among BHP Billiton  Petroleum  (Americas)
Inc., Dominion  Exploration & Production,  Inc., The Houston Exploration Company
and Ridgewood Energy Corporation  (hereinafter referred to singularly as "Party"
and collectively as "Parties") arising out of, relating to or in connection with
the Offshore  Operating  Agreement dated effective April 14, 2004,  (hereinafter
"Agreement")  including  the  interpretation,  validity,  termination  or breach
thereof.

      (i)     Binding:  The  arbitration  process is  binding on the Parties and
this arbitration is intended to be a final resolution of any Dispute between the
Parties as described above, to the same extent as a final judgment of a court of
competent jurisdiction.  Each Party hereby expressly covenants that it shall not
resort to court remedies except as provided for herein or for preliminary relief
in aid of arbitration.

      (ii)    Violation:  Notwithstanding   Sections II. F  and  II.  K  (i),  a
non-prevailing  Party shall pay all legal (including  attorneys' fees) and court
costs incurred by the other Party directly in connection with the enforcement of
the final  resolution  of any Dispute under this Dispute  Resolution  Procedure.
Suits,  actions or  proceedings  in connection  with such  enforcement  shall be
instituted in an appropriate  court of Law in Houston,  Texas. Each Party waives
any  objections  to the  venue  of any  such  suit,  action  or  proceeding  and
irrevocably  submits to the jurisdiction of such court in any such suit,  action
or proceeding.

      B.      Duty to  Negotiate: The Parties  shall inform one another promptly
following  the  occurrence  or  discovery  of any  item  or  event  which  might
reasonably be expected to result in a

                                       120
<PAGE>

Dispute in connection  with the  Agreement.  The Parties will attempt to resolve
satisfactorily any such matters.

      C.      Notice of Unresolved  Dispute:  Should a Dispute  arise  which the
Parties  cannot  resolve  satisfactorily,  either Party may deliver to the other
Party a written notice of the Dispute with  supporting  documentation  as to the
circumstances  leading to the Dispute  (the "Notice of  Dispute").  The Parties,
within ten (10)  Business  Days from  delivery of such  notice,  shall then each
appoint a management  representative  ("Management  Representative")  who has no
prior direct involvement with the subject matter of the Notice of Dispute who is
duly authorized to investigate, negotiate and settle the Dispute. The Management
Representative  for each  Party  shall  meet and  confer  as often as they  deem
reasonably  necessary for a period not exceeding  thirty (30) days following the
appointment  of the  management  representative  in good faith  negotiations  to
resolve the Dispute  amicably.  The Parties,  in their sole  discretion may also
mutually  agree  to  utilize  the  service  of a  mediator  pursuant  to a joint
engagement.  Unless otherwise  provided herein, all such notices shall be served
in accordance with the provisions of the Agreement.

II.   ARBITRATION PROCESS

      A.      Arbitration:  If the  Parties  are unable to resolve  the  Dispute
within sixty (60) days  following the receipt of the Notice of Dispute,  or such
additional  time as may be mutually  agreed,  the matter  shall be  submitted to
arbitration in accordance with the procedures set forth below.

      B.      Initiation of Arbitration: The  arbitration  shall be initiated by
either Party delivering to the other a Notice of Intention to Arbitrate.

      C.      Governing Procedures:  Except as expressly  provided  herein,  the
arbitration  shall be conducted in accordance  with procedures that are mutually
acceptable to the Parties, including limited deposition-less discovery. However,
if the Parties cannot agree, then discovery shall be conducted  according to the
Federal Rules of Civil Procedure.

      (i)     Governing   Law:  The   Arbitrator   shall  apply   the  governing
substantive law of the state chosen by the Parties to the Agreement.

      D.      Arbitrator:   There  shall  be  one  Arbitrator,   who   shall  be
independent,   impartial  and  experienced  in  arbitration   proceedings.   The
Arbitrator shall be experienced in the oil and gas industry and knowledgeable or
specializing  as to the subject matter  involved in the Dispute.  The Arbitrator
shall not be a present or former employee,  director,  officer, or consultant of
any of the

                                       121
<PAGE>

Parties or their predecessors  herein. The arbitrator selected shall be either a
licensed  attorney or a former judge. The Arbitrator shall be chosen as follows:

the  Parties  shall  have  thirty  (30)  days from the  delivery  of a Notice of
Intention to Arbitrate to mutually agree on an Arbitrator. If the Parties cannot
mutually  agree  within said thirty  (30) day  period,  then the Parties  shall,
within (3) days after  expiration  of the thirty (30) day  period,  apply to the
American Arbitration  Association ("AAA") as the Appointing  Authority,  for the
appointment of an Arbitrator  for or on behalf of the Parties,  and in such case
the Arbitrator appointed by the Appointing Authority shall meet the criteria set
in this Section II.D and shall act as if mutually agreed to by the Parties.

      (i)     Conflicts: Any Arbitrator, prior to his or her appointment,  shall
disclose to the  Parties  all actual or  perceived  conflicts  of  interest  and
business relationships  involving the Dispute or the Parties,  including but not
limited to, any professional or social relationships,  present or past, with any
Party (or its affiliates),  including any Party's (or its affiliates) directors,
officers  and  supervisory  personnel  and counsel.  Any Party may  challenge in
writing the  appointment  or  continued  service of any  Arbitrator  for lack of
independence,  partiality or any other cause likely to impair such  Arbitrator's
ability  to  effectively  participate  in the  proceedings  or render a fair and
equitable decision. Where such challenge is made, the Appointing Authority shall
uphold or  dismiss  the  challenge.  In the event a  challenge  is  upheld,  the
Arbitrator shall be replaced.  A replacement will be selected in the same manner
as the original  Arbitrator  was selected.  If an Arbitrator  resigns or becomes
unable or unwilling to continue to serve as the Arbitrator,  a replacement shall
be selected in the same manner as that Arbitrator was chosen.  Except for acting
as the  Appointing  Authority,  as  contemplated  in  Section  II.D and  Section
II.D(i),   the  AAA  shall  have  no  further  involvement  in  the  arbitration
proceeding,  including without limitation administering the arbitration,  unless
agreed to in writing by the Parties.

      (ii)    Multi-Party Arbitrations: Where more than two Parties are involved
in the Dispute ("Multi-Party  Arbitration"),  all Parties shall jointly name and
agree as the  appointment  of the  Arbitrator  meeting the criteria set forth in
Section  D.D.  above.  If the  Parties  cannot  agree  as to the  choice  of the
Arbitrator  within the said thirty (30) days,  any of the Parties  hereto may in
like manner,  within three (3) business days after  written  notice to the other
Parties,  apply to the Appointing Authority for the appointment of an Arbitrator
meeting the criteria set forth in Section II.D. above.

                                       122
<PAGE>

      (iii)   Management  of  the  Arbitration:  The Arbitrator  shall  actively
manage  the  proceedings  as he or  she  deems  best  so as  to  make  the  same
expeditious, economical and less burdensome and adversarial than litigation.

      E.      Confidentiality: All documents, briefs, testimony, transcripts, as
well as all Arbitrator  decisions shall be  confidential.  likewise,  the views,
suggestions,  admissions, proposals and other information exchanged or disclosed
in  the  arbitration  are   confidential  and  are  inadmissible  in  any  other
proceeding.

      F.      Costs and Expenses:  Except as set forth in Section I.A(ii) above,
(i) the Parties  involved in the dispute  shall be equally  responsible  for all
costs,  fees and expenses  incurred by the Arbitrator  and any other  incidental
costs incurred in connection with the arbitration proceeding shall also be borne
equally  by the  Parties;  (ii)  each  Party is solely  responsible  for its own
attorneys' fees and expenses incurred in the Arbitration; and (iii) in the event
of a Multi-Party  Arbitration,  all costs and expenses shall be borne equally by
all Parties.

      G.      Submissions: Within thirty  (30) days after the  selection  of the
Arbitrator,  each Party  shall  provide  the  Arbitrator  with a short and plain
submission  defining  the issues to be decided and the nature of the relief that
the Arbitrator may award (the  "Submission").  This Submission  shall explicitly
authorize the Arbitrators to decide these issues.  This authorization shall stay
in force for period no longer than nine (9) months from this Submission.  If the
Parties are unable to reach consensus as to the issues involved,  the Arbitrator
in his or her sole  discretion  shall  frame the  issues  through  a  reasonable
procedure.   The  Arbitrator  will  render  decisions  on  the  specific  issues
established and shall fashion any remedy that the Arbitrator  deems  appropriate
so long as that remedy is consistent  with the Parties1  Submissions  hereunder.
Any money judgment entered by the Arbitrator shall be payable in U.S. dollars.

      H.      Transcriptions: The presentations and argument will be transcribed
for the benefit of the  Arbitrator  and the Parties.

      I.      Discovery:  Commencing thirty  (30) days after the  receipt of the
opposing  Party's  Submission,  each Party may serve upon the other  Party up to
twenty (20) requests for the production of documents,  including  subparts.  The
requests  shall be made in good faith and not be served for the purpose of delay
or  harassment.  Each request shall  describe the type of documents)  sought and
each  request  shall be limited to  documents  that are  relevant  to a claim or
defense in the Arbitration  proceeding,  or reasonably calculated to lead to the
discovery of admissible evidence

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<PAGE>

under the Federal Rules of Evidence. The requests need not be served all at once
but may be served in stages.

      (i)     The Party served with a request under this provision shall provide
the adverse  Party with copies of the  requested  documents,  and  identify  the
request to which each  document is  responsive,  within  thirty (30) days of the
receipt  of the  request.  If the Party  served  with a request  objects  to the
production  of any of the requested  documents,  it shall  nevertheless  produce
within the permitted  time all  documents  responsive to any request that is not
objected to by that Party.

      (ii)    A Party that is  served with a request may challenge the propriety
of the  request  within  the time  permitted  for  response  by a short  written
objection  which shall be forwarded to the adverse Party and to the  Arbitrator.
The adverse Party shall submit its response,  if any, to the objecting Party and
the Arbitrator within five (5) days of receipt of the objection.  The Arbitrator
shall consider the request,  the objection and the response,  if any, and decide
whether the production  shall be allowed or denied or whether the request should
be modified  within ten (10) days after the  submission  of the adverse  Party's
response.

      J.      Presentations:  No later than  twenty-five  (25) days prior to the
date that  presentations to the Arbitrator are to begin,  each Party will submit
to the Arbitrator and serve on the other Party a written position statement. The
original  statement of each Party shall not exceed  thirty-five (35) typewritten
letter-size  pages with no less than one inch  margins and no less than 12 pitch
font size for all text (including footnotes). Each Party shall have the right to
submit reply statements no later than fifteen (15) days prior to the date of the
presentation.  Such reply  statements  shall not exceed fifteen (15) typewritten
letter-size  pages and shall conform to the  formatting  requirements  set forth
above in this Section.

      (i)     All  documents and  affidavits  that a Party intends to use during
its  presentation  shall be submitted to the  Arbitrator and served on the other
Party with the position and reply statements.  All demonstrative  exhibits shall
be exchanged five (5) days in advance of the presentations.

      (ii)    The presentations to the Arbitrator shall extend for such time as
the Arbitrator  agrees to be appropriate.  In the absence of any agreement,  the
presentations  for both Parties shall extend for no longer than two (2) days and
shall be  concluded  within six (6) months after  selection  of the  Arbitrator.
Presentations of each Party shall occur successively with no intervening delay.

      (iii)   Each Party shall make  an oral and/or  documentary presentation of
its position in such order and in accordance with the time schedule  established
by the Arbitrator.  The Arbitrator may question each of the presenters during or
following any and all presentations.

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<PAGE>

      The Arbitrator shall determine a reasonable time and location for the
presentations.

      K.      Decision and Award:  The Arbitrator shall  promptly  (within sixty
(60)  days of  conclusion  of the  presentations  or such  longer  period as the
Parties may  mutually  agree)  determine  the claims of the Parties and render a
final  decision in  writing.  The  decision  shall  state with  specificity  the
findings of fact and conclusions of law on which it rests [unless the arbitrator
is required to be an attorney,  it is not  reasonable to require a non-lawyer to
follow such a format].  The decision  rendered by the Arbitrator may be enforced
in accordance with Section I.A. (ii),  above, and may only be appealed  pursuant
to Section L below.  The  decision  shall be served  upon each of the Parties by
facsimile transmission and by first class mail.

      (i)     If applicable law allows pre-award  interest,  the Arbitrator may,
in his or her discretion, grant pre-award interest and, if so, such interest may
be at  commercial  rates in the state chosen by the Parties  pursuant to Section
n.C.(i) during the relevant period.  Each Party shall be responsible for its own
attorney's  fees and  costs of  arbitration.  The  Arbitrator  shall  not  award
consequential, punitive, indirect or other non-compensatory damages.

      (ii)    Within  ten (10) days  of  receipt  of the award  either  side may
submit a Motion to Modify the award. A response shall be due within fifteen (15)
days  thereafter and the Arbitrator  shall rule thereon within fifteen (15) days
after receipt of the response.

      (iii)   Judgment on the award  may be entered in  an appropriate  court of
law in Houston, Texas at any time within one year after the decision is made.

      L.      Vacation of Award and Appeal:  An appeal from an order or judgment
pursuant to this Section II.L.  shall be instituted in an  appropriate  court of
Law in  Houston,  Texas.  The court may  vacate  the award only if the award was
procured  by or through  fraud or  corruption.  Each Party  waives any option or
objection  which it may now or thereafter have to the laying of the venue of any
such suit,  action or proceeding and irrevocably  submits to the jurisdiction of
the court in any such  suit,  action or  proceeding.  Each Party  agrees  that a
remedy at law for a  violation of this  Section  II.L. may not be  adequate  and
therefore agrees that the remedies of specific performance and injunctive relief
shall be available in the event of any  violation in addition to any other right
or remedy at law or in equity to which any Party may be entitled.

      M.      Res Judicata:  To the extent permitted by law, any decision of the
Arbitrator  shall not be  res judicata or have any  binding  effect in any other
litigation or arbitration where any Party to this Agreement may also be a party.

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<PAGE>

                                   EXHIBIT "H"

    Attached to and made a part of that certain Offshore Operating Agreement
   dated June 1, 2004, by and between BHP Billiton Petroleum (Americas) Inc.,
  Dominion Exploration & Production, Inc., The Houston Exploration Company and
                          Ridgewood Energy Corporation

                               ARTICLE 8.6 ET SEQ.
                            SHELF OPERATING AGREEMENT
                                   (LOUISIANA)

         Security Rights; Default; Unpaid Charges; Carved-out Interests.

8.6   Security Rights (Louisiana).

In  addition  to any other  security  rights and  remedies  provided by law with
respect to services  rendered or materials  and equipment  furnished  under this
Agreement,  for and in consideration of the covenants and mutual undertakings of
the Operator and the Non-operators  herein, the Parties shall have the following
security rights:

8.6.1 Mortgage in Favor of the Operator.

Each  Non-operator  hereby grants to the Operator a mortgage,  hypothecate,  and
pledge of and over all of its rights,  titles,  and  interests in and to (a) the
Lease,  (b) the  Hydrocarbons  in, on, under,  and that may be produced from the
lands within the Contract Area, and (c) all other immovable property susceptible
of mortgage  situated within the Contract Area.

This  mortgage is given to secure the  complete  and timely  performance  of and
payment by each  Non-operator of all obligations and  indebtedness of every kind
and nature, whether now owed by such Non-operator or hereafter arising, pursuant
to this Agreement. To the extent susceptible under applicable law, this mortgage
and the security  interests granted in favor of the Operator herein shall secure
the  payment of all costs and other  expenses  properly  charged to such  Party,
together with (A) interest on such  indebtedness,  costs,  and other expenses at
the rate set forth in Exhibit "C" (the  "Accounting  Procedure")  or the maximum
rate allowed by law,  whichever is the lesser,  (B) reasonable  attorneys' fees,
(C) court  costs,  and (D)  other  directly  related  collection  costs.  If any
Non-operator  does  not pay  such  costs  and  other  expenses  or  perform  its
obligations  under  this  Agreement  when  due,  the  Operator  shall  have  the
additional  right to  notify  the  purchaser  or  purchasers  of the  defaulting
Non-operator's  Hydrocarbon production and collect such costs and other expenses
out of the proceeds from the sale of the defaulting Non-operator's

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<PAGE>

share of  Hydrocarbon  production  until  the  amount  owed has been  paid.  The
Operator  shall have the right to offset the amount owed  against  the  proceeds
from the sale of such defaulting Non-operator's share of Hydrocarbon production.
Any  purchaser of such  production  shall be entitled to rely on the  Operator's
statement  concerning  the  amount  of  costs  and  other  expenses  owed by the
defaulting  Non-operator and payment made to the Operator by any purchaser shall
be  binding  and  conclusive  as  between  such  purchaser  and such  defaulting
Non-operator.

The maximum amount for which the mortgage  herein  granted by each  Non-operator
shall be deemed to secure the obligations and indebtedness of such  Non-operator
to the  Operator  as  stipulated  herein is hereby  fixed in an amount  equal to
$25,000,000.00  (the "Limit of the  Mortgage of each  Non-operator").  Except as
provided in the previous  sentence (and then only to the extent such limitations
are required by law), the entire amount of obligations and  indebtedness of each
Non-operator   to  the   Operator   is  secured   hereby   without   limitation.
Notwithstanding  the foregoing Limit of the Mortgage of each  Non-operator,  the
liability  of each  Non-operator  under  this  Agreement  and the  mortgage  and
security interest granted hereby shall be limited to (and the Operator shall not
be  entitled  to enforce  the same  against  such  Non-operator  for,  an amount
exceeding)  the actual  obligations  and  indebtedness  [including  all interest
charges,  costs,  attorneys'  fees,  and  other  charges  provided  for in  this
Agreement or in the  Memorandum of Operating  Agreement and Financing  Statement
(Louisiana),  as such term is defined in Article 8.6.1.4  (Recordation)  hereof]
outstanding  and unpaid and that are  attributable  to or  charged  against  the
interest of such Non-operator pursuant to this Agreement.

8.6.1.1 Security Interest in Favor of the Operator.

To  secure  the  complete  and  timely   performance  of  and  payment  by  each
Non-operator  of all  obligations  and  indebtedness  of every kind and  nature,
whether now owed by such  Non-operator  or hereafter  arising,  pursuant to this
Agreement, each Non-operator hereby grants to the Operator a continuing security
interest  in  and  to all of its  rights,  titles,  interests,  claims,  general
intangibles,  proceeds, and products thereof,  whether now existing or hereafter
acquired,  in and to (a) all  Hydrocarbons  produced  from the lands or offshore
blocks  covered by the Lease or Contract Area  attributable  to the Lease or the
Contract Area when produced,  (b) all accounts receivable accruing or arising as
a  result  of the  sale of such  Hydrocarbons  (including,  without  limitation,
accounts  arising from gas  imbalances or from the sale of  Hydrocarbons  at the
wellhead),  (c) all cash or other  proceeds  from the sale of such  Hydrocarbons
once  produced,  and  (d)  all  Platforms  and  Development  Facilities,  wells,
fixtures, other corporeal property, whether

                                       127
<PAGE>

movable or immovable,  whether now or hereafter  placed on the lands or offshore
blocks  covered  by the  Lease or the  Contract  Area or  maintained  or used in
connection with the ownership,  use or exploitation of the Lease or the Contract
Area,  and other  surface and  sub-surface  equipment  of any kind or  character
located on or  attributable  to the Lease or the  Contract  Area and the cash or
other  proceeds  realized  from the sale,  transfer,  disposition  or conversion
thereof.  The interest of the  Non-operators  in and to the oil and gas produced
from or  attributable  to the Lease when  extracted and the accounts  receivable
accruing or arising as the result of the sale  thereof  shall be financed at the
wellhead of the well or wells located on the Lease or the Contract  Area. To the
extent  susceptible  under applicable law, the security interest granted by each
Non-operator  hereunder  covers:  (A)  all  substitutions,   replacements,   and
accessions to the property of such Non-operator described herein and is intended
to cover all of the rights,  titles and  interests of such  Non-operator  in all
movable  property now or hereafter  located upon or used in connection  with the
Contract Area,  whether  corporeal or incorporeal;  (B) all rights under any gas
balancing  agreement,  farmout rights,  option farmout rights,  acreage and cash
contributions, and conversion rights of such Non-operator in connection with the
Lease or the Contract Area, or the Hydrocarbons produced from or attributable to
the Lease or the  Contract  Area,  whether now owned and  existing or  hereafter
acquired  or arising,  including,  without  limitation,  all  interests  of each
Non-operator  in  any  partnership,   tax  partnership,   limited   partnership,
association,  joint venture,  or other entity or enterprise that holds, owns, or
controls any interest in the Contract Area; and (C) all rights,  claims, general
intangibles,  and proceeds,  whether now existing or hereafter acquired, of each
Non-operator   in  and  to  the  contracts,   agreements,   permits,   licenses,
rights-of-way,  and  similar  rights  and  privileges  that  relate  to  or  are
appurtenant to the Lease or the Contract Area, including the following:

1)    all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising,  in, to, and under or derived from any present
or future operating, farmout, bidding, pooling, unitization, and communitization
agreements,  assignments, and subleases, described in Exhibit "A" to the extent,
and only to the extent, that such agreements,  assignments,  and subleases cover
or include  any of its  rights,  titles,  and  interests,  whether now owned and
existing or hereafter  acquired or arising,  in and to all or any portion of the
Lease  or the  Contract  Area,  and  all  units  created  by any  such  pooling,
unitization,  and communitization  agreements and all units formed under orders,
regulations, rules, or other official acts of any governmental

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<PAGE>

authority  having  jurisdiction,  to the extent and only to the extent that such
units cover or include all or any portion of the Lease or the Contract Area;

2)    all of its rights,  titles, and interests,  whether now owned and existing
or  hereafter  acquired  or  arising,  in,  to,  and under or  derived  from all
presently existing and future advance payment  agreements,  and oil,  casinghead
gas,  and  gas  sales,   exchange,  and  processing  contracts  and  agreements,
including, without limitation, those contracts and agreements that are described
on Exhibit  "A" to the  extent,  and only to the  extent,  those  contracts  and
agreements  cover or include  all or any  portion  of the Lease or the  Contract
Area; and

3)    all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising, in, to, and under or derived from all existing
and future permits, licenses,  rights-of-way,  and similar rights and privileges
that relate to or are appurtenant to the Lease or the Contract Area.

8.6.1.2 Mortgage in Favor of the Non-operators.

The Operator  hereby  grants to each  Non-operator  a mortgage,  hypotheca,  and
pledge of and over all of its rights,  titles,  and  interests in and to (a) the
Lease;  (b) the  Hydrocarbons  in, on,  under,  and that my be produced from the
lands within the Contract  Area; and (c) all other  immovable  property or other
property  susceptible  of  mortgage  situated  within the  Contract  Area.

This  mortgage is given to secure the  complete  and timely  performance  of and
payment by the Operator of all  obligations  and  indebtedness of every kind and
nature, whether now owed by the Operator or hereafter arising,  pursuant to this
Agreement. To the extent susceptible under applicable law, this mortgage and the
security interests granted in favor of each Non-operator herein shall secure the
payment  of all costs and  other  expenses  properly  charged  to the  Operator,
together with (A) interest on such  indebtedness,  costs,  and other expenses at
the rate set forth in Exhibit "C" or the maximum rate allowed by law,  whichever
is the lesser,  (B) reasonable  attorneys'  fees, (C) court costs, and (D) other
directly related  collection  costs. If the Operator does not pay such costs and
other  expenses or perform its  obligations  under this  Agreement when due, the
Non-operators  shall  have the  additional  right to  notify  the  purchaser  or
purchasers of the Operator's  Hydrocarbon  production and collect such costs and
other  expenses out of the  proceeds  from the sale of the  Operator's  share of
Hydrocarbon  production  until the amount owed has been paid. The  Non-operators
shall have the right to offset the amount  owed  against the  proceeds  from the
sale of the Operator's share of Hydrocarbon production. Any purchaser of

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<PAGE>

such  production  shall  be  entitled  to rely on the  Non-operators'  statement
concerning  the  amount of costs and other  expenses  owed by the  Operator  and
payment  made  to the  Non-operators  by any  purchaser  shall  be  binding  and
conclusive as between such  purchaser and the Operator.

The maximum  amount for which the mortgage  herein granted by the Operator shall
be deemed to secure the  obligations  and  indebtedness  of the  Operator to all
Non-operators  as  stipulated  herein  is  hereby  fixed in an  amount  equal to
$25,000,000.00  in the aggregate (the "Limit of the Mortgage of the  Operator").
Except as provided in the  previous  sentence  (and then only to the extent such
limitations  are  required  by  law),  the  entire  amount  of  obligations  and
indebtedness  of the Operator to the  Non-operators  is secured  hereby  without
limitation. Notwithstanding the foregoing Limit of the Mortgage of the Operator,
the liability of the Operator under this Agreement and the mortgage and security
interest granted hereby shall be limited to (and the Non-operators  shall not be
entitled to enforce the same against the Operator for, an amount  exceeding) the
actual  obligations and  indebtedness  [including all interest  charges,  costs,
attorneys'  fees,  and other  charges  provided for in this  Agreement or in the
Memorandum of Operating Agreement and Financing Statement  (Louisiana),  as such
term is defined in Article 8.6.1.4  hereof]  outstanding and unpaid and that are
attributable to or charged against the interest of the Operator pursuant to this
Agreement.

8.6.1.3 Security Interest in Favor of the Non-operators.

To secure the complete and timely  performance of and payment by the Operator of
all obligations and  indebtedness of every kind and nature,  whether now owed by
the  Operator or hereafter  arising,  pursuant to this  Agreement,  the Operator
hereby grants to each Non-operator a continuing  security interest in and to all
of its rights, titles,  interests,  claims,  general intangibles,  proceeds, and
products thereof,  whether now existing or hereafter acquired, in and to (a) all
Hydrocarbons  produced from the lands or offshore blocks covered by the Lease or
included  within the Contract Area or attributable to the Lease or Contract Area
when produced,  (b) all accounts  receivable  accruing or arising as a result of
the sale of such Hydrocarbons (including,  without limitation,  accounts arising
from gas imbalances or from the sale of Hydrocarbons  at the wellhead),  (c) all
cash or other proceeds from the sale of such Hydrocarbons once produced, and (d)
all Platforms and  Development  Facilities,  wells,  fixtures,  other  corporeal
property  whether movable or immovable,  whether now or hereafter  placed on the
offshore  blocks covered by the Lease or the Contract Area or maintained or used
in  connection  with the  ownership,  use or  exploitation  of the  Lease or the
Contract Area, and other surface and sub-surface equipment of

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<PAGE>

any kind or character  located on or  attributable  to the Lease or the Contract
Area  and  the  cash  or  other  proceeds  realized  from  the  sale,  transfer,
disposition  or conversion  thereof.  The interest of the Operator in and to the
Hydrocarbons  produced  from or  attributable  to the Lease or the Contract Area
when extracted and the accounts  receivable accruing or arising as the result of
the sale thereof  shall be financed at the wellhead of the well or wells located
on the Lease or the Contract Area. To the extent  susceptible  under  applicable
law, the security  interest granted by the Operator  hereunder  covers:  (A) all
substitutions,  replacements,  and  accessions  to the  property of the Operator
described  herein  and is  intended  to  cover  all of the  rights,  titles  and
interests of the Operator in all movable property now or hereafter  located upon
or used in connection with the Lease or the Contract Area,  whether corporeal or
incorporeal;  (B) all rights under any gas balancing agreement,  farmout rights,
option farmout rights, acreage and cash contributions,  and conversion rights of
the Operator in connection with the Lease or the Contract Area, the Hydrocarbons
produced from or  attributable  to the Lease or the Contract  Area,  whether now
owned  and  existing  or  hereafter  acquired  or  arising,  including,  without
limitation,  all interests of the Operator in any partnership,  tax partnership,
limited partnership,  association,  joint venture, or other entity or enterprise
that holds,  owns,  or controls any interest in the Lease or the Contract  Area;
and (C) all rights,  claims,  general  intangibles,  and  proceeds,  whether now
existing  or  hereafter  acquired,  of the  Operator  in  and to the  contracts,
agreements, permits, licenses,  rights-of-way, and similar rights and privileges
that relate to or are  appurtenant to the Lease or the Contract Area,  including
the following:

(a)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising,  in, to, and under or derived from any present
or future operating, farmout, bidding, pooling, unitization, and communitization
agreements,  assignments, and subleases, whether or not described in Exhibit "A"
or Exhibit "A-l" to the extent,  and only to the extent,  that such  agreements,
assignments,  and  subleases  cover or include  any of its rights,  titles,  and
interests,  whether now owned and existing or hereafter acquired or arising,  in
and to all or any  portion  of the  Lease or the  Contract  Area,  and all units
created by any such pooling, unitization, and communitization agreements and all
units formed under orders,  regulations,  rules,  or other  official acts of any
governmental authority having jurisdiction, to the extent and only to the extent
that such units cover or include all or any portion of the Lease or the Contract
Area;

(b)   all of its rights,  titles, and interests,  whether now owned and existing
or  hereafter  acquired  or  arising,  in,  to,  and under or  derived  from all
presently existing and future advance

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<PAGE>

payment  agreements,  and oil,  casinghead  gas,  and gas sales,  exchange,  and
Development  contracts and  agreements,  including,  without  limitation,  those
contracts and  agreements  that are described on Exhibit "A" or Exhibit "A-l" to
the extent,  and only to the extent,  those  contracts and  agreements  cover or
include all or any portion of the Lease or the Contract Area; and

(c)   all of its rights,  titles, and interests,  whether now owned and existing
or hereafter acquired or arising, in, to, and under or derived from all existing
and future permits, licenses,  rights-of-way,  and similar rights and privileges
that relate to or are appurtenant to any of the Lease or the Contract Area.

8.6.1.4 Recordation.

To provide  evidence  of, and to further  perfect the Parties'  security  rights
created  hereunder,  upon request,  each Party shall execute and acknowledge the
Memorandum of Operating Agreement and Financing Statement  (Louisiana)  attached
as Exhibit "F" (the "Memorandum of Operating  Agreement and Financing  Statement
(Louisiana)) in multiple counterparts as appropriate.  The Parties authorize the
Operator to file the Memorandum of Operating  Agreement and Financing  Statement
(Louisiana)  in the  public  records  set forth  below to serve as notice of the
existence  of this  Agreement  as a burden on the title of the  Operator and the
Non-operators  to their  interests  in the Lease and the  Contract  Area and for
purposes of satisfying  otherwise relevant recording and filing  requirements of
applicable  law  and to  attach  an  original  of the  Memorandum  of  Operating
Agreement  and  Financing  Statement  (Louisiana)  to a  standard  UCC-1 (or the
equivalent as provided under Louisiana Revised  Statutes) in mutually  agreeable
forms  for  filing in the UCC  records  (or the  equivalent  as  provided  under
Louisiana  Revised  Statutes) set forth below to perfect the security  interests
created by the Parties in this  Agreement.  Upon the  acquisition of a leasehold
interest  in the Lease or the  Contract  Area,  the Parties  shall,  within five
business  days  following  request by one of the  Parties  hereto,  execute  and
furnish to the requesting  Party for recordation  such a Memorandum of Operating
Agreement  and  Financing  Statement   (Louisiana)   describing  such  leasehold
interest.  Such  Memorandum  of  Operating  Agreement  and  Financing  Statement
(Louisiana)  shall be amended from time to time upon  acquisition  of additional
leasehold  interests in the Lease or the Contract  Area,  and the Parties shall,
within  five  business  days  following  request by one of the  Parties  hereto,
execute and furnish to the requesting  Party for recordation any such amendment.

The Memorandum of Operating Agreement and Financing Statement  (Louisiana) is to
be filed or recorded,  as the case may be, in (a) the conveyance  records of the
parish or parishes adjacent to

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<PAGE>

the lands or  offshore  blocks  covered  by the Lease or  contained  within  the
Contract Area pursuant to La. R.S.  9:2731 et seq., (b) the mortgage  records of
such parish or parishes, and (c) the appropriate Uniform Commercial Code records
or the Louisiana Commercial Laws-Secured Transactions records, as applicable.

8.6.2 Default.

If any  Party  does  not pay its  share of the  charges  authorized  under  this
Agreement  when due,  the  Operator  may give the  defaulting  Party notice that
unless payment is made within thirty (30) days from delivery of the notice,  the
non-paying  Party shall be in default.  A Party in default shall have no further
access to the rig, Platform or Development Facilities,  any Confidential Data or
other maps, records,  data,  interpretations,  or other information  obtained in
connection with activities or operations  hereunder or be allowed to participate
in  meetings.  A Party in default  shall not be  entitled  to vote or to make an
election  until such time as the defaulting  Party is no longer in default.  The
voting interest of each non-defaulting  Party shall be counted in the proportion
its Participating Interest share bears to the total non-defaulting Participating
Interest  shares.  As to any  operation  approved  during the time a Party is in
default, such defaulting Party shall be deemed to be a Non-participating  Party,
except where such approval is binding on all Parties or  Participating  Parties,
as  applicable.  In the event a Party believes that such statement of charges is
incorrect,  the Party shall nevertheless pay the amounts due as provided herein,
and the Operator shall attempt to resolve the issue as soon as practicable,  but
said attempt shall be made no later than sixty (60) days after receiving  notice
from the Party of such disputed charges.

8.6.3 Unpaid Charges.

If any  Participating  Party  fails to pay its  share  of the  costs  and  other
expenses  authorized  under this Agreement in accordance  with Exhibit "C" or to
otherwise  perform any of its  obligations  under this  Agreement  when due, the
Party to whom such payment is due, in order to take  advantage of the provisions
of this  Article 8.6,  shall  notify the other Party by certified or  registered
U.S.  Mail that it is in default  and has thirty  (30) days from the  receipt of
such notice to pay. If such payment is not made timely by the  non-paying  Party
after the issuance of such notice to pay, the Party  requesting such payment may
take  immediate  steps to diligently  pursue  collection of the unpaid costs and
other expenses owed by such Participating Party and to exercise the mortgage and
security  rights  granted  by this  Agreement.  The  bringing  of a suit and the
obtaining of a judgment by any Party for the secured  indebtedness  shall not be
deemed an election of remedies or otherwise  affect the security  rights granted
herein. In addition to any

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<PAGE>

other  remedy  afforded by law,  each Party shall have,  and is hereby given and
vested with,  the power and authority to foreclose the lien,  mortgage,  pledge,
and security interest  established hereby in its favor in the manner provided by
law, to exercise the Power of Sale provided for herein,  if  applicable,  and to
exercise  all rights of a secured  party  under the Uniform  Commercial  Code as
adopted by the state in which the Lease is located or such other  states as such
Party may deem  appropriate.  The  Operator  shall keep an  accurate  account of
amounts owed by the nonperforming Party (plus interest and collection costs) and
any amounts collected with respect to amounts owed by the  nonperforming  Party.
In the event there become three or more Parties to this  Agreement,  then if any
nonperforming  Party's share of costs remains  delinquent  for a period of sixty
(60) days, each other  Participating  Party shall, upon the Operator's  request,
pay the unpaid amount of costs in the proportion that its Working Interest bears
to the total non-defaulting  Working Interests.  Each Participating Party paying
its share of the unpaid amounts of a nonperforming  Party shall be subrogated to
the Operator's mortgage and security rights to the extent of the payment made by
such Participating Party.

8.6.4 Carved-out Interests.

Any agreements creating any overriding royalty, production payment, net proceeds
interest,  net profits  interest,  carried interest or any other interest carved
out of a Working  Interest in the Lease shall  specifically  make such interests
inferior  to the rights of the  Parties to this  Agreement.  If any Party  whose
Working  Interest  is so  encumbered  does not pay its  share of costs and other
expenses authorized under this Agreement,  and the proceeds from the sale of its
Hydrocarbon production pursuant to this Article 8.6 are insufficient to pay such
costs and expenses,  the security rights provided for in this Article 8.6 may be
applied   against  the  carved-out   interests  with  which  the  defaulting  or
non-performing  Party's  interest in the Lease is burdened.  In such event,  the
rights of the owner of such  carved-out  interest shall be  subordinated  to the
security rights granted by this Article 8.6.

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