Document:

CONFIDENTIAL MEMORANDUM                       COPY NO.
                                                      --------------------------
DATED: July 6, 2004                  NAME OF OFFEREE
                                                     ---------------------------

                          RIDGEWOOD ENERGY L FUND, LLC
                         Gulf of Mexico Natural Gas Fund

                        350 Shares of Beneficial Interest
                          Offered at $150,000 Per Share
                         Minimum Offering of $1,500,000
                         Maximum Offering of $52,500,000

Ridgewood Energy L Fund, LLC, a Delaware Limited Liability Company (the "Fund"),
has been organized to acquire interests primarily in natural gas properties
located in the U.S. waters of the Gulf of Mexico. The Manager of the Fund (the
"Manager") is Ridgewood Energy Corporation, a Delaware corporation. The Fund is
offering an aggregate of 350 Shares of beneficial interest ("Shares") at a
purchase price of $150,000 per Share. See Terms of the Offering.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                                            Funds Available for
                                                Organizational and          Gas Investments and
       Shares            Price to Investors     Offering Expenses**           Fund Operations
---------------------------------------------------------------------------------------------------
<S>                          <C>                     <C>                         <C>
     Minimum 10             $ 1,500,000            $  255,000                   $ 1,245,000
    Maximum 350*            $52,500,000            $8,925,000                   $43,575,000
---------------------------------------------------------------------------------------------------
</TABLE>

*The Fund in its discretion may expand the maximum offering to 670 Shares or
more.
**Expenses incurred in the offer and sale of the Shares, including commissions,
placement, legal, accounting, printing and filing fees, and a one-time
investment fee to the Manager.

THIS INVESTMENT IS SPECULATIVE AND NON-LIQUID AND INVOLVES A HIGH DEGREE OF
RISK, INCLUDING:
o    Severe restrictions on transferability of the Shares.
o    Drilling to establish productive natural gas wells is highly risky and the
     investment in wells could be completely lost.
o    The Manager may have material conflicts of interest and has total control
     of the Fund.
o    The significant federal and state income tax benefits of investing in the
     Fund and the applicable laws may be changed at any time.

There are many other risks as explained at Risk Considerations. Purchases will
be accepted only from persons meeting the requirements set forth under Investor
Suitability Standards.

THESE SHARES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY. NO REGULATORY AUTHORITY HAS
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL MEMORANDUM OR THE
OFFER AND SALE OF THESE SHARES. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

                        RIDGEWOOD SECURITIES CORPORATION
                               947 Linwood Avenue
                           Ridgewood, New Jersey 07450
                                 (201) 447-9000

<PAGE>
                                  SHORT SUMMARY
                          RIDGEWOOD ENERGY L FUND, LLC
                         Gulf of Mexico Natural Gas Fund

Securities Offered:          350 Shares ($150,000 per Share)

Amount Offered:              Maximum:  $52,500,000        Minimum:  $1,500,000

The L Fund Continues a       The L Fund is a continuation of the series of
Series of Gulf of Mexico     Ridgewood  Energy "Alphabet Funds" invested in
Natural Gas Funds:           the Gulf of Mexico which began with the B Fund in
                             1992,  the C Fund, the D Fund, the E Fund, the F
                             Fund, the G Fund, the H Fund, the I Fund, the J
                             Fund and, most recently, with the K Fund, which
                             began offering shares on April 22, 2004. The
                             Alphabet Funds have invested exclusively in major
                             natural gas projects in the Gulf of Mexico in
                             partnership with major oil and gas companies

Natural Gas Prices Doubled:  The average  price of natural gas for the past
                             year is more than double the average price
                             in the decade of the 1990s.

Long Term Gas Shortages:     The demand for natural gas is expected to
                             continue to exceed  supply for the foreseeable
                             future, sustaining high prices.

Gulf of Mexico Discoveries:  Major oil and gas companies focus their domestic
                             drilling activities in the United States waters
                             of the Gulf of Mexico as the primary North
                             American region with (i) potentially significant
                             quantities of natural gas, combined with, (ii) an
                             existing pipeline infrastructure enabling a fast
                             track to rapid production and early cash flow.

Only Ridgewood Energy:       Ridgewood Energy was founded in 1982. Ridgewood
                             Energy Funds have been investing in the Gulf of
                             Mexico since 1986. Ridgewood Energy is the only
                             program sponsor in the United States consistently
                             offering high net worth individuals direct,
                             institutional quality offshore natural gas
                             investments in partnership with experienced
                             independent and major energy companies.
<TABLE>
<CAPTION>
Track Record of
"Alphabet Funds":              Date       First         June       Dividends For      Cumulative
                              Close     Dividend       Monthly       12 Months         Dividends
                              -----     --------      Dividend       Ended June        June 2004
                                                      --------         2004            ---------
                                                                       ----
                   <S>        <C>         <C>           <C>             <C>             <C>
                   B Fund     3/92        2/93          2.4%            26%             239%
                   C Fund    10/92        2/93          2.4%            26%             239%
                   D Fund     7/98        9/99            -             5%               99%
                   E Fund     6/99        9/99          7.8%            75%             361%
                   F Fund     6/00       12/00         3.96%            31%             113%
                   G Fund     7/01        2/02         7.79%            62%             120%
                   H Fund     9/03        4/04           .5%             3%               3%
                   I Fund    12/03           -            -            N/A              N/A
                   J Fund    03/04           -            -            N/A              N/A
                   K Fund     Open           -            -            N/A              N/A
</TABLE>

                                       i
<PAGE>

                             The B Fund and C Fund which were formed in 1992
                             produced much of their gas in the mid-1990's when
                             gas prices were much lower. For 12 year old
                             Funds, they continue with relatively high
                             dividends. The E Fund has averaged 80% per year
                             since commencing dividends in September 1999. In
                             November 2003, the E Fund increased dividends as
                             a result of a successful reworking of a well in
                             July 2003.

                             The G Fund increased dividends in November 2003
                             to approximately 7.5% per month as a result of
                             the successful completion of another well in July
                             2003. The H Fund had its first dividend in April
                             2004 and began distributing monthly dividends in
                             June 2004.

                             The performance of prior Ridgewood Energy
                             Alphabet Funds does not predict success of or
                             guarantee similar results for the L Fund. (See
                             Risk Considerations and Exhibit B Track Record.)

Proposed Activities          The investment objective of the Fund is to
Gulf of Mexico               generate current cash flow for distribution
Natural Gas Projects:        to Investors from the acquisition, drilling,
                             completing and development of natural gas
                             prospects in the U.S. waters off Texas and
                             Louisiana in the Gulf of Mexico. The Fund will
                             build a balanced portfolio of natural gas
                             projects ("Projects") which may include one or
                             more of the following:

                             o    Lower risk developmental projects which are
                                  already connected to the natural gas
                                  pipelines, or which are near the pipeline
                                  infrastructure and can be connected quickly.

                             o    Higher risk exploratory projects which may
                                  include deep drilling below 15,000 feet and
                                  which have very high economic potential and
                                  which may be near the pipeline
                                  infrastructure. The higher risk projects
                                  would, if successful, generally include a
                                  substantial amount of development capital
                                  which would have lower risk, but at the same
                                  time, greater economic potential.

                             o    Non-Consent Interests, which may include
                                  interests acquired from prior Ridgewood
                                  Energy Programs.

                             o    Ownership, development, construction,
                                  installation, acquisition, and/or operation
                                  of natural gas infrastructure assets,
                                  including pipelines, equipment and other
                                  assets, located or to be located in the
                                  offshore waters of the Gulf of Mexico, that
                                  are used to gather, process, transport and
                                  market natural gas and natural gas liquids.

Tax Benefits:                The Fund's interests in the Projects
                             may generate significant drilling deductions,
                             depreciation deductions and depletion allowances.
                             Tax benefits from the L Fund may shelter a large
                             part or all of the income from the Prior
                             Ridgewood Energy Programs for existing Ridgewood
                             Shareholders.

                                       ii
<PAGE>

Summary:                     I.    Long term  supplies  of natural  gas is the
                                   commodity  to own due to  long-term
                                   supply shortages which have resulted in
                                   high prices

                             II.  The United States waters of the Gulf of
                                  Mexico is the place to own gas wells

                             III. Ridgewood Energy offers institutional
                                  quality Gulf of Mexico natural gas
                                  investments to high net worth individuals.

Sharing of Program
Income and Gain:             Investors:                                     85%
                             Manager:                                       15%

Use of Proceeds:             Acquisition, Drilling and Completion
                             Activities and Fund Operations:                83%

                             Syndication Fees and Closing Costs:            17%

THE INFORMATION CONTAINED IN THIS SHORT SUMMARY IS EXTREMELY GENERAL IN NATURE,
IS BASED ON, AMONG OTHER THINGS, FORECASTS OF NATURAL GAS PRICES AND CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS ABOUT DEVELOPMENT PLANS, FUTURE RESULTS OF
EXISTING RIDGEWOOD ENERGY PROGRAMS, EXPECTED PRODUCTION RATES, CAPITAL
EXPENDITURES AND NATURAL GAS RESOURCE POTENTIAL. THESE STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE. THE ACTUAL RESULTS ACHIEVED BY THE L FUND, OR
ANY OTHER RIDGEWOOD ENREGY FUND, WILL VARY, PERHAPS SUBSTANTIALLY, FROM THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS SHORT SUMMARY AND COULD BE
MATERIALLY WORSE. POTENTIAL INVESTORS MUST REVIEW FULLY THE ENTIRE CONFIDENTIAL
OFFERING MEMORANDUM, INCLUDING RISK CONSIDERATIONS AND TRACK RECORD, TO
UNDERSTAND THE MANY RISKS ASSOCIATED WITH AN INVESTMENT IN THE L FUND.

                                       iii
<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                      PAGE

<S>                                                                                                    <C>
SUMMARY OF PROGRAM.......................................................................................i
GENERAL..................................................................................................1
INVESTOR SUITABILITY STANDARDS...........................................................................2
MANAGER..................................................................................................3
PROPOSED ACTIVITIES......................................................................................4
USE OF PROCEEDS.........................................................................................11
RISK CONSIDERATIONS.....................................................................................11
         General Risks Related to Natural Gas Exploration, Drilling Pipeline and Operations.............12
         Particular Risks Related to the Shares.........................................................16
TERMS OF THE OFFERING...................................................................................22
PLAN OF DISTRIBUTION....................................................................................23
PARTICIPATION IN COSTS AND REVENUES.....................................................................24
COMPENSATION............................................................................................27
FIDUCIARY RESPONSIBILITIES OF MANAGER...................................................................28
CONFLICTS OF INTEREST...................................................................................32
MANAGEMENT..............................................................................................34
TAX ASPECTS.............................................................................................37
ADDITIONAL ASPECTS OF LLC AGREEMENT.....................................................................67
LIABILITY...............................................................................................71
OTHER INFORMATION.......................................................................................72
         General........................................................................................72
         Authorized Sales Material......................................................................72
LEGAL MATTERS...........................................................................................73
LITIGATION AND OTHER PROCEEDINGS........................................................................73
DEFINITIONS.............................................................................................77

                                 LIST OF TABLES

USE OF PROCEEDS.........................................................................................11
COMPENSATION............................................................................................27

                                LIST OF EXHIBITS

FORM OF LLC AGREEMENT............................................................................EXHIBIT A
RIDGEWOOD ENERGY CORPORATION TRACK RECORD........................................................EXHIBIT B
FINANCIAL STATEMENTS OF RIDGEWOOD ENERGY CORPORATION.............................................EXHIBIT C
INVESTOR SUBSCRIPTION BOOKLET (BOUND SEPARATELY).................................................EXHIBIT D
</TABLE>

<PAGE>

                                     GENERAL

     Certain provisions of the Fund's Limited Liability Company Agreement ("LLC
Agreement") and Subscription Agreement are summarized in several places
throughout this Memorandum. Although the Fund Manager believes that the most
important provisions of these legal documents are properly described in this
Memorandum, provisions that may be important to you may not be described to your
satisfaction. Therefore, if the legal document differs from its description in
this Memorandum, the provisions of the legal document will control.

     The DEFINITIONS section begins on page 77.

     You should rely only on the information contained in this document. The
Fund has not authorized anyone to provide you with information that is
different. However, the Fund understands that you may need additional
information before making a decision to buy Shares. The Fund will provide you
with any relevant additional information that the Fund has, can obtain or
prepare without unreasonable effort or expense. However, you should only rely on
that additional information if it is given to you in writing and is signed on
behalf of the Fund. Because the Shares are being offered in a private offering,
if you receive this Memorandum or other offering materials and do not buy
Shares, you agree to return the Memorandum and other materials to us.

     IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE FUND AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND
RISKS INVOLVED. THE SHARES OF THE FUND HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

     THE SHARES OF THE FUND ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE LLC
AGREEMENT AND UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY WILL HAVE TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

     THE SHARES OF THE FUND ARE BEING OFFERED PURSUANT TO RULE 506 OF REGULATION
D PROMULGATED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, AND THE
RELEVANT SECURITIES LAWS AND REGULATIONS OF CERTAIN STATES.

                                       1
<PAGE>

Forward-Looking Statement

     Except for historical information, the Fund has made statements in this
Memorandum and its exhibits that constitute forward-looking statements, as
defined by the federal securities laws, including the Private Securities
Litigation Reform Act of 1995. These statements are subject to risks and
uncertainties. Forward-looking statements include statements made regarding
events, financial trends, future operating results, financial position, cash
flows and other general information concerning possible or assumed future
results of operations of the Fund or any prior Ridgewood Energy Program.
Investors are cautioned that such statements are only predictions, forecasts or
estimates of what may occur and are not guarantees of future performance or of
the occurrence of events or other factors used to make such predictions,
forecasts or estimates. Actual results may differ materially from those results
expressed, implied or inferred from these forward-looking statements and may be
worse. Finally, such statements reflect the Fund's current views. The Fund
undertakes no obligation to publicly release the results of any revisions to the
forward-looking statements made herein to reflect events or circumstances that
occur after today or to reflect the occurrence of unanticipated events, provided
however, that the Fund will undertake to update this Memorandum to reflect
events which materially change the nature of this Offering that occur prior to
the termination of the Offering.

                         INVESTOR SUITABILITY STANDARDS

AN INVESTMENT IN THE SHARES OF THE FUND IS ILLIQUID AND INVOLVES SIGNIFICANT
RISKS AND IS NOT A SUITABLE INVESTMENT FOR ALL PROSPECTIVE INVESTORS. See Risk
Considerations.

Investor Qualifications
-----------------------

     The Securities Act of 1933, as amended (the "Act"), the rules and
regulations promulgated thereunder by the Securities and Exchange Commission
(the "Commission") and certain state laws and regulations impose limitations on
the persons who may invest in Shares of the Fund and from whom subscriptions may
be accepted. Accordingly, the Fund is offering and selling Investor Shares only
to "Accredited Investors" (as defined by the Commission), which include

     o    individuals whose individual net worth, or joint net worth together
          with their spouse's, exceeds $1,000,000 at the time of purchase;

                                       2
<PAGE>

     o    individuals whose income exceeded $200,000 in each of the two most
          recent years or whose joint income with their spouses' exceeded
          $300,000 in each of those years, if they reasonably expect to reach
          the same income level in the current year;

     o    employee benefit plans that either have assets in excess of $5 million
          or that have the investment decisions made by a plan fiduciary that is
          a bank, savings and loan association, insurance company or registered
          investment advisor;

     o    self-directed employee benefit plan accounts, if the investment
          decision is made solely by a person that is an Accredited Investor;

     o    banks, trust companies, savings and loan associations and certain
          other financial institutions, whether acting as fiduciaries or for
          their own accounts; or

     o    any other "Accredited Investor" as that term is defined in the
          Commission's Regulation D (see Definitions - Accredited Investor).

     IF YOU DO NOT MEET THE REQUIREMENTS DESCRIBED ABOVE, DO NOT READ FURTHER
AND RETURN THIS MEMORANDUM TO RIDGEWOOD SECURITIES CORPORATION. IF YOU DO NOT
MEET SUCH REQUIREMENTS, THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL
SHARES OF THE FUND TO YOU.

     Except in certain limited circumstances, United States federal law
prohibits the holding of interests in federal oil and gas leases by persons who
are not citizens or nationals of the United States and by entities (including
U.S. entities), which are owned or controlled by non-U.S. nationals. Each
prospective Investor must represent whether he or she is a citizen or national
of the United States or, if the Investor is an entity, whether any controlling
interest in it is owned by a person who is not a citizen or national of the
United States. The Fund shall have absolute discretion to refuse to accept a
subscription from such non-U.S. citizens or entities if necessary to comply with
such federal law.

                                     MANAGER

     The Manager of the Fund is Ridgewood Energy Corporation, a Delaware
corporation that is wholly owned by Robert E. Swanson. The Manager's principal
office is 1010 Northern Boulevard, Suite 208, Great Neck, New York 11021.

                                       3
<PAGE>

                                EXECUTIVE SUMMARY

     This Executive Summary is provided for the convenience of prospective
Investors. It is general in nature and omits many material details that are
discussed in the remainder of this Memorandum. Investors must read the entire
Memorandum in order to understand the many significant exceptions to the general
statements made here.

PROPOSED ACTIVITIES
-------------------

     The primary investment objective of the Fund is to generate current cash
flow for distribution to Investors from the acquisition, drilling, completing
and development of natural gas prospects in the offshore waters of Texas and
Louisiana in the Gulf of Mexico ("Projects" or "the Fund's Projects"). It is
impossible at this time to identify specifically the Projects in which the Fund
will invest or the drilling and other activities in which the Fund will engage
for a variety of reasons. Among these reasons are that the Fund has yet to
acquire Working Interests in any natural gas lease and will do so only after
this Offering is completed, when the amount of capital available to the Fund is
known. The Manager will make decisions as to the management, business, and
affairs of the Fund in its sole discretion and judgment as to what is in the
best interest of the Fund. The Manager intends to cause the Fund to acquire
interests in as many Projects as is possible, given the funds raised, the size
of the interest acquired, and risk considerations. The Manager anticipates that
all of the Fund's Projects will be located in the offshore waters of the Gulf of
Mexico. However, at the present time the Fund has not committed to any specific
sites, leases of regions of the Gulf of Mexico. No geological, engineering or
other information about any specific area is included in this Memorandum and the
Fund is not committing to provide any such information to an Investor. The
decision of the Fund to acquire a Project, the size and nature of the interest
acquired, and the terms of such acquisition will be based upon evaluations of
the various properties conducted by the Manager after consultation with
independent geologists or engineers. See Risk Considerations.

     With that background, the Manager of the Fund, in its sole discretion,
intends to invest in one or more of the following Projects:

     o    Lower risk developmental Projects which are already connected to the
          natural gas pipelines, or which are near the pipeline infrastructure
          and can be connected quickly.

     o    Higher risk exploratory Projects which may include deep drilling below
          15,000 feet and which have very high economic potential but which may
          be near pipeline infrastructure. The higher risk projects would, if
          successful, generally include a substantial amount of development
          capital which would have lower risk, but at the same time, greater
          economic potential.

                                       4
<PAGE>

     o    Non-Consent Interests, which may include interests acquired from prior
          Ridgewood Energy Programs.

     o    Ownership, development, construction, installation, acquisition,
          and/or operation of natural gas infrastructure assets, including
          pipelines, equipment and other assets, located or to be located in the
          offshore waters of the Gulf of Mexico, that are used to gather,
          process, transport and market natural gas and natural gas liquids.

In addition, the Fund's activities may result in certain tax benefits,
consisting principally of deductions for intangible drilling costs, depletion,
and depreciation. See Tax Aspects.

Working Interest in Natural Gas Leases
--------------------------------------

     The Projects that may be acquired by the Fund are expected to be located in
the waters of the Gulf of Mexico offshore from Louisiana and Texas located in
the Gulf of Mexico on the Outer Continental Shelf ("OCS"). The Fund anticipates
that its operations and activities would then be governed by the Outer
Continental Shelf Lands Act ("OCSLA"), which was enacted in 1953.

     Under OCSLA, as amended, the federal government has jurisdiction over oil
and natural gas development on the OCS. Pursuant to the OCSLA, the Secretary of
the Interior is empowered to sell exploration, development and production leases
of a defined submerged area of the OCS - a "Block" - through a competitive
bidding process. Such activity is conducted by the Minerals Management Services
("MMS"), an agency of the United States Department of Interior. As part of the
leasing activity and as required by the OCSLA, the leases auctioned include
certain lease terms such as the length of the lease, the amount of royalty to be
paid, lease cancellation and suspension, and, to a degree, the "planned
activities" of exploration and production to be conducted by the lessee. In
addition, the OCSLA grants the Secretary of the Interior continuing oversight
and approval authority over exploration plans throughout the term of the lease.

     The winning bidder(s) in the auction - or Lessee(s) - are given a lease by
the MMS that grants such lessee the exclusive right to conduct oil and natural
gas exploration and production activities within a specific lease Block. The
Lessee's rights to conduct such activities are called "Working Interests".
Leases in the OCS are generally issued for a primary lease term of 5, 8 or 10
years depending on the water depth of the lease Block. The 5-year lease term is
for Blocks in water depths generally less than 400 meters, 8 years for depths
between 400 meters to 800 meters, and 10 years for depths in excess of 800

                                       5
<PAGE>

meters. During this "primary lease term", except in limited circumstances,
Lessees are not subject to any particular requirements to conduct exploratory or
development activities. However, once a Lessee drills a well and begins
production, the lease term is extended for so long as the well continues in
commercial production.

     The Lessee of a particular Block, for the term of the lease, has the right
to drill and develop exploratory wells and conduct other activities throughout
the Block - i.e. Working Interests. If initial wells on the Block are
successful, a Lessee (or the Operator) may conduct various geological studies
and may determine to drill additional exploratory wells. If an additional
exploratory well is to be drilled in the Block, each Lessee owning Working
Interests in the Block must be offered the opportunity to participate in, and
cover the costs of, such exploratory well up to that particular Lessee's Working
Interest ownership percentage. Generally, if the Lessee elects to not
participate in the additional well, it will lose its rights to such additional
well. The rights of such non-participating Lessee to participate in such
additional well in the Block will then either be acquired by the remaining
Lessees or sold to third parties. Such rights are called Non-Consent Interests
because they arise as a result of an existing Working Interest owner's failure
to "consent" to supply additional capital for drilling new wells or other
activities. Ultimately, Non-Consent Interests revert back to the original
Working Interest owner upon the recoupment by the Non-Consent Interest owner of
a penalty amount from the production attributable to the non-consent interest.
While the Manager intends to focus primarily on Working Interests, any
Non-Consent Interest that the Fund will investigate or invest in will have
significant potential for economic returns to Investors.

     Generally, the Working Interests in an offshore gas lease under the OCSLA
are burdened by a 16.67% royalty payable to the federal government. Therefore,
the net revenue interest of the holders of 100% of the Working Interest in the
Projects in which the Fund will invest is approximately 83.33% of the total
revenue of the Project, further reduced by any other royalties that apply to a
lease block. However, as described below, the MMS has adopted royalty relief for
existing OCS leases for those who drill deep gas wells.

MMS Deep Gas Royalty Incentive:  Royalty Relief
-----------------------------------------------

     On January 26, 2004, the MMS promulgated new rules providing for incentives
for companies to increase deep natural gas production in the Gulf of Mexico
("Royalty Relief Rule"). Under the Royalty Relief Rule, the MMS will suspend
royalties otherwise applicable for a certain amount of natural gas production
when companies take the risk of exploring and developing deep-gas wells in
shallow-water areas that they have already leased. The MMS believes that by
providing this royalty suspension incentive for such wells, natural gas
production can come online quickly because the infrastructure (i.e., platforms

                                       6
<PAGE>

and pipelines) to some degree is already in place. Under the Royalty Relief
Rule, lessees will be eligible for royalty relief on their existing leases if
they drill for new and deeper reserves at depths greater than 15,000 feet below
sea level. In addition, an even larger royalty relief would be available for
wells deeper than 18,000 feet.

Public Policy for MMS Royalty Relief
------------------------------------

     The Royalty Relief Rule illustrates a number of extremely important points.
The motivation of the government, or the public policy behind the Royalty Relief
Rule, is to stimulate exploration for major new gas fields in that part of the
US where:

     o    Government geologists and industry geologists generally agree that the
          Gulf of Mexico represents the highest short term potential for
          discovering major new gas fields in the lower 48 states.
     o    These major new gas fields are located on the continental shelf of the
          Gulf of Mexico where there exists an enormous pipeline infrastructure
          enabling those gas wells to quickly be brought on production.

     It should be noted that the Royalty Relief Rule does not extend to deep
waters of the Gulf of Mexico off the continental shelf. The Royalty Relief Rule
is limited to leases in a water depth less than 600 feet. The U.S. Government
has leased massive areas of the Gulf in deep waters, and in ultra deep waters,
which basically are areas with water depth of 1,000 feet to 10,000 feet. The
government did not extend the Royalty Relief Rule to the deep waters and ultra
deep waters because there is no pipeline infrastructure in place to quickly
bring those discoveries to market. The government gave the royalty relief where
gas, if found, can quickly benefit the U.S. economy by coming to market.

     The government wants to encourage significant amounts of new natural gas to
be developed and come to market. Basically, the government needs massive amounts
of gas to be discovered. Over the past 50 years, tens of thousands of shallow
wells have been drilled on the continental shelf of the Gulf of Mexico. The
government does not expect significant massive new discoveries to be found at
shallow depths.

     Drilling of the Gulf of Mexico at horizons deeper than 15,000 feet is
basically virgin exploratory territory in the Gulf. Only a few percent of the
total wells drilled in the Gulf have been deeper than 15,000 feet, and less than
1% of all wells have been drilled deeper than 18,000 feet. See Risk
Considerations.

Improved Seismic Data Reduces Risk for Deeper Drilling
------------------------------------------------------

     Drilling wells deeper than 15,000 feet is technologically feasible, but it
is more expensive. (Drilling below 25,000 feet gets technologically more

                                       7
<PAGE>

difficult due to extremes of heat and pressure, which challenge traditional
drilling techniques and materials). In addition to Royalty Relief for deep
wells, two primary reasons for the interest in deeper drilling are:

     o    Much higher natural gas prices make projects much more profitable.

     o    Vastly improved three dimensional seismic data provides more
          information about geologic structures below 15,000 feet, thereby
          reducing, but by no means eliminating, the risk involved.

Natural Gas Pipeline and Gathering Infrastructure
-------------------------------------------------

     It was estimated in a report by the National Petroleum Council to the U.S
Department of Energy that investment in pipeline and distribution
infrastructure, both to maintain existing infrastructure and expand, will
average $8 billion per year. Therefore, as demand for natural gas further
outstrips supply more pipelines and other gathering infrastructure will be
needed. Although the Manager intends to focus primarily on obtaining interests
in natural gas wells, opportunities in the area of pipeline and gathering
infrastructure may arise, either independently or in conjunction with or as part
of a Working Interest. The Manager, in its discretion, may conclude that an
investment by the Fund in such infrastructure and activities is in the best
interests of the Fund.

     Natural gas midstream activities are essentially the gathering and
processing of natural gas. Natural gas gathering systems normally consist of one
or more small diameter pipelines that are connected to and deliver raw natural
gas from the well head, where is it extracted from the earth, to a central
processing point. Once gathered through these pipelines from individual wells to
a processing facility, the natural gas is processed so that it can meet the
requirements and specifications of and be transported through "downstream"
interstate pipelines. Generally, processing facilities remove impurities from
the raw natural gas extracted from the wells. Such impurities include certain
natural gas liquids (which can be sold separately), water, carbon dioxide or
sulfur, which might corrode a steel pipeline, or inert gases, such as helium,
that could reduce the energy value of the gas.

     The production and gathering of natural gas are generally not subject to
significant government regulation and are exempt from the jurisdiction of the
Federal Energy Regulatory Commission ("FERC"), which, among other things, sets
the rates that a jurisdictional pipeline can charge for its capacity. Although
the Fund will focus primarily on Working Interests, if it does invest in
gathering and processing Projects, it will attempt to limit its investments and
activities to the natural gas gathering system, which generally is unregulated.
The Funds can not guarantee that part of its activities will not involve, even
if tangentially, pipelines that could be considered as an interstate pipeline
and thus subject to FERC regulation. See Risk Considerations.

                                       8
<PAGE>

Natural Gas Agreement
---------------------

     As of the date of this Offering, no definitive arrangements have been made
for the sale or transportation of natural gas that may be produced from the
Projects or transported on any pipelines that the Fund may own. The Fund
believes, however, that it is likely that gas from the Projects described herein
will have access to pipeline transportation and can be marketed. See Risk
Considerations.

Voluntary Additional Capital Contributions and Supplemental Offering of Shares
------------------------------------------------------------------------------

     The LLC Agreement does not provide for any mandatory assessments of capital
from Investors. This means that the Fund cannot require any Investor to
contribute more money after such Investor completes his subscription and pays
his initial Capital Contributions.

     The Fund anticipates that the net funds to be raised by this Offering will
be adequate to pay and provide sufficient reserves for the Fund's share of all
costs of acquiring, drilling and completing the Projects described in this
Memorandum. However, if the Fund should require additional cash in the future
for certain purposes such as drilling, completing and developing additional
wells or if the Manager determines that the Fund should participate in drilling,
completing, equipping, re-working or re-entering any such additional well
("Additional Well Activities"), the Manager may determine, in its discretion, to
fund these Additional Well Activities through the use of Fund cash flow or by
borrowing. (Although the Manager has authority to borrow money, no Alphabet Fund
has ever borrowed money, and the Manager does not intend to borrow in the
future.) Alternatively, the Fund may, but is not obligated to, ask Investors, if
they desire, to participate in these Additional Well Activities by making
voluntary "Additional Capital Contributions".

     If voluntary Additional Capital Contributions are requested by the Fund to
fund Additional Well Activities, the Manager will do so through a supplemental
offering of shares in the Fund. The LLC Agreement provides the Manager with
discretion in determining the nature, scope, amount and terms of such
supplemental offering. Such discretion is necessary in order to provide the
Manager with sufficient flexibility to fashion such supplemental offering in a
way that best responds to the proposed project, as well as market conditions
that exist at that time. In any event, the opportunity to participate in such
supplemental offering of shares and make Additional Capital Contributions will
be apportioned among all Investors in proportion to their initial Capital
Contributions. If Investors who elect to make Additional Capital Contributions
do not supply all of the necessary Additional Capital Contributions requested,

                                       9
<PAGE>

the Manager in its discretion may request the Investors or any group thereof or
other persons to fund the shortfall with Additional Capital Contributions or, in
certain circumstances, loans.

     An Investor who elects not to participate in any supplemental offering of
shares and does not provide Additional Capital Contributions for such Additional
Well Activities will have no interest in such Additional Well Activities, but
will retain his interest in the Projects in which the Fund has already invested.

Insurance
---------

     The Fund or Manager will seek to obtain hazard, property, general liability
and other insurance in commercially reasonable amounts to cover the Projects, as
well as general liability and similar coverage for the Fund's business
operations. The Manager has obtained what it believes to be adequate insurance
for prior Ridgewood Energy Programs. In this case, there can be no assurance,
however, that insurance on the Projects or the Fund will be adequate in scope or
amount to protect the Fund from material losses related to the Projects. In
addition, the Manager's past practice has been to obtain insurance as a package
that is intended to cover most, if not all, of the Ridgewood Energy Programs.
While the Manager believes that it has procured insurance sufficient to insure
against most risks, the possibility does exist that depending on the occurrence,
insurance may not be adequate to cover the entire loss sustained, if any, by the
Fund. See Risk Considerations.

Operator
--------

     Currently, the Fund anticipates that any Project in which it may invest
will be operated and controlled by an unaffiliated third-party entity acting as
Operator for the Projects. The Operator is responsible for drilling,
administration and production activities for leases jointly owned by Working
Interest owners and acts for the account of all Working Interest owners under
the terms of the applicable Operating Agreements. Typically, Operating
Agreements limit the Operator's liability and provide for incentives for Working
Interest owners to remove an Operator, although the Operator typically may
resign at any time. In certain circumstances, Operators will enter into
agreements with independent third-party subcontractors and suppliers to provide
the various services required for operating leases. The Fund has not discussed
or negotiated with any party to act as Operator of any of the Fund's Projects.

Salvage Fund
------------

     As to Projects in which the Fund owns a Working Interest, the Fund will
(and may be required by the Operating Agreement to) reserve and set aside each
month in a separate interest-bearing account (a "Salvage Fund"), a portion of

                                       10
<PAGE>

the Fund's share of net revenue, if any, that the Fund may receive from the
production and sale of natural gas from each such Project. The purpose of the
Salvage Fund, which is in the nature of a sinking fund, is to provide for the
Fund's proportionate share of the anticipated gross cost net of anticipated
salvage value ("Anticipated Salvage Cost") of dismantling production platforms
and facilities, plugging and abandoning the wells, and removing the platforms,
facilities and wells in respect of each of such Projects after their useful
life, in accordance with applicable federal and state laws and regulations.
There is no assurance that the Salvage Funds will have sufficient assets to meet
these requirements, and any unfunded expenses will be a liability of the Fund.
Any portion of a Salvage Fund that remains after the Fund pays its share of the
actual salvage cost will be distributed to the Shareholders. Payments to each
Salvage Fund will reduce the amount of cash distributions that may be made to
Shareholders by the Fund.

                                 USE OF PROCEEDS
<TABLE>
<CAPTION>
                                                            Maximum Proceeds*           Minimum Proceeds
<S>                                                         <C>            <C>           <C>         <C>
Investment Fee to Manager                                   $2,362,500     (4.5%)        $67,500     (4.5%)
Selling Commissions                                          4,200,000       (8%)        120,000       (8%)
Placement Agent Fee                                            525,000       (1%)         15,000       (1%)
Organizational,  Distribution  and Offering Fee (including   1,837,500     (3.5%)         52,500     (3.5%)
legal,  accounting,  engineering  and geologic  consulting
fees, printing, filing fees, etc.)
Participation in Properties and Fund Operations             43,575,000      (83%)      1,245,000      (83%)
Total Proceeds from Offering **                            $52,500,000     (100%)     $1,500,000     (100%)
</TABLE>

* The Fund may in its sole discretion expand the offering up to $100,500,000.
** Regardless of the gross proceeds of the Offering, the percentages associated
with the Investment Fee (4.5%), Selling Commissions (8%), Placement Agent Fee
(1%) and Organizational, Distribution and Offering Fee (3.5%) will remain the
same. The annual Management Fee (2.5%) will be included as a part of Fund
Operations.

     Under the LLC Agreement, the Fund may commence operations with a minimum
gross proceeds of $1,500,000 and a maximum of $52,500,000 (or $100,500,000 if
the Fund is expanded in the Manager's discretion). After payment of the
Investment Fee, selling commissions, Placement Agent Fee, Organizational,
Distribution and Offering Fee, the Fund will have net funds of a minimum of
$1,245,000 and a maximum of $43,575,000 (or more if the Fund is expanded by the
Manager) available for investment in the Fund's Projects and operations.

                               RISK CONSIDERATIONS

     Investment in natural gas exploration and drilling or in natural gas
infrastructure activities involves substantial risks and potential conflicts of
interest and is suitable only for those persons who meet the Investor
Suitability Standards, have a substantial net worth, have no need for liquidity

                                       11
<PAGE>

from such investment, understand and are prepared to assume the substantial
risks discussed below, and are able to bear the potential loss of the entire
investment. Each prospective Investor should consider carefully the risk factors
attendant to the purchase of Shares, including without limitation, those
discussed below, and each should review the investment with his own legal, tax
and financial advisors.

                GENERAL RISKS RELATED TO NATURAL GAS EXPLORATION,
                       DRILLING, PIPELINES AND OPERATIONS

Drilling Activities May Not Be Productive
-----------------------------------------

     Drilling for natural gas involves numerous risks, including the risk that
the well will not have commercially productive natural gas reservoirs. The costs
of drilling, completing and operating wells are often uncertain and drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including:

     o    Unexpected drilling conditions;

     o    Pressure or irregularities in formations;

     o    Equipment failures or accidents;

     o    Fires, explosions, blow-outs and surface cratering;

     o    Marine risks such as capsizing, collisions and hurricanes;

     o    Adverse weather conditions; and

     o    Shortages or delays in the delivery of equipment.

     Therefore, drilling activities may not be successful and, if unsuccessful,
could have an adverse effect on future results of the operations and financial
conditions of the Fund. Drilling natural gas wells is speculative, may be
unprofitable, and may result in the total loss of your investment. While all
drilling, whether developmental or exploratory, involves these risks,
exploratory drilling involves greater risks of Dry-Holes or failure to find
commercial quantities of natural gas. Therefore, drilling activities may be
unprofitable, not only from non-productive wells, but also from wells that do
not produce natural gas in sufficient quantities or quality to return a profit
on the amounts expended.

Gas Reserve Data, Gas Prices and Future Net Revenue Estimates are Uncertain
---------------------------------------------------------------------------

     Estimates of reserves by necessity are projections based on engineering
data, the projection of future rates of production, and the timing of future
expenditures. The process of estimating natural gas reserves requires
substantial judgment on the part of the petroleum engineers, resulting in
imprecise determinations, particularly with respect to new discoveries. The Fund

                                       12
<PAGE>

will review the reserve analysis provided by the Operators. However, engineers
who are not retained by Operators may make different estimates of reserve
quantities and revenues attributable to those reserves based on the same data.
The Fund may retain such independent engineers to review the Operator's reserve
analysis and/or conduct an independent review. In any event, future performance
that deviates significantly from reserve reports could have a material adverse
effect on the Fund's operations, business and prospects, as well as on the
amounts and carrying values of such reserves.

     In addition, the Fund's revenues, profitability, and cash flow are highly
dependent on the prices of natural gas, which are affected by numerous factors
beyond the Fund's control. Gas prices historically have been very volatile.
There can be no guarantee that natural gas prices in the future will be
sufficient to make a profit on the sale of the Fund's natural gas.

Geological information and studies may not be available or fully developed when
the Fund is considering investments nor is the Fund required to provide such
information, when available, to Investors.
--------------------------------------------------------------------------------

     The Fund expects to utilize the net proceeds from this Offering for the
acquisition, exploration and development of as yet unidentified Projects. As a
result, prospective Investors may not have an opportunity to evaluate any such
Projects before investing, nor will they have a voice in the selection of such
Projects after investment in the Fund. In addition, when such geological and
other technical information regarding a Project does become available to the
Fund, neither the Manager nor the Fund is required to (but in its discretion
may) provide such information to Investors. Consequently, prospective Investors
will be relying upon the judgment of the Manager for such investment decisions.

The Success of an Investment in Natural Gas Infrastructure Projects is subject
to Risks Beyond the Fund's Control.
--------------------------------------------------------------------------------

     The business of transporting, gathering and processing natural gas for
third parties is subject to substantial risks. The volume of natural gas
involved in these activities depends on the actions of such third parties, and
is beyond the Fund's control. Further, the following factors, most of which are
beyond the Fund's control, may adversely impact the Fund's ability to maintain
or increase its services and, thereby, its revenues, negotiate or renegotiate
contracts, or to remarket unsubscribed pipeline capacity:

     o    price competition;

     o    drilling activity and supply availability;

     o    changes in regulation and actions of regulatory bodies;

                                       13
<PAGE>

     o    credit risk of customer base;

     o    increased costs of capital; and

     o    natural gas and liquids prices.

Operating Risks may cause substantial losses; Insurance may not protect the Fund
against all these risks
--------------------------------------------------------------------------------

     Ridgewood Energy carries insurance on all of its properties. Ridgewood
carries certain deductibles on many policies that must first be paid before
collecting under the policy. In addition, the Operating Agreement normally
requires the Operator to carry insurance to cover its activities under the
Operating Agreement. Nevertheless, risks include: fires; explosions; blow-outs;
uncontrollable flows of gas, formation water or drilling fluids; natural
disasters; pipe or cement failures; casing collapses; abnormally pressured
formations; acts of terrorism; and environmental hazards such as natural gas
leaks and pipeline ruptures. Insurance to cover some of these risks may be
prohibitively expensive or unavailable, particularly as to acts of terrorism.

     Offshore operations are subject to a variety of operating risks peculiar to
the marine environment, such as capsizing, collisions and damage or loss from
hurricanes or other adverse weather conditions. These conditions can cause
substantial damage to facilities and interrupt production. As a result, the Fund
could incur substantial liabilities that may not be covered entirely by
insurance that could reduce or eliminate the funds available for exploration and
development programs and acquisitions, or result in loss of its interest in the
Projects. Having stated the above, in Ridgewood Energy's first 18 years in the
Gulf of Mexico such losses, including occasional storm damage, have been covered
by insurance, except for deductible amounts on the policies.

Risks of Government Regulation
------------------------------

     The natural gas exploration, drilling and development business could be
subject to government regulation under which, among other things, rates of
production from gas wells may be regulated. Government regulations may also
impact the market for the Fund's natural gas, which could adversely affect the
price at which such gas is sold. Government regulations affecting environmental
matters or offshore drilling and exploration activities could adversely impact
the Fund's activities. Finally, while the gathering and processing of natural
gas is generally not subject to rate regulation, under certain circumstances,
the FERC may attempt nevertheless to exercise such jurisdiction. There is no way
for the Fund to predict the nature and extent to which such regulations or other
political activity may affect the Fund's operations.

                                       14
<PAGE>

Reliance on Third Parties
-------------------------

     The Fund does not own any drilling equipment nor does it maintain a staff
for on-site operations. Accordingly, it must rely completely upon the Operators
and other third parties over whom the Fund or Manager have little or no control
for analysis, information, studies, drilling and other operations with respect
to the projects in which it invests. Moreover, the Manager is under no duty to
share with Investors technical information regarding operations and drilling
from the Operator. As a result, Investors are relying exclusively on the Manager
to adequately manage any such relationship with a third party.

Joint Activities With Others
----------------------------

     It is anticipated that the Fund will own a minority interest of the full
Working Interests in the Projects to be developed and that persons unrelated to
the Fund and the Manager will own the majority of the Working Interests. While
the Fund would have the right to participate in decisions affecting the
development of those wells, important decisions with respect to development
activities, which may be detrimental to the Fund may be controlled or affected
by the other owners of Working Interests in such Projects. Finally, the Fund
could be held liable for the joint activity obligations or the tort actions of
such other Working Interest owners, and this liability could in turn result in
liability for the Manager.

     If the Fund's co-participants fail to pay their portion of the lease
acquisition, drilling, testing and, if appropriate, completion costs for any
lease, the ventures may lack sufficient funds to perform such work. If the Fund
as a joint venturer or as a Working Interest owner does not contribute funds for
additional wells proposed by other participants, the Fund will lose all of its
rights to production from those additional wells. Moreover, while the Fund will
monitor and participate in decisions affecting exploration and development of
the leases or wells in which the Fund acquires a Working Interest or Non-Consent
Interest, decisions with respect to lease exploration and development activities
may be controlled by the other participants since the Fund in many cases is
expected to own less than a 50% interest in each of such leases or wells.

     Further, the Fund will not originate and does not expect to operate any of
the leases in which it acquires an interest. For that reason, Investors must not
only bear the risk that the Fund will be able to select suitable Projects, but
also that, once acquired, such Projects will be managed prudently, efficiently
and fairly by their Operators. Furthermore, certain Working Interests in
Projects that may be acquired by the Fund may be subject in some

                                       15
<PAGE>

cases to expenses credited in favor of the persons from whom such leases and
Projects were acquired, which interests and expenses will be in addition to the
Manager's fees and interests described herein.

Salvage Fund may be Insufficient
--------------------------------

     As indicated above, the Fund may be required to create a Salvage Fund to
cover certain Anticipated Salvage Costs. There is no assurance that the Salvage
Funds will have sufficient assets to meet these requirements, and the Fund maybe
liable for its percentage share of unfunded expenses.

Ownership of Federal Leases
---------------------------

     Federal law prohibits, with certain limited exceptions, the holding of
interests in federal oil and natural gas leases by (i) persons who are not
citizens or nationals of the United States and (ii) entities that are owned or
controlled by non-United States nationals. Since the Fund intends to acquire
interests in federal leases, each Investor must disclose in the Investor
Subscription Booklet his nationality or, in the case of an entity, the
nationality of its equity owners. Prospective Investors who are not United
States citizens or nationals or which are owned or controlled in whole or in
part by non-U.S. nationals must so inform the Fund when completing their
Subscription Documents. The Fund has the sole discretion to refuse to accept a
subscription from non-United States citizen or national if by accepting such
subscription, as determined by the Manager in its sole discretion, a risk exists
that a federal lease will be canceled or forfeited or that the Fund will be
unable to acquire an interest in a federal lease.

                     PARTICULAR RISKS RELATED TO THE SHARES

Limited Transferability of Shares
---------------------------------

     Shares in the Fund will be an illiquid investment. There is no market for
the Shares, and, because there will be a limited number of persons who purchase
Shares and significant restrictions on the transferability of such Shares, it is
expected that no public market will develop. Moreover, neither the Manager nor
the Fund will provide any market for the Shares. Investors will generally be
prohibited from selling or transferring their Shares except in the circumstances
permitted under Article 13 of the LLC Agreement, and all such sales or transfers
require the consent of the Fund, which may withhold such consent in its sole
discretion. Accordingly, an Investor will have no assurance that he can
liquidate his investment in the Fund and must be prepared to bear the economic
risk of the investment until the Fund is terminated and dissolved.

     The illiquidity of and other significant risks associated with an
investment in the Fund make the purchase of Shares suitable only for an Investor

                                       16
<PAGE>

who has substantial net worth, who has no need for liquidity with respect to
this investment, who understands the risks involved, who has reviewed this
Memorandum and the Exhibits hereto and the risks involved with his tax, legal
and investment advisors, who can sustain the complete loss of the investment,
and who has adequate means of providing for his current and foreseeable needs
and contingencies.

Lack of Investor Participation in Management
--------------------------------------------

     Investors will not have the right, power or authority to participate in the
ordinary and routine management of the Fund or the Projects or to exercise
control over the decisions of the Fund. Under the LLC Agreement, the Manager is
granted the exclusive right to manage, control and operate the affairs and
business of the Fund and to make all decisions relating thereto and will have
full, complete and exclusive discretion with respect to all such matters.
Accordingly, no prospective Investor should purchase any Shares unless the
prospective Investor is willing to entrust all aspects of management of the Fund
to the Manager.

Limited Transferability of Fund Assets
--------------------------------------

     The Fund's interests in the Projects will be illiquid. The Fund does not
anticipate selling its interests, or any part thereof, in the Projects. However,
if the Fund were to attempt to sell any such interest, a successful sale would
depend upon, among other things, the operating history and prospects for the
well or interest therein being sold, proven natural gas reserves, the number of
potential purchasers and the economics of any bids made by them and the current
economics of the natural gas market. In addition, any such sale may result in
adverse tax consequences to the Fund and Investors.

     The Manager will have full discretion to determine whether any Project, or
any interest therein, should be sold and the Fund will have no obligation to
sell all or a portion of it, or retain it, for the benefit of Investors.
Investors may be required to remain in the Fund until it is terminated and
dissolved.

Limitations on Liability of Managing Persons to Fund
----------------------------------------------------

     The LLC Agreement, which is controlled by Delaware law, provides that the
Fund's officers and agents, the Manager, the affiliates of the Manager and their
respective directors, officers and agents when acting for the Manager or their
affiliates on behalf of the Fund (collectively, "Ridgewood Managing Persons")
will be indemnified and held harmless by the Fund from any and all claims rising
out of their management of the Fund, except for claims arising out of the bad
faith, gross negligence or willful misconduct of such persons or a breach of the
LLC Agreement by such persons. Therefore, an Investor may have

                                       17
<PAGE>

difficulty sustaining an action against any of the Ridgewood Managing Persons
based on breach of its or his fiduciary responsibility or other obligations to
the Fund. See Fiduciary Responsibilities of Manager - Indemnification and LLC
Agreement - Exhibit A.

Limited Ability to Spread Risk
------------------------------

     Because the Escrow Amount is $1,500,000, the Fund could be formed and
conduct operations upon receipt of $1,500,000 in Capital Contributions from
Investors. To the extent that the Fund does not receive substantial capital
contributions once it begins operations, its ability to spread risks over a
larger number of investments in Projects will be reduced.

Manager Will Receive Compensation
---------------------------------

     The Manager and its Affiliates will receive fees and compensation
throughout the life of the Fund. Inherent in the fee and compensation
arrangements are the possibility of conflicts between the best interests of the
Investors and the best interests of the Manager. The Manager may have incentives
to act in its best interests rather than in the best interest of the Investors.
See Compensation; Conflicts of Interest.

Expansion of the Fund may be Dilutive
-------------------------------------

     The Fund, in its discretion, may increase the maximum proceeds of this
Offering from $52,500,000 to $100,500,000 or more. If the Fund were to do so,
such increase would dilute the investment made by Investors prior to such
expansion. However, such expansion would result in increased capital, enabling
the Fund to invest in additional Projects and add diversification to the Fund's
portfolio of Projects.

Compensation of Manager and Affiliates Not Linked to Profitability
------------------------------------------------------------------

     Pursuant to the LLC Agreement, the Manager will receive certain fees and
reimbursement of expenses. The fees payable under the LLC Agreement may be
substantial and are payable whether or not the Fund operates at a profit. None
of the compensation to be received by the Manager was derived as a result of
arm's length negotiations.

Modification of Delaware Law
----------------------------

     The LLC Agreement contains certain provisions that modify what would
otherwise be the applicable Delaware law relating to the fiduciary standards of
the Manager to the Investors. The fiduciary standards in the LLC Agreement could
be less advantageous to the Investors and more advantageous to the Manager than
the corresponding fiduciary standards otherwise applicable under Delaware law.

                                       18
<PAGE>

Delaware Law Permits the Manager to Limit Investor Access to Certain
Information.
--------------------------------------------------------------------------------

     Delaware law permits Delaware limited liability companies to restrict
access to certain information provided that such restricted access is set forth
in the limited liability agreement. The Fund's LLC Agreement contains provisions
that do limit Investors access to certain sensitive or confidential information.
Therefore, Investors may not have the ability to obtain certain information from
the Fund. See, Limitations on Investor's Information Rights; LLC Agreement.

Limited Liability of Investors
------------------------------

     The Fund will be governed by the LLC Act under which, as a general rule, an
Investor's liability for the obligations of the Fund is limited to such
Investor's Capital Contribution and such Investor's share of the Fund's assets.
An Investor of the Fund will not otherwise be liable for the obligations of the
Fund unless, in addition to the exercise of his or her rights and powers as an
Investor, such Investor participates in the control of the business of the Fund.
In such case the Investor may be liable to persons who transact business with
the Fund with actual knowledge of the Investor's participation in control of the
Fund's activities. Accordingly, if an Investor were to take an action that was
subsequently determined to constitute participating in the control of the
business of the Fund, such Investor could potentially be exposed to liability
for Fund debts and obligations.

Projects Not Yet Identified or Selected
---------------------------------------

     The Fund expects to utilize the net proceeds from this Offering for the
acquisition, exploration and development of as yet unidentified Projects. As a
result, prospective Investors may not have an opportunity to evaluate any such
Projects before investing, nor will they have a voice in the selection of such
Projects after investment in the Fund. Consequently, prospective Investors will
be relying upon the judgment of the Manager for such decisions.

Uncertainty of Cash Distributions
---------------------------------

     No distributions will be made from the Fund to the Investors of the Fund
until the Fund has funds that the Manager determines are not needed for the
operation of the Fund. Accordingly, there is no assurance that any distributions
from the Fund will be made to its Investors. Distributions will depend primarily
on the Fund's net cash receipts from natural gas operations. Moreover,

                                       19
<PAGE>

distributions could be delayed to repay the principal and interest on Fund
borrowings, if any, or to fund Fund costs. Fund income will be taxable to the
Investors in the year earned, even if cash is not distributed.

Disparity in Shareholder Contributions
--------------------------------------

     While the Manager (in its capacity as such) generally will receive 15% of
distributions of the Fund, it will not contribute any cash to the Fund with
respect to its interests as Manager (except to the extent that Fund
Organizational, Distribution and Offering Expenses might exceed the
Organizational, Distribution and Offering Fee). Accordingly, the Investors are
expected to contribute substantially all of the funds actually utilized for Fund
activities. If the entire venture is unsuccessful, the Investors will bear 100%
of the loss (except to the extent that the Manager purchases Shares for its own
account). See Terms of Offering.

Risks of Potential Conflicts of Interest

     There are potential conflicts of interest involved in the operation of the
Fund. Some examples of these potential conflicts include:

     o    competing demands for management resources of the Manager among the
          prior Ridgewood Energy Programs;
     o    conflicts between the interests of the Manager and its Affiliates in
          receiving compensation from the Fund for investment activities,
          operating activities, and divestitures, as well as reimbursement for
          expenses, and the interests of the Investors;
     o    conflicts relating to the allocation of costs and expenses among the
          Fund and prior Ridgewood Energy Programs;
     o    conflicts arising from the fact that the Manager will not make a
          capital contribution in respect of its interest as such in the Fund,
          and that the Investors will supply all of the capital of the Fund;
     o    conflicts as to who will supply additional capital in the event the
          Fund were to require additional contributions; and
     o    the lack of independent representation of Investors in structuring
          this offering and in determining compensation.

See Conflicts of Interest

TAX RISKS

     The Fund is organized as a Delaware limited liability company and the
Manager intends to operate the Fund to qualify as a partnership for federal tax
purposes. The principal tax risks to the Investors are that: (A) the Fund may
recognize income taxable to the Investors but may not distribute enough cash to
cover the Investors' income tax on their shares of the Fund's taxable income;
(B) the allocation of Fund items of income, gain, loss, and deduction in the LLC

                                       20
<PAGE>

Agreement may not be respected for federal income tax purposes; (C) all or a
portion of the Fund's expenses could be considered either investment expenses
(which would be deductible by an Investor only to the extent the aggregate of
such expenses exceeded 2% of such Investor's adjusted gross income) or as
nondeductible items that must be capitalized; (D) all or a substantial portion
of the Fund's income could be deemed to constitute unrelated business taxable
income, such that tax-exempt Investors could be subject to tax on their
respective portions of such income; (E) if any income of the Fund is deemed to
be unrelated business taxable income, a charitable remainder trust that is an
Investor could have all of its income from any source deemed to be taxable; (F)
all or a portion of the losses, if any, allocated to the Investors will be
"passive losses" and thus deductible by the Investor only to the extent of
passive income; and (G) the Investors could have capital losses in excess of the
amount that is allowable as a deduction in a particular year.

     Although the Fund has obtained an opinion of counsel regarding the matters
described in the preceding paragraph, the Fund will not obtain a ruling from the
Internal Revenue Service (the "Service") as to any aspect of its tax status. See
Tax Aspects. The tax consequences of investing in the Fund could be altered at
any time by legislative, judicial, or administrative action. Prospective
Investors are urged to consult their own tax advisors prior to investing in the
Fund.

     The Service may audit the Fund's tax returns. Any audit issues will be
determined at the Fund level. If adjustments are made by the Service,
corresponding adjustments will be required to be made to the federal income tax
returns of the Investors, which may require payment of additional taxes,
interest, and penalties. Audit of a Fund return may result in examination and
audit of an Investor's return that otherwise might not have occurred, and such
audit may result in adjustments to items in the Investor's return that are
unrelated to the Fund. Each Investor must bear the expenses associated with an
audit of that Investor's return.

     In the event that an audit of the Fund by the Service results in
adjustments to the tax liability of an Investor, such Investor will be subject
to interest on the under payment and may be subject to substantial penalties.
The statutory rate of interest on deficiencies is presently 5% per annum
compounded daily. In addition, a number of substantial penalties could
potentially be asserted by the Service on any such deficiencies.

     Significant and fundamental changes in the nation's federal income tax laws
have been made in recent years and additional changes are likely. Any such
change may affect the Fund and the Investors. Moreover, judicial decisions,
regulations or administrative pronouncements could unfavorably affect the tax
consequences of an investment in the Fund. See Tax Aspects for a more in depth
explanation of the tax implications of investing in the Fund.

                                       21
<PAGE>

                              TERMS OF THE OFFERING

General Offering Terms
----------------------

     The current offering consists of a minimum of 10 Investor Shares
(representing Capital Contributions of $1,500,000) and a maximum of 350 Investor
Shares (representing Capital Contributions of $52,500,000) of beneficial
interest in the Fund that are offered at $150,000 per Share. Fractional Investor
Shares are available for purchase. The Fund may in its sole discretion expand
the maximum offering to 670 Investor Shares or more (representing Capital
Contributions of $100,500,000 or more) prior to the Termination Date in the
event that it determines that additional capital is required. The price for each
Investor Share is payable all in cash at the time the prospective Investor
delivers a completed and executed Subscription Agreement to the Fund, unless the
Fund decides in its sole discretion to accept a down payment after the Escrow
Date from persons who are financing the purchase of Investor Shares from sources
other than the Fund.

     All proceeds from the sale of Investor Shares must be deposited in a
separate segregated interest-bearing escrow account at U.S. Bank Trust National
Association until the Escrow Date, which is the date on which the Fund accepts
Investor subscriptions of at least $1,500,000 in the aggregate. The account will
be held in the name of "Ridgewood Energy L Fund LLC - Share Escrow Account" and
until the escrow conditions are fulfilled the Fund will not invest any funds, no
fees applicable to those subscriptions will be paid from the escrow account and
interest on the escrowed funds will be held in the escrow account. If 10
Investor Shares are not subscribed and paid for in collected funds by the close
of business on March 31, 2005, the Fund will terminate and the Investors'
Capital Contributions, together with any interest thereon, will be returned by
the escrow agent promptly to the Investors. If the escrow conditions are
fulfilled no later than March 31, 2005, the Fund's proceeds, net of fees
described below, will be maintained thereafter in the name of the Fund, in one
or more separate, segregated accounts at commercial banks chosen by the Manager.

     Funds released from the escrow account will be used to pay the Investment
Fee, Organizational, Distribution and Offering Fee, selling commissions and
Placement Agent Fee due at that time. Subsequent receipts from this offering
will be applied in the same manner when deposited. After payment of these fees,
the remaining funds will be used to develop the Fund's Projects.

     The termination date of this Offering of Investor Shares will be March 31,
2005 (the "Termination Date"). The Fund may in its sole discretion terminate

                                       22
<PAGE>

the initial offering of Investor Shares at any time before the Termination Date
or extend the scheduled Termination Date to any date or from date to date but in
no event beyond 90 days after the Termination Date.

     The Offering may be withdrawn by the Fund in its discretion and for any
reason at any time prior to the Termination Date as set by it. If the Offering
is withdrawn prior to satisfaction of the escrow conditions, then all cash
received from subscriptions will be returned promptly to the respective
subscribers, together with any interest earned on such amount. If the Offering
is withdrawn after the escrow conditions have been satisfied but prior to the
Termination Date, then all cash received from subscriptions, net of third party
fees, will be returned promptly to the respective subscribers, together with any
interest earned on such amount. For purposes of this provision, third party fees
shall not include those fees paid to the Manager or its affiliates.

     Prospective qualified Investors may subscribe for the purchase of Investor
Shares in the Fund by completing and executing in full all of the appropriate
documents contained in the Investor Subscription Booklet (separately bound as
Exhibit D) and delivering such documents, together with the purchase price, to
the Fund. The Investor Subscription Booklet includes: (i) a Subscription
Agreement, (ii) an Investor Questionnaire and (iii) a Purchaser Representative
Questionnaire. The Investor Subscription Booklet contains representations to be
made by prospective Investors, the violation of which may entitle the Fund, the
Manager and others to indemnification for any losses resulting therefrom.

                              PLAN OF DISTRIBUTION

     The Investor Shares will be offered on a "best-efforts" basis through
Ridgewood Securities Corporation (the "Placement Agent"), which is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. ("NASD"), and by other registered broker-dealers who may also serve as
purchaser representatives in connection with this offering. Robert E. Swanson,
the President and controlling member of the Manager and the President of the
Fund, is the President, registered principal and sole stockholder of the
Placement Agent. Selling commissions equal to 8% of the gross proceeds from the
sale of Investor Shares will be paid to the Placement Agent and to other
participating broker-dealers, as the case may be, and the Placement Agent will
be paid an amount equal to 1% of the aggregate Capital Contributions for serving
as placement agent (the "Placement Agent Fee"). See LLC Agreement - Exhibit A.
Payment of the selling commission and Placement Agent Fee will be due and
payable promptly after the latest to occur of (1) acceptance by the Fund of an
Investor's subscription, (2) the Escrow Date or (3) the receipt and collection
by the Fund of the gross purchase price for the Investor Shares in question. A

                                       23
<PAGE>

similar selling commission and Placement Agent Fee will be paid with respect to
any sales of additional Investor Shares. By executing and delivering the
Subscription Agreement to the Fund, each Investor will be deemed to have
consented to the arrangements between the Fund and the Placement Agent as
described in this Memorandum.

     The Manager will coordinate the offering of the Investor Shares, will
prepare promotional materials and will provide support to co-operating
broker-dealers who participate in the offering. The Manager is also responsible
for review of Investor subscriptions, approval of subscriptions and Investor
relations during the offering.

     The Fund reserves the right to waive the payment of all or a portion of a
selling commission or the Placement Agent Fee by any Investor, in which case the
cost of the Fund interest to any such Investor will be less than the cost of an
equivalent Fund interest to an Investor paying a full commission and Placement
Agent Fee. The Fund contemplates that it will exercise these rights, without
limitation, in respect of Investors who make Capital Contributions of $1,050,000
(7 Investor Shares) or more by waiving payment of all or a portion of the
selling commission and Placement Agent Fee and by modifying the Managing
Shareholder's compensation as described below.

     To the extent permitted by law, the Placement Agent is to be indemnified by
the Fund against any liability based upon the assertion that it has no
obligation to the Fund or Shareholders to monitor Fund operations or to report
to Investors.

                       PARTICIPATION IN COSTS AND REVENUES

     The Fund's investment objective is primarily to generate current cash flow
for distribution to Investors from the operation of the Fund Project's to the
extent that such distributions are consistent with the reserve requirements and
operational needs of those Projects. If the Fund does make distributions, this
section describes how the Fund will:

               o    determine what cash flow will be available for distributions
                    to Investors,
               o    distribute available cash flow,
               o    give the Manager a share of cash flow, if available,
               o    handle returns of Capital Contributions,
               o    allocate income and deductions for tax purposes, and
               o    maintain capital accounts for Investors.

     "Available Cash" determines what amounts in cash the Fund will be able to
distribute in cash to Investors.

                                       24
<PAGE>

     There are two types of Available Cash:

     "Available Cash from Dispositions" is total cash received from the Fund
from the proceeds of the sale or other disposition of Fund's Property (including
items such as insurance proceeds, refinancing proceeds, condemnation proceeds
and other amounts received out of the ordinary course of business), but
excluding dispositions of temporary investments of the Fund.

     "Available Cash From Operations" is all other Available Cash.

     Available Cash from Dispositions and Available Cash from Operations are
defined in the LLC Agreement and are not defined by and are not the same as
similar concepts under generally accepted accounting principles.

     There is no fixed requirement to distribute Available Cash; instead, it
will be distributed to Shareholders to the extent and at such times as the Fund
believes is advisable. Once the amount and timing of a distribution is
determined, it shall be made to Investors as described below.

Distributions From Operations

     At various times during a calendar year, the Fund will determine whether
there is enough Available Cash From Operations for a distribution to
Shareholders. The amount of Available Cash From Operations determined to be
available, if any, will be distributed to the Shareholders. At all times, the
Manager will be entitled to 15% and Investors will be entitled to 85% of the
Available Cash From Operations distributed.

Distributions of Available Cash From Dispositions

     Available Cash From Dispositions that the Fund decides to distribute will
be paid as follows:

     o    Before Investors have received total distributions (including
          distributions from Available Cash From Operations and Available Cash
          From Dispositions) equal to their Capital Contributions, 99% of
          Available Cash From Dispositions will be distributed to Investors and
          1% to the Manager.

     o    After Investors have received total distributions (including Available
          Cash From Operations and Available Cash From Dispositions) equal to
          their Capital Contributions, 85% of Available Cash From Dispositions
          will be distributed to Investors and 15% to the Manager.

                                       25
<PAGE>

General Distribution Provisions

     Distributions to Investors under the foregoing provisions will be
apportioned among them in proportion to their ownership of Investor Shares, as
the case may be. The Manager has the sole discretion to determine the amount and
frequency of any distributions; provided, however, that a distribution may not
be made selectively to one Shareholder or group of Shareholders but must be made
ratably to all Shareholders entitled to that type of distribution at that time.
The Manager in its discretion nevertheless may credit select persons with a
portion of its compensation from the Fund or distributions otherwise payable to
the Manager.

     Because distributions, if any, will be dependent upon the earnings and
financial condition of the Fund, its anticipated obligations, the Manager's
discretion and other factors, there can be no assurance as to the frequency or
amounts of any distributions that the Fund may make.

Return of Capital Contributions

     If the Fund for any reason at any time does not find it necessary or
appropriate to retain or expend all Capital Contributions, in its sole
discretion it may return any or all of such excess Capital Contributions ratably
to Investors. A return of Capital Contributions is not treated as a
distribution. The Fund and the Managing Shareholder will not be required to
return any fees deducted from the original Capital Contribution or any costs and
expenses incurred and paid by the Fund. The Investors will be notified of the
source of the payment. Any such return of capital will decrease the Investors'
Capital Contributions.

Capital Accounts and Allocations

     The tax consequences of an investment in the Fund and a Shareholder's
rights in the event of dissolution depend on the Shareholder's capital account
and on the allocations of profits and losses to that account. The Fund's taxable
profits or losses are allocated among the Shareholders as described below and
profits or losses are added to or subtracted from the Shareholders' capital
accounts. The amounts allocated to each Shareholder will generally not be equal
to the distributions the Shareholder receives until final liquidating
distributions are made to Shareholders.

     Each Shareholder will have a capital account, which will have an initial
balance equal to the Shareholder's Capital Contribution. Capital accounts will
be adjusted in accordance with Regulations under Code Section 704. The capital
account balance will be increased by any additional Capital Contributions by the
Shareholder and by profits allocated to the Shareholder; it will be decreased by
the amount of distributions to the Shareholder, returns of capital and by losses
allocated to the Shareholder. Contributions of property by

                                       26
<PAGE>

a Shareholder, if any, or distributions of property to a Shareholder, if any,
are valued at fair market value, net of liabilities. The Fund does not currently
anticipate that any contributions or distributions of property will be made.
Certain additional adjustments to capital accounts will be made if necessary to
account for the effects of non-recourse debt incurred by the Fund or
contributions of property, if any, to the Fund. See Tax Aspects - Allocations.

     For any year, profits and losses are allocated in accordance with Articles
4 and 7 of the LLC Agreement. In general, profits and losses in any year are
allocated 85% to Investors and 15% to the Manager. The primary exception to this
treatment is that all items of expense, loss, deduction and credit attributable
to the expenditure of Investor's Capital Contributions are allocated 99% to
Investors and 1% to the Manager.

                                  COMPENSATION

     The following table sets forth the types of fees the Manager, Affiliates
and certain consultants or independent third parties may receive in connection
with the Offering and operation of the Fund. These fees were not determined
through arms-length negotiations.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                          OFFERING STAGE
----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                               <C>
Selling Commissions          Ridgewood Securities, an          $12,000 per full Investor Share (8%), which will be reallowed to
                             affiliate of the Manager or       participating broker-dealers.
                             participating broker-dealers
----------------------------------------------------------------------------------------------------------------------------------
Placement Agent Fee          Ridgewood Securities, an          $1,500 per full Investor Share (1%).
                             affiliate of the Manager
----------------------------------------------------------------------------------------------------------------------------------
Investment Fee               Manager                           $6,750 per full Investor Share (4.5%), which is for the Manager's
                                                               services in investigating and evaluating the Projects for
                                                               investing the capital contributed to the Fund.
----------------------------------------------------------------------------------------------------------------------------------
Organizational,              Manager                           $5,250 per full Investor  Share  (3.5%),  which is intended to pay
Distribution and Offering                                      legal, organizational and other expenses of offering the Fund.
Fee
----------------------------------------------------------------------------------------------------------------------------------
                                                         OPERATING STAGE
----------------------------------------------------------------------------------------------------------------------------------
Management Fee               Manager                           The annual management fee is 2.5% of the total Capital Contributions
                                                               ($3,750 per full Investor Share).
----------------------------------------------------------------------------------------------------------------------------------
Distributive Share           Manager                           See Participation in Costs and Revenues Generally 15% of
                                                               distributions
</TABLE>

     With respect to Selling Commissions, Ridgewood Securities, an affiliate of
the Manager, may pay additional compensation out of its own funds to certain
registered broker-dealers that undertake to perform additional due diligence,
including a portion of its net revenues attributable to its interests in the

                                       27
<PAGE>

Funds or fees payable to it by the Funds. The Manager reserves the right to pay
similar additional compensation from its own funds to broker-dealers that assist
in the sale of Investor Shares. In addition, Ridgewood Energy, in its sole
discretion, may pay over to certain Investors a portion of distributions or fees
from the Fund otherwise payable to Ridgewood Energy.

     In addition to the Management Fee set forth above, the Manager will be
entitled to reimbursement from the Fund for all actual and necessary direct
expenses paid or incurred in connection with the operation of the Fund to the
extent that those expenses were incurred by the Manager in carrying out the
responsibilities assigned to it by the LLC Agreement, do not constitute
organizational, distribution and offering expenses and do not constitute
expenses defrayed from the Management Fee. Finally, the Manager may be entitled
to reimbursement from the Fund for direct expenses actually incurred for
operational or project development services it provides to a Project to the
extent that such charges do not exceed amounts that would be charged by
unrelated third parties and the Project itself does not reimburse such direct
expenses.

                    FIDUCIARY RESPONSIBILITIES OF THE MANAGER

     The Manager is not liable to persons other than the Fund or the Investors
for any obligation of the Fund. The Investors and the Fund may have a number of
legal remedies against the Manager in the event it was to breach its duties.
Under the laws of Delaware, the Manager is accountable as a fiduciary and must
exercise good faith and integrity in handling Fund affairs. In managing the
Fund, it is likely that the Manager would be entitled to the benefits of the
"business judgment rule" of Delaware law that provides that the courts will not
hold the Manager liable for its negligence or mistaken decisions in the absence
of bad faith or willful misconduct

     The laws of Delaware expressly provide that a Shareholder of a Fund may
bring an action in the right of the Fund (i.e., a derivative action) to recover
damages from any person if the Manager has refused to bring the action or an
effort to cause the Manager to bring the action is not likely to succeed. The
laws of Delaware contain certain limitations and rights regarding the
prosecution of a derivative action. The common or statutory law of other
jurisdictions may also grant rights to bring a derivative action. The common or
statutory law of Delaware or other jurisdictions may also grant to an Investor
the right to institute legal action on his or her own behalf and that of all
other similarly situated Investors (i.e., a class action), to recover damages
against the Manager and the officers of the Fund or others.

     Limitations on Investors' Information Rights. In August 2001 the LLC Act
was amended to allow Delaware limited liability companies such as the Fund

                                       28
<PAGE>

to restrict Investors' rights to demand information from the Fund. The
restrictions need not be reasonable if they are either included in the limited
liability company's original organizing agreement or are unanimously adopted by
all members of the company thereafter. The Fund has included the restrictions
described below in the LLC Agreement. By subscribing to purchase Investor
Shares, each Investor agrees to all provisions of the LLC Agreement, including
without limitation the following:

     o    No Investor or other person acting in the right of or for the benefit
          of an Investor is entitled to receive from the Fund or its management
          any information concerning any other Investor or offeree of the Fund's
          securities, without the prior written consent of the other Investor or
          offeree.

     o    The Fund may withhold, redact ("white-out" or obliterate) or summarize
          other types of information so as to prevent Investor information from
          being disclosed in violation of the paragraph immediately above. For
          example, the Fund's tax returns may be redacted to eliminate the names
          and addresses of other Investors and information concerning them.

     o    Each Investor is entitled to obtain the following information from the
          Fund upon reasonable written demand stating the purpose of the demand
          (which must be reasonably related to the Investor's interest in the
          Fund):

          o    true and full information regarding the Fund's business and
               financial condition and the contributions (but not the
               contributors) to the Fund;
          o    copies of the Fund's tax returns redacted to eliminate Investor
               information, the LLC Agreement and material agreements between
               the Fund and the Manager or other relevant Ridgewood Programs;
               and
          o    other reasonable information regarding the Fund.

     o    Investors are not entitled to agreements, technical information, trade
          secrets and other confidential information relating to the Fund's
          investments.

     o    The LLC Agreement sets out all rights that Investors have to demand or
          receive information from the Fund, except as provided by the federal
          securities laws, the 1940 Act or other laws that are not superseded by
          the LLC Agreement.

     o    The Fund may establish reasonable standards and limitations on
          disclosures of information and costs of providing that information
          will be borne by the requesting Investor.

                                       29
<PAGE>

     o    Providing information to one Investor or to persons outside a Fund
          does not act as a waiver of the Fund's rights to withhold information
          to another Investor.

     Indemnification. The LLC Agreement provides that neither the Manager nor
any of its Affiliates will be liable, responsible, or accountable in damages or
otherwise to the Fund or any Investor for any loss or damage incurred by reason
of any act performed by or omission of the Manager or such Affiliates in good
faith in the furtherance of the interests of the Fund and within the scope of
the authority granted to the indemnified person by the LLC Agreement or by the
Investors, provided that such acts of the indemnified person did not constitute
willful misconduct, recklessness, bad faith, gross negligence or any other
material breach of fiduciary duty with respect to such acts or omissions. The
Fund, out of its assets and not out of the assets of the Manager or other
persons, will, to the full extent permitted by law, indemnify and hold harmless
the Manager and any of its Affiliates who were or are parties or are threatened
to be made parties to any threatened, pending, or completed action, suit, or
proceeding by reason of any acts, omissions, or alleged acts or omissions
arising out of such person's activities as a Manager, or as an Affiliate of such
Manager, if such activities were performed in good faith in furtherance of the
interests of the Fund and were within the scope of the authority conferred to
such person by the LLC Agreement or by the Investors against losses, damages, or
expenses for which such person has not otherwise been reimbursed, provided that
such acts of such person did not constitute willful misconduct, recklessness,
bad faith, gross negligence or any other material breach of fiduciary duty with
respect to such acts or omissions and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.

     Expenses of defense or settlement may be advanced to a person who may be
entitled to indemnification in advance of a determination that indemnification
will be provided, if that person undertakes to repay the advance if it is not
entitled to indemnification and if it is reasonable to do so. It will be
considered reasonable to do so (i) if the recipient of the advance provides
appropriate security for the undertaking; (ii) the recipient is insured against
losses or expenses of defense or settlement (and any deductible has been agreed
to by the Fund or is in an insurance policy obtained by the Fund) so that the
advances may be recovered; (iii) independent legal counsel in a written opinion
determines based upon a review of the then readily-available facts, that there
is a reason to believe that the recipient will be found to be entitled to
indemnification; (iv) the recipient was not a controlling person of the Fund as
defined by the federal securities laws or (v) there are other reasonable grounds
for making the advance. Counsel may rely as to matters of business judgment or
as to other matters not involving determinations of law upon the advice of a

                                       30
<PAGE>

committee of persons not affiliated with the Fund that may be appointed by the
Manager for that purpose. A successful claim for indemnification would reduce
the assets of the Fund. Provisions reducing the liability or providing for
indemnification of the Manager and its Affiliates may have the effect of
encouraging less prudent decisions because of the decreased likelihood of being
held accountable and may serve to deter derivative actions against them even
though such actions if successful might benefit the Fund.

     The Investor Subscription Booklet contains representations that will be
made by prospective Investors as to their financial condition, the suitability
of their investments in the Fund, their receipt and understanding of the
Offering materials and compliance with applicable securities laws. If these
representations are untrue, the Investor making them will be obligated to
indemnify the Fund, the Manager and others involved in the Offering of Investor
Shares for any losses resulting therefrom.

     It is the position of the Commission and certain state securities
administrators that any attempt to limit the liability of a Manager or persons
controlling an issuer under federal securities laws or state securities laws,
respectively, is contrary to public policy and therefore, unenforceable.

     The Manager has obtained limited directors' and officers' liability
insurance and other liability insurance on behalf of the Manager, its
principals, and the Fund. Substantially all of the premiums for this insurance
will be paid by the Fund and the other programs sponsored by the Manager or its
Affiliates.

         Other Matters. The Manager is not required to take action on behalf of
a Fund unless such Fund has sufficient funds to meet obligations that might
arise from that action. The Manager is not required to advance or expend its own
funds for ordinary Fund business but is entitled to reimbursement from the Fund
if the Manager does so consistent with the LLC Agreement. The Manager is not
required to devote its time exclusively to the Fund and may engage in any other
venture.

     The Fund and its Affiliates are permitted to vote any Investor Shares they
own on matters on which the Investors may vote. In cases where the Manager or
its Affiliates or employees have an interest in the matter being voted on, the
effect of their voting Investor Shares owned by them will be determined by
principles of Delaware law applicable to directors, officers and stockholders of
Delaware corporations. In general, this law would permit and recognize the
voting of those Shares. In a court proceeding challenging the validity of the
action taken under that vote, the burden of proof would vary depending on the
vote of "uninterested stockholders." If a majority of the Shares voted by
persons having no special interest in the transaction are voted in favor of the
action, the burden of providing that the action was unfair to a Fund would be

                                       31
<PAGE>

borne by the persons challenging the action. If, in contrast, the persons having
no special interest in the action do not vote a majority of the Shares in favor,
the interested Manager or other persons would have the burden of convincing the
court that the action was fair to the Fund.

                              CONFLICTS OF INTEREST

     The Investors will not be involved in the day-to-day operations of the
Fund. Accordingly, the Investors must rely on the Manager's judgment in such
matters. Inherent with the exercise of its judgment, the Manager will be faced
with conflicts of interest, many of which are described in the LLC Agreement,
but include without limitation:

     o    The participation by the Manager and its Affiliates in oil and gas
          activities on behalf of the prior Ridgewood Energy Programs, the
          effect of which is that the Manager owes a duty of good faith to the
          programs which it manages and actions taken with regard such programs
          may not be advantageous to the Fund.

     o    The Manager or its affiliates may provide services to the Fund. The
          Manager and such affiliates will be compensated for such services at
          rates competitive with the rates charged by unaffiliated persons for
          similar services.

     o    If additional wells are proposed in Projects in which the Fund has
          acquired either Working Interests or Non-Consent Interests, a conflict
          of interest could result between the Fund and a subsequent program as
          to whether the Fund or that program should be entitled to participate
          in the additional wells. The Manager, in its discretion, may first
          allocate the opportunity to the Fund, if it has uninvested proceeds of
          this Offering, and then will consider whether to solicit voluntary
          additional capital contributions from the investors in a prior
          Ridgewood Energy Program, in the Fund, or both. If the Manager does
          not solicit voluntary additional capital contributions, it may
          organize another investment program to acquire the resulting Working
          Interests or Non-Consent Interests. All these entities would have
          conflicting interests. Moreover, should the Manager elect to solicit
          voluntary additional capital contributions from existing Investors,
          the rights of Investors who participate and the terms upon which they
          participate could conflict with the terms of this Offering and with
          Investors of the Fund who elect to not participate in any subsequent
          offering.

     o    Any ownership interests in the Fund by the Manager or its Affiliates
          may have the effect of diluting the voting power of the other
          Investors in the Fund.

                                       32
<PAGE>

     o    The Manager and its Affiliates are currently and may in the future act
          as managers, sponsors or participants in other investment ventures
          similar to the Fund or with similar objectives, or in differing
          industries. These may create conflicting demands on the time and
          resources of the Manager and its Affiliates or create conflicting
          duties to the other ventures and the Fund.

     o    The rights to wells on locations in which the Fund may invest may be
          on locations adjacent to wells and leases owned by the prior Ridgewood
          Energy Programs. While the proposed wells are not to be drilled for
          the purpose of proving or disproving the existence of gas on any
          adjacent acreage, such drilling activities may incidentally develop
          information valuable to one or more prior Ridgewood Energy Programs,
          the Manager or its Affiliates in evaluating their nearby acreage at no
          cost to them. In addition, the Fund could make an investment in a well
          or infrastructure that could potentially enhance the value of an
          investment made by a prior Ridgewood Energy Program. Accordingly, a
          conflict of interest will exist between the interest of the Fund and
          the interest of a prior Ridgewood Energy Program, the Manager or its
          Affiliates in selecting the location and type of operations in which
          the Fund will participate. There can be no assurance that transactions
          between the Fund and its Affiliates, if any, will be on terms as
          favorable as could have been negotiated with unaffiliated third
          parties.

     o    Other interests of Operators or participants in natural gas leases or
          their Affiliates may also be in conflict with those of the Fund. The
          Fund will enter into Operating Agreements with participants in respect
          of the Projects in which the Fund invests. Participants in those
          leases may engage in oil and natural gas lease acquisition,
          exploration, and production activities that may compete with the Fund.

     o    The Manager is authorized under the LLC Agreement to make subjective
          determinations of the value of the Fund's assets. Such valuation could
          impact or influence the performance record of the Fund.

     o    The Fund has provided no independent representation of prospective
          Investors in connection with this Offering, and each prospective
          Investor should seek independent advice and counsel before making an
          investment in the Fund.

     o    In addition to any government royalties, the Fund may invest in a well
          that may also require payment of royalties to certain other entities,
          including, possibly, affiliates of the Fund, who posses an "overriding
          interest" in such well. Payment of royalties to owners of any such
          overriding interest may reduce the gross revenue to the Fund from such
          well.

                                       33
<PAGE>

     o    The Fund may acquire a "Non-Consent Interest" in a particular well
          from certain Working Interest owners, including possibly, those owned
          by Affiliates. Ultimately, Non-Consent Interests revert back to the
          original Working Interest owner upon the recoupment by the Non-Consent
          Interest owner of a penalty amount from the production attributable to
          the non-consent interest.

     o    The Manager has complete discretion with respect to whether and when
          to make distributions and the amount thereof. No distributions will be
          made from the Fund to the Investors of the Fund until the Fund has
          funds that the Manager determines are not needed for the operation of
          the Fund. Accordingly, there is no assurance that any distributions
          from the Fund will be made to its Investors. Distributions will depend
          primarily on the Fund's net cash receipts from natural gas operations.
          Moreover, distributions could be delayed to repay the principal and
          interest on Fund borrowings, if any, or to fund Fund costs. Fund
          income will be taxable to the Investors in the year earned, even if
          cash is not distributed. The timing and amount of distributions, if
          any, will also impact upon the Manager's entitlement to distributions.

     o    Finally, pursuant to the LLC Agreement, the Manager acts as the "tax
          matters partner" and, accordingly will be making determinations for
          the Fund regarding taxes that may impact differently upon the Manger
          than on Shareholders.

     One factor that reduces conflicts of interest is that the Manager receives
the same fees from every Fund. Therefore, there is no financial incentive to
favor one Fund over another. The Manager and its Affiliates will attempt, in
good faith, to resolve all conflicts of interest in a fair and equitable manner
with respect to all persons affected by those conflicts of interest. Prospective
investors should be aware that the Manager and its Affiliates have not formally
adopted procedures or criteria to avoid or to resolve all conflicts of interest
that may arise between the Manager, its Affiliates, prior Ridgewood Energy
Programs, and the Fund. Under the LLC Agreement, in resolving any conflict of
interest that may arise, the Manager is not liable to Investors for such
resolution unless it has acted in bad faith, engaged in gross negligence or
willful misconduct.

                                   MANAGEMENT

     The Ridgewood Companies, founded by Robert Swanson, began in 1982 with
Ridgewood Energy Corporation. In 1991, Ridgewood Renewable Power was formed to
manage a series of investment programs focusing on the independent electric

                                       34
<PAGE>

power generation industry. Ridgewood Renewable Power has sponsored eleven funds
that have invested primarily in environmentally friendly power plants such as
landfill gas-fired, biomass-fired, and hydroelectric generating facilities. In
1998, Ridgewood Capital was formed to take advantage of the dramatic growth in
the technology sector. Since then Ridgewood Capital has sponsored six investment
funds which have invested in private technology companies.

The Manager
-----------

     As the Manager of the Fund, Ridgewood Energy Corporation ("Ridgewood
Energy") will have direct and exclusive discretion in management and control of
the affairs of the Fund. Although the Manager will be in control of the Fund, it
will have no liability to the Fund or the Investors for losses or liabilities
except in cases of its negligence, misconduct or breach of the LLC Agreement.

     Robert Swanson formed Ridgewood Energy, which has sponsored oil, natural
gas and other related natural resource investment programs. The programs have
acquired lease interests, financed them and participated in making exploration,
development, production, and marketing decisions. Mr. Swanson and his executive
team work closely with selected operators, including BHP Billiton, Apache Corp.,
Gryphon, and Millennium Oil Corp. who also have co-invested with Ridgewood in
these properties.

     Ridgewood Energy began investment programs in the oil and gas industry for
high net-worth individuals. From the outset, Ridgewood's programs focused on
returning high-yielding cash dividends to investors over an extended period of
time combined with certain tax benefits. Later programs de-emphasized the tax
benefits and have focused on revenues and profitability. Capital raised from
investors has been used to purchase minority interests in operations designed to
extract oil or natural gas from underwater deposits, mainly in the Gulf of
Mexico.

THE PERFORMANCE OF PREVIOUS RIDGEWOOD PROGRAMS IN OTHER GULF OF MEXICO PROSPECTS
OR OF OTHER OPERATIONS IN SIMILAR OR CONTIGUOUS PROPERTIES SHOULD NOT BE
CONSIDERED TO PROVIDE ANY ASSURANCE THAT THIS FUND WILL BE SUCCESSFUL OR
GENERATE A PROFIT. SEE EXHIBIT B FOR RIDGEWOOD ENERGY'S TRACK RECORD.

Ridgewood's executive team includes:

Robert E. Swanson, age 57, is the Chairman and President, manager and
controlling shareholder of Ridgewood Energy. Mr. Swanson is the Chief Executive
Officer and controlling member of Ridgewood Renewable Power, Ridgewood Capital
Management and other affiliates. Mr. Swanson was a tax partner at the former New

                                       35
<PAGE>

York and Los Angeles law firm of Fulop & Hardee and an officer in the Investment
Division of Morgan Guaranty Trust Company. His specialty was in personal tax and
financial planning, including income, estate and gift tax. Mr. Swanson is a
member of the New York State and New Jersey bars. He is a graduate of Amherst
College and Fordham University Law School. Mr. Swanson and his wife, Barbara
Mardinly Swanson are the authors of "Tax Shelters, A Guide for Investors and
Their Advisors," published by Dow Jones-Irwin in 1982 and published in revised
editions in 1984 and 1985.

Greg Tabor, age 42 is Executive Vice President and Director of Business
Development for Ridgewood Energy. Mr. Tabor heads the Houston office of
Ridgewood Energy. Mr. Tabor has 20 years experience in petroleum business
development and as a land man responsible for negotiating leases, acquiring
properties, and divesting properties, with the largest part of his work devoted
to the Gulf of Mexico. Mr. Tabor came to Ridgewood from El Paso Natural Gas
Corp. where he was a senior business development officer. Mr. Tabor worked for a
decade primarily in the Gulf of Mexico on gas projects for Sante Fe Corp. and
its affiliates. Mr. Tabor is a graduate of the University of Houston.

Robert L. Gold, age 45, is Executive Vice President of Ridgewood Energy which he
joined in 1987. Mr. Gold is also the President of Ridgewood Capital since its
inception in 1998. As such, he has directed the investment programs of the prior
venture capital programs. For the two years prior to joining the Ridgewood
Companies, Mr. Gold was a corporate attorney in the law firm of Cleary,
Gottlieb, Steen & Hamilton in New York City. Mr. Gold is a member of the New
York bar. He is a graduate of Colgate University and New York University School
of Law.

Kathleen McSherry, age 38, is Ridgewood Energy's Chief Financial Officer. She
joined Ridgewood Energy in 1987 as Assistant Controller and was promoted in 1994
to Controller. In addition, Ms. McSherry serves as Vice President of Systems and
Administration of Ridgewood Renewable Power. Prior to her employment at
Ridgewood Energy, Ms. McSherry worked in the Trust department for Midlantic
National Bank. Ms. McSherry holds a Bachelor of Science degree in Accounting

Mary Lou Olin, age 50, is Vice President and Secretary of the Manager, Ridgewood
Capital, Ridgewood Renewable Power and the Fund. Her primary areas of
responsibility are investor relations, communications and administration. Prior
to her employment at Ridgewood Energy, Ms. Olin was a Regional Administrator at
McGraw-Hill Training Systems where she was employed for two years. Prior to
that, she was employed by RCA Corporation. Ms. Olin has a Bachelor of Arts
degree from Queens College.

                                       36
<PAGE>

Please see Exhibit B for a Track Record of Ridgewood Energy's prior investments.

                                   TAX ASPECTS

     The following is a summary of material federal tax considerations for
persons considering an investment in the Fund. The discussion, among other
things, summarizes certain provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the applicable Treasury Regulations promulgated or
proposed thereunder (the "Regulations"), current published positions of the
Internal Revenue Service (the "Service") and existing judicial decisions, all of
which are subject to change at any time.

     There can be no assurance that any deductions, credits or other tax
consequences which are described herein, or which a prospective Investor in the
Fund may contemplate, will be available. In addition, no assurance can be given
that legislative or administrative changes or court decisions may not be
forthcoming which would significantly modify the statements expressed herein. In
some instances, these changes could have a substantial effect on the tax aspects
of the Fund. Any future legislative changes may or may not be retroactive with
respect to transactions prior to the effective date of such changes. Bills have
been introduced in Congress in the past and may be introduced in the future
which, if enacted, would adversely affect some of the tax consequences presently
anticipated from an investment in the Fund.

     Moreover, although the Fund has retained professional tax advisors, there
are risks and uncertainties concerning certain of the tax aspects associated
with an investment in the Fund and there can be no assurance that some or all of
the deductions or credits claimed by the Fund may not be challenged by the
Service. Disallowance of such deduction or credits could adversely affect the
Fund and the Investors. EACH PROSPECTIVE INVESTOR IS THEREFORE URGED TO CONSULT
HIS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES ARISING FROM AN INVESTMENT
IN THE FUND.

     NO RULING FROM THE SERVICE REGARDING EITHER THE TAX ASPECTS OR THE STATUS
OF THE FUND AS A PARTNERSHIP FOR TAX PURPOSES HAS BEEN OR WILL BE REQUESTED.

     The description of the tax aspects discussed herein is supported by a tax
opinion of counsel to the Fund, Black & Associates. A copy of the tax opinion is
available upon request of any Investor. The tax opinion is, of course, not
binding on the Service or the courts.

                                       37
<PAGE>

     The legal discussion below is based upon (a) the facts set forth in this
Memorandum and the Exhibits hereto and (b) the following representations by the
Manager:

     o    No election has been filed by the Fund under the Regulations to be
          treated as an association taxable as a corporation and no such
          election shall be filed in the future, without the consent of a
          majority of the Investors;

     o    No interests in partnerships or business trusts in which the Manager
          or any Affiliate has acted as the Manager or the managing shareholder
          have ever been traded on a secondary market or the substantial
          equivalent thereof;

     o    The Manager will not allow any transfer of Shares which, in the
          opinion of its counsel, will cause the Fund's Shares to be treated as
          readily tradable on a secondary market or the substantial equivalent
          thereof without the consent of a majority of the Investors;

     o    The Manager does not expect to be in a significantly lower federal
          income tax bracket than the Fund's Investors; and

     o    The Manager expects that at least 90% of the partnership gross income
          for each year of its existence will consist of interest or income from
          the exploration, development, production, processing, refining,
          transportation or marketing of oil and gas and gains from the sale of
          assets used to generate that income.

1.   Limitations
     -----------

     The federal income tax consequences described below are, to a significant
extent, available only to taxpayers who invest in the Fund with the bona fide
intent of deriving an economic profit without regard to any income tax
advantages. The determination of whether an Investor is participating in the
Fund for profit is subjective and based upon the motives of the particular
Investor. It is difficult to assess this subjective intent or anticipate the
future activities of any Investor, and thus it is assumed for purposes of this
discussion that the Investors shall have the requisite profit motive. A
determination that such is not the case would have a substantially adverse
effect upon the tax consequences of an investment in the Fund. No prospective
Investor should invest in the Fund unless the prospective Investor does so with
an intent to realize an economic profit without regard to tax consequences.

         Virtually all of the income tax consequences described herein is
dependent upon the fair market value of the property to be acquired by and the
services rendered to the Fund being not less than the price paid therefore.

                                       38
<PAGE>

While the Manager believes that the values of such property and services will be
not less than the prices paid, there can be no assurance that the Service or the
courts will concur with such valuations.

2.   Classification as a Partnership
     -------------------------------

     A. In General. Under the Regulations, a business entity other than a
corporation (or a "publicly traded partnership" which is treated as a
corporation) with more than one member which is formed after January 1, 1997,
will be treated as a partnership for federal income tax purposes unless the
business entity elects to be treated as an association taxable as a corporation.
The Manager has represented that no such election has been filed by the Fund nor
will any such election be filed in the future, without the consent of a majority
of the Investors.

     B. Publicly Traded Partnerships. Certain publicly traded partnerships are
treated as corporations for federal income tax purposes. Since the Fund will be
treated as a partnership for federal income tax purposes, this provision is
applicable to the Fund. A "publicly traded partnership" is defined as "any
partnership if...(1) interests in such partnership are traded on an established
securities market, or (2) interests in such partnership are readily tradable on
a secondary market (or the substantial equivalent thereof)." The Shares do not
and are not intended to trade on an established securities market.

     Under the Regulations, interests in a partnership are considered to be
readily tradable on a secondary market or the substantial equivalent thereof if:

     (i) Interests in the partnership are regularly quoted by any person, such
as a broker or dealer, making a market in the interests;

     (ii) Any person regularly makes available to the public (including
customers or subscribers) bid or offer quotes with respect to interests in the
partnership and stands ready to effect buy or sell transactions at the quoted
prices for itself or on behalf of others;

     (iii) The holder of an interest in the partnership has a readily available,
regular, and ongoing opportunity to sell or exchange the interests through a
public means of obtaining or providing information of offers to buy, sell, or
exchange interests in the partnership; or

     (iv) Prospective buyers and sellers otherwise have the opportunity to buy,
sell or exchange interests in the partnership in a time frame and with the
regularity and continuity that is comparable to that described in the other
provisions of this paragraph . . . ."

                                       39
<PAGE>

     The Manager has represented, however, that no interests in partnerships or
business trusts in which the Manager or any of its Affiliates has acted as the
Manager or the managing shareholder have ever been traded on a secondary market
or the substantial equivalent thereof, as defined in such Regulations. The
Manager also represented that it will not allow any transfer of Shares which, in
the opinion of its counsel, will cause the Fund's Shares to be treated as
readily tradable on such market without the consent of a majority of the
Investors.

     In addition, no partnership will be treated as a corporation for federal
income tax purposes for any year if at least 90% of the partnership gross income
for such year and all preceding years consists of, among other things, interest
or income from the exploration, development, production, processing, refining,
transportation or marketing of oil and gas and gains from the sale of assets
used to generate that income. The Manager has represented that the Fund is
expected to meet the foregoing 90% gross income test during each year of its
existence.

     If (i) the Shares were in the future to become readily tradable as defined
above, or in subsequent Regulations, rulings or other relevant authority and
(ii) if the Fund would fail to satisfy the above 90% gross income test, the Fund
could for this reason become taxable as a corporation for federal income tax
purposes.

     C. Summary. Assuming the Fund does not file an election under the
Regulations to be treated as an association taxable as a corporation and does
not become a "publicly traded partnership" as defined above, in the opinion of
Black & Associates, the Fund shall be treated as a partnership for federal
income tax purposes. Black & Associates' opinions are based upon the existing
provisions of the Code, the Regulations and interpretations thereof by the
Service and the courts. As mentioned, no assurance can be given that such laws
and Regulations will not be changed or that such changes will not be
retroactive.

3.   Fund Taxation

     Subject to the foregoing, it is the opinion of Black & Associates that the
Fund will not be subject to federal income tax. The Fund will, however, be
required each year to file Fund information tax returns.

     The Investors will be required to take into account, in computing their
federal income tax liabilities, their respective distributive shares of all
items of Fund income, gain, expense, loss, deduction, credit and tax preference
for any taxable year of the Fund ending within or with the taxable year of the
respective Investor, without regard to whether such Investors have received or
will receive any cash distributions from the Fund. An Investor therefore may be
subject to tax if the Fund has income even though no cash distribution is made.

                                       40
<PAGE>

     If the cash distributed by the Fund for any year to an Investor, including
his share of the reduction of any Fund liabilities, exceeds his share of the
Fund's undistributed taxable income, the excess will constitute a return of
capital. A return of capital is applied first to reduce the tax basis of the
Investor's interest in the Fund, and any amounts in excess of such tax basis
will generally be treated as gain from a sale of such Investor's interest in the
Fund.

     The Social Security Act and the Code exclude from the definition of "net
earnings from self-employment" a limited partner's distributive share of any
item of income or loss from a partnership other than a guaranteed payment for
personal services actually rendered. In the opinion of Black & Associates, this
provision would apply to the Investors. Among other things, the effect of this
provision is that (a) no quarters of coverage of increased benefits under the
Social Security Act will be earned by Investors by virtue of their shares of the
Fund's income and (b) if any Investors are currently receiving Social Security
benefits, their respective distributive shares of taxable income from the Fund
will not have be taken into account in determining any reduction in benefits
because of "excess earnings".

4.   Leasehold Acquisition Costs

     The cost of acquiring oil and gas leases, or other similar property
interests, is a capital expenditure and may not be deducted in the year paid or
incurred but must be recovered through depletion. If, however, a lease is proved
to be worthless by drilling or abandonment, the cost of such lease (less any
recovery thereof through the depletion deduction) constitutes a loss to the
taxpayer in the year in which the lease becomes worthless.

5.   Deduction of Intangible Drilling and Development Costs

     Section 263(c) authorizes an election by the Fund to deduct as expenses
intangible drilling and development costs incurred in connection with oil and
gas properties at the time such costs are incurred in accordance with the Fund's
method of accounting, provided that the costs are not more than would be
incurred in an arm's length transaction with an unrelated drilling contractor.
Such costs include, for example, amounts paid for labor, fuel, wages, repairs,
supplies and hauling necessary to the drilling of the well and preparation of
the well for production. Generally, this election applies to items that in
themselves do not have salvage value. Alternatively, each Investor may elect to
capitalize his or her share of the intangible drilling and development costs and
amortize them ratably over a 60-month period.

                                       41
<PAGE>

     The Fund may enter into "Carried Interest" arrangements whereby the Fund
would purchase interests in certain leases and agree to pay a disproportionate
part of the costs of drilling the first well thereon. In such situations, the
party who is paying more than his share of costs of drilling may not deduct all
of such costs as intangible drilling and development costs unless his percentage
of ownership of the lease is not reduced before he has recovered from the first
production of the well an amount equal to the cost he incurred in drilling,
completing, equipping and operating the well. The Fund may not have this right
in certain of the transactions of this type in which it may engage. If
circumstances permit, however, the Fund will adopt the position that all of the
intangible drilling and development costs incurred are deductible (even though
such costs may be disproportionate to its ownership of the lease) on the basis
that such arrangements constitute partnerships for federal income tax purposes
and that the excess intangible drilling and development costs are specifically
allocable to the Fund. There can be no assurance that this position would
prevail against attack by the Service.

     In the case of an Investor which constitutes an "integrated oil company,"
30% of the amount otherwise allowable as a deduction for intangible drilling
costs under Section 263(c) must be capitalized and deducted ratably over a
60-month period beginning with the month the costs are paid or incurred. This
provision does not apply to nonproductive wells. For this purpose, an
"integrated oil company" is generally defined as an individual or entity with
retail sales of oil and gas aggregating more than $5 million and refining more
than 50,000 barrels per day for the taxable year.

     To the extent that drilling and development services are performed for the
Fund in 2004, amounts incurred pursuant to bona fide arm's-length drilling
contracts and constituting intangible drilling and development costs should be
deductible by the Fund in 2004. To the extent that such services are performed
in 2005, however, the Fund will only be allowed to deduct in 2004 amounts that
are:

     o    incurred pursuant to bona fide arm's-length drilling contracts which
          provide for absolute noncontingent liability for payment, and

     o    attributable to wells spudded within 90 days after December 31, 2004.

Sections 461(h)(1) and 461(i)(2) provide, in relevant part:

     ...in determining whether an amount has been incurred with respect to any
     item during any taxable year, the all events tests shall not be treated as
     met any earlier than when economic performance with respect to such item
     occurs.

                                      * * *

                                       42
<PAGE>

     ...economic performance with respect to the act of drilling an oil or gas
     well shall be treated as having occurred within a taxable year if drilling
     of the well commences before the close of the 90th day after the close of a
     taxable year.

     The clear implication of these provisions is that an amount incurred during
a taxable year for drilling or completion services which could otherwise be
accrued for tax purposes will not be disqualified as a deduction merely because
the services are performed during the subsequent taxable year (provided that the
services commence within the first 90 days of such subsequent year).

     Consequently, in the opinion of Black & Associates, intangible drilling and
development costs meeting the above criteria should be deductible by the Fund in
2004 even though a portion of such costs are attributable to services performed
during 2005.

     Each Investor, however, may deduct his share of amounts paid in 2004 for
services performed in 2005 only to the extent of his "cash basis" in the Fund as
of the end of 2004. For this purpose, a taxpayer's "cash basis" in a tax shelter
which is taxable as a partnership (such as the Fund) is the taxpayer's basis in
the Fund determined without regard to any amount borrowed by the taxpayer with
respect to the Fund which (a) is arranged by the Fund or by any person who
participated in the organization, sale or management of the Fund (or any person
related to such person within the meaning of Section 461(b)(3)(c)), or (b) is
secured by any asset of the Fund. Inasmuch as "cash basis" excludes borrowing
arranged by an extremely broad group of persons who could be "related" to a
person who "participated" in the organization, sale or management of the Fund,
it is not possible for counsel to the Fund to express an opinion as to whether
each Investor will be allowed to deduct his allocable share of any prepaid
drilling expenses to the extent that they exceed his actual cash investment in
the Fund. Amounts borrowed by an Investor from the Manager or any of its
Affiliates and borrowing arranged by such persons will not be considered part of
such Investor's "cash basis" for these purposes.

6.   Depletion

     Subject to the limitations discussed hereafter, the Investors will be
entitled to deduct, as allowances for depletion under Section 611, their share
of percentage or cost depletion, whichever is greater, for each oil and gas
producing property owned by the Fund.

     Cost depletion is computed by dividing the basis of the property by the
estimated recoverable reserves to obtain a unit cost, then multiplying the unit
cost by the number of units sold in the current year. Cost depletion cannot

                                       43
<PAGE>

exceed the adjusted basis of the property to which it relates. Thus, cost
depletion deductions are limited to the capitalized cost of the property, while
percentage depletion may be taken as long as the property is producing income.
The depletion allowance for oil and gas production will be computed separately
by each Investor and not by the Fund. The Fund will allocate to each Investor
his proportionate share of production and the adjusted basis of each Fund
property. Each Investor must keep records of his share of the adjusted basis and
any depletion taken on the property and use his adjusted basis in the
computation of gain or loss on the disposition of the property by the Fund.

     Percentage depletion with respect to production of oil and gas is available
only to those qualifying for the independent producer's exemption, and is
limited to an average of 1,000 barrels per day of domestic oil production or
6,000,000 cubic feet per day of domestic gas production. The applicable rate of
percentage depletion on production under the independent producer exemption is
15% of gross income from oil and gas sales. The depletion deduction under the
independent producer exemption may not exceed 65% of the taxpayer's taxable
income for the year, computed without regard to certain deductions. Any
percentage depletion not allowed as a deduction due to the 65% of adjusted
taxable income limitation may be carried over to subsequent years subject to the
same annual limitation. For an Investor that is a trust, the 65% limitation
shall be computed without deduction for distributions to beneficiaries during
the taxable year.

     The determination of whether an Investor will qualify for the independent
producer exemption will be made at the Investor level. An Investor who qualifies
for the exemption, but whose average daily production exceeds the maximum number
of barrels on which percentage depletion can be computed for that year, will
have to allocate his exemption proportionately among all of the properties in
which he has an interest, including those owned by the Fund. In the event
percentage depletion is not available, the Investor would be entitled to utilize
cost depletion as discussed above.

     The independent producer exemption is not available to a taxpayer who
refines more than 50,000 barrels of oil on any one day in a taxable year or who
directly or through a related person sells oil or gas or any product derived
therefrom (i) through a retail outlet operated by him or a related person or
(ii) to any person who occupies a retail outlet which is owned and controlled by
the taxpayer or a related person. In general, a related person is defined by
Section 613A of the Code as a corporation, partnership, estate, or trust in
which the taxpayer has a 5% or greater interest. For the purpose of applying
this provision: (i) bulk sales of oil or natural gas to commercial or industrial
users are excluded from the definition of retail sales; (ii) if the taxpayer or
a related person does not export any domestic oil or natural gas production
during the taxable year or the immediately preceding year, retail sales outside

                                       44
<PAGE>

the U.S. are not deemed to be disqualifying sales; and (iii) if the taxpayer's
combined receipts from disqualifying sales do not exceed $5,000,000 for the
taxable year of all retail outlets taken into account for the purpose of
applying this restriction, such taxpayer will not be deemed a "retailer."

     The technical provisions and limitations relating to the availability of
depletion are complex and will vary among taxpayers. Many uncertainties exist
and each prospective Investor should review his individual circumstances with
his personal tax advisor.

7.   Depreciation
     ------------

     Costs of equipment, such as casing, tubing, tanks, pumping units,
pipelines, production platforms and other types of tangible property and
equipment generally cannot be deducted currently, but may be eligible for
accelerated cost recovery. All or part of the depreciation claimed may be
subsequently recaptured upon disposition of the property by the Fund or of a
Share by any Investor.

     In addition, the Code provides for certain uniform capitalization rules
which could result in the capitalization rather than deduction of Fund overhead
and administration costs.

8.   Farm-outs and Back In Interests
     -------------------------------

     The Fund may acquire oil and gas leaseholds through Farm-out Agreements.
Some Farm-outs may be characterized for tax purposes as partnerships entered
into by the Fund and an Operator. The manner in which the parties to these
Farm-outs agree to allocate income, gain, loss, deductions, and credits (or any
item thereof) may be disallowed under Section 704 of the Code. If the Farm-out
creates a co-ownership arrangement, the Fund may be required to capitalize a
portion of the intangible drilling and development costs paid in excess of its
fractional share of the Working Interest acquired pursuant to the agreement. One
type of Farm-out in which the Fund might participate is a transaction in which,
in exchange for the drilling of a well on a particular drill site, an Operator
becomes entitled to an assignment of 100% of the leasehold interest in the drill
site acreage (until such time as the Operator's drilling, completion and
production costs are recovered out of production therefrom, with a lesser
percentage thereafter) and a lesser fractional interest in the portion of the
tract exclusive of the drill site acreage. The Service has ruled, in Revenue
Ruling 77-176, 1977-1 Cum. Bul. 77, that any transfer of rights in property
other than the drill site acreage in this type of transaction would be deemed a
sale of such other property by the party transferring the property on which gain
or loss is realized. The Service further ruled that, while the party receiving

                                       45
<PAGE>

the acreage and incurring the cost of drilling the well on the drill site may
elect to deduct such costs as intangible drilling and development costs, such
party would realize ordinary income equal to the value of the acreage earned
exclusive of the drill site acreage.

     The Fund will attempt to structure any Farm-out or similar transaction in a
way that either eliminates or minimizes to the fullest extent possible the tax
consequences described above. Nevertheless, the ruling may have adverse tax
implications for the Fund if and when the Fund enters into such Farm-outs, since
the Fund may recognize gain or loss upon the transfer of an interest in the
property.

9.   Allocations
     -----------

     In the opinion of Black & Associates, the allocations of each Investor's
share of income, gain, expense, loss, deduction or credit as set forth in the
LLC Agreement will more likely than not be sustained for federal income tax
purposes.

     Under Section 704, a partner's distributive share of the income, gain,
expense, loss, or credit of a partnership is determined in accordance with the
partnership agreement, unless the allocation set forth therein is without
"substantial economic effect." An allocation will have substantial economic
effect only if it may actually affect the dollar amount of the partners' shares
of the total partnership revenue or costs independently of tax consequences.
Allocations which do not affect the amounts to be distributed from a partnership
generally do not have substantial economic effect. It is essential that the
allocations be reflected in the partners' capital accounts and that such capital
accounts be the basis upon which distributions are made upon liquidation.
Several relevant factors that are considered in making a determination as to
whether an allocation will be recognized for federal income tax purposes are
outlined in the Regulations. These factors include, among others, (1) the
presence of a business purpose for the allocation, (2) whether related items of
income, gain, expense, loss, deduction or credit from the same source are
subject to the same allocation, (3) whether the allocation was made without
recognition of normal business factors, (4) whether it was made only after the
amount of the specially allocated item could reasonably be estimated, (5) the
duration of the allocation and (6) the overall tax consequences of the
allocation. These factors and perhaps others may be relevant in determining
whether an allocation has substantial economic effect.

     The Regulations relating to special allocations of partnership costs and
revenues under Section 704(b) provide that partnership allocations have economic
effect (and thus would be valid under the Code provided such effect is
substantial) only if they are consistent with the underlying economic
arrangements of the partners. Under the Regulations, an allocation of income,
gain, expense, loss, deduction or credit (or item thereof) to a partner is
considered to have economic effect if, throughout the full term of the
partnership, the partnership agreement provides:

                                       46
<PAGE>

     o    For the determination and maintenance of the partners' capital
          accounts in accordance with the Regulations;

     o    Upon liquidation of the partnership (or any partner's interest in the
          partnership), for liquidating distributions in all cases to be made in
          accordance with the positive capital account balances of the partners,
          as determined after taking into account all capital account
          adjustments for the partnership taxable year during which such
          liquidation occurs (other than those made pursuant to this requirement
          and requirement (3) below), by the end of such taxable year (or, if
          later, within 90 days after the date of such liquidation); and

     o    For a "qualified income offset" provision as defined in Regulation
          Section 1.704-1(b)(2)(ii)(d) and a "minimum gain charge-back"
          provision as defined in Regulation Section 1.704-2(f).

     No allocation to a partner will be given effect, however, which would cause
or increase a negative capital account balance for such partner in excess of
that partner's share of the partnership minimum gain. In general, a partnership
has minimum gain to the extent that nonrecourse liabilities encumbering
partnership property exceed the adjusted tax basis of such property.

     Under the LLC Agreement, a capital account is to be maintained for each
Investor to which will be charged each item of Fund income, gain, expense, loss,
deduction and credit in accordance with the rules set forth in the Regulations.
Upon dissolution of the Fund, after satisfying all Fund liabilities, each
Investor will receive a distribution in accordance with the Investor's positive
capital account balance. In addition, the LLC Agreement contains a "qualified
income offset" provision as defined in Regulation Section 1.704-1(b)(2)(ii)(d)
and a "minimum gain charge-back" provision as defined in Regulation section
1.704-2(f).

     Regulation Section 1.704-1(b)(2)(iii)(a) presently provides that the
economic effect of an allocation is not substantial if, at the time the
allocation becomes part of the partnership agreement, (1) the after-tax economic
consequences of at least one partner may, in present value terms, be enhanced
compared to such consequences if the allocation were not contained in the
partnership agreement, and (2) there is a strong likelihood that the after-tax
economic consequences of no partner will, in present value terms, be
substantially diminished compared to such consequences if the allocation were
not contained in the partnership agreement. In determining the after-tax
economic benefit or detriment to a partner, tax consequences that result from
the interaction of the allocation with such partner's tax attributes that are
unrelated to the partnership will be taken into account.

                                       47
<PAGE>

     Under the LLC Agreement, 99 percent of all items of Fund expense, loss,
deduction and credit attributable to the expenditure of Capital Contributions
will generally be allocated to the Investors. This allocation appears to satisfy
the first test of Regulation Section 1.704-1(b)(2)(iii)(a) inasmuch as it will
presumably enhance the after-tax consequences to an Investor. The second test is
not expected to be met, since the Manager has represented that it does not
expect to be in a significantly lower income tax bracket than the Investors. In
any case, there appears to be no statutory authority for the position taken by
the Treasury Department in Regulation Section 1.704-1(b)(2)(iii)(a), inasmuch as
it would appear to disallow any special allocation which would enhance the
after-tax economic consequences to any partner, whether or not the allocation
has substantial economic effect.

     Accordingly, it is Black & Associates opinion that the allocations set
forth in the LLC Agreement will more likely than not have the requisite
substantial economic effect.

     If the allocations are not recognized, Section 704(b) requires that each
Investor's distributive share be determined in accordance with his interest in
the Fund, as determined from all the facts and circumstances. The most likely
consequences of an adverse determination in this regard would be the
disallowance of approximately 14% of the deductions taken by the Investors with
respect to the acquisition, drilling and completion of the Fund's wells.

     Section 706 and the Regulations thereunder provide generally that a partner
may be allocated items of partnership income and deductions only for that
portion of the Fund's taxable year that the partner is a partner. Accordingly,
the partnership shall allocate such items only to those Investors who are
already admitted to the Fund at the time such expenses were incurred.

10.  Organization, Start-up and Syndication Expenses
     -----------------------------------------------

     Section 709(a) prohibits any Investor from deducting any amounts paid or
incurred to organize the Fund or to promote the sale of (or to sell) an interest
in the Fund. Amounts paid to organize the Fund, however, may, at the election of
the Fund, be treated as deferred expenses and deducted ratably over a period of
not less than 60 months selected by the Fund. Organization expenditures that may
be amortized are those (i) incurred incident to the creation of the Fund, (ii)
chargeable to the capital account, and (iii) of a character which, if expended
incident to the creation of a partnership having an ascertainable life, would be
amortized over such life. The Fund presently intends to amortize qualifying
organization expenditures over a 60-month period.

                                       48
<PAGE>

     Expenses connected with the promotion or sale of interests in a
partnership, known as syndication fees, are not deductible by the Fund or the
Investors and are not eligible for the 60-month amortization as is the case for
organizational expenses. Syndication fees include such expenditures connected
with the issuing and marketing of interests in a partnership such as sales
commissions, certain professional fees, selling expenses and printing costs.
Regulation Sections 1.709-1 and 1.709-2 make it clear that the definition of
syndication costs includes counsel fees related to securities law advice,
certain accountants' fees, brokerage fees and registration fees. The allocation
of certain expenses between organization costs and syndication costs is a
question of fact and the Manager will use reasonable judgment in claiming
amortization deductions for a portion of the Organizational, Distribution and
Offering Fee and other expenses. The Service may on audit contest such
deductions.

     Section 195 provides that no deduction is allowed for "start-up
expenditures." However, taxpayers may elect under that section to amortize
"start-up expenditures" over a period of not less than 60 months. "Start-up
expenditures" include amounts paid or incurred in connection with investigating
the creation or acquisition of an active trade or business or paid or incurred
in connection with any activity engaged in for profit and for the production of
income prior to the day on which the active trade or business begins, in
anticipation of the activity becoming an active business.

     A significant portion of the Fund's expenses may be characterized as
"start-up expenditures" for federal income tax purposes. Consequently, the Fund
intends to elect to amortize such expenses over a 60-month period.

     While the Manager will use its best judgment in the allocation of expenses
among start-up, organization, syndication and other costs, no assurance can be
given that such allocation will not be challenged by the Service. In particular,
the service may claim that various fees paid to the Manager constitute
syndication expenses.

11.  Distributions
     -------------

     Cash distributions by the Fund to an Investor will not result in taxable
gain to such Investor unless they exceed the Investor's adjusted basis in his
Shares, in which case the Investor will recognize gain in the amount of such
excess. Non-liquidating distributions of property other than cash to an Investor
will reduce the Investor's basis in the Fund by an amount equal to the Fund's
basis in such property; provided, however, that the adjusted basis of the
Investor may not be reduced below zero. An Investor's tax basis in any property
distributed to the Investor will be an amount equal to the amount of reduction
in the Investor's basis in the Investor's Shares, occurring by reason of such
distribution, regardless of the value of the property distributed. A reduction

                                       49
<PAGE>

in an Investor's share of Fund indebtedness will be treated as a cash
distribution to the Investor to the extent of such reduction. Under some
circumstances, distributions from the Fund to an Investor may cause the amount
the Investor has at risk with respect to the Fund activity to fall below zero,
which could result in recapture of previously deducted losses.

12.  Trade or Business Requirement
     -----------------------------

     The Service may seek to disallow certain deductions claimed by the Fund on
the ground that these expenditures are not expenditures incurred in carrying on
a trade or business because the Fund will not have established and commenced its
business at the time the expenditures are made.

     Neither the Code nor the Regulations provide any explicit definitions of
"carrying on a trade or business." Although various subjective criteria have
been recommended for consideration in this regard, no single factor has been
found to be controlling. Further, determining the point in time when a
particular venture begins carrying on a trade or business is essentially a
question of fact, the resolution of which is not to be determined solely from
the intention of the taxpayer. The Service might contend that the Fund is not
engaged in carrying on any trade or business within the meaning of Section
162(a) until such time as the business has begun to function as a going concern,
performs those activities for which it was organized and starts to generate
receipts. In addition, the service may contend that certain expenses are in the
nature of "start-up" expenses rather than currently deductible trade or business
expenses.

     In the event that the Service were to disallow Fund expenses based upon the
failure of the Fund to have been carrying on a trade or business, the Fund
expects to take the position that its expenses may be deducted in any case under
Section 212 which provides for deductions ("Miscellaneous Deductions") for
amounts incurred for the production of income, for the management, conservation,
or maintenance of property held for the production of income and in connection
with the determination, collection or refund of any tax.

     Under Code Section 67, however, expenses of an individual taxpayer which
are otherwise deductible under Section 212 are disallowed to the extent that
they, when combined with the taxpayer's other Miscellaneous Deductions, do not
exceed 2% of his adjusted gross income. If, for any period, the Fund is found
not to be engaged in a trade or business, the Service could thus disallow an
Investor's share of various expenses of the Fund to the extent that such share,
when combined with the Investor's otherwise allowable Miscellaneous Deductions,
does not exceed such 2% threshold.

                                       50
<PAGE>

13.  Alternative Minimum Tax
     ------------------------

     The Code imposes an alternative minimum tax in order to assure that
taxpayers may not reduce their tax below a minimum level through certain "tax
preference items." In general, the alternative minimum tax liability of a
noncorporate taxpayer is calculated by (1) adding together the taxpayer's
adjusted gross income and the taxpayer's tax preference items, (2) adding and
subtracting certain other specified items, and (3) then subtracting the
applicable exemption of $40,250 for single taxpayers, $58,000 for married
taxpayers filing joint returns, $29,000 for married taxpayers filing separate
returns, or $22,500 for estates and trusts. Married taxpayers filing separate
returns must also add to that total an amount equal to the lesser of (a) 25% of
the sum determined under clauses (1) and (2) above, in excess of $191,000, or
(b) $29,000. The total amount determined in the preceding two sentences (the
"Taxable Excess") is then taxed at the following rates: all taxpayers other than
married individuals filing separate returns are taxed at 26% of the first
$175,000 of the Taxable Excess and at 28% of any additional Taxable Excess,
reduced by any applicable foreign tax credit; while married individuals filing
separate returns are taxed at 26% of the first $87,500 of the Taxable Excess and
at 28% of any additional Taxable Excess, reduced by any applicable foreign tax
credit. These rates are subject, however, to the 15% maximum tax rate on
long-term capital gains (and qualified dividends). The taxpayer must then pay
the greater of the alternative minimum tax or the regular income tax. Generally,
no tax credits (other than the foreign tax credit) are allowable against the
alternative minimum tax. Under the Code, the exemptions listed in clause (3)
above are phased out where alternative minimum taxable income exceeds $150,000
($112,500 for single persons and $75,000 for estates, trusts and married persons
filing separately).

     Alternative minimum tax preference items and adjustments which only result
in a deferral of tax rather than a permanent reduction may give rise to a credit
against regular tax payable by Investors in future years.

     Although an investment in the fund is unlikely to cause an individual
Investor to report preference items, the intangible drilling deductions ("IDC")
allocated to such Investor by the Fund may increase his or her alternative
minimum taxable income ("AMTI"). A taxpayer who is not an integrated oil company
may not reduce AMTI by more than 40 percent of the AMTI that would otherwise be
reportable had the taxpayer been subject to the "excess IDC" tax preference.
That tax preference is generally the amount by which (a) the excess of the
actual IDC deduction over the deduction which would have been allowable if the
costs were capitalized and taken ratably over 10 years (or in accordance with
cost depletion) is greater than (b) 65 percent of the taxpayers income from oil,
gas and geothermal properties. Any portion of the IDC taken under the 60-month
amortization election may be excluded from the foregoing calculation.

                                       51
<PAGE>

     An adjustment that may increase or decrease alternative minimum taxable
income is depreciation attributable to personal property placed in service after
1986 that differs from the amount available under the 150 percent declining
balance method.

         The applicability of the alternative minimum tax must be determined by
each individual Investor based upon the operations of the Fund and his personal
tax situation. In many circumstances, the federal (and state) minimum tax
provisions will substantially eliminate the value of intangible drilling
deductions for individual taxpayers. Accordingly, any potential investor in the
Fund should consult his own tax advisor to determine the tax consequences to him
personally of the alternative minimum tax.

14.  Termination of the Fund
     ------------------------

     The actual or constructive termination of the Fund may have important tax
consequences to the Investors. All Investors would recognize their distributive
shares of Fund income, gain, expense, loss, deduction or credit accrued during
the Fund's taxable year up until the date of termination whether or not any such
items are distributed. Similarly, the Investors must account for their
distributive shares of gains or losses realized from the sale or other
disposition of Fund assets in liquidation of the Fund. The Code provides that if
50% or more of the capital and profit interests in a Fund are sold or exchanged
within a single twelve-month period, the Fund will terminate for tax purposes.
If such a termination occurs, the assets of the Fund will be deemed
constructively distributed pro rata to the Shareholders and then recontributed
by them to a new (for tax purposes) partnership.

     Upon the distribution of Fund assets incident to the termination of the
Fund, an Investor will recognize gain to the extent that money distributed to
the Investor plus the pro rata amount, if any, of liabilities discharged exceeds
the adjusted basis of his or her Shares immediately before the distribution.
Assuming that an Investor's interest in the Fund is a capital asset, such gain
will be capital gain unless Section 751 applies. Section 751 provides generally
that a partner's gain on liquidation of a Fund will be treated as ordinary
income to the extent that the partner receives or is deemed to receive less than
the partner's pro rata share of certain ordinary income assets, including
unrealized receivables and potential recapture of depreciation, depletion and
intangible drilling costs. No loss will be recognized by an Investor on the
distribution to the Investor of Fund property upon the termination of the Fund
unless the only such property distributed is money, unrealized receivables and
inventory. For these purposes, "money" includes marketable securities.

15.  Activities Engaged in for Profit
     --------------------------------

                                       52
<PAGE>

         Section 183 provides limitations for deductions attributable to an
"activity not engaged in for profit." The term "activity not engaged in for
profit" means an activity other than one which constitutes a trade or business,
or one that is engaged in for the production or collection of income or for the
management, conservation or maintenance of property held for the production of
income. The determination of whether an activity is not engaged in for profit is
based on all the facts and circumstances and no one factor is determinative.

     Section 183 creates a presumption that an activity is engaged in for profit
if in any three years out of five consecutive taxable years the gross income
derived from the activity exceeds the deductions attributable thereto. Thus, if
the Fund fails to produce a profit in at least three of five consecutive years,
the presumption will not be available and the possibility of successful
challenge by the Service substantially increases. If Section 183 is successfully
asserted by the Service, no deductions will be allowed in excess of Fund income.

     Since the test of whether an activity is deemed to be engaged in for profit
is based on the facts and circumstances existing from time to time, no assurance
can be given that Section 183 may not be applied in the future to disallow
deductions taken by the Investors with respect to their interest in the Fund.

     It should be noted that, if the Service were to challenge an Investor's
deduction of Fund losses for lack of profit motive, such Investor would have the
burden of proving that the Fund did in fact enter into the transaction with a
reasonable expectation of profit and that the Investor's own investment in the
Fund was made with the requisite profit motive.

16.  Material Distortion of Income
     -----------------------------

     Section 446(a) provides that taxable income shall be computed under the
method of accounting on the basis of which the taxpayer regularly computes the
taxpayer's income in keeping the taxpayer's books. Section 446(b) provides,
however, that if the method used does not clearly reflect income, the
computation shall be made under such method as does clearly reflect income in
the opinion of the Service. If the method of accounting used by the taxpayer
does not clearly reflect income, Section 446(b) grants the Service discretion to
compute the taxpayer's taxable income "under such method" as the Service
determines does clearly reflect income.

     It has been established that the Service's authority to change a method of
accounting may be used to correct not only the overall method of accounting of
the taxpayer but also the accounting treatment of any item. See, e.g., Burck v.
Commissioner, 533 F.2d 768 (2d Cir. 1976).

                                       53
<PAGE>

     The Service claims a very broad authority under Section 446(b) to disallow
any deduction where the deduction results in what it determines to be "a
material distortion of income." An example of the Service's position is Revenue
Ruling 79-229, 1979-2 Cum. Bull. 210, which sets forth some of the factors it
can consider in determining whether a deduction results in a material distortion
of income, such as the customary practice of the taxpayer, the amount of the
expense in relation to such expenses in the past, and the materiality of the
expenditure in relation to the taxpayer's income for the year.

     The broad authority claimed by the Service in Revenue Ruling 79-229 is
similar to a position taken by it in the past. However, on at least one
occasion, the United States Supreme Court specifically rejected the reasoning
that the Service has the authority to make exceptions to the general rule of
accounting by annual periods if it determines that it would be unjust or unfair
not to isolate a particular transaction and treat it on the basis of the
long-term result. Despite this authority, the Service may analyze deductions
taken by the Fund and attempt to reallocate such deductions to another taxable
year to the extent the Service determines that such deductions materially
distort income. Since the material distortion of income test is based upon the
facts and circumstances of a specific transaction, counsel cannot express an
opinion as to the likely outcome of an attempted reallocation of Fund deductions
by the Service.

17.  Fund Borrowing
     --------------

     Any Fund income applied to the repayment of Fund borrowing will remain
taxable as income to the Investors although no distribution is made to them. A
foreclosure or other sale of any Fund property securing any such indebtedness
may also result in an Investor's realization of income for income tax purposes
even if no proceeds are distributed to the Investor. In determining for federal
income tax purposes the amount received on the sale or disposition of an
interest in the Fund an Investor must take into account, among other things, the
Investor's share of Fund indebtedness. An Investor may, therefore, realize an
amount of taxable gain in excess of the actual proceeds of a sale or disposition
of Fund property or of the Investor's interest in the Fund.

     All Investors should be aware of the restrictions, contained in the Code,
on the deductibility of interest paid by an Investor. See Limitations on
Interest Deductions.

18.  Registration of Tax Shelters
     ----------------------------

     Under Section 6111, any tax shelter organizer is required to register the
shelter with the Service if it meets the following tests: (i) if a person could
infer from the offering that the "tax shelter ratio" may be greater than 2 to 1

                                       54
<PAGE>

at the end of any of the first five years after the offering date; and (ii) if
the investment (a) is required to be registered under any federal or state
securities law, or (b) is sold pursuant to an exemption under any federal or
state securities law, or (c) is substantial. For purposes of the foregoing
tests, the tax shelter ratio is the ratio with respect to any investor of (A)
the aggregate of deductions and 350 percent of the credits potentially allowable
to (B) the aggregate of the cash invested and the adjusted basis of other
property contributed by the investor (reduced by any liability to which that
property is subject) and an investment is considered substantial if the total
offering exceeds $250,000 and five or more investors are expected to invest. The
organizers must register the shelter not later than the day on which the
interests are offered for sale. The organizers must complete a registration form
which contains information identifying and describing the tax shelter, its
benefits, and any other information required by the Service. If the organizers
fail to timely register a tax shelter or file false or incomplete information
with respect to registration, they may be subject to a penalty equal to the
greater of (a) $500 or (b) 1% of the amount invested in the shelter. The
organizers must supply purchasers with the entity's tax shelter identification
number. Failure to do so will result in a penalty of $100 for each failure. Any
person claiming any deduction, credit or other tax benefit by reason of a tax
shelter must include the entity's tax shelter identification number on the tax
return on which such deduction, credit or other benefit is claimed. Failure to
include such number will result in a penalty of $250 for each such failure.

19.  Audits, Interest and Penalties
     ------------------------------

     Under the Code, the Service is permitted to audit a partnership's tax
return instead of having to audit the individual tax returns of the partners, so
that a partner would be subject to determinations made by the Service or the
courts at the partnership level. A partner is entitled to participate in such an
audit, or in litigation resulting therefrom, only in limited circumstances. In
the event that any audit results in a change in the Fund's return and an
increase in the tax liability of an Investor, there may also be imposed
substantial amounts of nondeductible interest and penalties. In addition to the
interest imposed on deficiencies (presently 5% per year compounded daily), the
Code now provides a penalty equal to 20% of any underpayment of tax attributable
to (1) negligence, any careless, reckless or intentional disregard of rules or
regulations, or any failure to make a reasonable attempt to comply with the
Code, (2) a substantial underpayment of tax (i.e., one which exceeds the greater
of $5,000 or 10% of the correct tax liability) which was neither based upon
substantial authority nor adequately disclosed or (3) any substantial valuation
misstatement (i.e., a valuation which exceeds 200% or is less than 50% of the
correct value) which, when combined with any other substantial valuation
misstatements for the taxable year, resulted in an underpayment of tax exceeding

                                       55
<PAGE>

$5,000. If a substantial valuation misstatement exceeds 400% or is less than 25%
of the correct value, the penalty is increased to 40% of any underpayment
attributable to such misstatement.

     Investors must generally treat partnership items on their federal income
tax returns consistently with the treatment of such items on the partnership
information return filed by the Fund, unless the Investor files a statement with
the Service identifying the inconsistency or otherwise satisfies the conditions
for waiver of the consistency requirement. Failure to satisfy this requirement
will result in an adjustment to conform the Investor's treatment of the item
with the treatment of the item on the partnership information return filed by
the Fund. Intentional or negligent disregard of the consistency requirement may
subject an Investor to substantial penalties.

     Because of the potentially substantial effect of all the foregoing
provisions, each prospective Investor should consult with his tax advisor about
these provisions before acquiring Shares.

20.  Sales of Fund Property
     ----------------------

     The sale or disposition of Fund property used in the Fund's business will
generate a gain or loss equal to the difference between the amount realized on
such sale or other disposition and the Fund's adjusted basis in the property. In
general, gain realized from the sale or disposition of such property which is
depreciable property or land and was held for more than one year should qualify
as gain from the sale of a Section 1231 asset, except to the extent that any
such gain is attributable to property subject to recapture. Each Investor is
generally entitled to treat the Investor's share of Section 1231 gains and
losses as long-term capital gains and losses if the Investor's Section 1231
gains exceed the Investor's Section 1231 losses for the year. However, net
Section 1231 gains will be treated as ordinary income to the extent of
unrecaptured net Section 1231 losses of the Investor for the five most recent
prior years. If the Investor's share of Section 1231 losses, when added to his
or her other Section 1231 losses, exceeds the Investor's Section 1231 gains for
the taxable year, such losses will be treated as ordinary losses.

     Section 1254 provides that upon disposition of any oil and gas property by
the Fund, a portion of any gain may be taxed as ordinary income from the
recapture of intangible drilling and development costs and depletion. The amount
that will be taxable as ordinary income will be equal to the lesser of: (1) the
amount of intangible drilling and development costs and depletion previously
deducted with respect to the property or interest sold (only insofar as they
reduced the adjusted basis thereof); or (2) the excess of the amount realized on
disposition of the property over the adjusted basis of the property.

                                       56
<PAGE>

     Any gain on the sale or other disposition of equipment by the Fund will be
taxed as ordinary income to the extent of all depreciation deductions previously
claimed with respect to such equipment, with any excess being treated as Section
1231 gain. Similarly, gain on the sale of any building owned by the Fund will be
treated as ordinary income to the extent of any depreciation taken with respect
to such building in excess of straight-line depreciation. If, however, such
building has been held for one year or less, all depreciation will be recaptured
as ordinary income. In the case of a disposition of property in an installment
sale, any ordinary income under these recapture provisions is to be recognized
in the year of the disposition.

     Under Section 751, a similar recapture rule applies upon the disposition of
Shares by an Investor such that an Investor will be required to treat as
ordinary income the portion of any gain realized upon the disposition of the
Investor's Shares that is attributable to property subject to recapture of
depreciation, intangible drilling and development costs and depletion or certain
other property which, if sold by the Fund, would give rise to ordinary income.
There are exceptions to the recapture rules for gifts, transfers at death,
transfers in certain tax-free reorganizations, like-kind exchanges and
involuntary conversions in certain circumstances.

     Net capital gains of individual taxpayers currently are taxed at a minimum
statutory rate (generally this is 15% for capital assets held for more than 12
months) which is significantly less than the maximum statutory rate applicable
to other income (35%). Net capital gains means the excess of net long-term
capital gain over net short-term capital loss.

21.  Limitations on Interest Deductions
     ----------------------------------

     In general, Section 163(d) limits the amount of investment interest which
an individual Investor may deduct to the Investor's "net investment income."
Interest expense (and income) from activities subject to the passive loss rules
is not treated as investment interest (or investment income). Investment
interest includes interest attributable to indebtedness that is incurred to
acquire an interest in an activity involving the conduct of a trade or business
which is not a passive activity and in which the taxpayer does not materially
participate. Interest attributable to borrowing incurred to purchase Shares will
be taken into account in computing the Investor's income or loss from passive
activities to the extent that the Fund's income is treated as derived from a
passive activity. Consequently, most of the interest expense attributable to
such borrowing should not constitute investment interest expense. Investment
interest, the deduction of which is disallowed in any year, may be carried over
to subsequent years. Each Investor should consult with the Investor's own tax
advisor as to the application, if any, to the Investor of the limitations
contained in Section 163(d).

                                       57
<PAGE>

     In addition, under the Code, no deduction is allowed for personal interest
(such as interest on car loans or credit card balances for personal
expenditures). Interest on underpayments of tax (other than certain deferred
estate taxes) is treated as personal interest under the Code.

     Interest on debt secured by the principal residence or second residence of
a taxpayer is, however, deductible if paid with respect to "acquisition
indebtedness" up to a maximum debt of $1,000,000 ($500,000 for a married person
filing a separate return) and "home equity indebtedness" up to a maximum debt of
$100,000 ($50,000 for a married person filing a separate return). For this
purpose, "acquisition indebtedness" means debt that is incurred in acquiring,
constructing or substantially improving the principal or a second residence of
the taxpayer and "home equity indebtedness" means debt secured by the taxpayer's
principal or second residence to the extent that the aggregate amount of such
debt does not exceed the difference between the "acquisition indebtedness" with
respect to the residence and the fair market value of the residence. Under the
Code, interest on certain pre-October 13, 1987 indebtedness of the taxpayer is
deductible regardless of the $1,000,000 and $100,000 limitations.

     In addition to the foregoing, Section 265(a)(2) provides that interest on
indebtedness incurred or continued to "purchase or carry" tax-exempt securities
is not deductible. Investors who currently own or anticipate acquiring
tax-exempt securities and who contemplate purchasing Shares with borrowed funds
are urged to consult with their tax advisors with respect to the application of
Section 265.

22.  Fund Elections
     --------------

     Pursuant to Sections 734, 743 and 754, a partnership may elect to have the
cost basis of its assets adjusted in the event of a sale by a partner of the
partner's interest in the partnership, the death of a partner, or the
distribution of property to a partner. The general effect of such an election is
that the transferees of an interest in the partnership are treated as though
they had acquired a direct interest in the partnership assets and, upon certain
distributions to partners, the partnership is treated as though it has newly
acquired an interest in the partnership assets and therefore acquired a new cost
basis for such assets. Any such election, once made, is irrevocable without the
consent of the Service.

     As a result of the complexities and the substantial expense inherent in
making the election, the Manager does not presently intend to make such an
election on behalf of the Fund. The absence of any such election may result in a
reduction in value of an Investor's Shares to any potential transferee. Thus,
the absence of the power to compel the making of such an election should be
considered an additional impediment to the transferability of Shares.

                                       58
<PAGE>

     Various other elections affecting the computation of federal income tax
deductions and taxable income derived from the Fund must be made by the Fund and
not by the individual Investors. For purposes of reporting each Investor's share
of Fund income, gains and losses, the Fund's elections are binding upon the
Investors.

23.  At Risk Rules: Limitation on Deduction of Losses
     ------------------------------------------------

     Section 465 limits an Investor's deduction for losses allocated to the
Investor by the Fund to the amount that he has at risk with respect to the Fund.
The term "loss" is defined as the excess of the deductions allowable for the
taxable year over the income received or accrued by the taxpayer during the
taxable year from such activity.

     Section 465 and the proposed Regulations thereunder generally provide that
an Investor will be considered to have at risk in the Fund the sum of (i) the
amount of money contributed to the Fund, (ii) the adjusted basis of other
property contributed to the Fund, (iii) income generated by the Fund, and (iv)
amounts borrowed by the Investor or the Fund for use in the Fund's activities,
where the Investor is personally liable for the repayment of the loan or where
the Investor has pledged property, other than property used in the activity, as
security for the borrowed amount, but only to the extent of the net fair market
value of the Investor's interest in the property; provided, however, that
borrowed amounts will not be considered at risk if borrowed from any person or
entity who (a) has an interest, other than as a creditor, in the Fund's
activities or (b) is related to someone who has such an interest. Thus, for
example, an Investor will not be considered to have at risk in the Fund amounts
borrowed from the Manager or its Affiliates. An Investor will not be considered
at risk with respect to amounts protected against loss through nonrecourse
financing, guarantees, stop loss agreements or other similar arrangements.

     Distributions to an Investor will generally reduce the amount which the
Investor has at risk in the activity. The "at risk" rules provide that the
amount of any distribution received by an Investor or any other reduction in the
Investor's at risk basis, after his or her amount at risk is reduced to zero,
will be treated as ordinary income, but only to the extent of losses previously
claimed by the investor from the Fund. Thus, if the Fund makes distributions to
an Investor which do not exceed his adjusted basis in the Fund, but do exceed
the Investor's amount at risk, he may have ordinary income.

     Generally, the at risk limitation applies on an activity-by-activity basis
and, in the case of oil or gas properties, each property is treated as a
separate activity so that losses or deductions arising from one property are

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<PAGE>

limited to the at risk amount for that property and not the aggregate at risk
amount for all the taxpayer's oil or gas properties. The Service has announced
that, until further guidance is issued, it will permit the aggregation of oil or
gas properties owned by a partnership in computing a partner's at risk
limitation with respect to the partnership. The Service has also announced that
any rules that would impose restrictions on the ability of partners to aggregate
will be effective only for taxable years ending after the rules are issued. If
an Investor must compute his at risk amount separately with respect to each Fund
Property, the consequences of the at risk limitations to him are unpredictable,
but he may not be allowed to utilize his share of losses or deductions
attributable to a particular Property even though he has a positive at risk
amount with respect to the Fund as a whole.

     If in any year an Investor has a loss from the Fund, the effect of Section
465(a) is to permit deduction of such loss up to the aggregate amount at risk on
the last day of the taxable year. If the amount at risk exceeds the loss, the
amount deemed at risk in subsequent years is reduced under Section 465(b)(5) by
the amount of losses claimed in previous years and increased by additional at
risk amounts contributed to the activity. If the amount of loss exceeds the at
risk amount, the excess loss is held in a suspense account and treated as a
deduction in the first succeeding taxable year that the taxpayer is at risk. The
carryover loss is then added to the deductions allowable for such year but is
limited at the end of such year by the amount then at risk. Under proposed
Regulation Section 1.465-2(b), there is no limitation on the number of years to
which such deductions may be carried.

     In addition to the "at risk" rules discussed above, Section 704(d) provides
that a partner's distributive share of partnership loss is allowed as a
deduction only to the extent of the positive adjusted basis of his partnership
interest at the end of the partnership year in which the loss is incurred. If a
partner's distributive share of loss items exceeds his basis, as adjusted for
capital contributions, distributions, the partner's share of any partnership
income items and changes in his share of partnership liabilities, then only a
portion of each loss item is allowed, based upon the portion that each bears to
the total of all loss items. Excess losses which are not currently allowed may
be carried forward indefinitely until such partner has sufficient basis to
permit the deduction.

24.  Passive Activities
     ------------------

     Under the Code, deductions from passive activities, to the extent that they
exceed income from all such activities (exclusive of portfolio income),
generally will not be deductible against other income of the taxpayer. Thus, the
taxpayer cannot use passive losses to offset personal earnings, active business
income, or investment or portfolio income (such as interest, dividends,
royalties, or gains from the sale of assets that generate investment or

                                       60
<PAGE>

portfolio income). Similarly, credits from passive activities generally are
limited to the tax allocable to the passive activities. Suspended losses and
credits are carried forward and treated as deductions and credits from passive
activities in the next taxable year. When the taxpayer disposes of his entire
interest in an activity in a fully taxable transaction, any remaining suspended
loss incurred in connection with that activity is allowed in full.

     Passive activities are defined to include trade or business activities in
which the taxpayer does not materially participate and rental activities.
Interest attributable to passive activities is not treated as investment
interest.

     The passive loss provision generally applies to individuals, estates,
partnerships, and personal service corporations (as defined for purposes of the
provision). Certain closely held corporations are subject to a more limited rule
under which passive losses and credits may not be applied to offset portfolio
income.

     Ownership of Shares will be a passive activity and an Investor will be
subject to the passive activity loss limitations with respect to his share of
the Fund's losses and deductions. Consequently, an Investor's share of the
Fund's losses and deductions may be deducted only to the extent of his share of
the Fund's income and any income from other passive activities.

     A special provision of the passive activity rules applies to publicly
traded partnerships. If this special provision were to apply to the Fund,
certain additional limitations would apply, the most significant of which is
that an Investor could only deduct his share of Fund losses and deductions
against his share of passive activity income from the Fund. The definition of
"publicly traded partnership" for purposes of this special provision is the same
as the definition of "publicly traded partnership" discussed under
Classification as a Partnership above, except that this special provision does
not include the 90% of gross income exception.

25.  Investment by Qualified Plans and Other Tax Exempt Entities
     -----------------------------------------------------------

     In General. The following entities are generally exempt from federal income
taxation:

     o    Trusts forming part of a stock bonus, pension, or profit sharing plan
          (including a Keogh plan) meeting the requirements of Section 401(a);

     o    Trusts meeting the requirements for an Individual Retirement Account
          ("IRA") under Section 408(a) (referred to herein, along with trusts
          described in (A), as "Qualified Plans"); and

                                       61
<PAGE>

     o    organizations described in Sections 501(c) and 501(d) (collectively
          with Qualified Plans "Tax Exempt Entities").

     This exemption does not apply to the extent that taxable income is derived
by the above entities from the conduct of any trade or business which is not
substantially related to the exempt function of the entity ("unrelated business
taxable income"). If an entity is subject to tax on its "unrelated business
taxable income," it may also be subject to the alternative minimum tax on
related tax preference items.

     In the case of a charitable remainder trust, the receipt of any "unrelated
business taxable income" during any taxable year will cause all income of the
trust for that year to be subject to federal income tax. Therefore, an
investment in the Fund by a charitable remainder trust would not ordinarily be
appropriate. In some circumstances, however, taxability under the ordinary trust
rules may not be disadvantageous to a charitable remainder trust.

     "Unrelated business taxable income" is generally taxable only to the extent
that the Tax Exempt Entity's "unrelated business taxable income" from all
sources exceeds $1,000 in any year. The receipt of "unrelated business taxable
income" by a Tax Exempt Entity in an amount less than $1,000 per year will,
however, require the Tax Exempt Entity (except an IRA) to file a federal income
tax return to claim the benefit of the $1,000 per year exemption. Fiduciaries of
Tax Exempt Entities considering investing in Shares are urged to consult their
own tax advisors concerning the rules governing "unrelated business taxable
income."

     Gains or losses from the sale, exchange or other disposition of property,
interest income and royalty income are generally excluded from the computation
of "unrelated business taxable income." "Unrelated business taxable income"
includes, however, gain or loss from the sale, exchange or other disposition of
property held by a dealer and "debt-financed property."

     Although some of the Fund's income may be treated as royalty income, a
significant portion of the Fund's income will be considered to be derived from
sales in the ordinary course of business. Thus, Tax Exempt Entities should
expect a significant portion of the income derived from their investment in the
Fund to constitute "unrelated business taxable income."

     B. Debt-Financed Property. Even though certain types of income, such as
interest and royalties, generally may be considered passive and excluded from
unrelated business income tax, such income when derived from an investment in
property which is "debt-financed" can still result in income subject to
taxation. "Debt-financed property" is defined in the Code as any property which

                                       62
<PAGE>

is held to produce income and with respect to which there is "acquisition
indebtedness." "Acquisition indebtedness" includes indebtedness incurred by a
Tax Exempt Entity to acquire Shares and indebtedness incurred by the Fund. Each
Tax Exempt Entity should consult with its own counsel regarding whether it may
have incurred "acquisition indebtedness" to acquire Shares.

     In the event the Fund invests in and owns property on which there is
"acquisition indebtedness," a portion of each Tax Exempt Entity's distributive
share of the Fund's taxable income (including capital gain) may constitute
"unrelated business taxable income." This portion would be determined in
accordance with the provisions of Section 514 and is the portion of the Tax
Exempt Entity's distributive share of Fund income which is approximately
equivalent to the ratio of the Fund's debt to the basis of the Fund's property.
Therefore, a Tax Exempt Entity that purchases Shares may be required to report
such portion of its pro rata share of the Fund's taxable income as "unrelated
business taxable income." It should be noted that in computing the "unrelated
business taxable income" of a Tax Exempt Entity for this purpose, the deduction
for depreciation is limited to the amount computed under the straight-line
method.

     The Fund is likely to incur "acquisition indebtedness" in its operations
which is allocable to any Tax Exempt Entity, thus resulting in "unrelated
business taxable income" to such entity.

     C. ERISA Considerations. In considering an investment in Shares,
fiduciaries of Qualified Plans should consider (i) whether the investment is in
accordance with the documents and instruments governing such Qualified Plan,
(ii) whether the investment satisfies the diversification requirements of
Section 404(a)(1)(C) of the Employee Retirement Income Security Act of 1974
("ERISA"), if applicable; (iii) the fact that the investment may result in
"unrelated business taxable income" to the Qualified Plan (including IRAs and
Keogh plans); (iv) whether the investment provides sufficient liquidity; (v)
their need to value the assets of the Qualified Plan annually; and (vi) whether
the investment is prudent.

     ERISA generally requires that the assets of employee benefit plans be held
in trust and that the Manager, or a duly authorized investment manager (within
the meaning of Section 3(38) of ERISA), have exclusive authority and discretion
to manage and control the assets of the plan. ERISA also imposes certain duties
on persons who are fiduciaries of employee benefit plans subject to ERISA and
prohibits certain transactions between an employee benefit plan and the parties
in interest with respect to such plan (including fiduciaries). Under the Code,
similar prohibitions apply to all Qualified Plans, including IRAs and Keogh
plans covering only self-employed individuals which are not subject to ERISA.
Under ERISA and the Code, any person who exercises any authority or control
respecting the management or disposition of the assets of a Qualified Plan is
considered to be a fiduciary of such Qualified Plan.

                                       63
<PAGE>

     Furthermore, ERISA and the Code prohibit "parties in interest" (including
fiduciaries) of a Qualified Plan from engaging in various acts of self-dealing
such as dealing with the assets of a Qualified Plan for his own account or his
own interest. To prevent a possible violation of these self-dealing rules,
neither the Manager nor their Affiliates will purchase Shares with assets of any
Qualified Plan (including a Keogh plan or IRA) if they (i) have investment
discretion with respect to such assets or (ii) regularly give individualized
investment advice which serves as the primary basis for the investment decisions
with respect to such assets.

     If the assets of the Fund were deemed to be "plan assets" under ERISA, (i)
the prudence standards and other provisions of Title 1 of ERISA applicable to
investments by Qualified Plans and their fiduciaries would extend (as to all
plan fiduciaries) to investments made by the Fund and (ii) certain transactions
that the Fund might seek to enter into might constitute "prohibited
transactions" under ERISA and the Code.

     The Department of Labor has published a final regulation concerning the
definition of what constitutes the assets of a Qualified Plan with respect to
its investment in another entity (the "ERISA Regulation"). Section
2510.3-101(a)(2) of the ERISA Regulation provides as follows:

     "Generally, when a plan invests in another entity, the plan's assets
     include its investment, but do not, solely by reason of such investment,
     include any of the underlying assets of the entity. However, in the case of
     a plan's investment in an equity interest of an entity that is neither a
     publicly-offered security nor a security issued by an investment company
     registered under the Investment Company Act of 1940 its assets include both
     the equity interest and an undivided interest in each of the underlying
     assets of the entity, unless it is established that (i) The entity is an
     operating company, or (ii) Equity participation in the entity by benefit
     plan investors is not significant."

Under Section 2510.3-101(f)(1) of the ERISA Regulation, equity participation in
an entity by Qualified Plans is "significant" on any date if, immediately after
the most recent acquisition of any equity interest in an entity, 25% or more of
the value of any class of equity interests in the entity is held by Qualified
Plans.

     Unless another exemption under the Regulation is available, the Manager
will not admit any Qualified Plan as an Investor or consent to an assignment of
Shares if such admission or assignment will cause 25% or more of the value of

                                       64
<PAGE>

all Fund Shares to be held by Qualified Plans. Accordingly, the assets of a
Qualified Plan investing in the Fund should not, solely by reason of such
investment, include any of the underlying assets of the Fund.

     Each fiduciary of a Qualified Plan (and any other person subject to ERISA)
should consult his tax advisor and counsel regarding the effect of the plan
asset rules on an investment in the Fund by a Qualified Plan.

26.  Foreign Investors Not Permitted
     -------------------------------

     Foreign investors will not be admitted to the Fund due to U.S. laws
prohibiting foreign owners of federal leases.

27.  Partnership Anti-Abuse Regulations
     ----------------------------------

     Treasury Regulation section 1.701-2(b) provides, inter alia, that: "...if a
partnership is formed or availed of in connection with a transaction a principal
purpose of which is to reduce substantially the present value of the partners'
aggregate federal tax liability in a manner that is inconsistent with the intent
of subchapter K, the Commissioner can recast the transaction for federal tax
purposes, as appropriate to achieve tax results that are consistent with the
intent of subchapter K, in light of the applicable statutory and regulatory
provisions and the pertinent facts and circumstances." Subchapter K is the
section of the Code which deals with partnership taxation. The Fund does not
intend to enter into any transactions which it believes will be subject to
recasting by the Service under the authority of this Regulation. Due to the
extremely broad language of the Regulation, however, and varying interpretations
of the intent of subchapter K, no assurance can be given that the Service will
not attempt to apply the Regulation to one or more transactions engaged in by
the Fund.

28.  Possible Changes in Tax Laws
     ----------------------------

     The statues, regulations and rules with respect to all of the foregoing tax
matters are constantly subject to change by Congress or by the Department of the
Treasury, and the interpretations of such statutes, regulations and rules may be
modified or affected by judicial decision or by the Department of the Treasury.
Because significant amendments have been made to the Code in recent years and
few final regulations have been promulgated pursuant to such amendments and very
few rulings have been issued thereunder, and because of the continual changes
made by Congress, the Department of the Treasury and the courts with respect to
the administration and interpretation of the tax laws, no assurance can be given
that the foregoing opinions and interpretations will be sustained or that tax
aspects summarized herein will prevail and be available to the Investors.

                                       65
<PAGE>

29.  State and Local Taxes
     ---------------------

     In addition to the federal income tax consequences described above,
prospective Investors should consider potential state and local tax consequences
of an investment in the Fund. In general, an Investor's distributive share of
the taxable income or loss of the Fund generally will be required to be included
in determining the Investor's reportable income for state or local tax purposes
in the jurisdiction in which he is a resident. In addition, some states in which
the Fund may do business or own properties impose taxes on non-resident
Investors determined with reference to their pro rata share of Fund income
derived from such state. Any tax losses derived through the Fund from operations
in such state may be available to offset only income from other sources within
the same state. To the extent that a non-resident Investor pays tax to a state
by virtue of Fund operations within that state, the Investor may be entitled to
a deduction or credit against tax owed to his state of residence with respect to
the same income. In addition, estate or inheritance taxes might be payable in
such jurisdictions upon the death of an Investor. Thus, an Investor might be
subject to income, estate or inheritance taxes and may be required to file tax
returns in states and localities where the Fund operates, as well as in the
state or locality of his residence.

     Investors are urged to consult their own tax advisors in regard to the
state and local income tax consequences of an investment in the Fund.

30.  Need for Independent Advice
     ---------------------------

     The tax matters relating to the Fund and its proposed transactions are
complex and subject to various interpretations. The foregoing analysis is merely
a summary and is not intended as a complete discussion of all tax aspects of the
Fund's activities or as a substitute for careful tax planning. Each prospective
investor must consult with and rely upon his own tax counsel with respect to the
possible tax results of his investment in the Fund.

     Neither the Fund, the Manager, counsel nor professional advisors engaged by
or associated with any of them guarantee that the tax consequences contemplated
to be offered to the Investors as a result of the proposed investment will in
fact be available in whole or in part. Investors must look solely to and rely
upon their own advisors with respect to the tax consequences of their
investment.

                                       66
<PAGE>

31.  Conclusion
     ----------

     Subject to the preceding discussion, it is Black & Associates' opinion that
the material federal income tax benefits, in the aggregate, anticipated from the
operation of the Fund more likely than not will be realized in substantial part
by Investors who are individual United States citizens and who acquire their
Interest for profit subject to the passive activity loss limitations of Section
469 of the Code. It should be noted that Black & Associates' opinion is not
binding upon the Service or the courts.

                     ADDITIONAL ASPECTS OF THE LLC AGREEMENT

     THE RIGHTS AND OBLIGATIONS OF THE MANAGER AND THE INVESTORS ARE GOVERNED BY
THE LLC AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT A. NO
PROSPECTIVE INVESTOR SHOULD SUBSCRIBE TO THE FUND WITHOUT FIRST THOROUGHLY
REVIEWING SUCH AGREEMENT. THE FOLLOWING IS ONLY A BRIEF SUMMARY OF CERTAIN
SIGNIFICANT PROVISIONS OF THE LLC AGREEMENT AND SHOULD NOT BE CONSIDERED AS A
COMPLETE DISCUSSION OF ALL OF THE PROVISIONS OF THE LLC AGREEMENT. SEE LLC
AGREEMENT - EXHIBIT A.

     Accounting. The accounting period of the Fund will end on December 31 of
each year. The Fund will utilize the accrual method of accounting for the Fund's
operations on the basis used in preparing the Fund's federal income tax returns
with such adjustments as may be in the Fund's best interest.

     Books and Records; Reports. The Fund will keep appropriate records relating
to their activities. All books, records and files of the Fund will be kept at
the Manager's principal office at Great Neck, New York. An independent certified
public accounting firm will prepare the Fund's federal income tax returns as
soon as practicable after the conclusion of each year. The Fund will use its
reasonable best efforts to obtain the information for those returns as soon as
possible and to cause the resulting accounting and tax information to be
transmitted to the Shareholders as soon as possible after receipt from the
accounting firm.

     Each Investor will receive periodic reports as to the Fund's activities and
will receive as soon as practicable after the end of each year the necessary
federal and state income tax information.

     Governing Law. All provisions of the LLC Agreement will be construed
according to the laws of the State of Delaware except as may otherwise be
required by law in any other state. In addition, the LLC Agreement requires that
Shareholders consent to personal jurisdiction of and venue in the Delaware
courts.

                                       67
<PAGE>

     Control of LLC Operations. The powers vested in the Manager under the LLC
Agreement are broad. The Manager has full, exclusive and complete discretion in
the management and control of the affairs of the Fund and Investors have no
power to take part in the management of, or to bind, the Fund.

     The Fund's officers are appointed by the Manager and may be removed by it
at any time. Additionally, the Manager may authorize any sale, lease, pledge or
other transfer of substantially all of a Fund's assets without a vote of the
Investors.

     Amendments and Voting Rights. The Manager may amend the LLC Agreement
without notice to or approval of the holders of Investor Shares for the
following purposes: to cure ambiguities or errors; to conform the LLC Agreement
to the description in this Memorandum; to equitably resolve issues arising under
the LLC Agreement so long as similarly situated Investors are not treated
materially differently; to comply with law; to make other changes that will not
materially and adversely affect any Investor's interest; to maintain the federal
income tax status of the Fund or any Shareholder, as long as no Investor's
liability is materially increased; or to make modifications to the computation
of items affecting the Investors' capital accounts to comply with the Code or to
reflect the creation of an additional class or series of Shares and the terms
thereof.

     Other amendments to a Fund's LLC Agreement may be proposed either by the
Manager or by Fund Investors either by calling a meeting of the Shareholders or
by soliciting written consents. The procedure for such meetings or solicitations
is found at Section 15.2 of the Fund's LLC Agreement. Such proposed amendments
require the approval of Investors who hold of record at least a majority of the
total Investor Shares on the record date for the action, given at a meeting of
Shareholders or by written consents. Any amendment requiring Investor action
(other than an amendment to allow the Fund to be taxed other than as a
partnership) may not increase any Shareholder's liability, change the Capital
Contributions required of him or her or his or her rights in interest in the
Fund's Profits, Losses, deductions, credits, revenues or distributions in more
than a de minimis matter, or change his or her rights on dissolution or any
voting rights without the Shareholder's consent. Any amendment which changes the
Manager's management rights requires its consent. Generally, Investors have no
right to vote on matters not involving an amendment to the LLC Agreement or the
removal of the Manager. However, if any other matter does require a vote of
Investors, it must be approved by Investors who own of record at least a
majority of the total Investor Shares, or if a different vote is required by
law, each Investor will have voting rights equal to his or her total Investor
Shares for purposes of determining the number of votes cast or not cast.

                                       68
<PAGE>

     For all purposes, a majority of the Investor Shares is a majority of the
issued and outstanding shares, including those owned, if any, by the Manager or
its Affiliates. A majority of the shares voted is insufficient if it is less
than a majority of the outstanding shares.

     The consent of all holders of Investor Shares is required for dissolving or
terminating a Fund, other than as provided by the LLC Agreement; or adding a new
Manager except as described below.

     Removal of Manager. Investors may propose the removal of the Manager,
either by calling a meeting or soliciting consents in accordance with the terms
of the LLC Agreement. Removal of the Manager requires the affirmative vote of
Investors who are holders of record of at least a majority of the total Investor
Shares. See "Fiduciary Responsibilities of Manager" for information on the
effect of votes cast by interested Shareholders. Removal of a Manager causes a
dissolution of the Fund unless a majority of the Investor Shares elects to
continue the Fund. The Investors may replace the removed Manager or fill a
vacancy by vote of Investors who hold of record a majority of the total Investor
Shares.

     If the Manager is removed, resigns (other than voluntarily without cause)
or is unable to serve, it may elect to exchange its management rights and rights
to distributions, if any, for a series of cash payments from the Fund in amounts
equal to the amounts of distributions to which the Manager would otherwise have
been entitled under the LLC Agreement in respect of investments made by the Fund
prior to the date of any such removal, resignation or other incapacity. The
removed Manager would continue to receive its pro rata share of all allocations
to Investors as provided in the LLC Agreement which are attributable to any
Investor Shares owned by it.

     Alternatively, the removed Manager may elect to engage a qualified
independent appraiser and cause the Fund to engage another qualified independent
appraiser (at the Fund's expense in each case) to value the Fund Property as of
the date of such removal, resignation or other incapacity as if the property had
been sold at its fair market value so as to include all unrealized gains and
losses. If the two appraisers cannot agree on a value, they would appoint a
third independent appraiser (whose cost would be borne by the Fund) whose
determination, made on the same basis, would be final and binding.

     Based on the appraisal, the Fund would make allocations to the removed
Manager's capital account of Profits, Losses and other items resulting from the
appraisal as of the date of such removal, resignation or other incapacity as if
the Fund's fiscal year had ended, solely for the purpose of determining the
Manager's capital account. If the removed Manager has a positive capital account
after such allocation, the Fund would deliver a promissory note of the Fund to

                                       69
<PAGE>

the Manager, the principal amount of which would be equal to the Manager's
capital account and which would bear interest at a rate per annum equal to the
prime rate in effect at Chase Manhattan Bank, N.A. on the date of removal,
resignation or other incapacity, with interest payable annually and unpaid
principal payable only from 25% of any available cash before any distributions
thereof are made to the Investors under the LLC Agreement.

     If the capital account of the removed Manager has a negative balance after
such allocation, it would be obligated to contribute to the capital of the Fund
in its sole discretion either cash in an amount equal to the negative balance in
its capital account or a promissory note to the Fund in such principal amount
maturing five years after the date of such removal, resignation or other
incapacity, bearing interest at the rate specified above. If the removed Manager
chose to elect the appraisal alternative, its entire interest in the Fund would
be terminated other than the right to receive the promissory note and payments
thereunder as provided above.

     Dissolution of Fund. The Fund will dissolve on the earliest to occur of (a)
December 31, 2040, (b) the sale of substantially all of the Fund's Property, (c)
the removal, dissolution, resignation, insolvency, bankruptcy, death or other
legal incapacity or disqualification of the Manager, (d) the vote of either all
Investors or of the Manager and Investors who own at least a majority of the
Investor Shares of record or (e) any other event requiring dissolution by law.
The Fund will wind up its business after dissolution unless (i) the Manager and
Investors who own at least a majority of the Investor Shares of record or (ii)
if there is no Manager, Investors who own at least a majority of the Investor
Shares of record, elect to continue the Fund. The Manager (or in the absence
thereof, a liquidating trustee chosen by the Investors) will liquidate the
Fund's assets if it is not continued.

     Transferability of Interests. No Investor may assign or transfer all or any
part of his or her interest in the Fund and no transferee will be deemed a
substituted Investor or be entitled to exercise or receive any of the rights,
powers or benefits of an Investor other than the right to receive distributions
attributable to the transferred interest unless (i) such transferee has been
approved and accepted by a Fund, in its sole and absolute discretion, as a
substituted Investor, and (ii) certain other requirements set forth in the
Fund's LLC Agreement (including receipt of an opinion of counsel that the
transfer does not have adverse effects under the securities laws and the
Investment Company Act of 1940) have been satisfied.

     The Manager may not resign except for cause (which cause does not include
the fact or determination that continued service would be unprofitable to it)
and may not transfer its interest in a Fund except to pledge it as security for

                                       70
<PAGE>

a loan to the Manager if the pledge does not reduce cash flow distributable to
other Shareholders, or to waive compensation and fees payable to it under the
LLC Agreement.

     The Manager's Capital Account. The Manager is obligated under the LLC
Agreement to restore any deficit in its capital account prior to any liquidating
distribution by a Fund. The Manager reserves the right, however, to offset this
obligation by waiving all or a portion of its rights to a distribution of any
fees or other compensation due it under the Fund's LLC Agreement.

                                    LIABILITY

     Assuming compliance with the LLC Agreement and applicable formative and
qualifying requirements in Delaware and any other jurisdiction in which a Fund
conducts its business, an Investor will not be personally liable under Delaware
law for any obligations of the Fund, except to the extent of any unpaid Capital
Contributions, except for the amount of any wrongful distributions that render
the Fund insolvent and except for indemnification liabilities arising from any
misrepresentation made by him or her in the Investor Subscription Booklet
(separately bound as Exhibit D to this Memorandum) submitted to the Fund. Each
Fund will, to the extent practicable, endeavor to limit the liability of the
Investors in each jurisdiction in which the Fund operates.

     The law governing whether a jurisdiction other than Delaware will honor the
limitation of liability extended under Delaware law to the Investors is
uncertain. All states have adopted specific legislation permitting limited
liability companies to limit the liability of their members and it is likely
that those states would similarly honor a Fund's limitations on liability of
Investors. In many states, there has been no authoritative judicial
determination as to whether the limitation of liability would be honored.
However, regardless of the local treatment of LLC's, the Fund believes that the
Investors will not be subject to personal liability and that with regard to the
operation of a Fund itself, the limitation of Investors' liability under
Delaware law will govern.

     The Delaware Act does not contain any provision imposing liability on an
Investor for participation in the control of the Fund, although no Investor has
any rights to do so except through the rights to propose and vote on matters
described above. The Delaware Act requires an Investor to return distributions
that are made when a Fund is or would be rendered insolvent and who knew at the
time of the distribution that the Fund was or would be rendered insolvent.

     BY SIGNING THE SUBSCRIPTION AGREEMENT (EITHER IN PERSON OR BY THEIR
REPRESENTATIVES) AND ENGAGING TO PAY THE PRICE OF SHARES, AN INVESTOR BECOMES

                                       71
<PAGE>

BOUND BY THE PROVISIONS OF HIS OR HER FUND'S LLC AGREEMENT AT THE TIME HIS OR
HER SUBSCRIPTION IS ACCEPTED BY THE FUND, EVEN THOUGH HE OR SHE DOES NOT SIGN
THE LLC AGREEMENT.

                                OTHER INFORMATION

General
-------

     The Fund undertakes to make available to each prospective Investor or his
purchaser representative, or both, during the course of the transaction and
prior to sale, the opportunity to ask questions of and receive answers from the
Fund or any person acting on its behalf relating to the terms and conditions of
the offering and to obtain any additional information necessary to verify the
accuracy of information made available to such purchaser.

     Prior to making an investment decision respecting the securities described
herein, a prospective Investor should carefully review and consider this entire
Memorandum and the exhibits thereto including without limitation the LLC
Agreement. Prospective Investors are urged to make arrangements with the Fund to
inspect any books, records, contracts, or instruments referred to in this
Memorandum and other data relating thereto. The Fund is available to discuss
with prospective Investors any matter set forth in this Memorandum or any other
matter relating to the securities described herein, so that Investors and their
advisors, if any, may have available to them all information, financial and
otherwise, necessary to formulate a well-informed investment decision.

Authorized Sales Material
-------------------------

     Sales material may be used in connection with the Offering of the Shares
only when accompanied or preceded by the delivery of this Memorandum. Only sales
material that indicates that it is distributed or approved by the Fund or the
Placement Agent may be distributed to prospective Investors. In addition, the
Fund or the Placement Agent may distribute a summary of the Offering containing
highlights or other summary information concerning the Offering, information
regarding the Manager, a particular project, the Fund or other investment
programs sponsored by the Manager or one of its Affiliates. All such additional
sales material will be signed by or otherwise identified as authorized by the
Fund. Any other sales material or information has not been authorized for use by
the Fund or the Placement Agent and must be disregarded by Investors.

     All authorized sales material will be consistent with this Memorandum, as
supplemented. Nevertheless, sales material by its nature does not purport to be
a complete description of this Offering and Investors must review this
Memorandum and supplements carefully for a complete description of the Offering.

                                       72
<PAGE>

Authorized sales material should not be considered to be the basis for the
Offering of Shares or an Investor's decision to purchase Shares. Sales material
is not a part of this Memorandum and is not incorporated by reference into this
Memorandum unless expressly stated in this Memorandum or supplements hereto.

     INVESTORS MAY NOT RELY ON ORAL STATEMENTS MADE BY BROKER-DEALERS,
REGISTERED REPRESENTATIVES, OR OFFICERS OR EMPLOYEES OF THE MANAGER OR THE FUND.

                                  LEGAL MATTERS

     The validity of the issuance of the Shares offered hereby is being passed
upon for the Manager by Black & Associates, 20 East 46th Street, New York, New
York 10017. Such firm has acted as special counsel to the Manager and will not
represent or advise the Fund or any prospective Investor in connection with this
Offering. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD CONSULT THE INVESTOR'S OWN
LEGAL, TAX AND INVESTMENT COUNSEL.

     Copies of Black & Associates' opinion as to the validity of the issuance of
the Shares may be obtained by writing to the Fund.

     Black & Associates' representation of the Manager has been limited to
matters specifically addressed to it. No Investor should assume that Black &
Associates has in any manner investigated the merits of an investment in the
Shares, or undertaken any role other than reviewing items specifically referred
to it with regard to the preparation of this Memorandum and the issuance of the
opinion referred to above. The opinion of Black & Associates is available to any
Investor upon request.

                        LITIGATION AND OTHER PROCEEDINGS

     The Fund is not a party to any pending legal proceeding. Prior proceedings
affecting the Manager or its Affiliates follow.

     In April 2002 Ridgewood Securities Corporation received notice from the
NASD of a proposed disciplinary action citing the failures by Mr. Swanson and
its other principal to complete a continuing education requirement on time. On
June 10, 2002, Ridgewood Securities Corporation accepted and paid the proposed
penalty of $7,500. The omissions had no effect on any Ridgewood investment
program or investors.

     In 1994, the Manager sold all of the assets of 24 of the oil and gas
programs to Apache Corporation, and the proceeds of sale were distributed to
investors and the programs terminated. Another six oil and gas programs have
been terminated over time as their wells became depleted. Ridgewood Energy is
currently administering the remaining oil and gas programs.

                                       73
<PAGE>

     There have been no legal proceedings commenced against Ridgewood Energy,
Robert E. Swanson or any of their affiliates as to any Ridgewood Energy program
offered in 1990 or in subsequent years. There were several lawsuits filed with
respect to Ridgewood Energy Funds formed from 1986 through 1989. As described
below, those suits were settled (in one case) or dismissed by the court (in all
other cases). In addition, there was one suit brought by a former employee
(essentially a wrongful termination suit) that was litigated and won by
Ridgewood, and one arbitration brought by a broker (essentially over
compensation) that was settled. There is no pending litigation as to Funds
offered in the 1980s. There has been no litigation on any Ridgewood Energy Fund
offered since 1990.

     In 1991, a former employee commenced an action against Ridgewood Energy and
Mr. Swanson in the U.S. District Court for the Northern District of California
for breach of an implied employment contract. The complaint also included
securities allegations in connection with the purchase by such employee of
interests in various oil and gas programs sponsored by Ridgewood Energy and Mr.
Swanson. After discovery, the District Court granted summary judgment in favor
of Ridgewood Energy and Mr. Swanson on all the claims relating to the purchase
of securities in the oil and gas programs based on plaintiff's failure to state
a cause of action. Subsequently, the District Court also entered summary
judgment in favor of Ridgewood Energy and Mr. Swanson on plaintiff's employment
claim. Both these orders (which had the effect of completely terminating
plaintiff's lawsuit without any liability to Ridgewood Energy or Mr. Swanson)
were affirmed by the Ninth Circuit Court of Appeals.

     Also in 1991, a well known plaintiff's attorney purporting to represent a
group of 30 investors in various Ridgewood Energy oil and gas programs commenced
an action against Ridgewood Energy, Mr. Swanson and others alleging a variety of
the claims described above. Prior to discovery, the plaintiffs voluntarily
dismissed Ridgewood Energy and Mr. Swanson as defendants in the action. The
action was subsequently completely terminated without any liability of Ridgewood
Energy or Mr. Swanson.

     In 1994, two independent brokers who both purchased for themselves, and
sold to their clients, securities offered in certain of the Ridgewood Energy oil
and gas programs commenced an arbitration proceeding before a National
Association of Securities Dealers ("NASD"') arbitration panel alleging claims
similar to those described above on behalf of themselves and their clients
against Ridgewood Energy, the Placement Agent, Mr. Swanson and others. In
addition, the brokers also asserted a claim for additional compensation from
Ridgewood Energy and affiliates for the sale of such securities. The NASD
arbitration panel dismissed all of the claims against Ridgewood Energy for lack

                                       74
<PAGE>

of jurisdiction. The arbitration against the Placement Agent and Mr. Swanson was
settled in February 1998 together with a threatened lawsuit for an amount
significantly less than $100,000.

     In 1995, another plaintiff's attorney commenced an action against Ridgewood
Energy, Mr. Swanson and others in the U.S. District Court for the District of
New Jersey alleging a variety of the claims described above, named Gunter, et
al. v. Ridgewood Energy Corp., et al. (the "Gunter Case"). The complaint in the
Gunter Case is a verbatim copy of the complaint in the action described in (b)
above, except that plaintiffs alleged additional claims arising out of the 1994
sale of the assets of certain Ridgewood Energy oil and gas programs to Apache
Corporation. On December 4, 1995 the judge hearing the case entered an order
which certified the Gunter Case as a "class action," thereby permitting
plaintiffs to represent a "class"' consisting of the investors in the 1986
through 1989 Ridgewood Energy oil and gas programs which participated in the
sale of assets to Apache Corporation. After extensive pre-trial discovery and
motion practice, the parties agreed in June 1999 to a settlement of the action
in which, inclusive of attorneys' fees, Ridgewood Energy Corporation and Mr.
Swanson paid the class a total of $5 million in five annual installments
beginning in June 1999. All such installments have been paid. The court
considered and approved the fairness of the settlement in September 1999.

     On April 24, 1996, a group of 31 investors in various Ridgewood Energy oil
and gas programs commenced an action in the New Jersey Superior Court against
Ridgewood Energy Corporation, Ridgewood Securities Corporation and Robert E.
Swanson alleging common law fraud, negligent misrepresentation and breach of
fiduciary duty in connection with the sale of securities in those programs
between 1986 and 1990. No specific damages were claimed. Most of the plaintiffs
in this lawsuit were plaintiffs in the lawsuit described and it essentially
restated the allegations of that 1991 lawsuit. The lawsuit was dormant from June
1996 to September 1997, when the court dismissed it without prejudice because
the plaintiffs had not pursued the lawsuit.

     Described below are proceedings which do not involve Ridgewood Energy, but
involve Ridgewood Renewable Power, or Ridgewood Capital, both of which were also
founded by, and controlled by Robert E. Swanson. Ridgewood Renewable Power plus
Ridgewood Capital have invested in dozens of different businesses, and lawsuits,
many of them frivolous, are a part of doing business in this litigious age.

     In addition to routine litigation occurring in the ordinary course of the
management of the Power Programs, Ridgewood Power and two of the Power Programs
were sued by seven individuals alleging that a registered representative of a
broker-dealer not affiliated with Ridgewood Power had made false statements to
them and to Ridgewood Power on their behalf in connection with the sale of

                                       75
<PAGE>

interests in the Power Programs, but that Ridgewood Power nonetheless benefited
from and is responsible for the representative's actions. Plaintiffs also sued
the registered representative's employer and seven issuers, none of whom are
affiliated with Ridgewood Power, whose securities were also sold by the
registered representative to plaintiffs. During 2001 and in January 2002, the
United States District Court for the District of Maryland and the Maryland trial
courts gave summary judgment in favor of Ridgewood Power and the two Power
Programs in all of these cases except for the last case, which was dismissed
voluntarily by the plaintiff.

     On August 4, 2001, NetHorsepower, Inc., a Portfolio Company owned by the
two Ridgewood Capital Venture Partners II programs, brought suit against
Ridgewood Capital Management LLC and Ridgewood Horsepower, LLC (the holding
company for the investment made by the Venture Partners II programs). The
lawsuit contains a single count alleging breach of a contract to fund
NetHorsepower, Inc. The claimed damages are in excess of $5 million. The lawsuit
was brought in the Superior Court of California, Visalia County, but the
defendants removed the case to the United States District Court for the Eastern
District of California and it was then transferred to the United States District
Court for the Northern District of California on Ridgewood Capital's motion. On
January 28, 2002, that court dismissed Ridgewood Capital and all defendants with
prejudice except for Ridgewood Horsepower, LLC. Subsequently, the federal action
was dismissed as to Ridgewood Horsepower, LLC without prejudice, and a second
action, naming Ridgewood Capital, Ridgewood Horsepower, LLC and two individual
Ridgewood Capital associates was filed in Tulare County, California Superior
Court, based on the same set of operative facts. An amended complaint is
anticipated. Ridgewood Horsepower has no assets other than its investment in
NetHorsepower and thus Ridgewood Capital believes that in its current form the
lawsuit is not likely to have a material impact on the Venture Partners II
programs or Ridgewood Capital. Ridgewood Capital believes that the lawsuit is
without merit and it will defend the action vigorously.

     On December 11, 2001, Ms. Jeanette Granat, the holder of five shares in
Ridgewood Venture Partners II LLC (one of the Venture Partners II programs),
brought a lawsuit in the United States District Court for the Southern District
of Florida against that program, Ridgewood Capital and the Placement Agent. Ms.
Granat had failed to make capital call payments and owed approximately 65% of
the amount due for the five shares she had purchased. She requested declaratory
and injunctive relief compelling that program to recognize her as the owner of
five full shares and to overrule forfeiture provisions of that program that have
deprived her of certain distributions and rights to proceeds because of her
capital call defaults. In addition, she complains of alleged breaches of
fiduciary duty and the program's limited liability company agreement by
Ridgewood Capital. Ridgewood Capital believes that the lawsuit is without merit
and is an attempt by Ms. Granat to avoid the consequences of her defaults.

                                       76
<PAGE>

Recently, Ridgewood Capital settled this case with Ms. Granat paying her
approximately $100,000 and agreeing to transfer a small percentage of Ridgewood
Capital's "back-end" participation rights with respect to Ridgewood Venture
Partners II LLC investment in SavaJe Technologies.

     On July 23, 2002, Ridgewood Capital received notice that ACO Partners, LLC,
who had invested approximately $1 million in shares of GroupFire, Inc., a
portfolio company owned by the two Ridgewood Capital Venture Partners II
programs, had brought suit against Ridgewood Capital, the two funds, a former
consultant to the funds and Ridgewood GroupFire, LLC (the holding company for
the investment made by the Venture Partners II programs). The lawsuit alleges
breach of contract, fraud, breach of fiduciary duty and securities law
violations based on defendant's failure to provide additional capital to
GroupFire, Inc. and an alleged plan to prevent any other person from obtaining
control of the company. The claimed damages are approximately $1 million plus
unspecified damages for lost opportunities and punitive damages. The lawsuit was
brought in the Superior Court of California, San Mateo County, and transferred
to the Santa Clara County Superior Court. The Santa Clara County, California
Superior Court sustained two demurrers to the complaint, and on June 4, 2003,
judgment was entered in favor of the Ridgewood defendants and against plaintiff.
It is unclear whether an appeal will be filed. Ridgewood Capital believes that
the lawsuit is without merit and a transparent attempt by a co-investor to
obtain some return on its investment, and Ridgewood Capital will defend the
action vigorously.

Financial Statements
--------------------

     Since the Fund is newly formed and has acquired no assets and incurred no
liabilities, no financial statements are included for the Fund. A copy of the
unaudited financial statements of Ridgewood Energy Corporation as of December
31, 2002 and December 31, 2003 are attached hereto as Exhibit C.

                                   DEFINITIONS
                                   -----------

     Whenever used in this Memorandum, the following terms shall have the
meanings set forth below, unless the context otherwise indicates. The singular
shall include the plural and the masculine gender shall include the feminine and
vice versa, as the context requires. In addition, the term "person" as used in
this Memorandum shall include natural persons and entities, including without
limitation, corporations, unless the context otherwise indicates.

ACCREDITED INVESTOR - An Accredited Investor as that term is defined in
Regulation D as adopted by the Securities and Exchange Commission.

                                       77
<PAGE>

ACT - The Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder.

ADDITIONAL CAPITAL CONTRIBUTIONS - Any capital contributions to the Fund made by
a Shareholder pursuant to Section 9.5 of the LLC Agreement.

ADMINISTRATIVE AND OVERHEAD EXPENSES - The customary, routine and necessary
costs and expenses incurred by the Manager which are associated with or
attributable to administration of the business of the Fund, including, but not
limited to, an allocable portion of telephone, postage, computer service,
accounting and legal fees, regulatory reporting, and an allocable portion of
salaries and expenses of employees and officers of the Manager. Such expenses do
not include the direct expenses of the Fund such as legal, accounting and
consulting expenses.

AFFILIATE - An "affiliate" of, or person "affiliated" with, a specified person
is a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified.

BLOCK - A numbered area of acreage, either on land or submerged in the Gulf of
Mexico, on an official diagram of leasing map which is auctioned off and leased
by the MMS for exploratory drilling and development.

CAPITAL CONTRIBUTIONS - The contributions of the Investors to the Fund. For all
purposes of this Memorandum, the Capital Contribution of each Investor shall be
$150,000 per Share (prorated for fractional or multiple Shares).

CARRIED INTEREST - Typically, a fractional Working Interest retained by the
seller of a Working Interest on the condition that the purchasers ratably pay
the portion of drilling costs for the first well otherwise attributable to the
Carried Interest.

CODE - The Internal Revenue Code of 1986, as amended from time to time.

DELAWARE ACT - The Delaware Limited Partnership Act, as amended.

DRY-HOLE COSTS - The cost of drilling the well. Completion costs are in addition
to Dry-Hole costs but only come due if the well locates producible oil or gas.

ESCROW DATE - The date on which the Fund has collected full payment for at least
10 Shares and has deposited those funds in the escrow account for this Offering.

                                       78
<PAGE>

FARMEE - The person who is assigned a Working Interest or portion thereof under
a Farm-out Agreement.

FARM-IN - Earning acreage in potential oil and natural gas properties under a
Farm-out Agreement.

FARMOR - Owner of a Working Interest already under lease who assigns all or a
portion of such interest under a Farm-out Agreement.

FARM-OUT - Assigning all or a portion of a Farmor's Working Interest in a lease
pursuant to a Farm-out Agreement.

FARM-OUT AGREEMENT - An agreement whereby the owner of the Working Interest
agrees to assign all or a portion of such interest in certain specific acreage,
subject to the drilling of one or more specific wells or other performance as a
condition of the assignment, and retains some interest such as an Overriding
Royalty Interest, an oil and natural gas payment, offset acreage or other type
of interest which may convert to a Working Interest after the drilling of an
initial well, the recoupment of costs of the assignee or some other event.

FUND - Ridgewood Energy L Fund, LLC c/o Ridgewood Energy Corporation, 1010
Northern Boulevard, Suite 208, Great Neck, New York 11021.

FUND PROPERTY - All property owned or acquired by the Fund or on its behalf.

INTANGIBLE DRILLING COSTS - All expenditures made with respect to any well,
prior the establishment of production in commercial quantities, for wages, fuel,
repairs, hauling, supplies and other costs and expenses incident to an necessary
for the drilling of such well, which costs and expenses may be currently
deducted for federal income tax purposes pursuant to Section 263(c) of the Code
and Treasury Regulation Section 1.612-4(a).

INVESTOR - A purchaser of whole or fractional Shares.

LLC ACT - The Delaware Limited Liability Company act, as amended.

LIMITED LIABILITY COMPANY AGREEMENT or LLC AGREEMENT - The Limited Liability
Company Agreement, dated as of July 6, 2004, by the Manager that establishes the
Fund and the rights and obligations of the Manager and the Shareholders. A copy
is annexed to this Memorandum as Exhibit A.

LOSSES - See "PROFITS or LOSSES," below.

                                       79
<PAGE>

MANAGING PERSONS - All of the following persons: the Manager, the Affiliates of
the Manager, and the directors, officers and agents of any of the foregoing when
acting on behalf of the Fund.

MANAGER - Ridgewood Energy Corporation or such substitute or different Manager
as may subsequently be admitted to the Fund pursuant to the terms of the LLC
Agreement.

MEMORANDUM - This Confidential Memorandum, dated July 6, 2004, as it may be
amended or supplemented from time to time.

MMS - The Minerals Management Service, an agent of the United State Department
of the Interior, that conducts the auctions of lease Blocks and provides general
oversight of the Interior Department's offshore programs.

NON-CONSENT INTEREST - Contractual ownership interests created out of existing
Working Interests under operating agreements, rather than an interest in the
entire lease on which the wells are to be located. They are called "non-consent"
because they are triggered when a Working Interest owner declines to supply
additional capital for the drilling of new wells or for other purposes. The
person who does supply that capital is granted a Non-Consent Interest in the new
well or other facility. Those Non-Consent interests will revert back to the
original Working Interest owners upon the recoupment by the owner of the
Non-Consent Interest of a penalty amount from the production attributable to the
non-consent interest. After such reversion, the Non-Consent Interest owner will
have no more ownership rights with respect to the reverted interest.

OCS - Outer Continental Shelf.

OCSLA - The Outer Continental Shelf Lands Act.

OPERATING AGREEMENT - The operating agreement among Working Interest owners,
including without limitation the Fund (or a joint venture in which such person
participates), and the Operator of wells which provides the terms and conditions
pursuant to which the Operator will conduct operations on jointly owned oil and
gas properties.

OPERATING COSTS - The customary expenses incurred in connection with the
operation and maintenance of a well in which the Fund owns an interest and the
production and marketing of oil and natural gas therefrom, including delay
rentals, storage rental, or shut-in gas royalties paid with respect to the
leases, the costs of reworking or plugging and abandoning commercial wells, all
costs of gathering, treating, compressing and transporting oil and natural gas
and all severance, windfall profits, ad valorem and other taxes (other than
income taxes).

                                       80
<PAGE>

OPERATOR - Any person, Fund, corporation or other entity responsible for
conducting operations on jointly owned oil and gas operations for the account of
all Working Interest owners, usually pursuant to the terms of an Operating
Agreement.

ORGANIZATIONAL, DISTRIBUTION AND OFFERING EXPENSES - Expenses incurred by the
Manager for organizing the Fund and closing the offering, including without
limitation legal, accounting, engineering and geologic consulting fees, filing
and other expenses of organizing the Fund, distribution and selling costs, and
closing costs for the offering.

PLACEMENT AGENT - Ridgewood Securities Corporation, a Delaware corporation with
its principal office at 947 Linwood Avenue, Ridgewood, New Jersey.

PRODUCTIVE WELL - A producing well or a well capable of production whether or
not completed or currently shut in.

PROFITS or LOSSES - For a given period, the Fund's taxable income or loss,
respectively, as determined under the Code, adjusted as follows:

     any income of the Fund exempt from federal income tax and not otherwise
     taken into account in computing Profits or Losses and any income and gain
     described in Treasure Regulations Section 1.704-1(b)(2) (iv)(g)(1) is added
     to taxable income or loss;

     any expenditures of the Fund described in Code Section 705(a)(2)(B) or
     treated as such under Treasure Regulations Section 1.704-1(b)(2)(iv)(i) and
     not otherwise taken into account in computing Profits or Losses are
     subtracted from taxable income or loss;

     unrealized gain or loss on distributions in kind deemed to have been
     realized on the distributed property is added or subtracted, respectively,
     from taxable income or loss; and

     items specially allocated under Sections 4.4 and 7.4 of the LLC Agreement
     are not taken into account.

PROPERTY - An area designated by the Manager in which the Fund owns or expects
to own one or more oil and natural gas interests and which the Manager
reasonably believe contains at least one reservoir of oil, natural gas or other
hydrocarbons.

REGULATIONS - The applicable Treasury Regulations promulgated under the Code.

                                       81
<PAGE>

RIDGEWOOD - Ridgewood Energy Corporation, a Delaware corporation wholly owned by
Robert E. Swanson that is the Manager of the Fund.

RIDGEWOOD ENERGY PROGRAM - One of the prior drilling and completion limited
partnerships or business trusts, or funds within those limited partnerships, or
one of the five Leasebank programs, or Ridgewood Energy Equity-Income, L.P., all
of which were sponsored by Ridgewood and have invested in the oil and gas
industry.

RIDGEWOOD SECURITIES - a Delaware corporation wholly owned by Robert E. Swanson
that will act as the Placement Agent for this offering.

ROYALTY - An interest in oil, natural gas or other minerals that entitles the
owner of the underlying real property to a specified fraction of production, in
kind or in value, free of the expense of development and operation, and which is
payable out of the leasehold interest after deduction of the cost of processing,
transporting and marketing such production.

SALVAGE FUND - A fund in the nature of a sinking fund established to provide for
funding anticipated salvage costs and other expenses incident to the shutdown of
wells, the removal of facilities and environmental rehabilitation, if required.

SERVICE - The Internal Revenue Service.

SHAREHOLDER - A member of the Fund, including each Investor and Ridgewood.

SHUT-IN - To temporarily cease production from and operation of a well by
shutting the valves at the wellhead or nearby.

SUBSCRIPTION AGREEMENT - The form of agreement (contained in Exhibit D hereto,
which is separately bound) which each prospective Investor must execute in order
to subscribe for Shares in the Fund.

TERMINATION DATE - March 31, 2005 or as may extended by the Manager as permitted
by and pursuant to the LLC Agreement.

SHARES - Beneficial interests in the Fund representing a Capital Contribution of
$150,000.

WORKING INTEREST - A Working Interest is an interest under an oil and natural
gas lease, which carries with it the obligation to pay the costs of such
operation. The holders of the entire Working Interest bear 100% of the costs of
exploring, drilling, developing and operating the lease and are entitled to
receive revenues derived from oil and natural gas production on such lease which
remain after deduction of the cost of processing, transporting and marketing
such oil and natural gas, Royalty payments, Overriding Royalty Interest payments
and other burdens on production.

                                       82
<PAGE>

                                    EXHIBIT A

                                  LLC AGREEMENT

<PAGE>

                                    EXHIBIT B

                                  TRACK RECORD

<PAGE>

                                    EXHIBIT C

                              FINANCIAL STATEMENTS

<PAGE>

                                    EXHIBIT D

                              SUBSCRIPTION DOCUMENT
                               (BOUND SEPARATELY)Exhibit 10.5

2000 POST OAK BOULEVARD/SUITE 100/HOUSTON, TEXAS 77056-4400         CORPORATION
--------------------------------------------------------------------------------
                                                                  (713) 296 6000
                                                              WWW.APACHECORP.COM

June 8, 2005

VIA OVERNIGHT MAIL
------------------

Hunt Oil Company                    GOM Shelf LLC
1455 Ross at Field                  2000 Post Oak Blvd., Suite 100
Dallas TX 75202-2785                Houston, Texas 77056-4400
Attn: Mr. Larry Guzick              Attn: Mr. Gene Linscomb

Ridgewood Energy Corporation
11700 Old Katy Road, Suite 280
Houston TX 77079
Attn: Mr. Greg Tabor

RE:      Working Interest Unit Agreement and Well Proposal
         East Cameron Blocks 47, 48 & 63
         Offshore Louisiana

Ladies and Gentlemen:

This Unit Agreement is entered into as of the date first written above
("Effective Date") by and between Ridgewood Energy Corporation ("Ridgewood"),
Apache Corporation ("Apache"), GOM Shelf LLC ("GOM Shelf"), and Hunt Oil Company
("Hunt"). Apache, Ridgewood, GOM Shelf and Hunt may be herein referred to
individually as "Party" and collectively as "Parties".

WHEREAS, Apache and GOM Shelf are the owners of certain record title interests
in each of East Cameron Block 47 (OCS-G 0767) and East Cameron Block 48 (OCS-G
0768), Offshore Louisiana ("EC 47" and "EC 48" respectively); and

WHEREAS, Hunt is the owner of certain interests in East Cameron Block 63, (OCS-G
22574), Offshore Louisiana ("EC63); and

WHEREAS, the EC 48 I-8 Well (the "Well") is planned for early 2005; and

WHEREAS, the Parties agree to form a working interest unit for drilling of the
Well, comprising portions of EC 47, EC 48 and EC 63 (the "Unit").

NOW THEREFORE it is agreed as follows:

1. Unit Area. The "Unit Area" will be comprised of the following:

<PAGE>

         Tract 1
         EC 47:   NE/4 SE/4 SE/4 and NE/4 SE/4 SE/4 SE/4; and

         EC 48:   N/2 SW/4 SW/4 and the  SE/4 SW/4 SW/4 and the
                  W/2 SE/4 SW/4  and the N/2 SW/4 SW/4 SW/4

         Containing approximately 527.25 acres, more or less,

         AND

         Tract 2
         EC 63:   S/2 NE/4 NW/4 and the  NW/4 NE/4 NW/4 and the N/2 NE/4 NW/4
                  NW/4 and the SE/4 NE/4 NW/4 NW/4 and the NE/4 SE/4 NW/4 NW/4
                  and the SW/4 NE/4 NE/4 NW/4

         Containing approximately 332.03125 acres, more or less.

2.       Unit Depths. The unit will be limited in depth from the stratigraphic
         equivalent of the base of the "OC" sand, as seen in the electric log at
         9,900' MD in the EC 48 OCS-G 0768 C-2 Well, to 100' below the
         stratigraphic equivalent of the base of the deepest sand drilled and
         completed or qualified under 30 CFR 250.115 or 30 CFR 250.116 in the
         Initial Test Well or its substitute therefore ("Unit Depths").

3.       Unit Operator. The Parties hereby designate Apache as the initial Unit
         Operator. In the event Apache resigns as Operator, the subsequent
         operator shall be selected pursuant to Section 4 of the Joint Operating
         Agreement (as defined in paragraph 8 below).

4.       Unit Ownership. All costs associated with the exploration, development
         and operation of the Unit Area, including but not limited to the
         drilling, completion, and production of the Initial Test Well and any
         Substitute Well or subsequent well drilled by the Parties within the
         Unit Area, shall be borne, and all production therefrom shall be owned
         and attributed, seventy percent (70%) to Tract 1 and thirty percent
         (30%) to Tract 2 (referred to herein as the "Unit Interests"). The Unit
         Interests will not be adjusted, regardless of the termination or
         relinquishment of all or any portion of the Unit Area.

5.       Initial Test Well. Subject to weather conditions, rig availability and
         acquiring all necessary permits, Apache, as Operator, shall commence,
         or cause to be commenced, no later than September 1, 2005, the drilling
         of an initial test well ("Initial Test Well") form a surface location
         1,980' FSL and 51" FWL of EC 48 to a bottomhole location 1,716' FSL and
         1,798' FWL of EC 48, pursuant to Apache's AFE No. 642 and Well Plan
         attached hereto as Exhibit "A". Upon execution of this Unit Agreement,
         Hunt will also execute AFE No. O-05-0097-D and O-05-0097-C for its
         thirty percent (30%) working interest and return the AFE to the
         Operator.

                                     Page 2
<PAGE>

6.       Substitute Well. In the event the Initial Test Well does not reach the
         objective depth because of mechanical difficulties or gulf coast
         conditions (i.e. rock salt, heaving shale, excessive water flow,
         depleted sands, excessive pressure, base or other impenetrable matter)
         which prevent the Operator from drilling the well to objective depth,
         the Parties hereto may cause the drilling of a "Substitute Well" on or
         before ninety (90) days following the plugging and abandonment of the
         Initial Test Well (or plugging back in the case of a proposed
         sidetrack). Any Substitute Well shall require the concurrence of two
         (2) or more Parties with Unit Interests of at least fifty-one percent
         (51%) and shall be drilled to target the same objective as the Initial
         Test Well.

7.       Slot Fee. Hunt will pay a slot fee of Two Hundred Thousand Dollars
         ($200,000), proportionately reduced to its thirty percent (30%) Tract 2
         Unit Interest, for a net Sixty Thousand Dollars ($60,000), to the
         owners of the "I" Platform, for each slot which may be used under this
         Agreement, within fifteen (15) days of the spudding of each such Unit
         well. The slot will continue to be owned by the I Platform owners. Hunt
         is afforded the right to sue the slot until termination of this Unit
         Agreement or Hunt relinquishes its interest in the well, whichever
         occurs sooner.

8.       Joint Operating Agreement. The Parties will agree to enter into a
         mutually acceptable Joint Operating Agreement substantially in the form
         attached hereto as Exhibit "B" that will govern operations in the Unit
         Area and that will name Apache as Operator.

9.       Existing Wells, Platforms, Facilities and Pipelines. Notwithstanding
         the Initial Test Well and any Substitute Well or subsequent wells
         drilled under the Joint Operating Agreement:

         a)       Hunt shall not earn an interest in or assume any liability for
                  any well, platform, facility, or pipeline located either on
                  the Unit or on EC 47 or EC 48 as of the Effective date; and

         b)       Neither Apache, GOM Shelf nor Apache shall earn an interest in
                  or assume any liability for any well, platform, facility, or
                  pipeline located on EC 63 as of the Effective Date.

10.      Production Handling. Apache and GOM Shelf will provide Hunt utilization
         of their existing, Apache operated, EC 48 "I" Platform and Facilities
         for the production handling and processing of all production from the
         Unit Area under a mutually acceptable production handling agreement
         which shall incorporate, among other provisions, processing and
         handling rates of $0.125/mcf for gas, $1.00/barrel for oil and
         condensate, $1.00./barrel for water, and $.05/mcf per stage of
         compression.

11.      Contract Pumping Agreement. Wells drilled within the Unit Area pursuant
         to this Unit Agreement will be hooked upto "I" platform and operated by
         Apache, or its successor, under a mutually acceptable contract pumping
         agreement, which shall incorporate,

                                     Page 3
<PAGE>

         Among other provisions, an operating fee of $10,000 (Ten Thousand
         Dollars) per well plus direct costs attributable to the well.

12.      Production within five hundred feet (500') of Lease Line. The Parties
         agree to concur with or grant, should Operator deem it necessary to
         request same, a waiver to produce a Unit well within five hundred feet
         (500") of the lease lines separating EC 48 from EC 63.

13.      Further Assurances. From and after the execution hereof, each of the
         Parties will execute and deliver or cause to be executed and delivered
         sufficient permits, designations and regulatory documents and take such
         other action as may be reasonably necessary to carry out the purposes
         of this Unit Agreement.

14.      Term.
         (A) This Unit Agreement shall be effective as of the Effective Date and
         shall remain in effect for a period o one (1) year and so long
         thereafter as:

         1.       there is a well on the Unit Area, drilled pursuant to this
                  Unit Agreement or the Joint Operating Agreement, producing
                  oil, gas or other hydrocarbons in paying quantities from the
                  Unit Depths; or

         2.       operations to drill, complete or restore production are being
                  conducted on the Unit Area and there is a lapse of no more
                  than one hundred eighty (180) days between (a) the cessation
                  of production from the Unit Depths and (b) the restoration of
                  production from the Unit Depths or commencement of operations
                  to restore production from the Unit Depths; or

         3.       activity is being conducted on the Unit Area pursuant to a
                  Suspension of Production or Suspension of Operations.

         (B) At the moment in time that all of the activities described in (A)
         1, 2 and 3 above have ceased, this Unit Agreement shall automatically
         terminate; provided that, termination shall not relieve any Party from
         any liability accrued or incurred prior to such termination. All
         obligations under the Joint Operating Agreement shall survive until all
         Unit wells are plugged and abandoned and accounts are reconciled.

15.      Conflict with Agreements. In the event of a conflict between the terms
         of the body of this Unit Agreement and the Joint Operating Agreement,
         the terms of this Unit Agreement shall prevail.

16.      Applicable Law. THE PROVISIONS OF THIS UNIT AGREEMENT AND THE
         RELATIONSHIP OF THE PARTIES SHALL BE GOVERNED BY, AND INTERPRETED
         ACCORDING TO, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
         PRINCIPLES OF CHOICE OF LAWS, UNLESS FEDERAL MARITIME LAW APPLIES, IN
         WHICH CASE FEDERAL MARITIME LAW SHALL GOVERN AND CONTROL.

                                     Page 4
<PAGE>

17.      Notices. All notices that are required or authorized to be given
         hereunder, except as otherwise specifically provided herein, shall be
         given in writing and addressed to the Party to whom such notice is
         given as follows, and shall be effective when received by the Party to
         whom addressed:

Hunt:                                   GOM Shelf:
-----                                   ----------
Hunt Oil Company                        GOM Shelf LLC
1455 Ross at Field                      2000 Post Oak Blvd., Suite 100
Dallas, Texas 75202                     Houston, Texas 77056-4400
Attention: Larry Guzik                  Attention: Land Manager-Gulf Coast
Tel:       (214) 978-8563               Tel:       (713) 296-6000
Fax:       (214) 978-8888               Fax:       (713) 296-7024

Apache:                                 Ridgewood:
-------                                 ----------
Apache Corporation                      Ridgewood Energy Corporation
2000 Post Oak Blvd., Suite 100          11700 Old Katy Road, Suite 280
Houston, Texas 77056-4400               Houston, Texas 77079
Attention: Land Manager-Gulf Coast      Attention: Greg Tabor
Tel:       (713) 296-6000               Tel:       (281) 293-8449
Fax:       (713) 296-7024               Fax:       (281) 293-7705

18.      Counter parts. This Unit 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 the Parties had signed the same instrument; provided,
         however, no Party shall be bound to this Unit Agreement unless and
         until all Parties have executed either a counterpart or an original.

19.      Consent to Assign. A Party may not sell, transfer, farm out, assign, or
         otherwise dispose of all or part of its interest in the Unit Area
         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 the Subsection
                  18(c) below, the transfer furnishes the Parties with proof of
                  such financial capability that, in 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 file
                  with the MMS the appropriate lessee and Operator bonds;

         (b)      the transferee agrees in writing to assume all obligations and
                  liabilities under this Unit 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

                                     Page 5
<PAGE>

                  the name of each proposed transferee, a description of the
                  interests to be transferred, and the proof set forth in
                  Subsection 19(a).

         The requirements of this Section 19 shall not apply to a merger,
         consolidation, reorganization, sale or transfer to an Affiliate, a
         mortgage by a Party of its interest in the Unit Area, 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.

Please indicate your approval with the terms herein by signing two (2) copies of
this Unit Agreement in the space below and returning one (1) executed original
to the letterhead address. Should you have any questions, please contact Mr.
Gene Linscomb at (713) 296-7027.

Very truly yours,
APACHE CORPORATION

/s/ C.R. Harden
---------------

C.R. Harden
Land Manager - Gulf Coast Region

AGREED to and ACCEPTED THIS_________ DAY OF JUNE, 2005

RIDGEWOOD ENERGY CORPORATION        GOM SHELF LLC
                                    By Apache Corporation as Managing
                                    Member

/s/ Greg Tabor                          /s/ C.R Harden
------------------------------      -----------------------------
         Greg Tabor                         C.R Harden
         Executive Vice President           Land Manager - Gulf Coast Region

HUNT OIL COMPANY

-----------------------------
         A. W. Lewis, Jr.
         Vice President - Development

                                     Page 6

<PAGE>

                           JOINT OPERATING AGREEMENT

                                      dated

                                   June 8, 2005

                                     between

                               APACHE CORPORATION

                                  GOM SHELF LLC

                          RIDGEWOOD ENERGY CORPORATION

                                       and

                                HUNT OIL COMPANY

                                    covering

                        portions of Blocks 47, 48 and 63

                                East Cameron Area

                               Offshore Louisiana

<PAGE>
                            JOINT OPERATING AGREEMENT

         THIS AGREEMENT is made effective the _____ day of ___________,200_,
("Effective Date") by and between Apache Corporation ("Apache"), GOM Shelf LLC
("GOM Shelf"), Ridgewood Energy Corporation ("Ridgewood"), and Hunt Oil Company
("Hunt"), herein referred to collectively as "Parties" and individually as
"Party".

                              W I T N E S S E T H:

         WHEREAS, by agreement dated June 8, 2005, the Parties entered into a
contract know as Working Interest Unit Agreement and Well Proposal providing for
exploratory and development operations in a certain area of the Gulf of Mexico
defined therein as the "Unit Area" and shown on Exhibit "A" attached hereto.

         NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein, it is agreed that as a of the Effective Date, this Operating
Agreement is effective as to operations approved and commenced on the Unit Area
set out on Exhibit "A".

                                    ARTICLE 1
                                   APPLICATION

This Agreement applies to the Unit Area set out in Exhibit "A" as a whole and
does not apply separately as each oil and gas Lease or portion thereof in
Exhibit "A".

                                    ARTICLE 2
                                   DEFINITIONS

         2.1 Affiliates. Subsidiaries, parent or affiliated companies of the
Participating Parties, including any limited partnership in which a Party has
the majority of ownership or control either directly as general partner of such
limited partnership or indirectly as general partner of another limited
partnership.
         2.2 Authority for Expenditure. (AFE) means an authority to expend funds
prepared by a Party to estimate the costs to be incurred in conducting an
operation under this Agreement.
         2.3 Development Operations. Operations subsequent to the date on which
one (1) or more Parties having a combined Working Interest of fifty percent
(50%) or more determine that a Producible Well has been established in the Unit
Area.
         2.4 Development Well. Any well proposed as a Development Operation
including all necessary expenditures through the surface wellhead, which
expenditures may include, if appropriate, expenditures for subsea facilities.
Such subsea facilities may include, but are not limited to subsea wellheads,
subsea flowlines, and/or other similar equipment.
         2.5 Exploratory Operations. Operations conducted prior to Development
Operations.

                                       2
<PAGE>

         2.6  Exploratory Well.  Any well proposed as an Exploratory Operation.
         2.7 Facilities. All Unit Area equipment beyond the well head
connections acquired pursuant to this Agreement excluding Platforms.
         2.8 Lease. Each oil and gas lease identified in Exhibit "A" and the
lands affected thereby.
         2.9 Non-Consent Operations. Exploratory Operation or Development
Operations conducted by fewer than all Parties.
         2.10 Non-Consent Platform. A drilling or production Platform, caisson
or well protector, or similar structure owned by fewer than all Parties.
         2.11 Non-Consent Well. An Exploratory Well or Development Well with
operations conducted by fewer than all Parties.
         2.12 Non-Operator. Any Party to this Agreement other than the Operator.
         2.13 Non-Participating Party. Any Party to this Agreement other than a
Participating Party.
         2.14 Non-Participating Party's Share. The Participating Interest a
Non-Participating Party would have had if it had participated in the operation.
         2.15 Operator. The Party designated under this Agreement to conduct
Exploratory and Development Operations.
         2.16 Participating Interest. A Participating Party's percentage of
participation in an operation conducted pursuant to this Agreement.
         2.17 Participating Party. A Party who joins in an operation conducted
pursuant to this Agreement.
         2.18 Platform. A drilling or production platform, caisson or well
protector, or similar structure installed pursuant to this Agreement.
         2.19 Producible Well. A well producing oil and/or gas, or, if not
producing oil and/or gas, a well determined to be capable of producing oil
and/or gas in paying quantities pursuant to any applicable order issued by
appropriate governmental authority; however, any well shall be considered a
Producible Well if so determined by one (1) or more of the Participating Parties
having a combined voting interest of fifty percent (50%) or more, whether or not
said well is plugged and abandoned.
         2.20 Producible Reservoir. An underground oil and/or gas accumulation
which is separated from and not in oil or gas pressure communication with any
other such accumulation, and into which a Producible Well has been drilled.
         2.21  Unit Area means the area delineated and described on Exhibit "A".
         2.22 Working Interest. The ownership of each Party in and to the Unit
Area, as set forth in Exhibit "A".

                                    ARTICLE 3
                                    EXHIBITS

         3.1 Exhibits. Attached hereto are the following exhibits which are
incorporated herein by reference:
         3.1.1    Exhibit "A". Description of Leases, the Unit Area, Working
                  Interests of the Parties and Designated Representatives.
         3.1.2    Exhibit "B. Insurance Requirements.

                                       3
<PAGE>
         3.1.3    Exhibit "C". Accounting Procedure.
         3.1.4    Exhibit "D". Equal Opportunity Certifications and Agreements.
         3.1.5    Exhibit "E". Gas Balancing Agreement.
         3.1.6    Exhibit "F". Recording Memorandum.

         If any provision of any Exhibit, except Exhibit "E", is inconsistent
with any provision contained in the body of this Agreement, the provisions of
the body of this Agreement shall prevail. The provision of Exhibit "E" shall
prevail over the provisions contained in the body of this Agreement in the event
there is an inconsistency.

                                    ARTICLE 4
                                    OPERATOR

         4.1  Operator.  Apache Corporation is hereby designated as Operator.

         4.2 Resignation. Operator may resign at any time by giving notice to
the Parties. Such resignation shall become effective at 7:00 a.m. on the first
day of the month following a period of ninety (90) days after said notice,
unless a successor Operator has been selected and has assumed the duties of
Operator prior the that date.

         4.3 Removal of Operator. In the event (1) Operator becomes insolvent or
unable to pay its debts as they mature or makes an assignment for the benefit of
creditors or commits any act of bankruptcy or seeks relief under laws providing
for the relief of debtors; or (2) a receiver is appointed for Operator or for
substantially all of its property and/or affairs or its interest in the Unit
Area; or (3) Operator assigns a portion of its interest hereunder to a
non-affiliate which reduces its voting interest to less than ten percent (10%);
or (4) Operator commits a substantial breach of a material provision of this
Agreement, and fails to cure same after notice of such a breach, Operator may be
removed by an affirmative vote of the Parties having a combined Working Interest
of at least ninety percent (90%) or more of the interest remaining after
excluding the Operator's Working Interest. Such removal shall become effective
at 7:00 a.m. on the first day of the month following a period of ninety (90)
days after the removal election is exercised unless a successor Operator has
assumed duties prior to that date.

         4.4 Selection of Successor. Upon resignation or removal of Operator, a
successor Operator shall be selected by an affirmative vote of the Parties
having a combined Working Interest of fifty-one percent (51%) or more; however,
if the removed or resigned Operator fails to vote or votes only to succeed
itself, the successor Operator shall be selected by an affirmative vote of one
(1) or more Parties having a combined Working Interest of sixty-five percent
(65%) or more of the remaining Working Interest left after excluding the Working
Interest of the removed or resigned Operator. In no event shall the resignation
or removal of Operator become finally effective unless and until a successor
Operator has been selected and assumed its duties.

         4.5 Delivery of Property. Prior to the effective date of resignation or
removal, Operator shall deliver promptly to successor Operator the possession of
everything owned by the Parties pursuant to this Agreement.

                                       4 (Amended)
<PAGE>
                                    ARTICLE 5

         5.1 Exclusive Right to Operate. Unless otherwise provided, Operator
shall have the exclusive right and duty to conduct all operations pursuant to
this Agreement.

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

         5.3 Liens and Encumbrances. Operator shall endeavor to keep the Leases
contributed to the Unit Area and equipment free from all liens and encumbrances
occasioned by operations conducted by Operator hereunder, except those provided
for in Section 85.

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

         5.5 Records. Operator shall keep accurate books, accounts, and record
of operations hereunder which, unless otherwise provided for in this Agreement,
shall be available upon twenty (20) days notice by non-operators for inspection
during normal office hours by Non-Operators or their authorized representative
pursuant to the provisions contained in Exhibit "C".

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

         5.7 Drilling. Operator shall have all drilling operations conducted by
qualified and responsible independent contractors under competitive contracts.
However, Operator may employ its equipment and personnel in the conduct of such
operations to a written agreement among the Participating Parties.

         5.8 Reports. Operator shall make reports to governmental authorities
that it has a duty to make as Operator and shall furnish copies of such reports
to the Parties. Operator shall give timely written notice to the Parties of all
litigation and/or administrative proceedings affecting the Unit Area or
operations hereunder.

         5.9 Information to All Parties. Operator shall promptly furnish each
Party the following information pertaining to each well being drilled:

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

                                       5
<PAGE>
         (b)    daily drilling reports;
         (c)    complete report of all core analyses;
         (d)    copies of any logs or surveys as run;
         (e)    copies of any well test results, bottom-hole pressure surveys,
                gas and condensate analyses, or similar information;
         (f)    copies of reports made to regulatory agencies; and
         (g)    twenty-four (24) hour notice by telephone to the designated
                representative listed in Exhibit "A" of logging, coring and
                testing operations, and upon written request samples of
                cuttings and cores marked as to depth, to be packaged and
                shipped at the expense of the requesting Party.

                                    ARTICLE 6
                          VOTING AND VOTING PROCEDURES

         6.1 Designation of Representatives. The names, addresses, and the
telephone, telecopier and telex numbers of the representative and alternate who
are authorized to represent and bind each Party with respect to operations
hereunder are set forth in Exhibit "A". Any of the above may be changed by
written notice to the other Parties. Each Party may designate additional
representatives to perform certain functions on its behalf, by written notice to
the other Parties.

         6.2 Voting Procedures. Unless otherwise provided, any matter requiring
approval of the Parties shall be determined as follows:

                  6.2.1 Voting Interest. Subject to the provisions of Section
         8.7, each Party shall have a voting interest equal to its Working
         Interest or its Participating Interest as applicable.
                  6.2.2 Vote Required. Unless expressly stated to the contrary
         herein, proposals requiring approval of the Parties shall be decided by
         an affirmative vote of one (1) or more Parties having a combined voting
         interest of fifty percent (50%) or more.
                  6.2.3 Votes. The Parties may vote at meetings; by telephone,
         promptly confirmed in writing to Operator; or by letter, telegram,
         telex or telecopier. Operator shall give prompt notice of the results
         of such voting to each Party.
                  6.2.4 Meetings. Meetings of the Parties may be called by
         Operator upon its own motion or at the request of any Party having a
         voting interest of not less than 10 percent (10%). Except in the case
         of emergency or pursuant to the provisions of Section 5.11, or except
         when agreed by a unanimous consent, no meeting shall be called on less
         than fifteen (15) days advance written notice. Notice of such meeting
         shall include the agenda of matters to be considered. The
         representative of Operator shall be chairman of each meeting. Only
         matters provided for in the agenda of the meeting shall be decided and
         acted upon at a meeting, provided, however, the agenda and items
         included in the agenda may be amended by unanimous agreement of all
         Parties.

                                    ARTICLE 7
                                     ACCESS

                                       6
<PAGE>
         7.1 Access to Unit Area. Each Party shall have access to the Unit Area
at its sole risk and expense at all reasonable times to inspect operations and
wells and the records and data pertaining thereto.

         7.2 Reports. Upon written request, Operator shall use good faith
efforts to furnish to a requesting Party any nonconfidential information not
otherwise furnished under Section 5.8 and/or Section 5.9 to which such Party is
entitled hereunder. The costs of gathering and furnishing information not
otherwise furnished under Section 5.8 and/or Section 5.9 shall be charged to the
Party(ies) requesting such additional information.

         7.3 Confidentiality. The phrase "Confidential Data" as used hereafter
shall include all of the information and logs referred to in this paragraph,
including the original of any copies thereof. Except as provided in Section 7.4,
Section 7.5, or for necessary disclosures to governmental agencies, no Party, or
Affiliate shall release or trade any geological, geophysical or reservoir
information or any logs or other information pertaining to the progress, tests
or results of any well unless agreed to by all Participating Parties in writing.

         7.4 Limited Disclosure. Any Party may make Confidential Data available
to reputable engineering firms and gas transmission companies for hydrocarbon
reserve and other technical evaluations and to reputable financial institutions
for study prior to commitment of funds. The Confidential Data made available
shall not be removed from the custody or premises of the Party making such data
available. Any third party permitted such access shall first agree in writing
neither to disclose such data to others nor to use such data except for the
purpose for which it is disclosed.

         7.5 Affiliates. There shall be no requirement for approval with respect
to access to Confidential Data by Affiliates.

                                    ARTICLE 8
                                  EXPENDITURES

         8.1 Basis of Charge to the Parties. Operator shall pay all costs and
each Party shall reimburse Operator in proportion to its Participating Interest.
All charges, credits and accounting for expenditures shall be pursuant to
Exhibit "C". The provisions of this Agreement shall prevail in the event of
conflict with Exhibit "C".

         8.2 Authorization. Except in the event of an emergency, prior to
undertaking any project or making any single expenditure in excess of One
Hundred Thousand Dollars ($100,000), Operator shall submit for the approval of
the Parties, an Authority for Expenditure ("AFE") for such project or
expenditure. Notwithstanding the One Hundred Thousand Dollars ($100,000)
limitation, where such project or expenditure involves changing zones in a well,
or a workover operation that is a capital expenditure, an expenditure request
shall be submitted to the Parties for approval. Operator shall furnish an AFE or
similar form, for informational purposes only, to all the Parties on any project
or single expenditure costing less than One Hundred Thousand Dollars ($100,000),
but in excess of Fifty Thousand Dollars ($50,000), if Operator prepares same for
its own use. Informational copies of supplemental AFE's shall be furnished to
the Parties after an original AFE has been exceeded by ten percent (10%), except
that no informational copy of a supplemental AFE shall be required until the
                                       7
<PAGE>
amount of the overexpenditure exceeds Fifty Thousand Dollars ($50,000). Subject
to any election provided in Articles 10 and 11, approval of an Exploratory Well
operation shall include approval of all necessary expenditures through drilling,
coring and logging to the objective depth and plugging and abandoning costs if
applicable; approval of a Development Well operation shall include all necessary
expenditures through installation of the surface wellhead. In the event of an
emergency, Operator may immediately make such expenditures as in its opinion are
required to deal with the emergency. Operator shall report to the Parties, as
promptly as possible, the nature of the emergency and action taken. The Parties
understand and agree that amounts shown in AFE's are estimates only and each
Party is responsible for its proportionate share of all costs and expenses of an
operation regardless of whether the actual costs exceed the AFE amount.

         8.3 Advance Billings. Operator shall have the right to require each
Party to advance its respective share of estimated expenditures pursuant to
Exhibit "C".

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

         8.5 Unpaid Charges. If any Party fails to pay the charges due hereunder
within sixty (60) days after rendition of Operator's statement, the remaining
Participating Parties shall, upon Operator's request, pay the unpaid amount in
proportion to their interests, provided the Operator has given written notice to
the remaining Participating Parties that such Party is in default pursuant to
Section 8.7 at least thirty (30) days prior to such request. Each Participating
Party so paying its share of the unpaid amount shall be subrogated to Operator's
security rights described in Section 8.5 to the extent of such payment.

         8.6 Default. If any Party does not pay its share of the charges when
due, Operator may give such Party notice that unless payment is made with
fifteen (15) days, such Party shall be in default. Any Party in default shall
have no further access to the maps, records, data, interpretations, or other
information obtained in connection with operations. A defaulting Party shall not
be entitled to vote on any matter, including the Removal/Selection of Operator
pursuant to Sections 4.3 and 4.4, until such time as said Party's payments are
current. The voting interest of each non-defaulting Party shall be in the
proportion its Participating Interest bears to the total non-defaulting
Participating Interest. As to any operation approved during the time a Party is
in default, such Party shall be deemed to be a Non-Participating Party.

         8.7 Carved-out Interests. Any overriding royalty, production payment,
net proceeds interest, carried interest, or any other interest carved out of a
Working Interest in the portion of the Lease is contributed to the Unit Area
shall be subordinate to the rights of the Parties to this Agreement, and any
Party whose Working Interest is so encumbered shall be solely responsible
therefore. If a Party does not pay its share of costs and the proceeds from the
sale of the production under Section 8.5 are insufficient for that purpose, the
security rights provided for therein may be applied against the carved-out
interest with which such Working Interest is burdened. In such event, the rights
of the owner of such carved-out interest shall be subordinated to the security
rights granted by Section 8.5.

                                       8
<PAGE>
                                    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 Untied 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 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
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. A proposal for multiple operations on more than one (1)
well location by the same rig shall contain separate AFE's 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).

         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
<PAGE>
         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 of Multiple Operations. Unless otherwise agreed by
                  the Parties, no more than one (1) well shall be drilling or
                  Completing at the same time. 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 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 Operations by All Parties. Any party may propose an Exploratory
Well by notifying the other Parties. Any such proposal shall be handled pursuant
to the notice procedures set forth in Subsections 9.3.2, 9.3.3, 9.3.4 or 9.3.5,
as appropriate. If all the Parties agree to participate in drilling the proposed
well, Operator shall drill same at their cost and risk. If within ten (10) days
after a proposal is submitted to drill a well, provided a mobile drilling rig is
not on location and/or such proposal is not already approved, a Party submits an
alternate location and/or a different projected depth for such well, the
Operator shall call a meeting of the Parties to be held within fifteen (15) days
of receipt of the counterproposal for the purpose of determining by majority
vote in interest which location and/or to which depth the well shall be
proposed. In the event of a tie vote, the initial proposal shall be the proposal
for consideration. In such event, the period for response by each Party of its
election whether or not to join in the drilling of such well shall expire
fifteen (15) days after the meeting to determined what proposal to consider is
held, If such well is not commenced within one hundred twenty (120) days after
the last applicable election date, the effect shall be the same as if the
proposal had not been made. Exploratory Operations shall be deemed to have
commenced on the day charges are incurred pursuant to an approved AFE.

         10.2 Second Opportunity to Participate. If fewer than all but two (2)
or more Parties having a combined Working Interest of fifty-one percent (51%) or
more elect to participate, the Operator shall inform the Parties of the
                                       10
<PAGE>
elections made, whereupon any Party originally electing not to participate may
then elect to participate by notifying the Operator within forty-eight (48)
hours, excluding Saturdays, Sundays, and federal holidays, after receipt of such
notification.

         10.3 Final Election to Participate. If fewer than all but two (2) or
more Parties having a combined Working Interest of fifty-one percent (51%) or
more approve any proposed operation, the Operator, immediately after the
expiration of the applicable response time, shall inform the Parties who have
elected to participate of the total interest of the Parties approving such
operation. Each Participating Party, within forty-eight (48) hours (exclusive of
Saturdays, Sundays, and federal holidays) after receipt of such notice, shall
advise the Operator of its desire to (a) limit participation to such Party's
interest as shown on the proposed AFE; or (b) carry its proportionate part of
Non-Participating Parties interests. Failure to advise the proposing Party shall
be deemed an election under (a), notwithstanding Subsection 9.3.5. Should any
Party elect to limit its participation to its interest as shown on the proposed
AFE, the remaining Participating Parties shall carry the Non-Participating
Parties' interest in such proportions as the remaining Participating Parties
agree to by mutual consent. In the event a drilling rig is on location, the time
permitted for such response shall not exceed a total of forty-eight (48) hours.

         10.4 Operations by Fewer than All Parties. If fewer than all but two
(2) or more Parties having a combined Working Interest of fifty-one percent
(51%) or more elect to participate in and agree to bear one hundred percent
(100%) of the cost and risk of drilling the proposed well, Operator, or another
Party if Operator is not a Participating party, shall drill such well as
Operator under this Agreement.

If an Exploratory Well proposed to be drilled on the Unit Area is commenced
within one hundred twenty (120) days after the date of the last applicable
election date as provided herein, any Party not participating in the drilling of
the well shall relinquish all of its interest in the well and the production
therefrom, until the Parties participating in the drilling of the well have
recouped the costs applicable to the well as provided in Subsection 12.2.1,
except that the percentage of recoupment as specified in Subsection 12.2.1(a)
shall be as follows:
         a.)      Eight hundred percent (800%) if the Exploratory Well proposal
                  is approved by tow (2) or more Parties having a combined
                  Working Interest of fifty-one percent (51%) or more; or,

If any Exploratory Well proposed hereunder is not commenced within the time
period as prescribed above, the effect shall be as if the proposal had never
been made.

         10.5 Course of Action after Drilling to Initial Objective Depth. At
such time as an Exploratory Well has been drilled as proposed, Operator shall
notify the Participating Parties setting forth Operator's recommendation to
either:
         (a)      conduct additional coring, testing or logging of the
                  formations encountered;
         (b)      deepen the well;
         (c)      attempt completion, with a deeper completion having priority
                  over a shallower completion attempt;

                                       11
<PAGE>
         (d)      sidetrack the well to another bottom hole location not deeper
                  than the stratigraphic equivalent of the initial objective
                  depth;
         (e)      perform other operations on the well; or
         (f)      plug and abandon the well.

The Participating Parties, within forty-eight (48) hours after receipt of
Operator's recommendation, shall respond thereto by either approving it or
making another proposal. If another proposal is made, the Participating Parties
shall have an additional twenty-four (24) hours to respond thereto. If
conflicting proposals are made, preference for purposes of consideration only
shall be given first to (a) above and next to (b) above and so forth. Failure of
a Participating Party to respond to a proposal shall be deemed a negative
response.

                  10.5.1 Operation by All Parties. Subject to Subsection 10.5.4,
         if all Participating Parties approve a proposal, Operator shall conduct
         the operation at the Participating Parties' cost and risk.
                  10.5.2 Operations by Fewer than All Parties. If two (2) or
         more Parties having a combined Working Interest of fifty-one percent
         (51%) or more approve a proposal and agree to bear the cost, risk and
         liabilities (including loss of the hole due to deepening the well)
         thereof, except a proposal to plug and abandon, Operator shall conduct
         the same as Non-Consent Operation for such Parties pursuant to the
         provisions of Article 12, except that the percentage of recoupment as
         provided in Subsection 12.2.1(a) shall be the same as provided for in
         Section 10.4(a). If no proposal receives the required approval, the
         well shall be plugged and abandoned at the expense of all Participating
         Parties unless any Participating Party notifies Operator within
         twenty-four(24) hours after the end of the last applicable election
         period that it desires to immediately assume all costs and risks
         including liabilities of further operations, in which event Operator
         shall, as promptly as possible, commence the proposed operation
         pursuant to the provisions of Article 12. In the event there is more
         than one (1) Party, each of which is willing to assume all costs, risk
         and liabilities of further operations, but each desire to perform a
         different operation, then the order of priority as listed above herein
         shall prevail and govern.
                  10.5.3 Obligations and Liabilities of Participating Parties.
         If the decision is to deepen, to sidetrack to another bottomhole
         location, to complete at initial objective depth, or to plug back and
         complete at a lesser depth, a Party, by becoming a Non-Participating
         Party, shall be relieved of the obligations and liabilities as to such
         operation, except as to its share of the costs of plugging and
         abandoning the well.
                  10.5.4 Deepening of Non-Consent Exploratory Well.
         Notwithstanding the foregoing, if drilling to the initial objective
         depth does not result in a well which will be qualified as a Producible
         Well and the decision is to drill deeper, each Non-Participating Party
         shall be notified by the Operator of such decision. Any
         Non-Participating Party may then agree to participate in a deepening
         operation by notifying the Operator, within forty eight (48) hours
         (inclusive of Saturdays, Sundays and federal holidays) after receiving
         notice of the decision. In
                                       12
<PAGE>
         such event any Non-Participating Party which elects to participate in
         deepening the well as proposed shall immediately pay to the
         Participating Parties its Participating Interest share of the costs of
         the well as if it had originally participated to the initial objective
         depth. Thereafter such Non-Participating Party shall be deemed for all
         purposes to be a Participating Party as to such deepening operations,
         and the provisions of Section 10.4 shall not be applicable to such
         Party as to the deepened portion of the well. This initial
         Participating Parties, however, shall continue to be entitled to recoup
         out of the proceeds received from production from the non-consent
         portion of the well any balance remaining per the terms specified in
         Section 10.4 applicable to such Non-Consent Well, less the amount paid
         by a Non-Participating Party pursuant to this Subsection 10.5.4.
                  10.5.5 Plugging and Abandoning Cost. The Participating Parties
         shall pay all costs of plugging and abandoning except any costs
         associated with a subsequent Non-Consent Operation. The participants in
         a subsequent Non-Consent Operation shall pay any plugging and
         abandoning costs associated with such operation. A non-Consent
         Operation does not include the abandonment of the original wellbore
         above the depth at which the Non-Consent Operation commenced.

         10.6 Seismic Operations. Any Party may propose seismic operations by
notifying the Operator. For purposes of this Section, seismic operations shall
be defined as operations conducted to obtain imagery of the earth's subsurface
using sound energy. The Operator shall promptly prepare and submit an AFE to the
Parties for approval to conduct the proposed seismic operation.

         The Parties shall meet within thirty (30) days after receipt of the AFE
to discuss the proposed seismic operation. Modifications may be proposed as a
result of said meeting, in which event the Operator shall submit the Parties a
revised AFE incorporating the modifications within fifteen (15) days after said
meeting. Within thirty (30) days following said meeting or receipt of
modifications, whichever is later, each Party shall notify the operator of its
approval or disapproval of the proposed seismic operation.

         Approval of a seismic operation shall require the affirmative vote of
at least two (2) or more Parties having a combined Working Interest of
seventy-five percent (75%) or more of all Parties, and such approval shall be
binding on all Parties.

         Any Party, should it so desire, may conduct seismic operations at its
sole cost, risk and expense.

                                   ARTICLE 11
                             DEVELOPMENT OPERATIONS

         11.1 Operation by All Parties. Any Party may propose Development
Operations, including any wells, Platform, and/or Facilities required by such
operations, by notifying the Operator. The Operator shall promptly prepare and
submit a Development Operation AFE to the Parties for approval pursuant to the

                                       13
<PAGE>
response to notice procedures set forth in Subsections 9.3.2, 9.3.3, 9.3.4 or
9.3.5, as appropriate. If all Parties elect to participate in the proposed
operation, Operator shall conduct such operation at their cost and risk.

         11.2 Second Opportunity to Participate. If fewer than all but two (2)
or more Parties having a combined Working Interest of fifty-one percent (51%) or
more elect to participate, the Operator shall inform the Parties of the
elections made, whereupon any Party originally electing not to participate may
then elect to participate by notifying the Operator within forty-eight (48)
hours, exclusive of Saturdays, Sundays and federal holidays, after receipt of
such notification.

         11.3 Final Election to Participate. If fewer than all but two (2) or
more Parties having a combined Working Interest of fifty-one percent (51%) or
more approve any proposed operation, the Operator, immediately after the
expiration of the applicable response time, shall inform the Parties who have
elected to participate of the total interest of the Parties approving such
operation. Each Participating Party, within forty-eight (48) hours, exclusive of
Saturdays, Sundays, and federal holidays, after receipt of such notice, shall
advise the Operator of its desire to (a) limit participation to such Party's
interest as shown on the proposed AFE; or (b) carry its proportionate part of
Non-Participating parties interests. Failure to advise the proposing Party shall
be deemed an election under (a) notwithstanding Subsection 9.3.4. Should any
Party elect to limit its participation to its interest as shown on the proposed
AFE, the remaining participating Parties shall carry the Non-Participating
Parties interest in such proportions as the remaining Participating Parties
agree to by mutual consent. In the event a drilling rig is on location, the time
permitted for such a response shall not exceed a total of forty-eight (48)
hours.

         11.4 Operations by Fewer Than All Parties. If fewer than all but two
(2) or more Parties having a combined Working Interest of fifty-one percent
(51%) or more elect to participate in and agree to bear one hundred percent
(100%) of the cost, risk and liability of a Development Operation, Operator
shall conduct such operation pursuant to Article 12.

         11.5 Timely Operations. Development Operations shall be commenced
within one hundred twenty (120) days following the date upon which the last
applicable election may be made. If no Development Operations are commenced with
such time period, the effect shall be as if the proposal had not been made. For
the purposes hereof, Development Operations shall be deemed to have commenced on
the day charges are incurred pursuant to an approved AFE.

         11.6 Course of Action after Drilling to Initial Objective Depth. At
such time as a Development Well has been drilled to the initial objective depth
and a completion of such zone is not made or is unsuccessful, Operator shall
notify the Participating Parties setting forth Operator's recommendation to
either:
         (a)      conduct additional coring, testing or logging of the
                  formations encountered;
         (b)      attempt completion with a deeper completion having priority
                  over a shallower completion attempt:
         (c)      sidetrack the well to another bottom hole location not deeper
                  than the stratigraphic equivalent of the initial objective
                  depth;
                                       14
<PAGE>
         (d)      deepen the well;
         (e)      perform other operations on the well; or
         (f)      plug and abandon the well.

The Participating Parties, within forty-eight (48) hours after receipt of
Operator's recommendations, shall respond thereto by either approving it or
making another proposal. If another proposal is made, the Participating Parties
shall have an additional twenty-four (24) hours to respond thereto. If
conflicting proposals are made, preference for purposes of consideration only
shall be given first to (a) above and next to (b) above and so forth. Failure of
a Participating Party to respond to a proposal shall be deemed a negative
response.

         11.7 Deeper Drilling. If a well is proposed to be drilled below the
deepest producible zone penetrated by a Producible Well, any Party may elect to
participate either in the well as proposed or to the base of the deepest
producible zone. A Party electing to participate in such well to the base of
said zone shall bear its Participating Interest share of the cost, risk and
liabilities (including loss of the hole due to deepening of the well) of
drilling to said zone including completion or abandonment. All operations below
the depth to which such Party agreed to participate shall be governed by Article
12.

         11.8 Facilities. The affirmative vote of two (2) or more Parties having
a combined Participating Interest of seventy-five percent (75%) or more in the
wells to be served by the proposed Facilities shall constitute approval which
shall be binding on all Parties having an interest in the wells to be served;
however, nothing hereunder shall limit a Party's rights under Section 22.1.

         11.9 Contracts. Operator may enter into contracts with independant
contractors for Development Operations ans shall utilize competitive bidding.

                                   ARTICLE 12
                             NON-CONSENT OPERATIONS

         12.1 Operations by Fewer than All Parties. Operator or substitute
Operator shall conduct Non-Consent Operations at the sole risk and expense of
the Participating Parties, in accordance with the following provisions:

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

                  12.1.2 Multiple Completion Limitation. Non-Consent Operations
         shall not be conducted in a well having multiple completions unless:
         (a) each completion is owned by the same Parties in the same
         proportions; (b) the well is incapable of producing from any of its
         completions; or (C) all Participating Parties in the well consent to
         such operations.

                  12.1.3 Metering. In Non-Consent Operations, production need
         not be separately metered but may be determined on the basis of well
         tests. Such well tests shall be conducted by the Operator on a
         frequency of at least once a calendar month.

                                       15
<PAGE>
                  12.1.4 Non-Consent Well. Operations on a Non-Consent Well
         shall not be conducted in any producible zone penetrated by a
         Producible Well without approval of each Non-Participating Party
         unless: (a) such zone shall have been designated in the notice as a
         completion zone; (b) completion of such well in said zone will not
         increase the well density beyond that governmentally prescribed or
         approved or such zone; and (c) the horizontal distance between the
         vertical projections of the midpoint of the zone in such well and any
         existing well in the same zone will be at least one thousand feet
         (1,000') if an oil-well completion or two thousand feet (2,000') if a
         gas-well completion.

                  12.1.5 Cost Information. Operator shall, within one hundred
         twenty (120) days after completion of a Non-Consent Well, furnish the
         Parties an inventory and an itemized statement of the cost of such well
         and equipment pertaining thereto. Operator shall furnish to the Parties
         a monthly statement showing operating expenses, and the proceeds from
         the sale of production from the well for the preceding month.

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

         12.2 Forfeiture of Interest. Upon commencement of Non-Consent
Operations, each Non-Participating Party's interest and leasehold operating
rights in the Non-Consent Operation and title to production therefrom shall be
owned by and vested in each Participating Party in proportion to its
Participating Interest or in proportions agreed to 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 Penalties. Such Interest, rights
         and title shall revert to each Non-Participating Party when the
         Participating Parties have recouped out of the Non-Participating
         Party's Share of the proceeds of production from such Non-Consent
         Operations an amount, which when added to any amounts received under
         Section 12.5, equals the sum of the following:

                           (a) Five hundred percent (500%), if the proposal is
                  approved by two (2) or more Parties having a combined Working
                  Interest of fifty-one percent (51%)

                           (b) Three hundred percent (300%) of the
                  Non-Participating Party's Share of the cost of any non-consent
                  Facilities and/or any Non-Consent Platform(s) which must be
                  installed to carry out the operation; plus,

                           (c) One hundred percent (100%) of the
                  Non-Participating Party's Share of the cost of using any
                  Facilities already installed; plus,

                           (d) One hundred percent (100%) of the
                  Non-Participating Party's Share of the cost of using any
                  Platform already installed; plus,

                                       16
<PAGE>

                           (e) One hundred percent (100%) of the
                  Non-Participating Party's Share of the cost of operating
                  expenses, royalties and severance, gathering and production
                  taxes.

                  Upon the recoupment of such costs, a Non-Participating Party
         shall become a Participating Party in such operations.

                  12.2.2 Non-Production Reversion. If such Non-Consent
         Operations fail to obtain production or if such operations result in
         production which ceases prior to recoupment by the Participating
         Parties of the penalties provided for above, such operating rights
         shall revert to each Non-Participating Party except that all
         Non-Consent Wells, Platforms and Facilites shall remeint vested in the
         Participating Parties; however, any salvage in excess of the sum
         remaining under subsection 12.2.1 shall be credited to all Parties.

         12.3 Deepening of Non-Consent Development Well. If any Participating
Party proposes to deepen a Non-Consent Development Well, each Non-Participating
Party shall be notified by the Operator of such decision. Any Non-Participating
Party may then agree to participate in a deepening operation by notifying the
Operator within thirty (30) days after receiving the proposal, or within
forty-eight (48) 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 decision. In such event, any Non-Participating Party which elects
to participate in deepening the well as proposed shall immediately pay to the
Participating Parties its Participating Interest share of the costs of the well
as if it had originally participated to the initial objective depth. Thereafter
such Non-Participating Party shall be deemed or all purposes to be a
Participating Party as to such deepening operations, and the provisions of
Subsection 12.2.1(a) shall not be applicable to such Party as to the deepened
portion of the well. The initial Participating Parties however, shall continue
to be entitled to recoup out of the proceeds received from production from the
non-consent portions of the well any balance remaining per the terms specified
in Subsection 12.2.1 applicable to the Non-Consent Development Well, less the
amount paid by a Non-Participating Party pursuant to this Section 12.3.

         12.4 Operations form Non-Consent Platforms. A party which did not
originally participate in a Platform shall be a Non-Participating Party as to
all operations from such Platform and shall be subject to the provisions of
Section 12.2. Reversion shall occur only after the original Participating
Parties have recouped the sum set forth in Subsection 12.2.1 for the Platform
and the Non-Consent Operations thereon.

         12.5 Discovery or Extension from Mobile Drilling Operations. If a
Non-Consent Well is drilled from a mobile drilling rig, a floating drilling
vessel, or a Platform no longer producing in paying quantities and results in
the discovery of oil or gas or extensions of a Producible Reservoir, the
recoupment of costs applicable to such well shall be governed by Section 12.2
and shall be recovered by the Participating Parties in the following manner:

                  (a) If such Non-Consent Well is not completed and produced,
                  recoupment shall be out of one-half (1/2) of the
                  Non-Participating Party's Share of production from all

                                       17
<PAGE>
                  subsequently completed wells on the Unit Area which are
                  completed in the Producible Reservoir discovered or extended
                  by such Non-Consent Well and in which the Non-Participating
                  Party in such Non-Consent Well has a Participating Interest;

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

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

                  12.6.1 Charges. If a Non-Consent Well is drilled from a
         Platform, the Participating Parties in such well shall pay to the
         Operator for credit to the owners of such 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 from 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 Facilities which one
                  (1) well bears to the total number of wells utilizing the
                  Facilities.

                  12.6.2 Operating and Maintenance Charges. The Participating
         Parties shall pay all costs necessary to connect a Non-Consent Well to
         the Facilities and 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.

                  12.6.3 Payments. Payment of sums pursuant to Subsection 12.6.1
         is not a purchase of an additional interest in the Platform or
         Facilities. Such payments shall be included in the total amount which
         the Participating Parties are entitled to recoup out of production from
         the Non-Consent Well.

         12.7  LEFT INTENTIONALLY BLANK
                                       18
<PAGE>
         12.8 Allocation of Costs between Zones (Single Completion). For the
purpose of allocating costs on any well completed in only one (1) zone in which
the Participating Interests of the Parties is not the same for the entire depth
or the completion thereof, the cost of drilling, completing, and equipping such
well shall be allocated on the following basis:

                  (a) Intangible drilling, completion, casing string and
         material costs from the surface to a depth of one hundred feet (100')
         below the base of the completed zone shall be charged to the
         Participating Parties in accordance with their respective Participating
         Interests in that zone.
                  (b) Intangible drilling, completion, casing string and
         material costs, other than tubing costs, from a depth of one hundred
         feet (100') below the base of the completed zone to total depth shall
         be charged to the Participating Parties in accordance with their
         respective Participating Interest in the well to total depth.

         12.9 Allocation of Costs between Zones (Multiple Completions). For the
purpose of allocating costs on any well completed in dual or multiple zones in
which the Participating interests of Parties is not the same for the entire
depth or the completion thereof, the cost of drilling, completing, and equipping
such well shall be allocated on the following basis:

                  (a) Intangible drilling, completion, casing string and
         material costs other than tubing costs,from the surface to a depth one
         hundred feet (100') below the base of the upper completed zone shall be
         divided equally between the completed zones and charged to the
         Participating Parties in accordance with their respective Participating
         Interest in each zone.
                  (b) Intangible drilling, completion, casing string, and
         material costs, other than tubing, from a depth one hundred feet (100')
         below the base of the upper completed zone to a depth one hundred feet
         (100') below the base of the second completed zone shall be divided
         equally between the second and any other zone completed below such
         depth and charged to the Participating Parties in accordance with their
         respective Participating Interest in each such zone. If the well is
         completed in additional zones, the costs applicable to each such zone
         shall be determined and charged to the Participating Parties in the
         same manner as prescribed by the dual zones completion.
                  (c) Intangible drilling, completion, casing string and
         material costs, other than tubing costs, from a depth one hundred feet
         (100') below the base of the lower completed zone to total depth shall
         be charged to the Participating Parties in accordance with their
         respective Participating Interest in the well to total depth.
                  (d) Costs of tubing strings serving each separate zone shall
         be charged to the Participating Parties in accordance with their
         respective Participating Interest in each zone.
                  (e) For the purposes of allocating tangible and intangible
         costs between zones that occur at less than one hundred foot (100')
         intervals, the distance between the base of the upper zone to the top
         of the next lower zone shall be allocated equally between zones.

                                       19
<PAGE>
         12.10 Allocation of Costs between Zones (Dry Hole). For the purpose of
allocating costs on any well determined to be a dry hole, in which the
Participating Interest of the Parties is not the same for the entire depth or
the completion thereof, the cost of drilling, plugging and abandoning such well
shall be allocated on the following basis:

                  (a) Costs to drill, plug and abandon a well proposed for
         completion in single, dual or multiple zones shall be charged to the
         Participating Parties in the same manner as if the well were completed
         as a producing well in all zones as proposed.
                  (b) Plugging and abandoning of any well following any
         deepening, completion attempt, or other operation shall be at the sole
         risk and expense of the Participating Parties in such operation,
         subject, however, to the provisions of Section 14.2.

         12.11 Intangible Drilling and Completion Cost Allocations. For the
purposes of allocating costs under Sections 12.8, 12.9, and 12.10, intangible
drilling and completion costs, including non-controllable materials costs, shall
be allocated between zones, including the interval from the lower completed
zones to total depth, on a drilling day ratio basis where the factor for each
zone is determined by a fraction for which the numerator is the number of
drilling and completion days applicable to that zone and the denominator is the
total number of days spent on the well, beginning on the day the rig arrives on
location and terminating when the rig is released.

                                   ARTICLE 13
                           FACILITIES AND MAINTENANCE

         13.1 Approval. A Party may propose the modification, expansion,
upgrade, or replacement of 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 tow (2) or more Parties having combined Participating
Interests of fifty prescient (50%) 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. Facilities that are modified, expanded upgraded, or
replaced for the development and operation of the Unit Area 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 Participating
Parties. No Facilities, that are modified, expanded, upgraded, or replaced,
shall be constructed on the Unit Area to serve operations off the Unit Area,
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
two (2) or more Parties having a combined Participating Interest of 50 percent
(50%) 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 Unit Area and intended to maintain or preserve the condition of
the Facilities, Platforms, and other Unit Area equipment.

                                       20
<PAGE>

                                   ARTICLE 14
                             ABANDONMENT AND SALVAGE

         14.1 Platform Salvage and Removal Costs. When the Parties owning a
Platform mutually agree to dispose of such Platform, it shall be disposed of by
the Operator as approved by such Parties with such Parties having a preferential
right to acquire the Platform. The costs, risks, and net proceeds, if any,
resulting from such disposition shall be shared by such Parties in proportion to
their ownership of the Platform.

         14.2 Abandonment of Producing Well. Any Participating Party may propose
the abandonment of a well by notifying the other Participating Parties. No well
shall be abandoned without the mutual consent of the Participating Parties. The
Participating Parties not consenting to the abandonment shall pay to each
Participating Party desiring to abandon such abandoning Party's share of the
current value of the well's salvageable material and equipment as determined
pursuant to Exhibit "C", less the estimated current costs of salvaging same and
of plugging and abandoning the well as determined by the Participating Parties.
In the event such abandoning Party's interest in such salvage value is less than
such Party's share of the estimated costs of salvaging materials, and plugging
and abandoning the well, the abandoning Party shall pay the Operator, for
benefit of the non-abandoning Parties, a sum equal to the deficiency.

         14.3 Assignment of Interest. Each Participating Party desiring to
abandon a well pursuant to Section 14.2 shall assign effective as of the last
applicable election date, to the non-abandoning Parties, in proportion to their
Participating Interests, its interest in such well and the equipment therein and
its ownership in the production from such well. Any Party so assigning shall be
relieved from any further liability with respect to said well.

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

                                   ARTICLE 15
                                   WITHDRAWAL

         15.1 Withdrawal. A Party may withdraw from this Agreement as to the
Unit Area by assigning, to the other Parties having an interest therein who do
not desire to withdraw, all its interest in such Unit Area and the wells,
Platforms and Facilities used in operations on such Unit Area; provided that
such assignment shall not relieve such Party from any obligation or liability
incurred prior to the first day of the month following receipt of the assignment
by assignees. Unless otherwise agreed, the assigned interest shall be owned by
the assignees in proportion to their respective Participating Interests. The
assignees, in proportion to the respective interests so acquired, shall pay the
assignor for its interest in the wells, Platforms and Facilities, the current
salvage value thereof less its share of the estimated current cost of salvaging
same, plugging and abandoning of wells, and removal of all Platforms and
Facilities, as determined by the Parties. In the event such withdrawing Party's
                                       21
<PAGE>
interest in such salvage value is less than such Party's share of the estimated
costs, the withdrawing Party shall pay the Operator, for benefit of the
non-withdrawing Parties, a sum equal to the deficiency. Within sixty (60) days
after receiving notice of the assignment, Operator shall render a final
statement to the withdrawing Party for its share of all expenses incurred
through the first day of the month following the date of receipt of the
assignment, plus any deficiency in salvage value. Providing all such expenses,
including any deficiency hereunder, due from the withdrawing Party have been
paid within thirty (30) days after the rendering of such final statement, the
assignment shall be effective the first day of the month following its receipt,
and, he withdrawing Party shall thereafter be relieved from all further
obligations and liabilities incurred with respect to the Unit Area, provided
that, such withdrawing Party shall remain liable for any costs, expenses, or
damages theretofore accrued or arising out or any event occurring prior to such
Party's withdrawal.

         15.2 Limitations on Withdrawal. No Party shall be relieved of its
obligations hereunder during a blowout, a fire, or other emergency, but may
withdraw from this Agreement after termination of such emergency, provided such
Party shall remain liable for its share of all costs arising from said
emergency.

                                   ARTICLE 16
                      RENTALS, ROYALTIES AND OTHER PAYMENTS

         16.1 Creation of Overriding Royalty. Any Party whose interest in a
Lease contributed to the Unit Area is subsequently encumbered, after the
Effective Date, by an overriding royalty or other burden shall hold all other
Parties free and harmless from such encumbrances; and, if any other Party or
Parties shall conduct Non-Consent Operations pursuant to any provisions of this
Agreement and, as a result, become entitled to receive Working Interest
production otherwise belonging to said Non-Participating Party, the Party
entitled to receive the Working Interest production of the Non-Participating
Party shall receive the production free and clear of burdens against such
production which may have been created, and the Non-Participating Party subject
to such burdens shall hold the Participating Party or Parties harmless with
respect to said burden or burdens and will bear same at its own expense.

         16.2 Payment of Rentals and Minimum Royalties. Apache, as operator or
East Cameron Blocks 47 and 48, and Hunt as operator of East Cameron Block 63,
shall each pay in a timely manner for the joint account of the Parties all
rentals, minimum royalties, or similar payments accruing under the terms of the
respective Leases and submit evidence of each such payment to the Parties.
Apache, GOM Shelf, or Hunt shall not be held liable to the other Parties in
damages for the loss of a Lease or interest therein if, through mistake or
oversight, any rental, minimum royalty, or other payment is not paid, or is
erroneously paid.

         16.3 Non-Participation in Payments. Should any Party elect not to pay
its share of any rental, minimum royalty, or similar payment, such Party shall
notify the other Parties at least sixty (60) days prior to the date on which
such payment is due; and, in this event, operator shall make such payment for
the benefit of all the Participating Parties. In such event the
Non-Participating Party shall, upon the request of the Participating Parties,
assign to them such portions of its interest in the Lease within the Unit Area

                                       22
<PAGE>
as would be maintained by such payment. Such Non-Participating Party will have
no further interest in such portions of its interest in the Lease within the
Unit Area and will execute any necessary documents to evidence same as required
by the other Parties. Unless otherwise agreed, such assigned interest shall be
owned by each Participating Party in proportion to its Participating Interest.

         16.4 Royalty Payments. Each Party hereto shall be responsible for and
shall separately bear and properly pay or cause to be paid all royalties and
other amounts which become due on production taken from the Leases contributed
to the Unit Area for its account and on its share of any production used,
consumed, or lost on the Leases. During any time in which the Participating
Parties in a Non-Consent Operation are entitled to receive a Non-Participating
Party's share of production, the Participating Parties shall bear the Lease
royalty due on such share of production and shall hold the Non-Participating
Parties harmless from liability for such royalty.

                                   ARTICLE 17
                                      TAXES

         17.1 Property Taxes. Operator shall render property covered by this
Agreement as may be subject to ad valorem taxation, and shall pay such property
taxes for the benefit of each Party. If the Operator is required hereunder to
pay ad valorem taxes based in whole or in part upon separate valuation of each
Party's Working Interest, then notwithstanding anything to the contrary herein,
charges to the joint account shall be made and paid by the Parties hereto in
accordance with the percentage of tax value generated by each Party's Working
Interest.

         17.2 Contest of Property Tax Valuation. Operator shall timely and
diligently protest to a final determination any valuation it deems unreasonable.
Pending such determination, Operator may elect to pay under protest. Upon final
determination, Operator shall pay the taxes and any interest, penalty, or cost
accrued as a result of such protest. In either event, Operator shall charge each
Party its share in accordance with each Party's Participating Interest.

         17.3 Production and Severance Taxes. Each Party shall pay, or cause to
be paid, all production, severance, and excise taxes, due on any production
which it receives pursuant to the terms of this Agreement.

         17.4 Other Taxes and Assessments. Operator shall pay other applicable
taxes (other than income taxes) or assessments and charge each Party its share
in accordance with each Party's Participating Interest.

                                   ARTICLE 18
                                    INSURANCE

Operator shall obtain the insurance provided in Exhibit "B" and charge each
Party its Participating Interest share of the cost of the premium therefore
provided, however, that each Party may self insure subject to the provisions of
Exhibit "B".
                                       23
<PAGE>
                                   ARTICLE 19
                         LIABILITY, CLAIMS AND LAWSUITS

         19.1 Individual Obligations. The obligations, duties and liabilities of
the Parties shall be several and not joint or collective; and nothing contained
herein shall ever be construed as creating a partnership, association, or other
character of business entity recognizable in law. Each Party shall hold all the
other Parties harmless from liens and encumbrances on the Unit Area arising as a
result of its acts.

         19.2 Notice of Claim or Lawsuit, If a claim is made against any Party
or if any Party is sued on account of any matter arising from operations
hereunder, such Party shall give prompt written notice to the other Parties.
Operator will keep the Participating Parties appropriately advised of all
material events in each lawsuit and claim arising from operations under this
Agreement.

         19.3 Settlements. Operator may settle any single damage claim or suit
involving operations under this Agreement if the expenditure does not exceed One
Hundred Thousand Dollars ($100,000.00) and if the payment is in final settlement
of such claim or suit. If the amount required for settlement exceeds such
amount, Operator shall obtain prior consent of Participating Parties having at
least a seventy-five percent (75%) Participating Interest in the operation which
gave rise to the claim or suit. If at least seventy-five percent (75%) approval
is obtained, the decision to settle will be binding on all Participating
Parties. If at least seventy-five percent (75%) approval of the Participating
Parties is not obtained, Operator shall renegotiate the settlement amount to a
sum acceptable to the Participating Parties having at least a seventy-five
percent (76%) Participating Interest or try the case.

         19.4 Legal Expenses. Legal expenses shall be handled pursuant to
Exhibit "C".

         19.5 Liability for Losses, Damages, Injury or Death. Notwithstanding
the provisions of Section 19.1, liability for losses, damages, injury, or death
arising from operations under this Agreement shall be borne by the Parties in
proportion to their Participating Interests in the operations out of which such
liability arises, except when such liability results from the gross negligence
or willful misconduct of a Party or Parties, in which case such Party or Parties
shall be liable.

         19.6 Indemnification. To the extent allowed by law, the Participating
Parties agree to hold the Non-Participating Parties harmless and to indemnify
and protect them against all claims, demands, liabilities and liens for property
damage or personal injury, including death, caused by or otherwise arising out
of Non-Consent Operations, and any loss and cost suffered by any
Non-Participating Party as an incident thereof.

                                   ARTICLE 20

         20.1 Internal Revenue Provision. Notwithstanding any provisions herein
                                       24
<PAGE>
that the rights and liabilities hereunder are several and not joint or
collective or that this Agreement and the operations hereunder shall not
constitute a partnership, if for Federal income tax purposes this Agreement and
the operations hereunder are regarded as a partnership, then for Federal income
tax purposes, each Party elects to be excluded from the application of all
provisions of Subchapter K, Chapter 1, Subtitle A, Internal Revenue Code of
1986, as permitted and authorized by Section 761 of said Code and the
regulations promulgated thereunder. Operator is hereby authorized and directed
to execute on behalf of each Party such evidence of this election as may be
required by the Federal Internal Revenue Service including specifically, but not
by way of limitation, all of the returns, statements, and data required by
Federal Regulations 1.7612.2. Should there be any requirement that each Party
further evidence this election, each Party agrees to execute such documents and
furnish such other evidence as may be required by the Federal Internal Revenue
Service. Each Party further agrees not to give any notices or take any other
action inconsistent with the election made hereby. If any present or future
income tax law of the United States of America or any state contains provisions
similar to those contained in Subchapter K, Chapter 1, Subtitle "A" of the
Internal Revenue Code of 1986, under which an election similar to that provided
by Section 761 of said Subchapter K is permitted each Party makes such election
or agrees to make such election as may be permitted by such laws. In making this
election, each Party states that the income derived by it from the operations
under this Agreement can be adequately determined without the computation of
partnership taxable income.

                                   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
contributions which it may obtain, or is attempting to obtain, concerning the
drilling of any well on the Unit Area. Payments received as consideration for
entering into a contract for sale of production from the Unit Area, loans, and
other financing arrangements shall not be considered contributions for the
purposes of this Article.

         21.2 Cash Contributions. In the event a Party receives a cash
contribution toward the drilling of a well, said cash contribution shall be paid
to Operator and Operator shall credit the amount thereof to the Parties in
proportion to their Participating Interest in the well. If such well is a
Non-Consent Well, the amount of the contribution shall be deducted from the cost
specified in Subsection 12.2.1(a).

         21.3 Acreage Contributions. In the event a Party receives an acreage
contribution toward the drilling of a well, such Party shall tender an
assignment of the acreage, without warranty of title, to the Participating
Parties in the proportions said Parties shared in the cost of drilling the well.
Such acreage shall, to the extent possible, be subject to this Agreement which
shall apply separately as to such acreage between those Parties electing to
accept the assignment. For purposes of this Agreement, the word "acreage" shall
mean lands or leases or interests therein.

                                   ARTICLE 22
                            DISPOSITION OF PRODUCTION
                                       25
<PAGE>
         22.1 Facilities to Take in Kind. Any Party shall have the right, at its
sole risk and expense, to construct Facilities for taking its share of
production in kind, provide that such Facilities at the time of installation do
not interfere with continuing operation on the Unit Area.

         22.2 Taking Production in Kind. Each Party shall take in kind and
separately dispose of its share of the oil and/or condensate and gas produced
and saved from the Unit Area.

         22.3 Failure to Take in Kind. Notwithstanding the provisions of Section
22.2, if any Party fails to take in kind and separately dispose of its share of
the oil and/or condensate, Operator shall have the option, but never the
obligation, upon prior written notice to the non-taking Party to sell such oil
and/or condensate to others at the best price obtainable by Operator, subject to
revocation at will by the non-taking Party. All contracts of sale by Operator of
any Party's share of oil and/or condensate shall by only for such reasonable
periods of time as are consistent with the minimum needs of the industry under
the circumstances, but in no event shall any contract be for a period in excess
of one (1) year. Proceeds of all sales made by Operator pursuant to this Section
shall be paid to the Parties entitled thereto. Unless required by governmental
authority or judicial process, no Party shall be forced to share an available
market with any non-taking Party. If any Party fails to take in kind and
separately dispose of is share of gas, such gas shall be accounted for in
accordance with the provisions of Exhibit "E", Gas Balancing Agreement.

         22.4 Expenses of Delivery in Kind. Any cost incurred by Operator in
making delivery of any Party's share of oil and/or condensate and gas, or
disposing of same pursuant to Section 22.3, shall be borne by such Party.

         22.5 Gas Balancing Provisions. The Parties agree that in the event
separate disposition of gas causes split-stream deliveries to separate pipelines
and/or deliveries which on a day-to-day basis for any reason are not equal to a
Party's respective proportionate share of total gas sales to be allocated to it,
the gas balancing or accounting between the Parties shall be handled in
accordance with Exhibit "E" entitled "Gas Balancing Agreement."

                                   ARTICLE 23
                                  APPLICABLE LAW

         23.1 Applicable Law. THIS AGREEMENT SHALL BE INTERPRETED ACCORDING TO
THE LAWS OF THE STATE OF TEXAS, EXCLUDING CHOICE OF LAW RULES THAT WOULD REFER
THE MATTER TO THE LAWS OF ANOTHER JURISDICTION.

                                   ARTICLE 24
                     LAWS, REGULATIONS AND NONDISCRIMINATION

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

                                       26
<PAGE>

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

                                   ARTICLE 25
                                  FORCE MAJEURE

         25.1 Force Majeure. All obligations imposed by this Agreement on each
Party, except for the payment of money, and except for defense and
indemnification obligations, shall be suspended while compliance is prevented,
in whole or in part, by a labor dispute, fire, flood, war, civil disturbance, or
act of God; by laws; by governmental rules, regulations, or orders; by inability
to secure materials; or by any other cause, whether similar or dissimilar,
beyond the reasonable control of the said Party; provided, however, that
performance shall be resumed within a reasonable time after such cause has been
remove; and provided further that no Party shall be required against its will to
settle any labor dispute.

         25.2 Notice: Whenever a Party's obligations are suspended under Section
25.1, such Party shall immediatley notify the other Parties and give full
particulares of the reason for such suspension.

                                   ARTICLE 26
             SUCCESSORS, ASSIGNS AND PREFERENTIAL RIGHT TO PURCHASE

         26.1 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective heirs, successors,
representatives and assigns and shall constitute a covenant running with the
Leases contributed to the Unit Area.

         26.2 Preferential Right to Purchase. Should any Party desire to sell,
farmout, or otherwise dispose of all or any part of its interest in the Lease,
it shall promptly give written notice to the other Parties hereto, with full
information concerning its proposed sale or other disposition, which shall
include the name and address of any prospective purchaser (who must be ready,
willing and able to purchase), the purchase price, and all other terms of the
proposal. The other Parties hereto shall then have an optional prior right, for
a period of thirty (30) days after receipt of the notice, to purchase on the
same terms and conditions, all of the interest which the selling Party proposes
to sell or otherwise dispose of; and if this optional right is exercised, the
purchasing Parties shall share the purchased interest in the proportions that
the interest of each bears to the total interest of all purchasing Parties, or
in such proportions as the Parties may otherwise agree to by mutual consent.
Provided however, the foregoing optional right shall not exist or apply when a
Party proposes to mortgage its interest or to dispose of its interest by merger,
reorganization, consolidation, assignment of production payment, sale of all or
substantially all of its domestic exploration and production properties, sale of
all of its assets, or sale or transfer of its interest in the Lease to an
Affiliate. If any proposed sale is not consummated within six (6) months after
the notice, the Party desiring to sell must resubmit the notice to the other
Parties who will have all of the applicable prior rights and elections.

                                       27
<PAGE>
         26.3 Transfer of Interest. A Party may sell, transfer or assign all or
any part of its interest in the Unit Area, provided that:

                  (a)      Any such sale, transfers, assignment or other
                           disposition shall be made only to a financially
                           responsible party or parties.

                  (b)      Such Party shall provide the other Parties a copy of
                           the fully executed assignment within thirty (30) days
                           after all signatures on the assignment have been
                           obtained.

                  (c)      Such Party shall incorporate in each instrument
                           evidencing the sale, transfer, assignment, or other
                           disposition a provision making the same expressly
                           subject to this Operating Agreement and shall obtain
                           (and furnish to the other Parties) such transferee's
                           written consent to be bound by or an express
                           ratification of all the provisions of this Operating
                           Agreement.

         26.4 Assignments. Any assignment, vesting, or relinquishment of
interest between the Parties shall be without warranty of title, either express
or implied.

                                   ARTICLE 27
                                      TERM

This Agreement shall remain in effect so long as the Unit Area shall remain in
full force and effect and thereafter until (a) all Unit Area wells have been
abandoned and plugged or turned over to a single Working Interest owner in
accordance with Article 15; (b) all Unit Area equipment and any real property
acquired for the joint account has been disposed of by Operator; and (c) there
has been a final accounting made under this Agreement, including settlement of
any gas imbalances pursuant to Exhibit "E".

                                   ARTICLE 28
                             MISCELLANEOUS PROVISION

         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
                                       28
<PAGE>

                                            Date:___________________________

WITNESSES:                                  RIDGEWOOD ENERGY CORPORATION

_________________________________           By:______________________________
                                               ______________________________
_________________________________              ______________________________

                                            Date:___________________________

WITNESSES:                                  HUNT OIL COMPANY

_________________________________           By:______________________________
                                               ______________________________
_________________________________              ______________________________

                                            Date:___________________________

                                       29
<PAGE>
                         ATTACHMENT "1" TO EXHIBIT "F"
Attached to and made a part of that certain Operating Agreement dated _________,
2005, by and between Apache Corporation, Newfield Exploration Company, and Hunt
Oil Company

I. OPERATOR
-----------
APACHE CORPORATION

II. DESCRIPTION OF LEASES AND UNIT AREA Leases:
-----------------------------------------------
         OCS-G 0767, All of Block 47
         OCS-G 0768, All of Block 48
         OCS-G 22547, All of Block 63
The unit Area is comprised of the following:

Tract 1
-------
EC 47: NE/4 SE/4 SE/4; NE/4 SE/4 SE/4 SE/4; and
EC 48: N/2 SW/4 SW/4; SE/4 SW/4 SW/4; W/2 SE/4 SW/4; and the N/2 SW/4 SW/4 SW/4
Containing approximately 507.8125 acres, more or less
AND
Tract 2
-------
EC 63: S/2 NE/4 NW/4; NW/4 NE/4 NW/4; N/2 NE/4 NW/4 NW/4; SE/4 SE/4 NW/4
         NW/4; NE/4 SE/4 NW/4 NW/4; and the SW/4 NE/4 NE/4 NW/4 Containing
approximately 332.03125 acres, more or less.

III. WORKING INTERESTS OF THE PARTIES IN THE UNIT AREA
------------------------------------------------------
Apache/GOM Shelf LLC/Ridgewood Energy Corporation 70.00000%
Hunt                                              30.00000%
                                                  --------
                                                  100.00000%
IV. BURDENS AND CONTRACTS IN THE AREA
-------------------------------------
1. The base royalty contained in each Lease.
2. 1.75% overriding royalty burdening on Ridgewood, GOM and Apache Corporation

V. NOTIFICATION ADDRESSES AND DESIGNATED REP
--------------------------------------------
Apache Corporation                      Hunt Oil Company
2000 Post Oak Blvd., Suite 100          1455 Ross at Field
Houston, Texas 77056-4400               Dallas, Texas 75202
Tel: (713) 296-6000                     Tel: (214) 978-8563
Fax: (713) 296-7024                     Fax: (214) 978-8888
Representative: C. R. Harden            Representative: Larry Guzick

Ridgewood Energy Corporation            GOM Shelf LLC
11700 Old Katy Road, Suite 280           2000 Post Oak Blvd., Suite 100
Houston, Texas 77079                    Houston, Texas 77056-4400
Tel: (281) 293-8449                     Tel: (713) 296-6000
Fax: (281) 293-7705                     Fax: (713) 296-7024
Representative: Greg Tabor              Representative: Land Manager-Gulf Coast

                                Amended 06/28/05
                                       30

<PAGE>

                             PARTICIPATION AGREEMENT

                                     between

                               APACHE CORPORATION

                                       And

                                RIDGEWOOD ENERGY
                                   CORPORATION

                            EAST CAMERON 48 PROSPECT

                            OCS-G 00767, 00768, 22574
                      BLOCKS 47, 48 & 63, EAST CAMERON AREA

                                 GULF OF MEXICO

<PAGE>

                             PARTICIPATION AGREEMENT
                            EAST CAMERON 48 PROSPECT
                      BLOCKS 47, 48 & 63, EAST CAMERON AREA
                                 GULF OF MEXICO

This Participation Agreement ("Agreement") is made and entered into effective as
of the 8th day of June, 2005, (the "Effective Date"), by and between Apache
Corporation and GOM Shelf LLC (collectively "Apache") and Ridgewood Energy
Corporation ("Ridgewood"), sometimes hereinafter referred to collectively as the
"Parties" and individually as "Party".

                                   WITNESSETH:

WHEREAS, the Parties have entered into the Ridgewood/Apache Deep Shelf
Initiative (the "Initiative") dated March 24, 2005, that provides, among other
things, for the execution of this Agreement in the event Ridgewood elects to
participate in a Prospect, as hereinafter defined, presented by Apache pursuant
to such Initiative; and

WHEREAS, Apache and GOM Shelf LLC are the owners of Federal Lease OCS-G 00767,
covering all of Block 47, East Cameron Area, and Federal Lease OCS-G 00768,
covering all of Block 48, East Cameron Area and Hunt Oil Company ("Hunt") is the
owner of Federal Lease OCS-G 22574, covering all of Block 63, East Cameron Area.
The above described leases shall hereinafter be referred to as the "Prospect
Area Leases"; and

WHEREAS, Apache, Ridgewood and Hunt have entered into a Working Interest Unit
Agreement and Well Proposal dated June 8, 2005, to jointly explore and develop a
prospect which has been identified by their respective companies and lies across
contiguous blocks currently owned and controlled, with the exception of
Ridgewood by said companies, the Prospect Area Leases; and

WHEREAS, the Parties believe the Prospect, as hereinafter defined and known as
the East Cameron 48 Prospect, is wholly contained within the Prospect Area
Leases; and

WHEREAS, Ridgewood has elected pursuant to the Initiative and subject to the
terms and conditions contained herein to: 1) acquire a portion to the Prospect
Area Leases owned by Apache covering the Prospect, as hereinafter defined and
described on Exhibit "A" hereto; 2) become a signatory party to that certain
Working Interest Unit Agreement and Well Proposal dated June 8, 2005, between
Apache, Ridgewood and Hunt; and 3) participate in certain operations on the
Prospect Area, as hereinafter defined, and assume all rights, duties, interests
and obligations arising thereunder.

                                       2
<PAGE>

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

                                    ARTICLE 1
                                   Definitions

Affiliate means a legal entity which Controls, or is Controlled by, or which is
Controlled by an entity which Controls, a Party.

Authorization for Expenditure (AFE) means an authorization to expend funds that
estimates costs to be incurred for an Operation pursuant to the Operating
Agreement as referenced herein; (Initial Well Cost AFE attached as Exhibit "B"
hereto).

Casing Point means that point in time after the contract depth has been reached
in drilling the Initial Well, as hereinafter defined, said well has been fully
evaluated by the running of such logs and conducting such other open-hole
evaluation as the Parties hereto may deem appropriate, and after the results of
said logs and open-hole evaluation are known and delivered to the Parties
hereto, and a decision is made to attempt to complete or deepen the Initial Well
or to plug and abandon the well. However, should the decision be to plug and
abandon the well, it shall be deemed not to have reached Casing Point until all
operations are complete with respect to the plugging and abandoning of the
Initial Well.

Control means the ownership directly or indirectly of fifty percent (50%) or
more of the voting rights in a legal entity. Controls, Controlled by and other
derivatives shall be construed accordingly.

Conditions Precedent has the meaning ascribed to in in Article 3.

Evaluation Data means geological or geophysical data and other data and
information relating to a Prospect including, without limitation, all relevant
geological and geophysical interpretations and information, including reports,
interpretations, models and maps and all specialty processing and analysis of
seismic data and may also include commercial, contractual and financial
information.

Force Majeure means an act of God, strike, lockout, or other industrial
disturbance, act of the public enemy, war, blockade, public riot, lightning,
fir, 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.

Initiative has the meaning ascribed to it in the Preamble.

                                       3
<PAGE>

Lease means an instrument issued by the United States of America by the Regional
Director, Gulf of Mexico OCS Region, Minerals Management Service ("MMS"),
granting certain rights including but not limited to rights to explore for and
produce Crude Oil and Natural Gas, as defined in the Initiative.

Net Revenue Interest means the Working Interest, less applicable burdens,
proportionately reduced.

Operating Agreement has the meaning ascribed to it in Article 5.

Objective Depth has the meaning ascribed to it in Article 6.

Preferential Right to Purchase means obligations with respect to a Lease or its
related agreements that exist at the Effective Date and that may include
requirements to satisfy obligations, including, but not limited to, the
obligation to offer the terms and provisions of this Agreement or the Initiative
to a third party holding contractual rights applicable to a Lease.

Prospect means, in general, a geologic structural, stratigraphic trap or
combination thereof that is believed to have the potential for accumulations of
Hydrocarbons in commercial quantities. Prospect means, specifically as it
relates to this Agreement, the East Cameron 48 Prospect.

Prospect Area means the geographic area encompassing the Prospect and any depth
limitation applicable thereto, which is further identified by legal description
on Exhibit "A" attached hereto, and shall be appropriate for recording purposes
with the MMS.

Working Interest means the undivided interest of a Party, expressed as a
percentage of the total interests of all Parties, in the rights and obligations
derived from this Agreement and also means the undivided interest of a Party,
expressed a percentage of the total interests of all Parties, in the rights and
obligations in and to a Lease.

                                    ARTICLE 2
                       Assignment and Assumption of Rights

2.1 In exchange for the consideration stated herein, Apache hereby agrees to
assign and transfer to Ridgewood, concurrent with the execution of this
Agreement, and Ridgewood hereby agrees to accept, an assignment of 35.714285
percent of Apache's one hundred percent (100%) Working Interest in the Apache
Lease(s) insofar as they encompass the Prospect Area, with a corresponding Net
Revenue Interest of 28.869035 percent or 29.136902 percent (if and when
Fairfield Royalty Corp. or its parents or any subsidiaries of the parent company
of Fairfield Royalty Corp. executes a pooling letter). Additionally, Apache and
Ridgewood agree that Ridgewood will likewise participate in the Prospect Area
under the Working Interest Unit Agreement and Well Proposal with an undivided
Working Interest of twenty-five percent (25%).

                                       4
<PAGE>

2.2 The Parties shall execute and deliver an assignment evidencing the above in
the form attached as Exhibit "A" to the Initiative. Following such assignment,
the net Working Interests in the Apache Lease(s) or portions thereof shall be:

                           Apache:          64.285715%

                           Ridgewood:       35.714285%

The net Participation Interests in the Prospect Area shall be:

                           Apache:          45%

                           Hunt:            30%

                           Ridgewood:       25%
                           --------------------

                                    Total   100%

                                    ARTICLE 3
                       Conditions Precedent to Assignment

3.1 The validity of the assignment hereunder is subject to the satisfaction or
waiver of each of the following conditions, collectively called "Conditions
Precedent", that:

         A.       Apache obtains a waiver or other evidence in writing of the
                  expiration or non-exercise of any Preferential Right to
                  Purchase;

         B.       The Parties obtain any necessary approvals from the U.S.
                  Government or any appropriate division thereof to the
                  assignment in writing, the cost of which shall be borne by
                  Ridgewood; and

         C.       The Parties obtain any other required third party consents for
                  the transfer of the Working Interest proposed to be
                  transferred hereunder in writing.

3.2 As soon as is reasonably practicable after execution of this Agreement, each
Party shall use commercially reasonable efforts to execute all documents, and do
and procure to be done all such acts and things as are reasonably within its
power to attempt to secure required consents or waivers in an effort to satisfy
the Conditions Precedent. Notwithstanding the above, in the event such
Conditions Precedent are not satisfied despite the Parties' commercial
reasonable efforts to overcome the same, then this Agreement shall terminate and
neither Party shall have any further obligation to the other Party with respect
to this Agreement.

                                       5
<PAGE>

                                    ARTICLE 4
                                  Consideration

4.1 In consideration for receiving the assignment of Working Interest hereunder,
Ridgewood agrees to pay to Apache one hundred sixty percent (160%) of its
Working Interest share of all costs and expenses associated with the drilling of
the Initial Well on the East Cameron 48 Prospect, up to Casing Point, including
plugging and abandonment costs in the event a completion attempt is not made in
the Initial Well.

4.2 Notwithstanding anything to the contrary herein, if costs associated with
the drilling of the Initial Well reach one hundred twenty percent (120%) of the
AFE gross dry hole cost, then Ridgewood shall thereafter bear only its Working
Interest share of remaining costs for the Initial Well as detailed in the AFE
attached hereto as Exhibit "B".

                                    ARTICLE 5
                               Operating Agreement

5.1 Concurrent with the execution of this Agreement, the Parties agree to
execute an offshore operating agreement in substantially the same form attached
as Exhibit "C" to the Working Interest Unit Agreement and Well Proposal
("Operating Agreement") and which shall name Apache as operator. All operations
conducted pursuant to this Agreement shall be governed by the terms and
provisions of said Operating Agreement.

                                    ARTICLE 6
                                  Initial Well

6.1 The Initial Well will be drilled from a surface location of 1,980' FSL and
51' FWL of East Cameron 48 to a bottomhole location 1,716' FSL and 1,798' FWL of
East Cameron 48, pursuant to Apache's AFE No. 6422 and Well plan attached hereto
as Exhibit "B".

6.2 Subject to permitting, rig availability and events of Force Majeure, Apache
shall use all commercially reasonable efforts to commence operations on the
Initial Well within one hundred fifty (150) days of the Effective Date hereof.

6.3 In the event operations for the Initial Well are not commenced by Apache or
other third party, if Apache is not the operator, within one hundred fifty (150)
days of the Effective Date hereof, other than for reasons attributable to
permitting, rig availability, or Force Majeure, then Ridgewood may, within
thirty (30) days following such one hundred fifty (150) day period, elect to
terminate this Agreement and Ridgewood hereby agrees, in the event of such
termination, to reassign to Apache the Working Interest assigned to Ridgewood
pursuant to this Agreement; provided, however, such assignment to Apache shall
be in substantially the same form of assignment as Apache's assignment to
Ridgewood and the Working Interest reassigned to Apache shall be free and clear
of all liens, claims, encumbrances and burdens created by, through or under
Ridgewood.

                                       6
<PAGE>

6.4 In the event operations for the Initial Well are not commenced within three
hundred (300) days of the Effective Date hereof, other than for reasons
attributable to permitting, rig availability, or Force Majeure, and the
Agreement has not been terminated per Article 6.3 above, then Apache, at its
sole discretion, may request a reassignment of the Working Interest assigned to
Ridgewood pursuant to this Agreement and Ridgewood hereby agrees under such
circumstances to promptly execute such reassignment. Such assignment to Apache
shall be in substantially the same form of assignment as Apache's assignment to
Ridgewood and the Working Interest reassigned to Apache shall be free and clear
of all liens, claims, encumbrances and burdens created by, through or under
Ridgewood.

6.5 Apache shall provide Ridgewood with copies of all well information from the
Initial Well and any other well as indicated and required under the Operating
Agreement or any operating agreement in existence and covering the Prospect
which Ridgewood becomes a party to in accordance with Article 5.1.

6.6 In the event the Initial Well does not reach the objective depth because of
mechanical difficulties or Gulf Coast Conditions (i.e. rock salt, heaving shale,
excessive water flow, depleted sands, excessive pressure, base or other
impenetrable matter) which prevent the operator from drilling the Initial Well
to objective depth, the Parties hereto may cause the drilling of a substitute
well on or before ninety (90) days following the plugging and abandonment of the
Initial Well (or plugging back in the case of a proposed sidetrack). As between
the Parties hereto, any substitute well shall require the concurrence of one (1)
or more of said Parties with at least fifty percent (50%) Working Interest,
proportionately reduced, and shall be drilled to target the same objective as
the Initial Well. If the Parties elect to drill a substitute well, then the
consideration to be paid in accordance with Article 4.1 hereof shall be carried
over to the substitute well, but the limitation provided for in Article 4.2
shall remain in effect.

                                    ARTICLE 7
                         Representations and Warranties

7.1 Ridgewood makes the following representations and warranties to Apache as of
the Effective Date:

         A.       There are no material claims, demands, actions, suits,
                  governmental inquiries, or proceedings pending, or to
                  Ridgewood's knowledge, threatened, against Ridgewood which
                  would have and adverse effect upon the consummation of the
                  transactions contemplated by this Agreement.

         B.       Ridgewood has sufficient cash, available lines of credit or
                  other sources of immediately available funds to enable it to
                  fulfill all of its obligations under this Agreement.

                                       7
<PAGE>

         C.       Each Party represents and warrants that it is duly qualified
                  with the MMS to do business in the Outer Continental Shelf.

         D.       Ridgewood has the technical capability, personnel and
                  resources to fulfill its obligations under this Agreement.

7.2 The Parties make the following representations and warranties to each other
as of the Effective Date:

         A.       Such Party is duly organized and validly existing under the
                  laws of the state where it is organized;

         B.       Such Party has all requisite corporate power and authority to
                  enter into this Agreement, to perform its obligations
                  hereunder, and to consummate the transactions contemplated
                  hereby; and

         C.       This Agreement has been duly executed and delivered by each
                  Party and constitutes a legal, valid and binding obligation of
                  each Party, enforceable against each Party in accordance with
                  its terms.

7.3 APACHE MAKES NO REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED, AS TO THE
QUALITY, ACCURACY AND COMPLETENESS OF THE INFORMATION INCLUDED IN A PROSPECT
PRESENTATION OR ANY OTHER EVALUATION DATA FURNISHED BY APACHE TO RIDGEWOOD
PURSUANT TO THIS AGREEMENT AND RIDGEWOOD EXPRESSLY ACKNOWLEDGES THE INHERENT
RISK OF ERROR IN THE ACQUISITION, PROCESSING AND INTERPRETATION OF GEOLOGICAL
AND GEOPHYSICAL DATA. APACHE, ITS AFFILIATED COMPANIES, THEIR OFFICERS,
DIRECTORS AND EMPLOYEES SHALL HAVE NO LIABILITY WHATSOEVER WITH RESPECT TO THE
USE OF OR RELIANCE UPON THE EVALUATION DATA BY RIDGEWOOD OR ITS REPRESENTATIVE.

                                    ARTICLE 8
                                 Confidentiality

The Evaluation Data covering the Prospect Area will be subject to the terms and
provisions of the Confidentiality Agreement dated March 24, 2005, signed in
accordance with the Initiative.

                                    ARTICLE 9
                                  Governing Law

The substantive law of the State of Texas, exclusive of any conflicts of laws
principles that could require the application of any other law, shall govern
this Agreement for all purposes, including the resolution of disputes between or
among Parties.

                                       8
<PAGE>

                                   ARTICLE 10
                                     Notices

Notice by one (1) Party to another under this Agreement shall be in writing and
shall be delivered by hand, registered mail, overnight mail, or sent by
facsimile to the respective Party at the address or facsimile number shown
below, or such other address or facsimile number as a Party may designate by
notice to the other Party, and shall be deemed to be delivered only when
received by the Party to whom such notice directed:

APACHE CORPORATION                          RIDGEWOOD ENERGY CORPORATION
2000 Post Oak Boulevard, Suite 100          11700 Old Katy Rd., Ste 280,
Houston, Texas 77056-4400                   Houston, Texas 77079
ATTN: Land Manager-Gulf Coast Region        ATTN: Mr. W. Greg Tabor
Facsimile: 713-296-7024                     Facsimile: 281-293-7705

                                   ARTICLE 11
                              Public Announcements

Except as required by applicable law, rule or stock exchange regulation or a
third party agreement as referenced above, neither Party nor their Affiliates
will make any public comment, statement, or communication with respect to the
existence to this Agreement or any ongoing negotiations between the Parties
without the prior consent of the other Party. If a Party is required by law,
rule or stock exchange requirement to make any such disclosure, it will provide
advance written notice to the other Party specifying the content of the proposed
disclosure, the reasons that such disclosure is required, and the time and place
that the disclosure will be made and shall limit any disclosure only to such
information which the disclosing Party reasonable believes upon advice of
counsel, is required to be disclosed. Notwithstanding anything to the contrary
above, Ridgewood or its designated subsidiary, will not be restricted or
precluded from providing certain non-confidential information about the program
or a Prospect(s) in any marketing brochure, drilling fund prospectus or related
company website.

                                   ARTICLE 12
                                  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 Party 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.

                                       9
<PAGE>

                                   ARTICLE 13
                           Internal Revenue Provision

It is not the purpose or intention or this Agreement to create any partnership,
mining partnership or association, and neither this Agreement nor the operations
hereunder shall be construed as creating any such legal relationship; however,
for income tax purposes only, the Parties agree that this Agreement shall be
governed in accordance with the Operating Agreement.

                                   ARTICLE 14
                                      Term

This Agreement shall remain in effect for so long as the Lease or any portion
thereof covering the Prospect Area remains in effect or the Operating Agreement
as to the Prospect Area remains in effect, whichever is later; provided,
however, that the obligations under the Confidentiality Agreement shall survive
termination of this Agreement.

                                   ARTICLE 15
                               General Provisions

15.1 This Agreement, together with all of its exhibits, is intended by the
Parties to be a complete and final statement of the agreement of the Parties
with respect to the subject matter hereof, and supersedes any prior oral or
written statements or agreements.

15.2 Subject to all matters hereof, this Agreement shall be binding upon the
Parties hereto and their respective successors and assigns.

15.3 Any capitalized term used in this Agreement and not specifically defined in
this Agreement shall have the same meaning as in the Initiative.

15.4 In the event of any conflict between the provisions of the main body of
this Agreement and any of its exhibits, the provisions of the main body of the
Agreement shall prevail. In the event of any conflict between the provisions of
this Agreement and the Initiative or the Operating Agreement, the provisions of
this Agreement shall prevail, but only to the extent of such conflict.

15.5 Failure by any Party to comply with any of its obligations, agreements or
conditions herein contained may be waived in writing, but not in any other
manner, by the Party to whom such compliance is owed. No waiver of, or consent
to a change in, any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of, or consent to a change in, other provisions hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.

                                       10
<PAGE>

15.6 None of the rights or liabilities derived from this Agreement is assignable
by either Party except with the prior written consent of the other Party, such
consent not to be unreasonably withheld, except with respect to assignments to
an Affiliate.

15.7 This Agreement shall be binding upon, and shall inure to the benefit of,
the Parties hereto and their respective permitted successors and assigns. This
Agreement shall be a covenant running with the land and shall bind any assignee
of a Party's right, title or interest in this Agreement.

15.8 The captions in this Agreement are for convenience only and shall not be
considered part of or affect the construction or interpretation or any provision
of this Agreement.

15.9 References herein to the singular include the plural, and vice versa.

15.10 The Rights, duties, obligations and liabilities of the Parties under this
Agreement shall be individual, not joint or collective. It is not the intention
of the Parties to create, nor shall this Agreement be deemed or construed to
create, a mining or other partnership, joint venture or association or a trust.
This Agreement shall not be deemed or construed to authorize any Party to act as
an agent, servant or employee for any other Party for any purpose whatsoever
except as explicitly set forth in this Agreement. In their relations with each
other under this Agreement, the Parties shall not be considered fiduciaries
except as expressly provided in this Agreement.

15.11 Each provision of this Agreement shall be construed as though all Parties
participated equally in the drafting of the same. Consequently, the Parties
acknowledge and agree that any rule of construction that a document is to be
construed against the drafting Party shall not be applicable to this Agreement.

15.12 If and for so long as any provision of this Agreement shall be deemed to
be judged invalid for any reason whatsoever, such invalidity shall not affect
the validity or operation of any other provision of this Agreement except only
so far as shall be necessary to give effect to the construction of such
invalidity, and any such invalid provision shall be deemed severed from this
Agreement without affecting the validity of the balance of this Agreement.

15.13 There shall be no modification of this Agreement except by written consent
of all Parties.

IN WITNESS WHEREOF, the Parties entered into this Agreement as of the Effective
Date.

APACHE CORPORATION                          RIDGEWOOD ENERGY CORPORATION

BY: /s/ C.R. Harden                         BY: /s/ Greg Tabor
-------------------                         ------------------
C.R. Harden                                 Greg Tabor
Land Manager - Gulf Coast Region            Executive Vice President

                                       11

<PAGE>

                                   EXHIBIT "A"

                                  PROSPECT AREA

Prospect Area is the same as the Unit Area. The Unit will be comprised of the
following:

Tract 1

     East Cameron 47:  NE/4 SE/4 SE/4 and the NE/4 SE/4 SE/4 SE/4; and
     East Cameron 48:  N/2 SW/4 SE/4 and the SE/4 SW/4 SW/4; W/2 SE/4 SW/4
                       and the N/2 SW/4 SW/4 SW/4

         Containing approximately 527.34375 acres, more or less,

                                       AND

Tract 2

     East Cameron 63:  S/2 NE/4 NW/4 and the NW/4 NE/4 NW/4 and the
                       N/2 NE/4 NW/4 NW/4 and the SE/4 NE/4 NW/4 NW/4 and the
                       NE/4 SE/4 NW/4 NW/4 and the SW/4 NE/4 NE/4 NW/4

         Containing approximately 332.03125 acres, more or less.

Prospect Area Depth Limits is the same as the Unit Depths. The Unit will be
limited in depth from the stratigraphic equivalent of the base of the "OC" sand,
as seen in the electric log at 9,900' MD in the EC 48 OCS-G 0768 C-2 Well, to
100' below the stratigraphic equivalent of the base of the deepest sand drilled
and completed or qualified under 30 CFR 250.115 or 30 CFR 250.116 in the Initial
Well or Substitute therefore.

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