Document:

Filed by Bowne Pure Compliance

 

Exhibit 4.2

DIVIDEND REINVESTMENT PLAN

OF

MAIN STREET CAPITAL CORPORATION

Main Street Capital Corporation, a Maryland corporation (the “Corporation”), hereby adopts the
following plan (the “Plan”) with respect to dividends and distributions (collectively, “dividends”)
declared by its Board of Directors on shares of its Common Stock:

1. Unless a stockholder specifically elects to receive cash as set forth below, all dividends
hereafter declared by the Board of Directors shall be payable in shares of the Common Stock of the
Corporation, and no action shall be required on such stockholder’s part to receive a dividend in
stock.

2. A stockholder may elect to reinvest cash dividends paid on a specific number of whole
shares registered in his, her or its name, while receiving cash dividends on the remaining shares
registered in his, her or its name. To take advantage of this option a stockholder will need to
contact American Stock Transfer & Trust Company, the plan administrator and the Corporation’s
transfer agent and registrar (the “Plan Administrator”) at the address listed below requesting
partial reinvestment.

3. Such dividends shall be payable on such date or dates as may be fixed from time to time by
the Board of Directors to stockholders of record at the close of business on the record date(s)
established by the Board of Directors for the dividend involved.

4. The Corporation shall generally use newly-issued shares of its Common Stock to implement
the Plan, whether its shares are trading at a premium or at a discount to net asset value.
However, the Corporation reserves the right to direct the Plan Administrator to purchase shares of
its Common Stock in the open market in connection with the implementation of the Plan. The number
of newly-issued shares to be issued to a stockholder shall be determined by dividing the total
dollar amount of the dividend payable to such stockholder by the market price per share of the
Corporation’s Common Stock at the close of regular trading on the NASDAQ Global Select Market on
the valuation date fixed by the Board of Directors for such dividend. Market price per share on
that date shall be the closing price for such shares on the NASDAQ Global Select Market or, if no
sale is reported for such day, at the average of their electronically-reported bid and asked
prices. Shares purchased in open market transactions by the Plan Administrator shall be allocated
to each Participant (as defined below) based upon the average purchase price, excluding any
brokerage charges or other charges, of all shares of Common Stock purchased with respect to the
applicable dividend.

5. A stockholder who has not yet reinvested dividends may, however, elect to receive his, her
or its dividends in cash. To exercise this option, such stockholder shall notify the Plan
Administrator, so that such notice is received by the Plan Administrator no later than the record
date for the dividend fixed by the Board of Directors for the dividend involved. Such election
shall remain in effect until the stockholder shall notify the Plan Administrator of such
stockholder’s withdrawal of the election, which notice shall be delivered to the Plan Administrator
no record date for the payment fixed by the Board of Directors for the next dividend by the
Corporation. If the request is received after the record date then that dividend will be reinvested
and all subsequent dividends will be paid out in cash.

6. The Plan Administrator will set up an account for shares acquired pursuant to the Plan for
each stockholder who has not so elected to receive dividends in cash (each a “Participant”). The
Plan Administrator may hold each Participant’s shares, together with the shares of other
Participants, in non-certificated form in the Plan Administrator’s name or that of its nominee.
Upon request by a Participant, received no later than 3 days prior to the payment date, the Plan
Administrator will, instead of crediting shares to and/or carrying shares in a Participant’s
account, issue, without charge to the Participant, a certificate registered in the
Participant’s name for the number of whole shares payable to the Participant and a check for any
fractional share. Requests received less than 3 days prior to a payment date will have that
dividend reinvested. However, all subsequent dividends will be paid out in cash on all balances.

 

 

 

7. The Plan Administrator will confirm to each Participant each acquisition made pursuant to
the Plan as soon as practicable but not later than 10 business days after the date thereof.
Although each Participant may from time to time have an undivided fractional interest (computed to
three decimal places) in a share of Common Stock of the Corporation, no certificates for a
fractional share will be issued. However, dividends on fractional shares will be credited to each
Participant’s account. In the event of termination of a Participant’s account under the Plan, the
Plan Administrator will adjust for any such undivided fractional interest in cash at the market
value of the Corporation’s shares at the time of termination.

8. The Plan Administrator will forward to each Participant any Corporation related proxy
solicitation materials and each Corporation report or other communication to stockholders, and will
vote any shares held by it under the Plan in accordance with the instructions set forth on proxies
returned by Participants to the Corporation.

9. In the event that the Corporation makes available to its stockholders rights to purchase
additional shares or other securities, the shares held by the Plan Administrator for each
Participant under the Plan will be added to any other shares held by the Participant in
certificated form in calculating the number of rights to be issued to the Participant. Transaction
processing may either be curtailed or suspended until the completion of any rights offering or any
corporate action.

10. The Plan Administrator’s service fee, if any, and expenses for administering the Plan will
be paid for by the Corporation.

11. Each Participant who previously purchased shares under the Plan may terminate his, her or
its account under the Plan by so notifying the Plan Administrator in writing or by telephone. Such
termination will be effective immediately if the Participant’s notice is received by the Plan
Administrator not less than 3 days prior to any dividend payment date; otherwise, such termination
will be effective only with respect to any subsequent dividend. If the request is received less
than 3 days prior to the payment date then that dividend will be reinvested and all subsequent
dividends will be paid out in cash. The Plan may be terminated by the Corporation upon notice in
writing mailed to each Participant at least 30 days prior to any record date for the payment of any
dividend by the Corporation. Upon any termination, the Plan Administrator will cause a certificate
or certificates to be issued for the full shares held for the Participant under the Plan and a cash
adjustment for any fractional share to be delivered to the Participant without charge to the
Participant. If a Participant elects by his, her or its written or telephonic notice to the Plan
Administrator in advance of termination to have the Plan Administrator sell part or all of his, her
or its shares and remit the proceeds to the Participant, the Plan Administrator is authorized to
deduct a $15.00 transaction fee plus a $0.10 per share brokerage commission from the proceeds.

12. These terms and conditions may be amended or supplemented by the Corporation at any time
but, except when necessary or appropriate to comply with applicable law or the rules or policies of
the Securities and Exchange Commission or any other regulatory authority, only by mailing to each
Participant appropriate written notice at least 30 days prior to the effective date thereof. The
amendment or supplement shall be deemed to be accepted by each Participant unless, prior to the
effective date thereof, the Plan Administrator receives written notice of the termination of his,
her or its account under the Plan. Any such amendment may include an appointment by the Plan
Administrator in its place and stead of a successor agent under these terms and conditions, with
full power and authority to perform all or any of the acts to be performed by the Plan
Administrator under these terms and conditions. Upon any such appointment of any agent for the
purpose of receiving dividends, the Corporation will be authorized to pay to such successor agent,
for each Participant’s account, all dividends payable on shares of the Corporation held in the
Participant’s name or under the Plan for retention or application by such successor agent as
provided in these terms and conditions.

13. The Plan Administrator will at all times act in good faith and use its best efforts within
reasonable limits to ensure its full and timely performance of all services to be performed by it
under this Plan and to comply with applicable law, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless
such error is caused by the Plan Administrator’s negligence, bad faith, or willful misconduct
or that of its employees or agents.

14. These terms and conditions shall be governed by the laws of the State of New York.

15. For transaction processing the address is American Stock Transfer and Trust Company, P.O.
Box 922 Wall Street Station, New York, NY 10269-0560 and for inquiries the address is American
Stock Transfer and Trust Company, 6201 15th Ave., Brooklyn, New York, NY 11219.
Shareholder services may be contacted toll free at 866-706-8371.

January 2008ex10-7.htm

     

    Exhibit
10.7

     

     

    AMENDED AND RESTATED PARTICIPATION
AGREEMENT

     

    This
Amended and Restated Participation Agreement (the “Agreement”) is made and
entered into as of this 8th day of December, 2006, by and between Ridgelake Energy, Inc., a
Louisiana corporation, whose mailing address is 3636 N. Causeway Blvd., Suite
300, Metairie, Louisiana 70002-7216, sometimes hereinafter referred to as
“Ridgelake,” GulfX, LLC,
a Delaware limited liability company, whose mailing address is 15 Rheola Street,
West Perth, Western Australia 6005, Australia, sometimes hereinafter referred to
as “GulfX,” and South Marsh
LLC, a Delaware limited liability company, whose mailing address is 15
Rheola Street, West Perth, Western Australia 6005, Australia, sometimes
hereinafter referred to as “South Marsh.” GulfX and South Marsh are sometimes
individually referred to herein as a “Participant” and collectively as the
“Participants.” Ridgelake, GulfX, and South Marsh are sometimes individually
referred to herein as a “Party” or collectively as the “Parties.”

     

    WITNESSETH:

     

    WHEREAS,
Ridgelake and GulfX entered into that certain Participation Agreement, dated
January 18, 2006 (the “Original GulfX Agreement”), pursuant to which Ridgelake
granted to GulfX the right to acquire an undivided twenty percent (20%) working
interest in the oil and gas leases more particularly described in Exhibit A
attached hereto, which cover the OCS Blocks set forth below (hereinafter jointly
referred to as the “Leases” or individually as the “Lease”), all subject to the
terms, conditions, reservations and limitations provided for in the Original
GulfX Agreement:

     

    
      	
              OCS
      Lease No.:

            	
              OCS
      Area Name/ Block:

            
	
              OCS-G
      26190

            	
              Viosca
      Knoll Block 79 (“VK 79”)

            
	
              OCS-G
      26560

            	
              High
      Island Area, East Addition, South Extension, Block A 307 (“HI
      A-307”)

            
	
              OCS-G
      27078

            	
              Vermilion
      Area, South Addition Block 317 (“VM 317”)

            
	
              OCS-G
      27089

            	
              South
      Marsh Island, South Addition Block 138 (“SMI 138”)

            
	
              OCS-G
      27091

            	
              South
      Marsh Island, South Addition Block 152 (“SMI
  152”)

            

    

     

    WHEREAS,
pursuant to that certain South Marsh Participation Agreement, dated February 7,
2006, between GulfX and South Marsh, GulfX assigned to South Marsh an undivided
37.5% of GulfX’s rights under the Original GulfX Agreement, insofar and only
insofar as the Original GulfX Agreement covers the Leases covering SMI 138 and
SMI 152 (collectively, the “SMI Leases”), so that, after giving effect to such
assignment (the “Partial Assignment”), GulfX had the right to acquire an
undivided 12.5% working interest in the SMI Leases, and South Marsh had the
right to acquire an undivided 7.5% working interest in the SMI Leases;
and

     

    WHEREAS,
pursuant to that certain Participation Agreement, dated September 18, 2006,
between South Marsh and Ridgelake (the “Original South Marsh Agreement”),
Ridgelake granted to South Marsh the right to acquire an undivided ten percent
(10%) working interest in the Leases covering VK 79, HI A 307, and VM 317 (the
Original GulfX Agreement and the Original South Marsh Agreement are collectively
referred to herein as the “Original Agreements”); and

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    WHEREAS,
GulfX desires to acquire from Ridgelake, and Ridgelake desires to grant to
GulfX, the right to acquire an additional undivided 3.75% working interest in
the Lease covering SMI 138, and after giving effect to the Original GulfX
Agreement, the Partial Assignment, and such additional grant, it is the Parties’
intention that GulfX will have the right to acquire, in the aggregate, an
undivided 16.25% working interest in SMI 138, subject to and in accordance with
the terms hereof; and

     

    WHEREAS,
South Marsh desires to acquire from Ridgelake, and Ridgelake desires to grant to
South Marsh, the right to acquire an additional undivided 3.75% working interest
in the Lease covering SMI 138, and after giving effect to the Partial Assignment
and such additional grant, it is the Parties’ intention that South Marsh will
have the right to acquire, in the aggregate, an undivided 11.25% working
interest in SMI 138, subject to and in accordance with the terms hereof;
and

     

    WHEREAS,
South Marsh desires to acquire from Ridgelake, and Ridgelake desires to grant to
South Marsh, the right to acquire an additional undivided 7.50% working interest
in the Lease covering SMI 152, and after giving effect to the Partial Assignment
and such additional grant, it is the Parties’ intention that South Marsh will
have the right to acquire, in the aggregate, an undivided 15.00% working
interest in SMI 152, subject to and in accordance with the terms hereof;
and

     

    WHEREAS,
the Parties desire to amend, restate and replace in their entirety the Original
Agreements in order to reflect (i) the partial assignment by GulfX to South
Marsh of an interest in the Original GulfX Agreement; and (ii) the rights to
acquire additional interests in the SMI Leases granted by Ridgelake to the
Participants.

     

    NOW,
THEREFORE, for and in consideration of the recitals, covenants and agreements
contained herein, and for other good and valuable consideration, the Original
Agreements are hereby amended, restated and replaced in their entirety as
follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
I

     

    PRICE

     

    
      	
                
      1.1

            	
              For
      its interest in the Leases, each Participant shall pay its respective
      “Cost Share” (as set forth in the table in Section 1.1.1 below) of (i) all
      direct costs and expenses expended by Ridgelake (through the date of
      execution of this Agreement) in the acquisition, maintenance and
      development of the Leases, including, but not limited to, lease bonus
      costs, rentals, title examination fees and expenses, shallow hazard survey
      costs, and costs of acquisition and processing seismic data (collectively,
      “Sunk Costs”); (ii) all direct costs and expenses expended by Ridgelake
      (on a Lease-by-Lease basis until such time as Participant earns an
      interest in a Lease) in the maintenance and development of the Leases,
      including, but not limited to, rentals, shallow hazard survey costs, and
      the cost of acquisition and processing seismic data (collectively, “Lease
      Expenses”); and (iii) the cost of conducting the interest earning
      operations on each lease, as specified on Exhibits “B-1” through “B-5”
      attached hereto (hereinafter the
“Operations”).

            

    

     

    
      	 
      	
              1.1.1

            	
              Participants’
      respective “Cost Shares” and “Earning Shares” in the Leases are as
      follows:

            

    

     

    
      	 
      	
              GulfX

            	
              South
      Marsh

            
	
              Cost
      Share

            	
              Earning
      Share

            	
              Cost
      Share

            	
              Earning
      Share

            
	
              VK
      79

            	
              26.67%

            	
              20.00%

            	
              13.34%

            	
              10.00%

            
	
              HI
      A 307

            	
              26.67%

            	
              20.00%

            	
              13.34%

            	
              10.00%

            
	
              VM
      317

            	
              26.67%

            	
              20.00%

            	
              13.34%

            	
              10.00%

            
	
              SMI
      138

            	
              21.67%

            	
              16.25%

            	
              15.00%

            	
              11.25%

            
	
              SMI
      152

            	
              16.67%

            	
              12.50%

            	
              20.00%

            	
              15.00%

            

    

     

    
      	 
      	
              1.1.2

            	
              Sunk
      Costs as of December 4, 2006, are enumerated on Exhibit “C” attached
      hereto. It is acknowledged that the Participants have paid their
      respective Cost Shares of Sunk Costs in accordance with the Original
      Agreements and to the extent that Sunk Costs were enumerated on the
      Exhibit “C” attached to the Original
Agreements.

            

    

     

    Within
five (5) days after the execution of this Agreement, Ridgelake will present to
the Participants a statement(s) reflecting the Participant’s Cost Share of Sunk
Costs as of December 4, 2006 (as such costs are shown on Exhibit “C” attached
hereto) less payments received to date. GulfX and South Marsh shall remit the
balance due to Ridgelake within five (5) days of receipt by Participant of such
statement(s).

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    
      	 
      	
              1.1.3

            	
              The
      Participants’ respective Cost Shares of Lease Expenses (i.e., the respective
      Cost Shares set forth in the table Section 1.1.1 above) shall be
      periodically billed by Ridgelake as they arise and shall be paid by
      Participants in the time periods allowed for such payments under the Joint
      Operating Agreement referenced in Article III hereinbelow (hereinafter the
      “JOA”).

            

    

     

    
      	 
      	
              1.1.4

            	
              Each
      Participant shall pay its proportionate share (i.e., the respective
      Cost Shares set forth in the table in Section 1.1.1 above) of the
      estimated costs to conduct Operations on each lease thirty (30) days prior
      to the anticipated commencement date for such Operations, and thereafter
      shall pay its respective Cost Share of all costs and expenses for
      Operations on a Lease-by-Lease basis, until such Participant has earned an
      interest in a particular Lease in accordance with the terms of this
      Agreement.

            

    

     

    
      	
                 1.2

            	
              Upon
      execution of this Agreement, each Participant is obligated to pay
      Ridgelake its respective Cost Share of the Sunk Costs and Lease Expenses
      referenced in Article 1.1 above. Failure to timely remit such payments to
      Ridgelake shall result in the immediate termination of this Agreement as
      to such Participant, and such Participant shall forfeit any and all Sunk
      Costs and Lease Expenses previously paid to
  Ridgelake.

            

    

     

    
      	
                
      1.3

            	
              Participants
      shall have no obligation to participate in any Operations on the Leases;
      provided, however, that if a Participant does not participate in the
      Operations on a particular Lease, then such Participant shall forfeit its
      right to earn an interest in such Lease and shall forfeit all Sunk Costs
      and Lease Expenses previously paid on the
Lease.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
II

     

    ADDITIONAL
CONSIDERATION

     

     

    (Note: In this Article
II, Capitalized terms not otherwise defined herein shall have the meanings
assigned to them in Exhibit “E.”)

     

    
      	 
      	
              2.1

            	
              As
      additional consideration for its participation in the prospects developed
      by Ridgelake on the Leases, GulfX has procured the issuance to Ridgelake
      and/or its designee(s) of Two Million Five Hundred Thousand (2,500,000)
      Discovery Shares (the “GulfX Discovery Shares”) in GulfX Limited, an
      Australia company (“GulfX Limited”), the terms of which are specified in
      Exhibit “E-1” attached hereto.

            

    

     

    Likewise,
as additional consideration for its participation in the prospects developed by
Ridgelake on the Leases, South Marsh has procured the issuance to Ridgelake
and/or its designee(s) of (i) One Million (1,000,000) Discovery Shares (the
“Entek Discovery Shares”) in Entek Energy Ltd. (“Entek”), the terms of which are
specified in Exhibit “E-2” attached hereto; and (ii) Three Hundred Thousand
(300,000) options (the “Options”) in Entek or any successor by name change,
merger or other corporate action, the terms of which are specified in Exhibit
“E-3” attached hereto.

     

    The GulfX
Discovery Shares and Entek Discovery Shares are collectively referred to herein
as the “Discovery Shares.”

     

    The
Discovery Shares and Options are subject to whatever restrictions that may be
placed upon them under the rules and regulations of the Australian Stock
Exchange Ltd. (“ASX”). Each Participant shall use its best efforts to ensure
that the issuer of the Discovery Shares or Options, as applicable, procured by
it shall not impose or cause to be imposed restrictions on the conversion of
such Discovery Shares or the resale of the Shares in addition to those set forth
(i) in this Agreement and the respective Exhibit “E-1,” “E-2,” or “E-3,” as
applicable or (ii) by operation of law under the rules and regulations of the
ASX.

     

    
      	 
      	
              2.2

            	
              Each
      Discovery Share and each Option shall be convertible into one Share as set
      forth in the respective Exhibit “E-1,” “E-2,” or “E-3,” as applicable. If,
      following the date of this Agreement, an issuer of Discovery Shares or
      Options elects to undertake a consolidation of share capital, then any
      Discovery Shares or Options issued to Ridgelake or its designee(s) shall
      be subject to consolidation at the same ratio; provided, however, that
      Ridgelake shall not suffer, as the result of any such consolidation, a
      dilution in the value of the Discovery Shares, in the value of the
      Options, or in the value of Shares to be issued upon conversion of the
      Options or Discovery Shares, as
applicable.

            

    

     

    
      	 
      	
              2.3

            	
              Each
      Participant represents and warrants that at an Extraordinary General
      Meeting (“EGM”) of the issuer of the Discovery Shares or Options procured
      by such Participant, such issuer’s shareholders approved corporate
      resolutions necessary to, among others, (i) change the nature of the
      issuer’s business direction to that of an oil and gas company, (ii) as to
      issuers of Discovery Shares, amend the issuer’s constitution to create the
      class of shares entitled “Discovery Shares” with terms and conditions as
      set forth herein and in Exhibit E-1 or E-2, as applicable, (iii) authorize
      the issuer’s Board of Directors to issue Options and/or Discovery Shares
      to Ridgelake (300,000 Options, 2,500,000 Discovery Shares in the case of
      the GulfX Discovery Shares, and 1,000,000 Discovery Shares in the case of
      the Entek Discovery Shares) and, (iv) authorize its Board of Directors to
      authorize Shares necessary to accommodate conversion of the Options and/or
      Discovery Shares, as applicable, and (v) authorize a consolidation of
      capital of the issuer.

            

    

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 
      	
              2.4

            	
              Authorization and Issuance. Each
      Participant shall use its best efforts to ensure that upon issuance, the
      Options, Discovery Shares and the Shares procured by such Participant will
      have been duly authorized by the Board of Directors and shareholders of
      the issuer thereof and, when issued in accordance with the terms of this
      Agreement, will be fully paid, non-assessable and validly
      issued.

            

    

     

    
      	 
      	
              2.5

            	
              Authority of Participants. Each Participant
      represents that it has full power, authority and legal capacity to
      execute, deliver and perform this Agreement, and that all corporate action
      necessary for such Participant’s execution of this Agreement and its
      consummation of the transactions contemplated by this Agreement will have
      been duly and effectively taken upon
execution.

            

    

     

    
      	 
      	
              2.6

            	
              Compliance with Applicable Laws; Permits.
      Each Participant shall use its best efforts to ensure that the issuer of
      the Options and/or Discovery Shares procured by it will comply in all
      material respects with the Australian Corporations Act and all applicable
      laws, rules and regulations enforced or promulgated by the ASX and the
      Australian Securities and Investments Commission (collectively, the
      “Regulator”). To the knowledge of each Participant, the issuer of the
      Options and/or Discovery Shares procured by it has not received any
      written notice, nor does it have knowledge that any investigation or
      review by any governmental entity or Regulator with respect to the Shares
      or any of its assets is pending or threatened or that any such
      investigation or review is contemplated. To the knowledge of each
      Participant, none of the reports, documents or materials filed with or
      furnished to the Regulator or any governmental authority by the issuer of
      the Options and/or Discovery Shares procured by such Participant, with
      respect to the Discovery Shares, the Shares, or the business and
      operations of such issuer, contains any untrue statement of a material
      fact or omits any statement of a material fact necessary to make the
      statements therein not misleading. Each Participant shall use its best
      efforts to ensure that the issuer of the Options and/or Discovery Shares
      procured by such Participant discloses, to the extent required by
      applicable law or the rules and regulations of the Regulator, the terms
      and conditions of this Agreement and the terms and conditions of the
      issuance of the Options and/or the Discovery Shares, including the right
      to convert Options and/or Discovery Shares into Shares and the terms of
      such conversion.

            

    

     

    
      	 
      	
              2.7

            	
              Advice of Changes. Each Participant shall
      use its best efforts to ensure that the issuer of the Options and/or
      Discovery Shares procured by it shall as promptly as possible advise
      Ridgelake in writing of any change or event having a material adverse
      effect, or that such Participant or such issuer believes would or would be
      reasonably likely to cause or constitute a material breach of any
      representations, warranties or covenants of such Participant contained
      herein.

            

    

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 
      	
              2.8

            	
              Agreement Valid and Binding. Each
      Participant represents and warrants that this Agreement has been duly
      executed and delivered by such Participant and this Agreement is the
      legal, valid and binding obligation of such Participant, enforceable
      against such Participant in accordance with its terms, except as
      enforcement thereof may be limited by laws affecting the enforcement of
      creditors’ rights. Neither the execution and delivery by such Participant
      of this Agreement, nor the consummation by such Participant of the
      transactions contemplated hereby, nor the compliance by such Participant
      with or fulfillment by such Participant of the terms and provisions hereof
      will (i) with or without the giving of notice or lapse of time or both,
      conflict with or result in a breach or violation of, or default under, or
      permit the acceleration of any obligation under any provision of any
      agreement or other instrument or restriction of any kind to which such
      Participant is a party or by which such Participant is otherwise bound or
      affected, or (ii) violate any judgment, order, writ, injunction, decree,
      statute, rule or regulation applicable to such Participant, except in the
      case of the preceding clauses, for those conflicts, breaches, violations,
      defaults or accelerations that would not, individually or in the
      aggregate, have, or be reasonably likely to have, a material adverse
      effect on the ability of such Participant to perform its obligations under
      this Agreement or to consummate the transactions contemplated by this
      Agreement.

            

    

     

    
      	 
      	
              2.9

            	
              Consents. Each Participant shall use its
      best efforts to ensure that the issuer of the Options and/or Discovery
      Shares procured by it provides all consents, approvals, waivers, orders,
      authorizations, registrations, declarations or filings with, or notices
      to, the Regulator and any governmental entity, other regulator or other
      third party required for the issuance of the Options, the Discovery Shares
      and the Shares or the execution and delivery of this
      Agreement.

            

    

     

    
      	
                
      2.10

            	
              No Misrepresentations. Each Participant
      represents and warrants that the warranties, representations and covenants
      made in this Agreement by such Participant do not contain any untrue
      statement of material fact or omit to state any material fact required to
      be stated herein or necessary to make the statements herein, in the
      context in which they were made, not
misleading.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
III

     

    INTEREST EARNED

     

    
      	
                
      3.1

            	
              If
      a Participant participates in and pays its respective Cost Share (as set
      forth in the table in Section 1.1.1 above) of all Operations relevant to a
      particular Lease, delivers appropriate Options and/or Discovery Shares to
      Ridgelake and/or its designee(s) in accordance with Article II above and
      if such Participant has paid its respective Cost Share of all Sunk Costs
      and Lease Expenses relevant to the Leases, then such Participant shall
      earn an undivided working interest in the Lease upon which such Operations
      have been conducted equal to its respective “Earning Share,” as set forth
      in the table in Section 1.1.1
above.

            

    

     

       3.1.1       
It is understood that any working interest earned by a Participant shall be
subject to and shall bear its proportionate share (i.e., its respective Earning
Share) of all burdens that attach to each Lease, including, but not limited to,
lessor’s royalty and overriding royalties that are applicable to each Lease as
of the effective date of this Agreement. (To the best of Ridgelake’s knowledge,
each Lease is burdened with a 16 2/3% Royalty to Lessor and Overriding Royalties
as follows: Viosca Knoll Block 79 – 4%; High Island Block A 307 – 4%; Vermilion
Block 317 – 3 1/3%; South Marsh Island Block 138 – 3 1/3%; and South Marsh
Island Block 152 – 3 1/3%.)

     

    
      	
                
      3.2

            	
              Each
      Participant may earn its respective Earning Share in each Lease that is
      subject to this Agreement on a Lease-by-Lease basis. However, subject to
      and without waiver of the right to audit and dispute costs and expenses,
      should a Participant not timely pay all of its Cost Share of all costs and
      expenses of Operations on a Lease, then, if such Participant fails to pay
      such costs and expenses within ten (10) days after receiving a notice of
      default from Ridgelake, such Participant shall forfeit its right to earn a
      working interest in the particular Lease and will have no right to a
      refund of any money previously paid to Ridgelake relevant to the
      particular Lease.

            

    

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
IV

     

    OPERATOR

     

    
      	 
      	
              4.1

            	
              Ridgelake
      shall be designated Operator for all wells drilled pursuant to the terms
      of this Agreement and shall conduct and direct all operations on the
      Leases, as permitted and required pursuant to the terms of this Agreement
      and the JOA attached hereto as Exhibit
“D”.

            

    

     

    
      	 
      	
              4.2

            	
              Notwithstanding
      the terms of the JOA, the timing and order of Operations shall be at
      Ridgelake’s sole discretion, until such time as a Participant has earned a
      working interest in a particular Lease. Once a Participant has earned a
      working interest in a Lease, then, insofar and only insofar as said Lease
      is concerned, the terms of the JOA shall be applicable to a proposal by
      such Participant relevant to the drilling of wells or other operations on
      the Lease.

            

    

     

    
      	
                
      4.2.1

            	
              It
      is the intention of the Parties that a well shall be spudded on each Lease
      prior to the first day of the beginning of the last year of the primary
      term of each Lease. However, it is understood and agreed that for various
      reasons a well may not be spudded on each Lease as anticipated. If a well
      is not so spudded on a particular Lease before the first day of the
      beginning of the last year of the primary term for a particular Lease,
      then it is understood and agreed that a Participant in such Lease may
      submit a proposal to Ridgelake for the drilling of a well on the
      particular Lease in accordance with the terms of the JOA attached hereto.
      If Ridgelake agrees to participate in the well proposed by such
      Participant, then the well shall be drilled in accordance with the terms
      of this Agreement and the Participants must complete the interest earning
      operations in order to earn an interest in the Lease. However, if
      Ridgelake does not agree to proceed with the well, then a Participant in
      the Lease may proceed to drill the well under the terms of the JOA
      attached hereto and, if the said well is completed by the Participant,
      then the Participants in such well shall earn their respective working
      interests in the Lease (as set forth in Section 3.1 above) and any
      penalties under the JOA shall be applicable to Ridgelake’s interest in the
      well. (It is recognized that other parties may be participating in a
      particular Lease under agreements that are similar to this Agreement.
      Accordingly, any penalty applicable to Ridgelake’s interest will be
      proportionately allocated to those parties who have agreed to participate
      in the well.)

            

    

     

    
      	
                
      4.2.2

            	
              If
      no well is spudded on a particular Lease before expiration of the Lease,
      this Agreement shall no longer be applicable to the Lease. However, it is
      understood and agreed that all money paid to Ridgelake under the terms of
      this Agreement shall be retained by Ridgelake and that there shall be no
      refund of any money to
Participants.

            

    

     

    
      	 
      	
              4.3

            	
              Operator
      shall conduct all Operations in a good an workmanlike manner, but shall
      have no liability as Operator for losses sustained or liabilities
      incurred, except as may result from gross negligence or willful
      misconduct.

            

    

     

    
      	 
      	
              4.4

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

            

    

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    ARTICLE
V

     

    EXPENDITURES AND LIABILITY OF
PARTIES

     

    
      	 
      	
              5.1

            	
              The
      duties, obligations and liabilities of the Parties shall be several, not
      joint or collective. Each Party shall be solely responsible for its own
      obligations and for all expenses incurred by it in connection with this
      Agreement (including without limitation fees and expenses of its own
      counsel and consultants), and shall be liable only for its proportionate
      share of the costs of drilling and operating the well or wells pursuant to
      the terms of this Agreement. It is not the intention of the Parties to
      create, nor shall this Agreement be construed as creating, an association
      or trust, or to impose a partnership duty, obligation, or liability with
      regard to any one or more of the Parties hereto. However, notwithstanding
      any provisions herein that the rights and liabilities are several and not
      joint or collective, or that this Agreement and the Operations hereunder
      shall not constitute a partnership, each Party elects not to be excluded
      from the application of Subchapter K, Chapter 1, Subtitle A, Internal
      Revenue Code of 1986, as amended, and similar provisions of applicable
      state laws. The tax partnership shall be governed by Exhibit “F” attached
      to the JOA that is attached as Exhibit
“D”.

            

    

     

    
      	 
      	
              5.2

            	
              All
      costs and expenses hereunder, and the accounting with respect thereto,
      shall be in accordance with the Accounting Procedure that is attached to
      the JOA; provided however, should any conflict exist between the
      provisions in the body of this Agreement and the said Accounting
      Procedure, the provisions in the body of this Agreement shall
      prevail.

            

    

     

    
      	
                
      5.2.1

            	
              Ridgelake
      shall keep an accurate record of the joint account hereunder, showing
      expenses incurred and charges and credits made and returns made and
      received. Such records shall be available at all reasonable times for
      examination by a Participant or its authorized representatives, as
      provided in the JOA.

            

    

     

    
      	 
      	
              5.3

            	
              Ridgelake
      shall pay or cause to be paid all rentals, and minimum royalty payments
      which may be required under the terms of the Leases; provided, however, it
      is understood and agreed that Ridgelake shall have no liability to
      Participants for losses sustained or liabilities incurred for failure to
      so properly pay rents and/or minimum royalties or to otherwise maintain
      such Leases.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
VI

     

    MISCELLANEOUS
PROVISIONS

     

    
      	 
      	
              6.1

            	
              This
      Agreement shall inure to the benefit of and be binding upon the successors
      and assigns of the Parties; provided, however, it is understood and agreed
      that no Participant may sell, assign, transfer or otherwise dispose of its
      rights hereunder except as expressly provided in this
      Agreement.

            

    

     

    
      	 
      	
              6.2

            	
              The
      delay or failure on the part of any Party hereto to insist, in any one
      instance or more, upon the strict performance of any of the terms or
      conditions of this Agreement, or to exercise any right or privilege herein
      conferred shall not be construed as a waiver of any such terms,
      conditions, rights or privileges but the same shall continue and remain in
      full force and effect. In addition, no waiver of any of the provisions of
      this Agreement shall be deemed or shall constitute a waiver of any other
      provision hereof (whether or not similar), nor shall such waiver
      constitute a continuing waiver unless otherwise expressly
      provided.

            

    

     

    
      	 
      	
              6.3

            	
              SHOULD
      A PARTICIPANT EARN A WORKING INTEREST IN ANY LEASE PURSUANT TO THE TERMS
      OF THIS AGREEMENT, THE INTEREST EARNED BY PARTICIPANT IN SUCH LEASE SHALL
      BE ASSIGNED BY RIDGELAKE TO PARTICIPANT AS IS, AND RIDGELAKE MAKES NO
      WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN FACT OR BY LAW, WITH
      RESPECT TO TITLE, CONDITION, FITNESS FOR PURPOSE OR OTHERWISE, EXCEPT THAT
      RIDGELAKE SHALL WARRANT ITS TITLE TO THE LEASES AGAINST ANYONE ASSERTING
      AN ADVERSE CLAIM AGAINST THE INTEREST CONVEYED WHICH IS CREATED BY,
      THROUGH OR UNDER RIDGELAKE, BUT NOT
OTHERWISE.

            

    

     

    
      	 
      	
              6.4

            	
              This
      Agreement and all instruments executed in accordance with it shall be
      governed by and interpreted in accordance with the laws of the State of
      Louisiana, without regard to conflict of law rules that would direct
      application of the laws of another jurisdiction, except to the extent that
      it is mandatory that the laws of some other jurisdiction, where the Leases
      are located, shall apply.

            

    

     

    
      	 
      	
              6.5

            	
              This
      Agreement, including all exhibits and schedules attached hereto and made a
      part hereof constitutes the entire agreement between the Parties with
      respect to the subject matter hereof and supersedes all prior agreements,
      understandings, negotiations and discussions. Without limiting the
      generality of the foregoing, as between GulfX and South Marsh, this
      Agreement specifically supersedes and replaces the South Marsh
      Participation Agreement, which, effective as of the date hereof, shall be
      of no further force or effect. No supplement, amendment, alteration,
      modification, waiver or termination of this Agreement shall be binding
      unless executed in writing by the Parties
  hereto.

            

    

     

    
      	 
      	
              6.6

            	
              Any
      notice provided or permitted to be given under this Agreement shall be in
      writing, and may be served by personal delivery, facsimile transmission,
      or be depositing same in the mail, addressed to the Party to be notified,
      postage paid. Notices served in any manner shall be deemed to have been
      given and received only if and when actually received by the addressee
      (except that notice given by telecopier shall be deemed given and
      received, other than during normal business hours, as of the opening of
      business on the next business day). For purposes of notice, the addresses
      of the parties shall be as follows:

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Ridgelake
Energy, Inc.

    3636
North Causeway Blvd., Suite 300

    Metairie,
LA 70002

    Attention:
Mr. William M. Hines

    Facsimile
No.: (504) 831-3746

     

     

    GulfX,
LLC

    15 Rheola
Street

    West
Perth

    6005
Western Australia, Australia

    Attention:
Mr. Paul Garner

    Facsimile
No.: _____________

     

     

    South
Marsh LLC

    15 Rheola
Street

    West
Perth

    6005
Western Australia, Australia

    Attention:
Mr. Paul Garner

    Facsimile
No.: _____________

     

     

    Each
Party shall have the right, upon giving ten (10) days’ prior notice to the other
in the manner hereinabove provided, to change its address for the purposes of
notice.

     

    
      	 
      	
              6.7

            	
              Each
      Participant shall pay for all documentary, filing and recording fees
      required with the filing and recording of any assignment or other
      conveyance it may earn pursuant to this
  Agreement.

            

    

     

    
      	 
      	
              6.8

            	
              If
      any term or other provision of this Agreement is invalid, illegal or
      incapable of being enforced under any rule of law, all other conditions
      and provisions of this Agreement shall nevertheless remain in full force
      and effect so long as the economic or legal substance of the transactions
      contemplated hereby are not affected in a materially adverse manner with
      respect to any Party.

            

    

     

      
6.9           Except as
expressly provided herein, this Agreement is not intended to create, nor shall
it be construed to create, any rights in any third party under doctrines
concerning third party beneficiaries.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
WITNESS WHEREOF, the parties have executed this Agreement as of the day and year
first set forth above.

     

     

    RIDGELAKE
ENERGY, INC.

     

     

    By: /s/ William M.
Hines

    Vice
President

     

     

    GULFX,
LLC

     

     

    By: /s/ Paul
Garner

    Paul
Garner

    Vice
President

     

     

    SOUTH
MARSH LLC

    By: /s/ Paul
Garner

    Paul
Garner

    Vice
President

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
        
          EXHIBIT
"A" LEASES

        

      

      
        

         

        Attached
to and made a part of that certain Amended and Restated Participation
Agreement

      

      
        dated the
8th day of December, 2006, 

        by and
between Ridgelake Energy, Inc., GuIfX, LLC and South Marsh,
LLC,

      

      
        

         

        LEASES:

         

      

      
        	 
      OCS
      No.:	
                Map
      No.:

              	
                Area
      Name:

              	
                Block:

              
	
                1.

              	
                OCS-G26190

              	
                NH16-07

              	
                Viosca
      Knoll

              	
                79

              
	
                2.

              	
                OCS-G
      26560

              	
                TX7C

              	
                High
      Island Area, East Addition, South Extension

              	
                A
      307

              
	
                3.

              	
                OCS-G
      27078

              	
                LA3B

              	
                Vermilion
      Area, South Addition

              	
                317

              
	
                4.

              	
                OCS-G
      27089

              	
                LA3C

              	
                South
      Marsh Island, South Addition

              	
                138

              
	
                5.

              	
                OCS-G
      27091

              	
                LA3C

              	
                South
      Marsh Island, South Addition

              	
                152

              

      

       

      
        
           

        

        
          A-1

          
            

          

        

        
           

        

      

       

      EXHIBIT
B1

      OPERATIONS
– VIOSCA KNOLL 79

       

      Attached
to and made part of that certain Participation Agreement

      dated
the ______ day of January, 2006

      by
and between Ridgelake Energy, Inc and GulfX, LLC.

       

      
        	
                 
      

              	
                1.

              	
                LEASE

              

      

       

          OCS-G 26190 –
That certain Oil and Gas lease of Submerged Lands Under the Outer Continental
Shelf Lands Act dated June 1, 2004, by and between the United States of America
as Lessor and Ridgelake Energy, Inc, as Lessee, covering all of Block 79, Viosca
Knoll Area, OCS Official Protraction Diagram, NH 16-07, and covering
approximately 5,760 acres of submerged lands within the Outer Continental
Shelf.

       

      
        	 
      	
                2.

              	
                INTEREST
      EARNING OPERATIONS

              

      

       

      
        	
                Project
      Well 1:

              	
                OCS-G
      26190. Well No. 1

              
	 
      	 
      
	
                Location
      (straight hole)

              	
                X=
      1,333,387.99

              
	 
      	
                Y=
      10,859,867.03

              

      

       

      (Note:
the location of the well is approximate and may be altered by Ridgelake at its
sole discretion if it deems it necessary in order to properly drill the project
well)

       

      
        	
                Objective
      depth:

              	
                2,800’
      Subsea

              
	 
      	 
      
	
                Interest
      earning point:

              	
                At
      casing point, after reaching the Objective Depth or such shallower depth
      as may be determined by Ridgelake at its sole
  discretion.

              

      

       

      
        	 
      	
                3.

              	
                INTEREST
      EARNING RIGHTS AND OBLIGATIONS:

              

      

       

      
        	
                    (a)

              	
                GulfX
      must participate in and pay 26.67% of the cost to drill Project Well 1 to
      the Interest Earning Point and must participate and pay 26.67% of any
      sidetrack of said well to bypass junk and/or any other sidetrack that is
      required because of mechanical problems, or any redrill of the said well
      due to the loss of the hole because of mechanical problems
      therein.

              
	 
      	 
      
	
                    (b)

              	
                If
      GulfX participates in and pays 26.67% of the costs and expenses associated
      with the drilling of Project Well 1 and any sidetracks and redrills
      thereof, and if GulfX commits to bearing its proportionate share (20%) of
      the costs and expenses to run casing in the well GulfX shall have earned
      twenty percent (20%) of all of Ridgelake’s right, title and interest in
      the Lease and Ridgelake shall deliver an assignment of such interest to
      GulfX within thirty (30) days of the release of the rig from the well. (It
      is understood that commitment to the running of casing by GulfX, in order
      to earn under this Agreement, includes all operations on the well through
      the release of the drilling rig from the well, including but not limited
      to running and cementing of casing, mudline suspending the well and the
      demobilizaing of the rig from the well.)

              
	 
      	 
      
	
                    (c)

              	
                Once
      GulfX has earned the aforesaid assignment from Ridgelake in accordance
      with paragraph 3(b) then all future operations on the lease shall be
      conducted in accordance with and pursuant to the JOA attached as Exhibit D
      to the Participation Agreement to which this Exhibit is
      attached.

              
	 
      	 
      
	
                    (d)

              	
                If
      GulfX does not meet and perform the obligations expressed in Article 3(a)
      and 3(b) above, Gulf X will earn no interest in the Lease and shall
      forfeit all Sunk Costs and Lease Expenses previously paid on the
      Lease.

              

      

       

      
        
           

        

        
          B-1

          
            

          

        

        
           

        

      

       

      EXHIBIT
B2

      OPERATIONS
– HIGH ISLAND 307

       

      Attached
to and made part of that certain Participation Agreement

      dated
the _____ day of January, 2006

      by
and between Ridgelake Energy, Inc and GulfX, LLC.

       

      
        	 
      	
                1.

              	
                LEASE

              

      

       

          OCS-G 26560 -
That certain Oil and Gas lease of Submerged Lands Under the Outer Continental
Shelf Lands Act dated October 1, 2004, by and between the United States of
America as Lessor and Ridgelake Energy, Inc, as Lessee, covering all of Block A
307, High Island Area, East Addition, South Extension, OCS Leasing Map, Texas
Map No. 7C, and covering approximately 5,760 acres of submerged lands within the
Outer Continental Shelf.

       

      
        	 
      	
                2.

              	
                INTEREST
      EARNING OPERATIONS

              

      

       

      
        	
                Project
      Well 1:

              	
                OCS-G
      26560. Well No. 1

              
	 
      	 
      
	
                Location
      (straight hole)

              	
                X=
      3,728,397

              
	 
      	
                Y=
      186,641

              
	 
      	
                (Note:
      the location of the well is approximate and may be altered by Ridgelake at
      its sole discretion if it deems it necessary in order to properly drill
      the project well)

              
	 
      	 
      
	
                Objective
      depth:

              	
                2,000’
      TVD

              
	 
      	 
      
	
                Interest
      earning point:

              	
                Casing
      election point after reaching Objective Depth or shallower depth as may be
      determined by Ridgelake at its sole
discretion

              

      

       

      
        	 
      	
                3.

              	
                EARNED
      RIGHTS

              

      

       

      
        	
                    (a)

              	
                GulfX
      must participate in and pay 26.67% of the cost to drill Project Well 1 to
      the Interest Earning Point and must participate and pay 26.67% of any
      sidetrack of said well to bypass junk and/or any other sidetrack that is
      required because of mechanical problems, or any redrill of the said well
      due to the loss of the hole because of mechanical problems
      therein.

              
	 
      	 
      
	
                    (b)

              	
                If
      GulfX participates in and pays 26.67% of the costs and expenses associated
      with the drilling of Project Well 1 and any sidetracks and redrills
      thereof, and if GulfX commits to bearing its proportionate share (20%) of
      the costs and expenses to run casing in the well GulfX shall have earned
      twenty percent (20%) of all of Ridgelake’s right, title and interest in
      the Lease and Ridgelake shall deliver an assignment of such interest to
      GulfX within thirty (30) days of the release of the rig from the well. (It
      is understood that commitment to the running of casing by GulfX, in order
      to earn under this Agreement, includes all operations on the well through
      the release of the drilling rig from the well, including but not limited
      to running and cementing of casing, mudline suspending the well and the
      demobilizing of the rig from the well.)

              
	 
      	 
      
	
                    (c)

              	
                Once
      GulfX has earned the aforesaid assignment from Ridgelake in accordance
      with paragraph 3(b) then all future operations on the lease shall be
      conducted in accordance with and pursuant to the JOA attached as Exhibit D
      to the Participation Agreement to which this Exhibit is
      attached.

              
	 
      	 
      
	
                    (d)

              	
                If
      GulfX does not meet and perform the obligations expressed in Article 3(a)
      and 3(b) above, Gulf X will earn no interest in the Lease and shall
      forfeit all Sunk Costs and Lease Expenses previously paid on the
      Lease.

              

      

       

      

        
          
             

          

          
            B-2

            
              

            

          

          
             

          

        

         

        EXHIBIT
B3

        OPERATIONS
– VERMILION 317

         

        Attached
to and made part of that certain Participation Agreement

        dated
the ______ day of January, 2006

        by
and between Ridgelake Energy, Inc and GulfX, LLC.

         

        
          	 
      	
                  1.

                	
                  LEASE

                

        

         

            OCS-G 27078 -
That certain Oil and Gas lease of Submerged Lands Under the Outer Continental
Shelf Lands Act dated May 1, 2005, by and between the United States of America
as Lessor and Ridgelake Energy, Inc, as Lessee, covering all of Block 317,
Vermilion Area, South Addition, OCS leasing map, Louisiana Map No 3B, and
covering approximately 5,000 acres of submerged lands within the Outer
Continental Shelf.

         

        
          	 
      	
                  2.

                	
                  INTEREST
      EARNING OPERATIONS

                

        

         

        
          	
                  Project
      Well 1:

                	
                  OCS-G
      27078 Well No. 1

                
	 
      	 
      
	
                  Location
      (straight hole)

                	
                  X=
      1,650,582

                
	 
      	
                  Y=
      136,517

                
	 
      	
                  (Note:
      the location of the well is approximate and may be altered by Ridgelake at
      its sole discretion if it deems it necessary in order to properly drill
      the project well)

                
	 
      	 
      
	
                  Objective
      depth:

                	
                  9,300’
      Subsea

                
	 
      	 
      
	
                  Interest
      earning point:

                	
                  Casing
      election point after reaching Objective Depth or shallower depth as may be
      determined by Ridgelake at its sole
discretion

                

        

         

        
          	 
      	
                  3.

                	
                  EARNED
      RIGHTS

                

        

         

        
          	
                      (a)

                	
                  GulfX
      must participate in and pay 26.67% of the cost to drill Project Well 1 to
      the Interest Earning Point and must participate and pay 26.67% of any
      sidetrack of said well to bypass junk and/or any other sidetrack that is
      required because of mechanical problems, or any redrill of the said well
      due to the loss of the hole because of mechanical problems
      therein.

                
	 
      	 
      
	
                      (b)

                	
                  If
      GulfX participates in and pays 26.67% of the costs and expenses associated
      with the drilling of Project Well 1 and any sidetracks and redrills
      thereof, and if GulfX commits to bearing its proportionate share (20%) of
      the costs and expenses to run casing in the well GulfX shall have earned
      twenty percent (20%) of all of Ridgelake’s right, title and interest in
      the Lease and Ridgelake shall deliver an assignment of such interest to
      GulfX within thirty (30) days of the release of the rig from the well. (It
      is understood that commitment to the running of casing by GulfX, in order
      to earn under this Agreement, includes all operations on the well through
      the release of the drilling rig from the well, including but not limited
      to running and cementing of casing, mudline suspending the well and the
      demobilizing of the rig from the well.)

                
	 
      	 
      
	
                      (c)

                	
                  Once
      GulfX has earned the aforesaid assignment from Ridgelake in accordance
      with paragraph 3(b) then all future operations on the lease shall be
      conducted in accordance with and pursuant to the JOA attached as Exhibit D
      to the Participation Agreement to which this Exhibit is
      attached.

                
	 
      	 
      
	
                      (d)

                	
                  If
      GulfX does not meet and perform the obligations expressed in Article 3(a)
      and 3(b) above, Gulf X will earn no interest in the Lease and shall
      forfeit all Sunk Costs and Lease Expenses previously paid on the
      Lease.

                

        

        

          
            
               

            

            
              B-3

              
                

              

            

            
               

            

          

           

          EXHIBIT
B4

          OPERATIONS
– SOUTH MARSH ISLAND 138

           

          Attached
to and made part of that certain Participation Agreement

          dated
the ______ day of January, 2006

          by
and between Ridgelake Energy, Inc and GulfX, LLC.

           

          
            	
                        1.

                  	
                    LEASE

                  

          

           

              OCS-G 27089 –
That certain Oil and Gas lease of Submerged Lands Under the Outer Continental
Shelf Lands Act dated June 1, 2005, by and between the United States of America
as Lessor and Ridgelake Energy, Inc, as Lessee, covering all of Block 138, South
Marsh Island Area, South Addition, OCS Leasing Map, Louisiana Map No. 3C, and
covering approximately 5,000 acres of submerged lands within the Outer
Continental Shelf.

           

          
            	
                        2.

                  	
                    INTEREST
      EARNING OPERATIONS

                  

          

           

          (a)
PRIMARY INTEREST EARNING OPERATION:

           

          
            	
                    Project
      Well 1:

                  	
                    OCS-G
      27089. Well No. 1 to casing election point

                  
	 
      	 
      
	
                    Surface
      Location (Straight Hole)

                  	
                    X=
      148,734’

                  
	 
      	
                    Y=
      1,780,183’

                  
	 
      	
                    (Note:
      the location of the well is approximate and may be altered by Ridgelake at
      its sole discretion if it deems it necessary in order to properly drill
      the project well)

                  
	 
      	 
      
	 
      	 
      
	
                    Objective
      depth:

                  	
                    11,000’
      Subsea

                  

          

           

          (b)
SECONDARY INTEREST EARNING CONSIDERATION

           

          If GulfX
elects to participate in setting casing and the mudline suspension of Project
Well 1 then, within 30 days of making such election, it shall be required to pay
to Ridgelake an additional cash consideration equal to 6.67% of the original AFE
amount for the drilling of Project Well 1 to casing election point.

           

          
            	
                        3.

                  	
                    EARNED
      RIGHTS

                  

          

           

          
            	
                    (a)

                  	
                    GulfX
      must participate in and pay 26.67% of the cost to drill Project Well 1 to
      the casing election point and must participate and pay 26.67% of any
      sidetrack of said well to bypass junk and/or any other sidetrack that is
      required because of mechanical problems, or any redrill of the said well
      due to the loss of the hole because of mechanical problems
      therein.

                  
	 
      	 
      
	
                    (b)

                  	
                    If
      GulfX participates in and pays 26.67% of the costs and expenses associated
      with the drilling of Project Well 1 and any sidetracks and redrills
      thereof, and if GulfX participates in and pays 20% of the costs and
      expenses to run casing in the well and all other operations on or related
      to the well through the release of the drilling rig from the well,
      including but not limited to running and cementing of casing, mudline
      suspending the well and the demobilizing or the rig from the well, and if
      GulfX pays the additional cash consideration in accordance with item 2(b)
      of the Interest Earning Operations described above, then GulfX shall
      earned twenty percent (20%) of all of Ridgelake’s right, title and
      interest in the Lease and Ridgelake shall deliver an assignment of such
      interest to GulfX within thirty (30) days of the release of the rig from
      the well.

                  
	 
      	 
      
	
                    (c)

                  	
                    Once
      GulfX has been granted title in accordance with paragraph 3(b) then all
      future operations on the lease shall be conducted in accordance with and
      pursuant to the JOA attached as Exhibit D.

                  
	 
      	 
      
	
                    (d)

                  	
                    If
      GulfX does not meet and perform the obligations expressed in Article 3(a)
      and 3(b) above, Gulf X will earn no interest in the Lease and shall
      forfeit all Sunk Costs and Lease Expenses previously paid on the
      Lease.

                  

          

          

            
              
                 

              

              
                B-4

                
                  

                

              

              
                 

              

            

             

            EXHIBIT
B5

            OPERATIONS
– SOUTH MARSH ISLAND 152

             

            Attached
to and made part of that certain Participation Agreement

            dated
the ______ day of January, 2006

            by
and between Ridgelake Energy, Inc and GulfX, LLC.

             

            
              	
                          1.

                    	
                      LEASE

                    

            

             

            OCS-G
27091 - That certain Oil and Gas lease of Submerged Lands Under the Outer
Continental Shelf Lands Act dated July 1, 2005, by and between the United States
of America as Lessor and Ridgelake Energy, Inc, as Lessee, covering all of Block
152, South Marsh Island Area, South Addition, OCS Leasing Map, Louisiana Map No.
3C, and covering approximately 2,500 acres of submerged lands within the Outer
Continental Shelf.

             

            
              	
                          2.

                    	
                      INTEREST
      EARNING OPERATIONS

                    

            

             

            
              	
                          (a)

                    	
                      INTEREST
      EARNING OPERATION A

                    

            

             

            
              	
                      Project
      Well 1:

                    	
                      OCS-G
      27091. Well No. 1 to casing election point

                    
	 
      	 
      
	
                      Surface
      Location (deviated hole)

                    	
                      X=
      165,816’

                    
	 
      	
                      Y=
      1,749,135

                    
	 
      	
                      (Note:
      the location of the well is approximate and may be altered by Ridgelake at
      its sole discretion if it deems it necessary in order to properly drill
      the project well)

                    
	 
      	 
      
	
                      Objective
      depth:

                    	
                      6,500’
      Subsea

                    

            

             

            (b)
SECONDARY INTEREST EARNING CONSIDERATION

             

            If GulfX
elects to participate in mudline suspension of Project Well 1 then, within 30
days of making such election, it shall be required to pay to Ridgelake an
additional cash consideration equal to 6.67% of the following estimated
costs:

             

            
              	
                              (i)

                    	
                      One
      third (1/3) of the estimated cost to fabricate, install and hookup a
      platform appropriate for the development of the field discovered by
      Project Well 1, and

                    
	
                              (ii)

                    	
                      The
      estimated cost of a flowline, and

                    
	
                              (iii)

                    	
                      The
      estimated cost to complete Project Well
1

                    

            

             

            The basis
for determination of these costs shall be third party, arms length estimates
which shall be provided to GulfX together with the AFE for Project Well
1.

             

            
              	
                          3.

                    	
                      EARNED
      RIGHTS

                    

            

             

            
              	
                              (a)

                    	
                      GulfX
      must participate in and pay 26.67% of the cost to drill Project Well 1 to
      the casing election point and must participate and pay 26.67% of any
      sidetrack of said well to bypass junk and/or any other sidetrack that is
      required because of mechanical problems, or any redrill of the said well
      due to the loss of the hole because of mechanical problems
      therein.

                    
	 
      	 
      
	
                              (b)

                    	
                      If
      GulfX participates in and pays 26.67% of the costs and expenses associated
      with the drilling of Project Well 1 and any sidetracks and redrills
      thereof, and if GulfX participates in and pays 20% of the costs and
      expenses to run casing in the well and all other operations on or related
      to the well through the release of the drilling rig from the well,
      including but not limited to running and cementing of casing, mudline
      suspending the well and the demobilizing or the rig from the well, and if
      GulfX pays the additional cash consideration in accordance with item 2(b)
      of the Interest Earning Operations described above, then GulfX shall
      earned twenty percent (20%) of all of Ridgelake’s right, title and
      interest in the Lease and Ridgelake shall deliver an assignment of such
      interest to GulfX within thirty (30) days of the release of the rig from
      the well.

                    
	 
      	 
      
	
                              (c)

                    	
                      Once
      GulfX has been granted title in accordance with paragraph 3(b) then all
      future operations on the lease shall be conducted in accordance with and
      pursuant to the JOA attached as Exhibit D.

                    
	 
      	 
      
	
                              (d)

                    	
                      If
      GulfX does not meet and perform the obligations expressed in Article 3(a)
      and 3(b) above, Gulf X will earn no interest in the Lease and shall
      forfeit all Sunk Costs and Lease Expenses previously paid on the Lease.
      (NOTE: It is recognized that Ridgelake may chose to set a Platform on the
      Lease prior to the drilling of Project Well 1. If Ridgelake should so
      decide to set a Platform before the drilling of the aforesaid well than it
      is agreed that GulfX may elect not to proceed with the development of the
      Lease as if the Lease was not included under the Participation Agreement
      to which this Exhibit is attached and Ridgelake will refund to GulfX all
      Sunk Cost and Lease Expense payments paid to Ridgelake for the
      Lease.)

                    

            

            

              
                
                   

                

                
                  B-5

                  
                    

                  

                

                
                   

                

              

               

              
                
                  EXHIBIT "C" 

                  SUNK
COSTS

                

                
                   

                  Attached
to and made a part of that certain Amended and Restated Participation Agreement

                  dated the
8th day of December, 2006, 

                  by and
between Ridgelake Energy, Inc., GuIfX, LLC and South Marsh
LLC.

                

                
                   

                  SUNK
COSTS (By LEASE):

                

              

               

              
                
                  	
                          Lease
      Name:

                        	 	
                          Vendor

                        	 	
                          Invoice
      #:

                        	 	 	
                          Invoice
      Date:

                        	 	 	
                          Invoice
      Amount:

                        	 	
                          Description:

                        
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                          1.
      Viosca Knoll 79

                        	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          03/29/04

                        	 	 	$	29,400.00	 	
                          1/5
      Bonus

                        
	
                          (OCS-G
      26190)

                        	 	 
      	 	 	 	 	 	 	 	 	 	 	 
      
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          05/13/05

                        	 	 	$	146,400.00	 	
                          4/5
      Bonus & 1st
      yr. Rental

                        
	
                        	 	 
      	 	 	 	 	 	 	 	 	 	 	 
      
	 
      	 	
                          Focus
      Expl.

                        	 	 	 	 	
                          06/25/04

                        	 	 	$	100,000.00	 	
                          Prospect
      Fee

                        
	 
      	 	
                          USI
      Southwest

                        	 	 	 	 	
                          05/27/04

                        	 	 	$	1,100.00	 	
                          MMS
      Bond

                        
	 
      	 	
                          Apex
      Geo.

                        	 	 	 	 	 01/17/05	 	 	$	712.50	 	 
      
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          05/13/05

                        	 	 	$	28,800.00	 	
                          2nd
      Yr. Rental

                        
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          05/13/06

                        	 	 	$	28,800.00	 	
                          3rd
      Yr. Rental

                        
	 
      	 	
                          Tesla

                        	 	 	 	 	
                          06/19/06

                        	 	 	$	47,000.00	 	
                          Geophysical

                        
	 
      	 	
                          Hazard
      Report

                        	 	 	 	 	 	 	 	 	 	 	 
      
	 
      	 	
                          Tesla

                        	 	 	 	 	
                          08/17/06

                        	 	 	$	8,750.00	 	 
      
	 
      	 	
                          Tech.
      Eng.

                        	 	 	 	 	
                          08/31/06

                        	 	 	$	330.00	 	 
      
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          11/21/06

                        	 	 	$	3,250.00	 	
                          P.O.E.

                        
	 
      	 	
                          Ala.
      Dept. of

                        	 	 	 	 	
                          11/30/06

                        	 	 	$	520.00	 	
                          E.P.

                        
	 
      	 	
                          Env.
      Mngt.

                        	 	 	 	 	 	 	 	 	 	 	 
      
	 
      	 	 
      	 	
                           

                        	 	 	
                          
                            TOTAL:

                          

                        	 	 	$	395,062.50	 	 
      
	 
      	 	 
      	 	 	 	 	 	 	 	 	 	 	 
      
	
                          2.
      High Island A 307

                        	 	
                          Dept.
      of Interior

                        	 	
                           

                        	 	 	
                          
                            08/20/04

                          

                        	 	 	$	34,800.00	 	
                          1/5
      Bonus

                        
	
                          (OCS-G
      26560)

                        	 	 
      	 	 	 	 	 	 	 	 	 	 	 
      
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          09/28/04

                        	 	 	$	168,000.00	 	
                          4/5
      Bonus & 1st. yr. Rental

                        
	 
      	 	
                          Focus
      Expl.

                        	 	 	 	 	
                          10/08/04

                        	 	 	$	100,000.000	 	
                          Prospect
      Fee

                        
	 
      	 	
                          Dept,
      of interior

                        	 	 	 	 	
                          09/28/04

                        	 	 	$	168,000.00	 	
                          4/5
      Bonus & 1st. yr. Rental

                        
	 
      	 	
                          Focus
      Expl.

                        	 	 	 	 	
                          10/08/04

                        	 	 	$	100,000.00	 	
                          Prospect
      Fee

                        
	 
      	 	
                          Lowe
      Offshore

                        	 	 	 	 	
                          05/17/05

                        	 	 	$	174.00	 	 
      
	 
      	 	
                          Lowe
      Offshore

                        	 	 	 	 	
                          05/25/05

                        	 	 	$	216.98	 	 
      
	 
      	 	
                          Tesla
      Offshore

                        	 	
                          05-237

                        	 	 	
                          06/30/05

                        	 	 	$	33,750.00	 	
                          Shallow
      Hazard Survey

                        
	 
      	 	
                          Tesla
      Offshore

                        	 	
                          05-300

                        	 	 	
                          07/14/05

                        	 	 	$	4,500.00	 	
                          Shallow
      Hazard Survey-Report

                        
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          07/05/05

                        	 	 	$	28,800.00	 	
                          2nd.
      Yr. Rental

                        
	 
      	 	
                          Dept.
      of interior

                        	 	 	 	 	
                          07/03/06

                        	 	 	$	28.800.00	 	
                          3rd.
      Yr. Rental

                        
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 	 
      	 	 	 	 	
                          TOTAL:

                        	 	 	$	399,040.98	 	 
      
	 
      	 	 
      	 	 	 	 	 	 	 	 	 	 	 
      
	
                          3.
      Vermilion 317

                        	 	
                          Beacon
      Expl.

                        	 	 	 	 	 	 	 	$	109,090,91	 	
                          Prospect
      Fee

                        
	
                          (OCS-G
      27078)

                        	 	 
      	 	 	 	 	 	 	 	 	 	 	 
      
	 
      	 	
                          Department
      of Interior

                        	 	 	 	 	
                          03/16/05

                        	 	 	$	130,800.00	 	
                          1/5
      Bonus

                        
	 
      	 	
                          Department
      of Interior

                        	 	 	 	 	
                          04/05/05

                        	 	 	$	548,200.00	 	
                          4/5
      Bonus & 1st Yr. Rental

                        
	 
      	 	
                          Tesla
      Offshore

                        	 	
                          05-145

                        	 	 	
                          04/13/05

                        	 	 	$	32,500.00	 	
                          Shallow
      Hazard Survey

                        
	 
      	 	
                          Tesla
      Offshore

                        	 	
                          05-269

                        	 	 	
                          06/24/05

                        	 	 	$	5,000.00	 	
                          Shallow
      Hazard Survey-Report

                        
	 
      	 	
                          Eagle
      Conslt.

                        	 	
                          1012051

                        	 	 	
                          08/05/05

                        	 	 	$	314.45	 	 
      
	 
      	 	
                          Eagle
      Conslt.

                        	 	
                          1012725

                        	 	 	
                          10/26/05

                        	 	 	$	817.57	 	 
      
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          02/27/06

                        	 	 	$	25,000.00	 	
                          2nd.
      Yr. Rental

                        
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 	 
      	 	 	 	 	
                          TOTAL:

                        	 	 	$	851,722.93	 	 
      

                

                

                
                  
                    
                    

                  

                  
                    C-1

                    
                      

                    

                  

                  
                    
                    

                  

                

                

                
                  	
                          4.
      South Marsh Isl.
      138      

                          (OCS-G
      27089)

                        	 	
                          Becon
      Expl.

                        	 	 	 	 	 
      	 	 	$	109,090.91
    	 	
                          Prospect
      Fee

                        
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          03/16/05

                        	 	 	$	282,000.00	 	
                          1/5
      Bonus

                        
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          05/02/05

                        	 	 	$	1,153,000.00	 	
                          4/5
      Bonus &

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          1".
      yr. Rental

                        
	 
      	 	
                          Lowe
      Offshore

                        	 	
                          RL2005-10

                        	 	 	
                          04/04/05

                        	 	 	$	905.70	 	 
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          Lowe
      Offshore

                        	 	
                          RL2005-13

                        	 	 	
                          4/19/05

                        	 	 	$	107.15	 	 
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          Tesla
      Offshore

                        	 	
                          05-152

                        	 	 	
                          04/21/05

                        	 	 	$	32,500.00	 	
                          Shallow
      Hazard

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          Survey

                        
	 
      	 	
                          Eagle
      Consult.

                        	 	
                          1011454

                        	 	 	
                          06/30/05

                        	 	 	$	251.56	 	 
	 
      	 	
                          Tesla
      Offshore

                        	 	
                          05-268

                        	 	 	
                          06/24/05

                        	 	 	$	5,000.00	 	
                          Shallow
      Hazard

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          Survey-Report

                        
	 
      	 	
                          Eagle
      Consult.

                        	 	
                          1011834

                        	 	 	
                          07/15/05

                        	 	 	$	377.34	 	 
	 
      	 	
                          Eagle
      Consult.

                        	 	
                          1012050

                        	 	 	
                          08/05/05

                        	 	 	$	817.57	 	 
	 
      	 	
                          Eagle
      Consult.

                        	 	
                          1012720

                        	 	 	
                          10/26/05

                        	 	 	$	187.58	 	 
	 
      	 	
                          Eagle
      Consult.

                        	 	
                          1012721

                        	 	
                           

                        	
                          10/26/05

                        	 	 	$	62.50	 	 
	 
      	 	
                          Coastal
      Zone

                        	 	 	 	 	
                          02/24/06

                        	 	 	$	300.00	 	
                          Expl.
      Plan

                        
	 
      	 	
                          Tesla

                        	 	 	 	 	
                          02/28/06

                        	 	 	$	2,150.00	 	
                          P.O.E.

                        
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          03/31/06

                        	 	 	$	25,000.00	 	
                          2nd
      Yr. Rental

                        
	 
      	 	
                          USI

                        	 	 	 	 	
                          04/18/06

                        	 	 	$	25,300.00	 	
                          Expl.
      Bond

                        
	 
      	 	
                          US1

                        	 	 	 	 	
                          04/24/06

                        	 	 	$	4,400.00	 	
                          Supp.
      P&A Bond

                        
	 
      	 	
                          Fugro-McClell.

                        	 	
                          02-51796

                        	 	 	
                          09/20/06

                        	 	 	$	121,646.00	 	
                          Geotechnical
      Site

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          Investigation

                        
	 
      	 	
                          Lowe
      Offshore

                        	 	
                          RL2006-86

                        	 	 	
                          10/04/06

                        	 	 	$	360.00	 	 
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          Fuego-McClell.

                        	 	
                          02-51951

                        	 	 	
                          11/09/06

                        	 	 	$	20,442,00	 	
                          Soil
      Boring- Well

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          #1

                        
	 
      	 	
                          Fuego-McClell.

                        	 	
                          02-51952

                        	 	 	
                          11/09/06

                        	 	 	$	20,442.00	 	
                          Soil
      Boring-Well

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          #2

                        
	 
      	 	
                          Fairwinds
      Int.

                        	 	
                          117406

                        	 	 	
                          11/20/06

                        	 	 	$	297.50	 	
                          Facility
      AFE

                        
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 	 
      	 	 	 	 	
                          TOTAL:

                        	 	 	$	1,804,637.81	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 

                

                 

                
                  
                    
                    

                  

                  
                    C-2

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	5.
      South Marsh Isl.
      152	 	
                          Beacon
      Expl.

                        	 	 	 	 	 
      	 	 	$	109,090.91	 	
                          Prospect
      Fee

                        
	(OCS-G
      27091)	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          03/16/05

                        	 	 	$	242,800.00	 	
                          1/5
      Bonus

                        
	 
      	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          06/05/05

                        	 	 	$	983,700.00	 	
                          4/5
      Bonus &

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          1st.
      yr. Rental

                        
	 
      	 	
                          Tesla
      Offshore

                        	 	
                          05-363

                        	 	 	
                          07/12/05

                        	 	 	$	25,500.00	 	
                          Geophysical

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          Hazard
      Survey

                        
	 
      	 	
                          Lowe
      Offshore

                        	 	
                          RL2005-41

                        	 	 	
                          09/20/05

                        	 	 	$	655.56	 	 
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          J.
      Connor

                        	 	
                          8/10/8770

                        	 	 	
                          9/30/05

                        	 	 	$	26.25	 	 
	 
      	 	
                          Lowe
      Offshore

                        	 	
                          RL2005-44

                        	 	 	
                          10/5/05

                        	 	 	$	939.90	 	 
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          Lowe
      Offshore

                        	 	
                          RL2005-48

                        	 	 	
                          10/19/05

                        	 	 	$	1,218.96	 	 
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          Lowe
      Offshore

                        	 	
                          RL2005-52

                        	 	 	
                          11/1/05

                        	 	 	$	1,056.28	 	
                          (SMI
      149)

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          Technical
      Eng.

                        	 	
                          29339

                        	 	 	
                          9/30/05

                        	 	 	$	170.00	 	
                          (SMI
      149)

                        
	 
      	 	
                          Tesla
      Offshore

                        	 	
                          05-557

                        	 	 	
                          10/18/05

                        	 	 	$	32,500.00	 	
                          (SMI
      149)

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          Hazard
      Survey

                        
	 
      	 	
                          Eagle
      Consult.

                        	 	
                          1012722

                        	 	 	
                          10/26/05

                        	 	 	$	439.06	 	 
	 
      	 	
                          Eagle
      Consult.

                        	 	
                          1012723

                        	 	 	
                          10/26/05

                        	 	 	$	312.50	 	 
	 
      	 	
                          Eagle
      Consult.

                        	 	
                          1012724

                        	 	 	
                          10/26/05

                        	 	 	$	312.50	 	 
	 
      	 	
                          J.
      Connor

                        	 	
                          2510484

                        	 	 	
                          10/31/05

                        	 	 	$	26.25	 	
                          (SMI
      149)

                        
	 
      	 	
                          J.
      Connor

                        	 	
                          2510485

                        	 	 	
                          10/31/05

                        	 	 	$	69.00	 	 
	 
      	 	
                          Lowe
      Offshore

                        	 	
                          RL2005-56

                        	 	 	
                          11/16/05

                        	 	 	$	107.00	 	
                          (SMI
      149)

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          MMS

                        	 	
                          11/4/2005

                        	 	 	
                          11/4/05

                        	 	 	$	450.00	 	
                          (SMI
      149)

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          Exploration
      Plan

                        
	 
      	 	
                          Coastal
      Zone

                        	 	
                          12/1/2005

                        	 	 	
                          12/1/05

                        	 	 	$	300.00	 	
                          Exploration
      Plan

                        
	 
      	 	
                          Management

                        	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          Eagle
      Consult.

                        	 	
                          1012931

                        	 	 	
                          11/14/05

                        	 	 	$	1,069.13	 	 
	 
      	 	
                          J.
      Connor

                        	 	
                          3/5/8776

                        	 	 	
                          11/30/05

                        	 	 	$	4,931.03	 	
                          (SMI
      149)

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          DOCD

                        
	 
      	 	
                          Lowe
      Offshore

                        	 	
                          RL2005-60

                        	 	 	
                          11/29/05

                        	 	 	$	238.69	 	
                          (SMI
      149)

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	 
	 
      	 	
                          Tesla
      Offshore

                        	 	
                          05-709

                        	 	 	
                          11/17/05

                        	 	 	$	4,550.00	 	
                          (SMI
      149)

                        
	 
      	 	 
      	 	 	 	 	 
      	 	 	 	 	 	
                          Interpretation/Report,
      

                            Permit
      Plats

                          

                        

                

                

                
                  
                    
                    

                  

                  
                    C-3

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	 	 	
                          Technical
      Eng.

                        	 	
                          29571

                        	 	 	
                          11/25/05

                        	 	 	$	654.20	 	
                          (SMI
      149) Engineering

                        
	 	 	
                          USI

                        	 	
                          201959

                        	 	 	
                          12/20/05

                        	 	 	$	23,100,00	 	
                          Right
      of Use & Easement on SMI 149 (05-06)

                        
	 	 	
                          J.Connor

                        	 	 	 	 	
                          12/31/05

                        	 	 	$	543.16	 	 
      
	 	 	
                          J.
      Connor

                        	 	 	 	 	
                          01/31/06

                        	 	 	$	78.75	 	 
      
	 	 	
                          Dept.
      of Interior

                        	 	 	 	 	
                          05/31/06

                        	 	 	$	12,500.00	 	
                          2nd
      Yr. Rental

                        
	 	 	
                          Lowe
      Offshore

                        	 	
                          RL2006-82

                        	 	 	
                          09/20/06

                        	 	 	$	131.89	 	 
      
	 	 	
                          J.
      Connor

                        	 	 	 	 	
                          09/30/06

                        	 	 	$	448.40	 	 
      
	 	 	
                          USI

                        	 	
                          201959

                        	 	 	
                          11/03/06

                        	 	 	$	23,100.00	 	
                          Right
      of Use & Easement on SMI 149 (06-07)

                        
	 	 	
                          J.Connor

                        	 	 	 	 	
                          09/30/06

                        	 	 	$	203.75	 	 
      
	 	 	
                          Apex
      Geo.

                        	 	 	 	 	
                          10/06/06

                        	 	 	$	616.00	 	
                          Generate
      Synthetic Seismogram

                        
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
      	 	
                        	 	 	
                          
                            TOTAL:

                          

                        	 	 	$	
                          1,471,839.17 

                        	 	 
      

                

                
 

                
                  
                    
                    

                  

                  
                    C-4

                    
                      

                    

                  

                  
                    
                    

                  

                

              

               

              EXHIBIT
“D”

              JOINT
OPERATING AGREEMENT

              

              Attached
to and made a part of that certain Amended and Restated Participation
Agreement

              dated the
____ day of December, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC and South Marsh LLC

              

               

              OFFSHORE

              OPERATING
AGREEMENT

              

              High
Island Area, East Addition, South Extension, Block A 307

              (OCS-G
26560)

              

              DATED
EFFECTIVE:   September
18,2006

              

              

              BETWEEN

              

              

              RIDGELAKE
ENERGY, INC.,

              GULFX,
LLC,

              SOUTH
MARSH LLC and

              LION
ENERGY LIMITED LLC

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

               

              OPERATING
AGREEMENT

              

              TABLE OF
CONTENTS

              

              

              ARTICLE
1

               

              
                	 	 	APPLICATION   	 
      1
	
                         
      

                      	
                        1.1

                      	
                        Application 

                      	
                          1

                      

              

              

              ARTICLE
2

               

              
                	 	 	DEFINITIONS    	 
      1
	
                         
      

                      	
                        2.1

                      	
                        Affiliate 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.2

                      	
                        Contract
      Area 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.3

                      	
                        Development
      Operations 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.4

                      	
                        Development
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.5

                      	
                        Exploratory
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.6

                      	
                        Exploratory
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.7

                      	
                        Facility(ies) 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.8

                      	
                        Joint
      Account 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.9

                      	
                        Lease 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.10

                      	
                        Non-Consent
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.11

                      	
                        Non-Consent
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.12

                      	
                        Non-Operator 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.13

                      	
                        Non-Participating
      Party 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.14

                      	
                        Non-Participating Party's
      Share 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.15

                      	
                        Operator 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.16

                      	
                        Participating
      Interest 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.17

                      	
                        Participating
      Party 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.18

                      	
                        Platform 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.19

                      	
                        Producible
      Well 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.20

                      	
                        Producible
      Reservoir 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.21

                      	
                        Sidetrack(ing) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.22

                      	
                        Subsequent
      Facility(ies) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.23

                      	
                        Working
      Interest 

                      	
                          3

                      

              

               

              ARTICLE
3

               

              
                	 	 	EXHIBITS    	 
      4
	
                         
      

                      	
                        3.1

                      	
                        Exhibits 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.1

                      	
                        Exhibit
      "A" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.2

                      	
                        Exhibit
      "B" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.3

                      	
                        Exhibit
      "C" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "D" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "E" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.2

                      	
                        Conflicts 

                      	
                          4

                      

              

               

              
                ARTICLE
4

                 

                
                  	 	 	OPERATOR  	 
      4
	
                           
      

                        	
                          4.1

                        	
                          Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.2

                        	
                          Resignation or Removal of
      Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.3

                        	
                          Selection of
      Successor 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.4

                        	
                          Delivery of
      Property 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.5

                        	
                          Liability of
      Operator 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.6

                        	
                          Removal and selection of
      Operator in a two Party Agreement 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.7

                        	
                          Designation of
      Operator 

                        	
                            5

                        

                

                 

              

              
 

              
                
                  
                  

                

                
                  
                  

                  
                    

                  

                

                
                  
                  

                

              

              

              

              ARTICLE
5

               

              
                	 	 	AUTHORITY AND DUTIES OF
      OPERATOR    	 
      5
	
                         
      

                      	
                        5.1

                      	
                        Exclusive Right to
      Operate 

                      	
                          5

                      

              

              
                	
                         
      

                      	
                        5.2

                      	
                        Workmanlike
      Conduct 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.3

                      	
                        Liens and
      Encumbrances 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.4

                      	
                        Employees 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.5

                      	
                        Records 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.6

                      	
                        Compliance 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.7

                      	
                        Contractors 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.8

                      	
                        Governmental
      Reports 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.9

                      	
                        Information to Participating
      Parties 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.10

                      	
                        Information to
      Non-Participating Parties 

                      	
                          7

                      

              

              

              ARTICLE
6

               

              
                	 	 	VOTING AND VOTING
      PROCEDURES    	 
      7
	
                         
      

                      	
                        6.1

                      	
                        Designation of
      Representatives 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2

                      	
                        Voting
      Procedures 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.1

                      	
                        Voting
      Interest 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.2

                      	
                        Vote
      Required 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.3

                      	
                        Votes

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        6.2.4

                      	
                        Meetings 

                      	
                          8

                      

              

              

              ARTICLE
7

               

              
                	 	 	ACCESS    	 
      8
	
                         
      

                      	
                        7.1

                      	
                        Access to Contract
      Area 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.2

                      	
                        Reports 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.3

                      	
                        Confidentiality 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.4

                      	
                        Exceptions 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.5

                      	
                        Limited
      Disclosure 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.6

                      	
                        Proceeds 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        7.7

                      	
                        Media
      Releases 

                      	
                          10

                      

              

              

              ARTICLE
8

              

              
                	 	 	EXPENDITURES   	 
      10
	
                         
      

                      	
                        8.1

                      	
                        Basis of Charge to the
      Parties 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        8.2

                      	
                        Authorization 

                      	
                         
      10

                      

              

              
                	
                         
      

                      	
                        8.3

                      	
                        Advance
      Billings 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.4

                      	
                        Commingling of
      Funds 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.5

                      	
                        Security
      Rights 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.6

                      	
                        Default 

                      	
                         
      17

                      
	 	8.7 	Unpaid
      Charges 	  18

              

              
                	
                         
      

                      	
                        8.8

                      	
                        Carved-out
      Interest 

                      	
                         
      18

                      

              

              

              ARTICLE
9

               

              
                	 	 	NOTICES  	 
      19
	
                         
      

                      	
                        9.1

                      	
                        Giving and Responding to
      Notices 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.2

                      	
                        Content of
      Notice 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.3

                      	
                        Response to
      Notices 

                      	
                         
      19

                      
	 	 	9.3.1  
         Platform
      Construction	 
      19 
	 	 	9.3.2     
      Proposal Without
      Platform 	 
      20 
	 	 	9.3.3     
      Other
      Matters 	 
      20 

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        9.4

                      	
                        Failure to
      Respond 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        9.5

                      	
                        Restriction on Multiple Well
      Proposals 

                      	
                         
      20

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              
                 
ARTICLE
10

              

               

              
                	 	 	EXPLORATORY
      OPERATIONS 	 
      20
	
                         
      

                      	
                        10.1

                      	
                        Operations by All
      Parties 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        10.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.3

                      	
                        Final Election to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.5

                      	
                        Substitute
      Well 

                      	
                         
      22

                      

              

              
                	
                         
      

                      	
                        10.6

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      23

                      
	 	 	
                        10.6.1      
      Operation by All
      Parties 

                      	 
      24
	 	 	
                        10.6.2      
      Operations by Fewer than
      All Parties 

                      	 
      24
	 	 	
                        10.6.3      
      Obligations and
      Liabilities of Participating Parties 

                      	 
      24
	 	 	
                        10.6.4      
      Deepening or Sidetracking
      of Non-Consent Exploratory Well 

                      	 
      24
	 	 	
                        10.6.5      
      Plugging and Abandoning
      Cost 

                      	 
      25

              

              
              

              
              

              
              

              
              

              
              

              

              ARTICLE
11

               

              
                	 	 	DEVELOPMENT
      OPERATIONS  	 
      25
	
                         
      

                      	
                        11.1

                      	
                        Operations by All
      Parties 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.3

                      	
                        Final Election to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.5

                      	
                        Timely
      Operations 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.6

                      	
                        Substitute
      Well 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.7

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      27

                      

              

              
              

              
              

              
              

              
                	 	 	
                        11.7.1     
      Operations by All
      Parties

                      	 
      28
	 	 	
                        11.7.2     
      Operations by Fewer than
      All Parties

                      	 
      28
	 	 	
                        11.7.3     
      Obligations and
      Liabilities of Participating Parties 

                      	 
      28
	
                         
      

                      	
                        11.8

                      	
                        Deeper
      Drilling 

                      	
                         
      28

                      

              

              
                	
                         
      

                      	
                        11.9

                      	
                        Plugging and Abandoning
      Cost 

                      	
                         
      28

                      
	 	11.10	
                        Subsequent Facilities
      

                      	 
      29
	 	11.11 	
                        Contracts
    

                      	 
      29

              

              
              

              
              

              

              ARTICLE
12

               

              
                	 	 	NON-CONSENT
      OPERATIONS   	  29
	
                         
      

                      	
                        12.1

                      	
                        Non-Consent
      Operations 

                      	
                          29

                      
	 	 	12.1.1     
      Non-Interference	 
      29
	 	 	12.1.2     
      Multiple Completion
      Limitation  	 
      29
	 	 	12.1.3     
      Metering 	 
      29
	 	 	12.1.4     
      Non-Consent
      Well	 
      29
	 	 	12.1.5     
      Cost Information
      	 
      29
	 	 	12.1.6     
      Completion	 
      30

              

              
              

              
              

              
              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.2

                      	
                        Forfeiture of
      Interest 

                      	
                         
      30

                      
	 	 	12.2.1     
      Production
      Reversion	 
      30
	 	 	12.2.2     
      Non-Production
      Reversion	 
      31

              

              
              

              
              

              
                	
                         
      

                      	
                        12.3

                      	
                        Deepening or Sidetracking of
      Non-Consent Development Well 

                      	
                         
      31

                      
	 	12.4 	Operations from Non-Consent
      Platforms and Facilities  	 
      31

              

              
              

              
                	
                         
      

                      	
                        12.5

                      	
                        Discovery or Extension from
      Mobile Drilling Operations 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.6

                      	
                        Non-Consent Operations to
      Maintain Lease 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.7

                      	
                        Allocation of Platform Costs to
      Non-Consent Operations 

                      	
                         
      33

                      
	 	 	12.7.1     
      Charges 	 
      33
	 	 	12.7.2     
      Operating and Maintenance
      Charges 	 
      34
	 	 	12.7.3     
      Payments 	 
      34

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.8

                      	
                        Allocation of Costs Between
      Depths (Single Completion) 

                      	
                         
      34

                      

              

              
                	
                         
      

                      	
                        12.9

                      	
                        Allocation of Costs Between
      Depths (Multiple Completions) 

                      	
                         
      35

                      

              

              
              

              
                	 	12.10	Allocation of Costs Between
      Depths (Dry Hole) 	 
      36
	
                         
      

                      	
                        12.11

                      	
                        Intangible Drilling and
      Completion Cost Allocations 

                      	
                         
      36

                      

              

              
                	
                         
      

                      	
                        12.12

                      	
                        Subsequent Operations in
      Non-Consent Well 

                      	
                         
      36

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              
                 
ARTICLE
13

              

               

              
                	 	 	ABANDONMENT AND
      SALVAGE 	 
      37
	
                         
      

                      	
                        13.1

                      	
                        Platform Salvage and Removal
      Costs 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.2

                      	
                        Abandonment of Producing
      Well 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.3

                      	
                        Assignment of
      Interest 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.4

                      	
                        Abandonment Operations Required
      By Governmental Authority 

                      	
                         
      37

                      

              

              

              ARTICLE
14

               

              
                	 	 	WITHDRAWAL 	 
      37
	
                         
      

                      	
                        14.1

                      	
                        Withdrawal 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        14.2

                      	
                        Limitations on
      Withdrawal 

                      	
                         
      38

                      

              

              

              ARTICLE
15

               

              
                	 	 	RENTALS, ROYALTIES AND OTHER
      PAYMENTS  	 
      38
	
                         
      

                      	
                        15.1

                      	
                        Creation of Overriding
      Royalty 

                      	
                         
      38

                      

              

              
                	
                         
      

                      	
                        15.2

                      	
                        Payment of Rentals and Minimum
      Royalties 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.3

                      	
                        Non-Participation in
      Payments 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.4

                      	
                        Royalty
      Payments 

                      	
                         
      39

                      

              

              

              ARTICLE
16

               

              
                	 	 	TAXES 	 
      39
	
                         
      

                      	
                        16.1

                      	
                        Property
      Taxes 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        16.2

                      	
                        Contest of Property Tax
      Valuation 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.3

                      	
                        Production and Severance
      Taxes 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.4

                      	
                        Other Taxes and
      Assessments 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.5

                      	
                        Gas
      Balancing 

                      	
                         
      40

                      

              

              

              ARTICLE
17

               

              
                	 	 	INSURANCE  	 
      40
	
                         
      

                      	
                        17.1

                      	
                        Insurance 

                      	
                         
      40

                      

              

              

              ARTICLE
18

               

              
                	 	 	LIABILITY, CLAIMS AND
      LAWSUITS  	 
      41
	
                         
      

                      	
                        18.1

                      	
                        Individual
      Obligations 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.2

                      	
                        Notice of Claim or
      Lawsuit 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.3

                      	
                        Settlements 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.4

                      	
                        Legal
      Expense 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.5

                      	
                        Liability for Losses, Damages,
      Injury or Death 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.6

                      	
                        Indemnification 

                      	
                         
      41

                      
	 	18.7 	Damage to Reservoir, Loss of
      Reserves and Profits 	 
      41 

              

              
              

              

              ARTICLE
19

               

              
                	 	 	INTERNAL REVENUE
      PROVISION	 
      42
	
                         
      

                      	
                        19.1

                      	
                        Internal Revenue
      Provision 

                      	
                         
      42

                      

              

              

              ARTICLE
20

               

              
                	 	 	CONTRIBUTIONS 	 
      42
	
                         
      

                      	
                        20.1

                      	
                        Notice of Contributions Other
      than Advances for Sale of Production 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.2

                      	
                        Cash
      Contributions 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.3

                      	
                        Acreage
      Contributions 

                      	
                         
      43

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              ARTICLE
21

               

              
                	 	 	DISPOSITION OF
      PRODUCTION  	 
      43
	
                         
      

                      	
                        21.1

                      	
                        Facilities to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.2

                      	
                        Taking Production In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.3

                      	
                        Failure to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.4

                      	
                        Expenses of Delivery In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.5

                      	
                        Gas Balancing
      Provisions 

                      	
                         
      43

                      

              

              

              ARTICLE
22

               

              
                	 	 	APPLICABLE
      LAW 	 
      44 
	
                         
      

                      	
                        22.1

                      	
                        Applicable
      Law 

                      	
                         
      44

                      

              

              

              

              ARTICLE
23

               

              
                	 	 	LAWS AND
      REGULATIONS 	  44
	
                         
      

                      	
                        23.1

                      	
                        Laws and
      Regulations 

                      	
                         
      44

                      

              

              

              

              ARTICLE
24

               

              
                	 	 	FORCE
      MAJEURE 	 
      44
	
                         
      

                      	
                        24.1

                      	
                        Force
      Majeure 

                      	
                         
      44

                      

              

              
                	
                         
      

                      	
                        24.2

                      	
                        Notice 

                      	
                         
      44

                      

              

              

              ARTICLE
25

              

              
                	 	 	SUCCESSORS, ASSIGNS AND
      PREFERENTIAL RIGHTS 	 
      45
	
                         
      

                      	
                        25.1

                      	
                        Successors and
      Assigns 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.2

                      	
                        Transfer of
      Interest 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.3

                      	
                        Consent to
      Assign 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.4

                      	
                        Transfers Between
      Parties 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.5

                      	
                        Division of
      Interest 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.6

                      	
                        Preferential
      Rights 

                      	
                         
      46

                      

              

               

              ARTICLE
26

               

              
                	 	 	TERM  	 
      47
	
                         
      

                      	
                        26.1

                      	
                        Term 

                      	
                         
      47

                      

              

              

              ARTICLE
27

               

              
                	 	 	MISCELLANEOUS
      PROVISIONS 	 
      47
	
                         
      

                      	
                        27.1

                      	
                        Headings 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        27.2

                      	
                        Waiver 

                      	
                         
      47

                      

              

              

               ARTICLE
28

               

              
                	 	 	EXECUTION   	 
      47
	
                         
      

                      	
                        28.1

                      	
                        Counterpart
      Execution 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        28.2

                      	
                        Amendments 

                      	
                         
      47

                      

              

              

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              OPERATING
AGREEMENT

              High
Island Block A 307 (OCS-G 26560)

              

              THIS AGREEMENT is made effective the
18th day of September , 2006, by and between Ridgelake Energy, Inc., GulfX, LLC,
South Marsh LLC and Lion Limited LLC, herein referred to collectively as
"Parties" and individually as "Party".

              

              W I T N E
S S E T H:

               

              WHEREAS, the Parties own an interest in
the oil and gas Lease identified in Exhibit "A" attached hereto;
and,

              

              WHEREAS,
the Parties desire to enter into this Agreement in order to efficiently explore,
develop, produce, and operate the said Lease.

              

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

              

              ARTICLE
1

              APPLICATION

              

              1.1           Application.  This
Agreement applies to and is applicable to all operations on the Oil and Gas
Lease described on Exhibit “A” attached hereto.

              

              ARTICLE
2

              DEFINITIONS

              

              2.1           Affiliate.  Any
person, corporation, partnership, limited partnership, or legal entity, whether
of a similar or dissimilar nature, which (a) controls, either directly or
indirectly, a Party, or (b) is controlled, either directly or indirectly, by
such Party, or (c) is controlled, either directly or indirectly, by a person or
entity which directly or indirectly controls such Party.  "Control"
means the ownership (or the right to exercise or direct) fifty percent (50%) or
more of the voting rights in the appointment of directors of such company, or
fifty percent (50%) or more of the interests in the partnership or other
entity.

               

              2.2           Contract
Area.  The acreage subject to this Operating Agreement includes
all acreage covered by the Oil and Gas Lease identified in Exhibit "A" attached
to this Agreement.

               

              2.3           Development
Operations.  Operations on the Contract Area other than
Exploratory Operations as defined in Section 2.6 below, including operations
conducted off the Contract Area for the purpose of development or production of
hydrocarbons under the Contract Area.

              

              
                
                   

                

                
                  1

                  
                    

                  

                

                
                   

                

              

              2.4           Development
Well.  Any well proposed as a Development
Operation.

              

              2.5           Exploratory
Operations.  Operations within the Contract Area:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        to
      a proposed objective zone, horizon, or formation which does not have a
      Producible Well and all activities necessary for the accomplishment of
      such drilling up to, but not including, the election following the
      Operator's recommendation in Section 10.6
below.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        to
      a proposed objective zone, horizon, or formation which does have one (1)
      or more Producible Well(s), but such objective will be penetrated at a
      location which all of the Participating Parties in the preexisting
      Producible Well(s) agree, at the time that the proposed Exploratory Well
      is approved, will be in a totally separate reservoir or will not drain or
      produce reserves that would be recovered by the preexisting Producible
      Well(s), and all activities necessary for the accomplishment of such
      drilling up to, but not including, the election following the Operator's
      recommendation in Section 10.6 below;
or

                      

              

               

                     
2.6            Exploratory
Well.  Any well drilled as an Exploratory
Operation.

               

              2.7            Facility(ies).  All
equipment and piping beyond the wellhead connections (including pipeline(s)
and/or flowline(s) to separate processing facilities) acquired pursuant to this
Agreement necessary to establish initial production on any Exploratory or
Development Well operation, excluding Platforms and excluding pipelines used to
transport production from the Contract Area or processing site to
shore.

               

              2.8            Joint
Account.  The combined interests of the Parties in the Contract
Area now or hereafter subject to this Agreement.

               

              2.9            Lease.  Individually,
each of the offshore oil and gas leases which are described in Exhibit "A"
attached hereto, to the extent that such leases authorize exploration,
development, and production activities on lands contained within the Contract
Area.

               

              2.10          Non-Consent
Operations.  Exploratory or Development Operations conducted by
fewer than all Parties.

               

              2.11          Non-Consent
Well.  An Exploratory or Development Well which is drilled by
fewer than all Parties and with respect to which no reversion of interest has
taken place pursuant to Article 12.

               

              2.12          Non-Operator.  Any
Party to this Agreement other than the Operator.

               

              2.13          Non-Participating
Party.  Any Party other than a Participating
Party.

               

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

              

              
                
                   

                

                
                  2

                  
                    

                  

                

                
                   

                

              

              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, or in a Platform, well, or Facility owned, pursuant
to this Agreement.

               

              2.17          Participating
Party.  A Party who joins in an operation, pays its portion of
the cost and expense of the operation, and is entitled to its proportionate part
of the benefits of the operation pursuant to the terms of this
Agreement.

               

              2.18          Platform.  A
drilling or production platform, caisson or well protector, or similar
structure.

               

              2.19          Producible
Well.  A well producing oil or gas, or, if not producing oil or
gas, a well determined to be capable of producing oil or gas in paying
quantities pursuant to any applicable order or regulation issued by appropriate
governmental authority; however, any well shall be considered a Producible Well
if so determined by two (2) or more participating Parties with a combined
working interest of 50% of said well, whether or not said well is plugged and
abandoned.  Each separate completion in a Producible Reservoir shall
be considered a Producible Well.

               

              2.20          Producible
Reservoir.  Based on electric log data, core analysis data, a
drill stem test, a wire line formation test, or any combination of these, an
accumulation of oil or gas, or both, separated from and not in oil or gas
communication with any other accumulation and having rock properties indicating
it to be capable of hydrocarbon production in quantities sufficient to yield a
return in excess of the costs of equipping, completing, and operating it,
including allocated costs for a Platform, Facilities, and their operations, as
determined by the affirmative vote of two (2) or more Parties having a combined
Participating interest of fifty percent (50%) or more.  In addition,
any accumulation of oil or gas, or both, within the Contract Area shall be
designated a Producible Reservoir upon the approval of a Platform to produce
such oil or gas.

               

              2.21          Sidetrack(ing).  Directionally
drilling by intentionally deviating a well bore to a target bottomhole location
other than that target bottomhole location to which such well bore would have
penetrated absent such deviation.  Operations undertaken to straighten
the hole or to drill around junk in the hole resulting from other mechanical
difficulties shall not be considered as a sidetrack or
sidetracking.

               

              2.22          Subsequent
Facility(ies).  Those Facilities, excluding Platforms, which
are proposed subsequent, or in addition, to the Facilities.

               

              2.23          Working
Interest.  The ownership of each Party in and to the Lease and
Contract Area as set forth in Exhibit "A".

              
                
                   

                

                
                  3

                  
                    

                  

                

                
                   

                

              

              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, Contract Area, Interests of the Parties and Designated
      Representatives.

                        
	
                          3.1.2

                        	
                          Exhibit
      "B".

                        	
                          Insurance
      Requirements.

                        
	
                          3.1.3

                        	
                          Exhibit
      "C".

                        	
                          Accounting
      Procedure.

                        
	
                          3.1.4

                        	
                          Exhibit
      "D".

                        	
                          Gas
      Balancing Agreement.

                        
	
                          3.1.5

                        	
                          Exhibit
      “E”

                        	
                          Memorandum
      of Operating Agreement and Financing Agreement.

                        
	
                          3.1.6

                        	
                          Exhibit
      “F”

                        	
                          Tax
      Partnership.

                        

                

                 

              

              3.2           Conflicts.  If
a provision contained in an Exhibit is inconsistent with a provision contained
in the body of this Agreement, then the provision contained in the body of this
Agreement shall prevail.

              

              ARTICLE
4

              OPERATOR

              

              4.1           Operator. RIDGELAKE
ENERGY, INC. is hereby designated as Operator for the purposes of this
Agreement, and for all operations conducted on or related to the Contract
Area.

               

              4.2           Resignation or Removal of
Operator.  Operator may resign at any time by giving written
notice thereof to Non-Operators.  In addition, Operator may be removed
by the affirmative vote of the Parties owning a combined Working Interest of
fifty-one percent (51%) or more after excluding Operator’s Working Interest
if:

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        a
      receiver is appointed for Operator or for substantially all of its
      property or affairs.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Operator
      sells, trades, transfers or assigns all or a portion of its Working
      Interest, thereby reducing its Working Interest to less than ten percent
      (10%); or

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Operator
      commits a substantial breach of a material provision of this Agreement and
      fails to cure such breach within sixty (60) days after receipt of a
      Non-operator’s notice to Operator of such breach.

                         

                      

              

              The resignation or removal of the
Operator shall become effective as soon as practical, but not later than 7:00
o'clock a.m. on the first day of the calendar month following a period of ninety
(90) days after i) the date of notice of resignation by Operator or ii) the date
of receipt of written notice by Operator from Non-Operator detailing the alleged
grounds for removal and Operator has failed to cure same within sixty (60) days
from its
receipt of the notice, unless a longer period is required for the Parties to
obtain approval of the designation of the successor Operator by the MMS;
however, in no event shall the resignation or removal of Operator become
effective until a successor Operator has assumed the duties of
Operator.  Upon approval of the designation of the successor Operator
by the MMS, the resigning or removed Operator shall be bound by the terms of
this Joint Operating Agreement as a Non-Operator.  A change of a
corporate name or structure of Operator or transfer of Operator’s interest to
any single subsidiary, parent or successor corporation shall not be the basis
for removal of Operator.

              
                
                   

                

                
                  4

                  
                    

                  

                

                
                   

                

              

              4.3           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 majority Working Interest.  However, if the removed
or resigned Operator fails to vote or votes only to succeed itself, the
successor Operator shall be selected by an affirmative vote of the Parties
having a combined Working Interest of fifty-one percent (51%) or more of the
remaining Working Interest 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 elected and assumed its duties.

               

              4.4          
Delivery of
Property.  Prior to the effective date of resignation or
removal, the former Operator shall deliver to the successor Operator all records
and data relating to the operations conducted by the former Operator that the
successor Operator is entitled to have and that are not already in the
possession of the successor Operator, as well as all other property in the
possession of the former Operator that was acquired for the Joint
Account.

               

              4.5           Liability of
Operator.  If Operator resigns, or if Operator is removed as
Operator, such resignation, or removal shall not relieve Operator of any
liabilities it may have to Non-Operator(s) or third parties for damages arising
out of Operator's breach of this Agreement.

               

              4.6           Removal and Selection of a
Successor Operator in a Two-party Agreement.  If this Agreement
involves only two parties, the following provisions shall apply:

               

              
                	
                         
      

                      	
                        4.6.1  On
      the occurrence of an event specified in Section 4.2 that allows removal of
      Operator, Non-Operator shall have the option of either becoming Operator
      or allowing Operator to continue in that position.

                         

                      

              

              
                	
                         
      

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

                         

                      

              

              4.7           Designation of
Operator.  The Parties hereto agree to execute such Designation
of Operator forms as are required to have the Operator or its successor properly
designated as operator with the Minerals Management Service or any other
governmental authority having jurisdiction over the Lease and the operations
conducted thereunder.

              

              ARTICLE
5

              AUTHORITY AND DUTIES OF
OPERATOR

              

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

               

              
                
                  
                  

                

                
                  5

                  
                    

                  

                

                
                  
                  

                

              

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

               

              5.3           Liens and
Encumbrances.  Operator shall endeavor to keep the Lease within
the Contract Area and equipment free from all liens and encumbrances occasioned
by operations hereunder, except those provided for in Section 8.5 (Security
Rights).

               

              5.4           Employees.  The
number of employees and their selection, and the hours of labor and compensation
for services performed shall be determined by Operator.  Except as
provided in Exhibit “C”, such employees shall be the employees of
Operator.

               

              5.5           Records.  Operator
shall keep accurate books, accounts, and records of operations under this
Agreement, which, unless otherwise provided for in this Agreement, shall be
available to Non-Operator as provided 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 authorities
having jurisdiction.

               

              5.7           Contractors.  Operator
may enter into contracts with independent contractors for the design,
construction, installation, or operation of Platforms and
Facilities.  Insofar as possible, Operator shall use competitive
bidding to procure goods and services for the benefit of the
Parties.  All drilling operations conducted under this Agreement shall
be conducted by qualified and responsible drilling contractors under current
competitive contracts.  A drilling contract will be deemed to be a
current competitive contract if it (a) was made within one hundred (180) days
before the commencement of the well and (b) contains terms, rates, and
provisions that, when the contract was made, did not exceed those generally
prevailing in the area for operations involving substantially equivalent rigs
that are capable of drilling the proposed well.  At its
election, Operator may use its own or an Affiliate’s drilling equipment, derrick
barge, tools, or machinery to conduct drilling operations, but the work shall be
(a) performed by Operator acting as an independent contractor, (b) approved by
written agreement with the Participating Parties before commencement of
operations, and (c) conducted under the same terms and conditions and at the
same rates as are customary and prevailing in competitive
contracts  of third parties doing work of a similar
nature.  Before awarding a drilling contract or performing work with
its own or an Affiliate’s drilling equipment, derrick barge, tools, or
machinery, Operator shall attempt to obtain competitive bids for the work from
independent contractors.

              
                
                   

                

                
                  6

                  
                    

                  

                

                
                   

                

              

              5.8           Governmental
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 Participating Parties.

               

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

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Daily
      drilling reports.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        A
      complete report of all core analyses, if
any.

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        A
      copy of any logs or surveys as run.

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        A
      copy of any well test results, bottom-hole pressure surveys, gas and
      condensate analyses, or similar
information.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        A
      copy of reports made to regulatory
agencies.

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        To
      the extent possible, twenty-four (24) hour advance notice by telephone to
      the designated representative listed in Exhibit "A" (or the designated
      alternate), of logging, coring and testing
  operations.

                      

              

              
                	
                         
      

                      	
                        (h)

                      	
                        If
      available, upon written request, samples of cuttings and cores marked as
      to depth, to be packaged and shipped at the expense of the requesting
      Party.

                         

                      

              

              5.10           Information to
Non-Participating Parties.  Operator shall furnish to each
Non-Participating Party a copy of Operator’s governmental reports that are
available to the public and associated with the applicable Non-consent
operation.  A Non-Participating Party shall be entitled to receive the
information specified in Section 5.9 after the recoupment provisions in Section
10.4 and/or Section 12.2.1 have been satisfied.

              

              ARTICLE
6.

              VOTING AND VOTING
PROCEDURES

              

              6.1           Designation of
Representatives.  The names and addresses of the representative
and alternate, who are authorized to represent each Party with respect to
operations hereunder, are set forth in Exhibit "A".  The designated
representative or alternate may be changed by written notice to the other
Parties.

              6.2              Voting
Procedures.  Unless otherwise provided, any matter requiring
approval of the Parties, except an amendment to this Agreement, shall be
determined as follows:

               

              
                	
                         
      

                      	
                        6.2.1

                      	
                        Voting
      Interest.  Subject to section 8.6, each Party shall have
      a voting interest equal to its Working Interest or its Participating
      Interest, as applicable.

                         

                      

              

              
                	
                         
      

                      	
                        6.2.2

                      	
                        Vote
      Required.  Proposals requiring approval of the Parties
      shall be decided by an affirmative vote of two (2) or more Parties having
      a combined voting interest of fifty-one percent (51%) or
      more.  If there are only two (2) Parties to this Agreement, the
      matter shall be determined by the Party having the majority voting
      interest, or, if the interests are equal, the matter shall require
      unanimous consent.

                         

                      

              

               

               

               

              
                
                  
                  

                

                
                  7

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                         
      

                      	
                        6.2.3

                      	
                        Votes.  The
      Parties may vote personally at meetings, or by telephone, promptly
      confirmed in writing to Operator, or by letter, telegram, telex, telecopy,
      or other form of facsimile transmission.

                         

                      

              

              
                	
                         
      

                      	
                        6.2.4

                      	
                        Meetings.  Meetings
      of the Parties may be called by Operator upon its own motion or at the
      request of any Party(ies) having a combined voting interest of not less
      than twenty percent (20%).  Except in the case of emergency, or
      except when agreed by unanimous consent, no meeting shall be called on
      less than seven (7) 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,
      that by unanimous agreement of the Parties present at such meeting, the
      agenda and items included therein may be amended.  If a meeting
      is called, it shall take place at Operator’s offices, unless it is
      unanimously agreed to be held at some other
  location.

                      

              

              

              
                	
                         
      

                      	
                        ARTICLE
      7

                      

              

              
                	
                         
      

                      	
                        ACCESS

                      

              

              

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

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

               

              
                
                  
                  

                

                
                  8

                  
                    

                  

                

                
                  
                  

                

              

              7.3           Confidentiality.  For
the purposes of this Agreement, the term "Confidential Information" shall mean
any geological, geophysical, engineering, technical, production test,
exploratory, or reservoir information, or any logs or other information
pertaining to any well drilled pursuant to this Agreement or any operation
conducted under the terms of this Agreement to the extent that such information
was acquired at joint expense.  Except as provided in Section 7.5 and
except for necessary disclosures to governmental authorities having
jurisdiction, no Party shall during the term of this Agreement and for a period
of three (3) years thereafter, trade, sell, publish or release any such
Confidential Information without the agreement of all Participating
Parties.  Otherwise, the Parties shall jointly own all such
Confidential Information without duty to account.  Each Party's
obligation to protect Confidential Information shall be considered met by each
Party using at least the same degree of care as it uses in protecting its own
proprietary materials of like kind.

               

              7.4           Exceptions.  No
Party shall have any obligation to limit disclosure or use any portion of
Confidential Information which:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        is
      already in that Party's possession prior to receipt as a result of this
      Agreement;

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        is
      now in or hereafter becomes publicly available through no fault of that
      Party;

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        is
      disclosed to that Party without obligation of confidence by a third party
      which has the right to make such disclosure;
or;

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        is
      independently developed by or for such Party without reference to
      information received under this Agreement.

                         

                      

              

              7.5           Limited
Disclosure.  Notwithstanding any other provision of this
Agreement, the Parties may make Confidential Information available to third
parties as follows:

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        gas
      transmission companies for hydrocarbon reserve or technical
      evaluations;

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        reputable
      financial institutions for study before commitment of
    funds;

                      

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

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

                      

              

              
                	
                         
      

                      	
                        (f)

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

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        an
      Affiliate of a Party; and

                      

              

              
                	
                         
      

                      	
                        (h)

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

                      

              

               

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

               

              
                
                  
                  

                

                
                  9

                  
                    

                  

                

                
                  
                  

                

              

              7.6           Proceeds.  During
the term of this Agreement, the Parties agree that any proceeds obtained from
the sale of Confidential Information (excluding, however, transfers of
Confidential Information incidental to a Party’s sale of all or any portion of
its interest in the Contract Area) shall be shared by the Parties in proportion
to their share of the total costs and expenses to acquire same.

               

              7.7           Media
Releases.  Except as agreed by all parties or otherwise
permitted by this Section, no Party shall issue a news or media release about
operations on the Lease.  In an emergency involving extensive property
damage, operations failure, loss of human life, or other clear emergency, and
for which there is insufficient time to obtain the prior approval of the
Parties, Operator may furnish the minimum, strictly factual, information
necessary to satisfy the legitimate public interest of the media and
governmental authorities having jurisdiction.  Operator shall then
promptly advise the other Parties of the information furnished in response to
the emergency.  Notwithstanding anything to the contrary in this
Agreement, upon prior written notice to the other Parties, a Party shall be
allowed to make any press release or announcement required by a recognized stock
exchange on which the Party’s (or its Affiliate’s) stock is listed; provided,
however, that the press release shall contain the following statement: “The
information, opinions or projections
contained in this press release are (the disclosing Party’s) and do not
necessarily reflect the opinions of its co-owners.”

              

              ARTICLE
8

              EXPENDITURES

              

              8.1           Basis of Charge to the
Parties.  Except as otherwise provided in this Agreement,
Operator shall pay all costs incurred 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".

               

              8.2           Authorization.  Prior
to undertaking any project or making any single expenditure related to the
Contract Area in excess of One Hundred Thousand Dollars ($100,000.00), Operator
shall submit for the approval of the Parties an Authorization for Expenditure
("AFE") for such project or expenditure.  Operator shall furnish
written information to all the Parties on any project or single expenditure
costing less than One Hundred Thousand Dollars ($100,000.00) but in excess of
Fifty Thousand Dollars ($50,000.00) if Operator prepares same for its own
use.  Notwithstanding the One Hundred Thousand Dollar ($100,000.00)
limitation, where such project or expenditure involves changing zones in a well
or a workover operation, an AFE shall be submitted to the Parties for
approval.  Approval of a Development Well or 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.  In the event of an actual or imminently threatened
blowout, explosion, accident, fire, flood, storm, or other emergency, Operator
may immediately conduct such operations and make such expenditures as in its
opinion are required to overcome the emergency, including, but not limited to,
any and all measures to protect life, health, safety, property, natural
resources or the environment.  Operator shall report to the Parties,
as promptly as possible, the nature of the emergency and action
taken.  The Operator shall provide supplemental AFE’s to Participating
Parties, for informational purposes only, if it reasonably determines that the
expected actual costs of an operation will exceed the amount of the approved AFE
by 15% or more, but only if the dollar amount of such expected excess is greater
than Two Hundred Fifty Thousand Dollars ($250,000.00).

               

              
                
                  
                  

                

                
                  10

                  
                    

                  

                

                
                  
                  

                

              

              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           Security Rights
(Louisiana).  In addition to any other security rights and
remedies provided by law with respect to services rendered or materials and
equipment furnished under this Agreement, for and in consideration of the
covenants and mutual undertakings of the Operator and the Non-operators herein,
the Parties shall have the following security rights:

              (a)           Mortgage in Favor of the
Operator.  Each Non-operator hereby grants to the Operator a
mortgage, hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease within the Contract Area, (b) the oil, gas and
other minerals in, on, under, and that may be produced from the lands within the
Contract Area, and (c) all other immovable property susceptible of mortgage
situated within the Contract Area.

               

              This
mortgage is given to secure the complete and timely performance of and payment
by each Non-operator of all obligations and indebtedness of every kind and
nature, whether now owed by such Non-operator or hereafter arising, pursuant to
this Agreement.  To the extent susceptible under applicable law, this
mortgage and the security interests granted in favor of the Operator herein
shall secure the payment of all costs and other expenses properly charged to
such Party, together with (A) interest on such indebtedness, costs, and other
expenses at the rate set forth in Exhibit "C" attached hereto (the "Accounting
Procedure") or the maximum rate allowed by law, whichever is the lesser, (B)
reasonable attorneys' fees, (C) court costs, and (D) other directly related
collection costs.  If any Non-operator does not pay such costs and
other expenses or perform its obligations under this Agreement when due, the
Operator shall have the additional right to notify the purchaser or purchasers
of the defaulting Non-operator's production of oil, gas and other minerals and
collect such costs and other expenses out of the proceeds from the sale of the
defaulting Non-operator's share of production of oil, gas and other minerals
until the amount owed has been paid.  The Operator shall have the
right to offset the amount owed against the proceeds from the sale of such
defaulting Non-operator's share of production of oil, gas and other
minerals.  Any purchaser of such production shall be entitled to rely
on the Operator's statement concerning the amount of costs and other expenses
owed by the defaulting Non-operator and payment made to the Operator by any
purchaser shall be binding and conclusive as between such purchaser and such
defaulting Non-operator.

               

              The
maximum amount for which the mortgage herein granted by each Non-operator shall
be deemed to secure the obligations and indebtedness of such Non-operator to the
Operator as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 (the "Limit of the Mortgage of each
Non-operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of each Non-operator to the Operator is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of each Non-operator, the liability of each Non-operator under this
Agreement and the mortgage and security interest granted hereby shall be limited
to (and the Operator shall not be entitled to enforce the same against such
Non-operator for, an amount exceeding) the actual obligations and indebtedness
[including all interest charges, costs, attorneys' fees, and other
charges provided for in this Agreement or in the Memorandum of Operating
Agreement and Financing Statement (Louisiana), as such term is defined in
Article 8.5.(e) (Recordation) hereof] outstanding and unpaid and that are
attributable to or charged against the interest of such Non-operator pursuant to
this Agreement.

              
                
                   

                

                
                  11

                  
                    

                  

                

                
                   

                

              

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

              
                
                   

                

                
                  12

                  
                    

                  

                

                
                   

                

              

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

               

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

               

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

               

              (c)           Mortgage in Favor of the
Non-operators.  The Operator hereby grants to each Non-operator
a mortgage, hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease within the Contract Area; (b) the oil, gas and
other minerals in, on, under, and that my be produced from the lands within the
Lease within the Contract Area; and (c) all other immovable property or other
property susceptible of mortgage situated within the Lease within the Contract
Area.

               

              This
mortgage is given to secure the complete and timely performance of and payment
by the Operator of all obligations and indebtedness of every kind and nature,
whether now owed by the Operator or hereafter arising, pursuant to this Agreement.  To
the extent susceptible under applicable law, this mortgage and the security
interests granted in favor of each Non-operator herein shall secure the payment
of all costs and other expenses properly charged to the Operator, together with
(A) interest on such indebtedness, costs, and other expenses at the rate set
forth in Exhibit “C” or the maximum rate allowed by law, whichever is the
lesser, (B) reasonable attorneys' fees, (C) court costs, and (D) other directly
related collection costs.  If the Operator does not pay such costs and
other expenses or perform its obligations under this Agreement when due, the
Non-operators shall have the additional right to notify the purchaser or
purchasers of the Operator’s production of oil, gas and other minerals and
collect such costs and other expenses out of the proceeds from the sale of the
Operator’s share of production of oil, gas and other minerals until the amount
owed has been paid.  The Non-operators shall have the right to offset
the amount owed against the proceeds from the sale of the Operator’s share of
production of oil, gas and other minerals.  Any purchaser of such
production shall be entitled to rely on the Non-operators’ statement concerning
the amount of costs and other expenses owed by the Operator and payment made to
the Non-operators by any purchaser shall be binding and conclusive as between
such purchaser and the Operator.

              
                
                   

                

                
                  13

                  
                    

                  

                

                
                   

                

              

              The
maximum amount for which the mortgage herein granted by the Operator shall be
deemed to secure the obligations and indebtedness of the Operator to all
Non-operators as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 in the aggregate (the "Limit of the Mortgage of the
Operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of the Operator to the Non-operators is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of the Operator, the liability of the Operator under this Agreement and
the mortgage and security interest granted hereby shall be limited to (and the
Non-operators shall not be entitled to enforce the same against the Operator
for, an amount exceeding) the actual obligations and indebtedness [including all
interest charges, costs, attorneys' fees, and other charges provided for in this
Agreement or in the Memorandum of Operating Agreement and Financing Statement
(Louisiana), as such term is defined in Article 8.5.(e) hereof] outstanding and
unpaid and that are attributable to or charged against the interest of the
Operator pursuant to this Agreement.

               

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

               

              
                
                   

                

                
                  14

                  
                    

                  

                

                
                   

                

              

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

               

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

               

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

               

              
                
                  
                  

                

                
                  15

                  
                    

                  

                

                
                  
                  

                

              

              (e)           Recordation.  To
provide evidence of, and to further perfect the Parties' security rights created
hereunder, upon request, each Party shall execute and acknowledge the Memorandum
of Operating Agreement and Financing Statement (Louisiana) attached as Exhibit
"E" (the "Memorandum of Operating Agreement and Financing Statement
(Louisiana)") in multiple counterparts as appropriate.  The Party
requesting execution of the aforesaid document shall file the Memorandum of
Operating Agreement and Financing Statement (Louisiana) in the public records
set forth below at its sole cost and expense to serve as notice of the existence
of this Agreement as a burden on the title of the Operator and the Non-operators
to their interests in the Leases within the Contract Area and for purposes of
satisfying otherwise relevant recording and filing requirements of applicable
law and to attach an original of the Memorandum of Operating Agreement and
Financing Statement (Louisiana) to a standard UCC-1 in mutually agreeable forms
for filing in the UCC records set forth below to perfect the security interests
created by the Parties in this Agreement.  Upon the acquisition of a
leasehold interest in a Lease within the Contract Area, the Parties shall,
within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation such a Memorandum of
Operating Agreement and Financing Statement (Louisiana) describing such
leasehold interest.  Such Memorandum of Operating Agreement and
Financing Statement
(Louisiana) shall be amended from time to time upon acquisition of additional
leasehold interests in the Leases within the Contract Area, and the Parties
shall, within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation any such
amendment.

               

              The Memorandum of Operating Agreement and Financing Statement
(Louisiana) is to be filed or recorded, as the case may be, in (a) the
conveyance records of the parish or parishes adjacent to the lands or offshore
blocks covered by the Leases within the Contract Area or contained within the
Leases within the Contract Area pursuant to La. R.S. 9:2731 et seq., (b) the
mortgage records of such parish or parishes, and (c) the appropriate Uniform
Commercial Code records.

              
                
                   

                

                
                  16

                  
                    

                  

                

                
                   

                

              

               

               

              8.6           Default.  If
any Party does not pay its share of the charges authorized under this Agreement
when due, the Operator may give the defaulting Party notice that unless payment
is made within thirty (30) days from delivery of the notice, the non-paying
Party shall be in default.  A Party in default shall have no further
access to the rig, Platform or Facilities, any Confidential Information or other
maps, records, data, interpretations, or other information obtained in
connection with activities or operations hereunder or be allowed to participate
in meetings.  A Party in default shall not be entitled to vote or to
make an election until such time as the defaulting Party is no longer in
default.  The voting interest of each non-defaulting Party shall be
counted in the proportion its Participating Interest share bears to the total
non-defaulting Participating Interest shares.  As to any operation
approved during the time a Party is in default, such defaulting Party shall be
deemed to be a Non-participating Party, except where such approval is binding on
all Parties or Participating Parties, as applicable. In the event a Party
believes that such statement of charges is incorrect, the Party shall
nevertheless pay the amounts due as provided herein, and the Operator shall
attempt to resolve the issue as soon as practicable, but said attempt shall be
made no later than sixty (60) days after receiving notice from the Party of such
disputed charges.

               

              
                
                  
                  

                

                
                  17

                  
                    

                  

                

                
                  
                  

                

              

              8.7           Unpaid
Charges.  If any Participating Party fails to pay its share of
the costs and other expenses authorized under this Agreement in accordance with
Exhibit “C” or to otherwise perform any of its obligations under this Agreement
when due, the Party to whom such payment is due, in order to take advantage of
the provisions of Article 8.5, shall notify the other Party by certified or
registered U.S. Mail that it is in default and has thirty (30) days from the
receipt of such notice to pay.  If such payment is not made timely by
the non-paying Party after the issuance of such notice to pay, the Party
requesting such payment may take immediate steps to diligently pursue collection
of the unpaid costs and other expenses owed by such Participating Party and to
exercise the mortgage and security rights granted by this
Agreement.  The bringing of a suit and the obtaining of a judgment by
any Party for the secured indebtedness shall not be deemed an election of
remedies or otherwise affect the security rights granted herein.  In
addition to any other
remedy afforded by law, each Party shall have, and is hereby given and vested
with, the power and authority to foreclose the lien, mortgage, pledge, and
security interest established hereby in its favor in the manner provided by law,
to exercise all rights of a secured party under the Uniform Commercial Code as
adopted by the state in which the Leases within the Contract Area are located or
such other states as such Party may deem appropriate.  The Operator
shall keep an accurate account of amounts owed by the nonperforming Party (plus
interest and collection costs) and any amounts collected with respect to amounts
owed by the nonperforming Party.  In the event there become three or
more Parties to this Agreement, then if any nonperforming Party's share of costs
remains delinquent for a period of sixty (60) days, each other Participating
Party shall, upon the Operator's request, pay the unpaid amount of costs in the
proportion that its Working Interest bears to the total non-defaulting Working
Interests.  Each Participating Party paying its share of the unpaid
amounts of a nonperforming Party shall be subrogated to the Operator's mortgage
and security rights to the extent of the payment made by such Participating
Party.

               

              8.8           Carved-out
Interests.  Except for the “Permitted Encumbrance” identified
on Exhibit “A”, any agreements creating any overriding royalty, production
payment, net proceeds interest, net profits interest, carried interest or any
other interest carved out of a Working Interest in the Leases within the
Contract Area shall specifically make such interests inferior to the rights of
the Parties to this Agreement. If any Party whose Working Interest is so
encumbered does not pay its share of costs and other expenses authorized under
this Agreement, and the proceeds from the sale of its production of oil, gas and
other minerals pursuant to Article 8.5 are insufficient to pay such costs and
expenses, the security rights provided for in this Article 8.5 may be applied
against the carved-out interests with which the defaulting or non-performing
Party’s interest in the Leases within the Contract Area is burdened. In such
event, the rights of the owner of such carved-out interest shall be subordinated
to the security rights granted by Article 8.5.

              

              
                
                  
                  

                

                
                  18

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
9

              NOTICES

              

              9.1           Giving and Responding to
Notices.  All notices and responses thereto shall be in writing
and delivered in person or by telephone followed by United States mail, telex,
telegraph, telecopier (facsimile) or cable; however, if a drilling rig is on
location and standby charges are accumulating, such notices and responses shall
be given by telephone and immediately confirmed in writing.  Notices
and responses shall be deemed given only when received by the Party to whom such
notice or response is directed, except that any notice or response by certified
United States mail or equivalent, telegraph, or cable properly addressed,
pursuant to Section 6.1, and with all postage and charges prepaid shall be
deemed given seventy-two (72) hours after such notice is deposited in the mail
exclusive of Saturdays, Sundays, and federal holidays, or twenty-four (24) hours
after
such notice or response is sent by telecopier (facsimile), receipt confirmed, or
filed with an operating telegraph or cable company for immediate transmission
exclusive of Saturdays, Sundays, and federal holidays.

               

              9.2           Content of
Notice.  Any notice which requires a response shall indicate
the response time specified in Section 9.3.  If a proposal involves a
Platform, Facility or Subsequent Facility, the notice shall contain a
description of same, including location and the estimated costs of design
fabrication, transportation and installation.  If a proposal involves
an Exploratory Operation or a Development Operation, the notice shall include
the proposed depth, the objective zone or zones to be tested, the surface and
bottom-hole locations, applicable details regarding directional drilling, the
equipment to be used, and the estimated costs of the operation including all
necessary expenditures through installation of the wellhead or abandonment of
the well.

               

              9.3           Response to
Notices.  Each Party's response to a proposal shall be in
writing to all other Parties.  Unless otherwise specified herein,
response times shall be as follows:

               

              
                	
                      	
                        9.3.1

                      	
                        Platform
      Construction.  When any proposal for well operations
      involves the construction of a Platform, each Party shall respond within
      sixty (60) days after receipt of notice.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  19

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                      	
                        9.3.2

                      	
                        Proposal Without
      Platform.  When any proposal for well operations does not
      require construction of a Platform, each Party shall respond within thirty
      (30) days after receipt of notice.  However, if a drilling rig
      is on location as a result of a joint Exploratory or Development Operation
      previously conducted thereon and standby charges are accumulating, the
      response shall be made within twenty-four (24) hours, inclusive of
      Saturdays, Sundays, and federal holidays, after receipt of
      notice.

                         

                      

              

              
                	
                      	
                        9.3.3

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

                         

                      

              

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

               

              9.5           Restrictions on Multiple
Well Proposals.  Notwithstanding any provision herein to the
contrary, it is specifically provided that no notice shall be given under this
Article 9 hereof which simultaneously proposes the drilling of more than two (2)
wells, or proposes the drilling of more than one (1) more well while there is an
outstanding proposal.  Further, these provisions of this Article 9,
insofar as they pertain to notification by a Party of its desire to drill a
well, shall be suspended for so long as: (1) a prior notice has been given which
is still in force and effect and the period of time during which the well
regarding same may be commenced has not expired; or (2) a well is presently
drilling hereunder.  This section shall not apply under those
circumstances where the well to which notice is directed is a well which is
required under the terms of a Lease or one required to maintain a portion
thereof in force.  In the event drilling operations are necessary
to perpetuate a Lease, any Party may propose and commence the drilling of such
additional well(s) pursuant to the terms and conditions hereof no earlier than
one hundred eighty (180) days prior to the date operations must be commenced,
regardless of other proposals then under consideration or drilling operations
then in progress.

              

              ARTICLE
10

              EXPLORATORY
OPERATIONS

              

              10.1           Operations by All
Parties.  Any Party may propose an Exploratory Well by
notifying the other Parties.  If all the Parties agree to participate
in drilling the proposed well, Operator shall drill same at their cost and
risk.  If a mobile drilling rig is not already on location as a result
of a prior Exploratory or Development Operation and the proposal ("Original
Proposal") has not already been approved, then any Party may submit an alternate
well proposal for consideration within ten (10) days after receiving the
Original Proposal to drill a well.  If one or more alternate proposals
have been submitted in accordance with the foregoing, then the Operator shall
call a meeting of the Parties to be held within seven (7) days following receipt
of the alternate proposal(s), at which the Parties shall determine by majority
vote in interest which proposal shall be considered by the Joint
Account.  In the event that no proposal receives support of a majority
in interest, then the proposal receiving the greatest support shall
prevail.  In the event of a tie between two or more proposals, then
the proposal (including the Original Proposal) supported by the largest number
of Parties shall prevail.  Each Party having the right to participate
in the proposal so selected shall make its election whether to join in the
drilling of such well within fifteen (15) days after the meeting was
held.  If drilling of 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; however, the one hundred twenty
(120) day period shall automatically be extended for an additional period, not
to exceed sixty (60) days, as may be necessary, in order to obtain all
applicable required regulatory permits, so long as applications for such
required permits were properly filed within thirty (30) days after the last
applicable election date.  Drilling operations shall be deemed to have
commenced on the date rig charges begin according to the terms of the drilling
contract.

               

              
                
                  
                  

                

                
                  20

                  
                    

                  

                

                
                  
                  

                

              

              10.2           Second Opportunity to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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
information.  This provision shall apply only in the event that there
are three (3) or more Parties to this Agreement.

               

              10.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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 working 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 Section 9.4.  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'
interests 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 any response under this Article 10 shall not exceed a total of
twenty-four (24) hours, inclusive of Saturdays, Sundays, and federal
holidays.  This provision shall apply only in the event that there are
three (3) or more Parties to this Agreement.

              10.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all of the cost and risk of drilling the proposed well,
Operator shall drill such well under this Agreement and the applicable
provisions of Article 12 and the following special provisions shall
apply:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        If
      the well will be the first Exploratory Well drilled under this Agreement,
      then as of the last applicable election date, each Non-Participating Party
      shall be deemed to have relinquished to the Participating Parties, in
      proportion to their Participating Interests or in the proportions
      otherwise agreed by the Participating Parties, all of its interest in the
      Contract Area.  If such well is commenced within the time
      provided in Section 10.1 and is drilled as proposed in accordance with
      this Agreement, each Non-Participating Party shall execute an assignment
      of all of its interest in the Contract Area to the Participating Parties,
      in proportion to their Participating Interests or in the proportions
      otherwise agreed by the Participating
Parties.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        If
      the well will not be the first Exploratory Well drilled under this
      Agreement and if such well is commenced within the time provided in
      Section 10.1 and is drilled as proposed in accordance with this Agreement,
      then, all of the Non-Participating Party's(ies') operating rights and
      interests in production from such well shall be vested in the
      Participating Parties in proportion to their Participating Interest,
      whether or not any instrument evidencing a transfer of rights and
      interests has been delivered by the Non-Participating
      Party(ies).  The Participating Party(ies) shall have the right
      to recoup the costs applicable to such well as determined by Section
      12.2 and/or Section 12.5 and the drilling of such well shall be governed
      by Article 12, except that the percentage of recoupment as provided in
      Section 12.2.1 (a) shall be eight hundred percent (800%) of the
      Non-Participating Party's Share of the cost of drilling the
      well.

                         

                      

              

              
              

              If the
well is not commenced within the time period provided in Section 10.1, the
effect shall be as if the proposal had not been made.

               

              
                
                  
                  

                

                
                  21

                  
                    

                  

                

                
                  
                  

                

              

              10.5           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Initial Exploratory Well or Exploratory Well
as originally proposed, the Participating Party or Parties encounter mechanical
difficulties, inpenetrable formation, and/or Gulf Coast conditions which render
drilling impractical, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced as
if it were the original proposed Initial Exploratory Well or Exploratory Well
for which it is the substitute; and the relationship, rights and obligations as
between the Participating Party and Non-Participating Party or Parties shall be
the same as if the Substitute Well were, in fact, the proposed Initial
Exploratory Well or Exploratory Well, as applicable.

               

              
                
                  
                  

                

                
                  22

                  
                    

                  

                

                
                  
                  

                

              

              10.6           Course of Action After
Drilling to Initial Objective Depth.  At such time as an
Exploratory Well has been drilled to the initial objective depth as proposed, or
a mutually agreed upon lesser depth, and all approved logs, cores, and other
tests have been completed, and the results thereof furnished to the
Participating Parties, Operator shall notify the Participating Parties setting
forth Operator's recommendation to either:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in
      zones all of which are deeper than the zone approved for the single
      completion.)

                      

              

              
              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Sidetrack
      the well to another bottom hole location not deeper than the stratigrephic
      equivalent of the initial objective
depth.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        Perform
      other operations on the well. (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        Plug
      and abandon the well.

                         

                      

              

              The
Participating Parties, within twenty-four (24) hours, inclusive of Saturdays,
Sundays, and federal Holidays, 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, inclusive of Saturdays, Sundays, and federal holidays,
to respond thereto.  If conflicting proposals are made, the priority
of operations 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.

               

              
                
                  
                  

                

                
                  23

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                      	
                        10.6.1

                      	
                        Operation by All
      Parties.  Subject to Section 10.6.4, if all Participating
      Parties approve a proposal, Operator shall conduct the operation at the
      Participating Parties’ cost and risk.

                         

                      

              

              
                	
                      	
                        10.6.2

                      	
                        Operations by Fewer
      than All Parties.  If one (1) or more Parties having a
      combined Participating Interest in the well of twenty percent (20%) or
      more approve a proposal and agree to bear the cost, risk and liabilities
      (including loss of the hole due to deepening of any well) thereof, except
      a proposal to plug and abandon, Operator shall conduct the same as a
      Non-Consent Operation for such Parties pursuant to the provisions of
      Article 12, except that the percentage of recoupment as provided in
      Section 12.2.1(a) shall be the same as provided for in Section
      10.4(b).  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, inclusive of Saturdays, Sundays, and federal
      holidays, 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)
      Participating Party, each of which is willing to assume all costs, risks
      and liabilities of further operations, but each desires to perform a
      different operation, then the order of priority as listed above herein
      shall prevail and govern.

                      

              

              
                	
                      	
                        10.6.3

                      	
                        Obligations and
      Liabilities of Participating Parties.  If the decision is
      to complete at initial objective depth, to plug back and complete at a
      lesser depth, to deepen or to Sidetrack to another bottomhole location, 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 that portion of the well in which
      it was a Participating Party.

                         

                      

              

              
                	
                      	
                        10.6.4

                      	
                        Deepening or
      Sidetracking of Non-Consent Exploratory Well.  Subject to
      the terms of Section 10.6 above, 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 or Sidetrack, 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 or Sidetracking operation by notifying the
      Operator, within forty-eight (48) hours, inclusive of Saturdays, Sundays,
      and federal holidays, after receiving notice of the
      decision.  In such event any Non-Participating Party which
      elects to participate in deepening or Sidetracking 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 or that point the Sidetracking
      operation is commenced if lesser than the initial objective
      depth.  Thereafter such Non-Participating Party shall be deemed
      for all purposes to be a Participating Party as to such deepening or
      Sidetracking operations, and the provisions of Section 10.4 shall not be
      applicable to such Party as to the deepened or Sidetracked 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 portion of the Non-Consent Well any
      balance remaining pursuant to 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 Section 10.6.4.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  24

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                      	
                        10.6.5

                      	
                        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.

                      

              

              

              ARTICLE
11

              DEVELOPMENT
OPERATIONS

              

              11.1           Operations by All
Parties.  Any Party may propose Development Operations,
including any wells (whether drilling, completing, recompleting, deepening,
deviating or Sidetracking, plugging back or working over),
Platform,  Facilities and/or Subsequent
Facilities required by such operations, by submitting a Development Operation
AFE to the other Parties for approval pursuant to the response to notice
procedures set forth in Article 9.  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 one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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.  This provision shall
apply only in the event that there are three (3) or more Parties to this
Agreement.

               

              11.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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 Section 9.4.  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 any response under this Article 11 shall not exceed a total of
twenty-four (24) hours, inclusive of Saturdays, Sundays, and federal
holidays.  This provision shall apply only in the event that there are
three (3) or more Parties to this Agreement.

               

              
                
                  
                  

                

                
                  25

                  
                    

                  

                

                
                  
                  

                

              

              11.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all 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; however, the one hundred twenty (120) day period shall
automatically be extended for an additional period, not to exceed sixty (60)
days, as may be necessary, in order to obtain all applicable required regulatory
permits so long as applications for such required permits were properly filed
within thirty (30) days after the last applicable election date.  If
no operations are commenced within such time period, the effect shall be as if
the proposal had not been made.  Operations shall be deemed to have
commenced: (a) on the date the contract for a new Platform is let, if the notice
indicated a need for such Platform, or (b) on the date the rig charges begin
according to the terms of the drilling
contract.  For all other Development Operations, Development
Operations shall be deemed to have commenced on the day charges are incurred
pursuant to an approved AFE.

              11.6           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Development Operation as originally proposed,
the Participating Party or Parties encounter mechanical difficulties,
inpenetrable formation, and/or Gulf Coast conditions which render further
drilling impossible, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced
were the original proposed Development Operation for which it is the substitute,
and the relationship, rights and obligations as between the Participating Party
and Non-Participating Party or Parties shall be the same as if the Substitute
Well were, in fact, the proposed Development Operation, as
applicable.

               

              
                
                  
                  

                

                
                  26

                  
                    

                  

                

                
                  
                  

                

              

              11.7           Course of Action After
Drilling to Initial Objective Depth.  At such time as a
Development Well has been drilled to the initial objective depth as proposed and
all approved logs, cores and other tests have been completed and the results
thereof furnished to the Participating Parties, Operator shall notify the
Participating Parties setting forth Operator's recommendation to
either:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in zones all of which are deeper than the zone
      approved for the single
completion.)

                      

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Sidetrack
      the well to another bottom hole location not deeper than the stratigraphic
      equivalent of the initial objective
depth;

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        Perform
      other operations on the well.  (If conflicting proposals are
      approved, the proposal receiving the largest percentage of Working
      Interest approval shall take precedence.  In the event of a tie
      between two or more approved proposals, the approved proposal first
      received by the Parties shall take
precedence.)

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        Plug
      and abandon the well.

                         

                      

              

              The Participating Parties, within
forty-eight (48) hours, inclusive of Saturdays, Sundays, and federal holidays,
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, the priority of
operations 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.

               

              
                
                  
                  

                

                
                  27

                  
                    

                  

                

                
                  
                  

                

              

              11.7.1          Operations by All
Parties.  If all Participating Parties approve a proposal,
Operator shall conduct the operation at the Participating Parties' cost and
risk.

               

              11.7.2          Operations by Fewer than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Participating Interest in the well of twenty percent (20%) or more
approve a proposal and agree to bear the cost, risk, and liabilities (including
loss of the hole due to deepening of any well) thereof, except a proposal to
plug and abandon, Operator shall conduct the same as a Non-Consent Operation for
such Parties pursuant to the provisions of Article 12.  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, risks and liabilities of further
operations, but each desires to perform a different operation, then the order of
priority as listed above herein shall prevail and govern.

               

              11.7.3          Obligations and Liabilities
of Participating Parties.  If the decision is to complete at
initial objective depth, to plug back and complete at a lesser depth, to deepen
or to Sidetrack to another bottomhole location, 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 that portion of the well in which it was a Participating
Party.

              11.8           Deeper
Drilling.  If a well is proposed to be drilled below the
deepest Producible Reservoir 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 Reservoir.  A Party electing to participate in such
well to the base of said Producible Reservoir shall bear its proportionate part
of the cost and risk of drilling to said Producible Reservoir including
completion or abandonment. All operations below the depth to which such Party
agreed to participate shall be governed by Article 12.  However, if
the proposal to drill below the deepest Producible Reservoir penetrated by a
Producible Well meets the requirements of an Exploratory Operation, the
percentage of recoupment shall be that specified in Section 10.4(b) and shall be
subject to the provisions of Article 10 with respect to such
operations.

               

                             
11.9           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.

               

              
                
                  
                  

                

                
                  28

                  
                    

                  

                

                
                  
                  

                

              

                             
11.10         Subsequent
Facilities.  The affirmative vote of one (1) or more Parties
having a combined Participating Interest of fifty-one percent (51%) or more in
the wells to be served by the proposed Subsequent Facilities shall constitute
approval for the construction of such Subsequent Facilities and all Parties
having an interest in the wells to be served shall be bound by such approval and
be required to participate in the costs therefor.  Nothing hereunder
shall limit a Party's rights under Section 21.1 to incur additional costs for
separate facilities.

               

                             
11.11         Contracts.  Operator
may enter into contracts with independent contractors for Development Operations
and shall utilize competitive bidding.

              

              ARTICLE
12

              NON-CONSENT
OPERATIONS

              

                              12.1           Non-Consent
Operations.  Operator shall conduct Non-Consent Operations at
the sole risk, expense, and liability of the Participating Parties, in
accordance with the following provisions:

               

              
                	
                      	
                        12.1.1

                      	
                        Non-Interference.  Non-Consent
      Operations shall not interfere unreasonably with any other operations
      being conducted within the Contract Area.

                         

                      

              

              
                	
                      	
                        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 participating in the Non-Consent
      Operations and 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
      subject to approval by appropriate governmental authority, may be
      determined on the basis of well tests.

                         

                      

              

              
                	
                      	
                        12.1.4

                      	
                        Non-Consent
      Well.  Operations on a Non-Consent Well shall not be
      conducted in any Producible Reservoir penetrated by a Producible Well
      without written approval of each Non-Participating Party unless these four
      (4) conditions are satisfied: (a) such Producible Reservoir shall have
      been designated in the notice as an objective zone; (b) completion of such
      well in said Producible Reservoir will not increase the well density
      governmentally prescribed or approved for such Producible Reservoir; (c)
      the horizontal distance between the vertical projections of the midpoint
      of the Producible Reservoir in such well and any existing well in the same
      Producible Reservoir will be at least one thousand (1,000) feet if an
      oil-well completion or two thousand (2,000) feet if a gas-well completion;
      and (d) completion of such well as a producer will not cause or result in
      a decreased "MER" or "MPR" for any existing Producible Reservoir or
      Producible Well.  The terms "MER" and "MPR" are defined under 30
      Code of Federal Regulations, Subpart K-Production rates, Parts 250.170
      through 250.177.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  29

                  
                    

                  

                

                
                  
                  

                

              

               

               

              
                	
                      	
                        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 either a joint interest billing or an itemized statement of
      the cost of such well and equipment pertaining
      thereto.  Operator shall furnish to the Parties a quarterly
      statement showing operating expenses and the proceeds from the sale of
      production from the well for the preceding three (3) month
      period.  When Operator’s payout calculation indicates that
      payout has occurred, Operator shall promptly notify all
      Parties.

                         

                      

              

              
                	
                      	
                        12.1.6

                      	
                        Completion.  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 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.  Such leasehold operating rights and title to
      production shall revert to each Non-Participating Party at 7:00 a.m. on
      the day following the date 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 12.3, equals the sum of the
      following:

                      

              

              
              

              
                	 	(a)	
                        Six
      hundred percent (600%) of the Non-Participating Party's Share of the cost
      of drilling, testing, completing, recompleting, working over, deepening,
      deviating or Sidetracking, plugging back, or temporarily plugging and
      abandoning each Non-Consent Well (or any Non-Consent Operation(s) in a
      joint well), and equipping it through the wellhead connections, reduced by
      any contribution received under Article 20; plus

                         

                      
	
                         
      

                      	
                        (b)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Non-Consent Facilities necessary to establish the production
      resulting from the operations defined in Section 12.2.1.(a) above;
      plus

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Platform in which it does not participate and which must be
      installed to establish the production resulting from the operations
      defined in Section 12.2.1.(a) above;
plus,

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Platform, whether or not owned by the Joint Account;
      plus,

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Facilities not owned by the Joint Account, including
      leased facilities; plus

                      

              

              
                	
                         
      

                      	
                        (f)

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

                         

                      

              

              At 7:00
a.m. upon the day following the date of recoupment of such costs, a
Non-Participating Party shall become a Participating Party in such
operations.

               

              
                
                  
                  

                

                
                  30

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                      	
                        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 wells (or portions thereof associated with any Non-Consent
      Operation(s) in a joint well), Platforms and Facilities of the Non-Consent
      Operations, as well as all liabilities and benefits related thereto, shall
      remain vested in the Participating Parties; however, any salvage in excess
      of the sum remaining under Section 12.2.1 shall be credited to all
      Parties.

                         

                      

              

               

              12.3             Deepening or Sidetracking of
Non-Consent Development Well.  If any Participating Party
proposes to deepen or Sidetrack a Non-Consent Development Well, a
Non-Participating Party may participate by notifying the Operator within thirty
(30) days after receiving the proposal (forty-eight (48) hours, inclusive of
Saturdays, Sundays, and federal holidays, if a rig is on location) that it will
join in the deepening or Sidetracking operation and by paying to the
Participating Parties; 1) if it is a deepening an amount equal to the costs of
the well as if such Non-Participating Party had originally participated to the
objective depth or; 2) if it is a sidetrack operation an amount equal to the
Non-Participating Parties share of drilling the non-consent well to that point
the Sidetracking operation is commenced.  The Participating Parties
shall continue to be entitled to recoup the full sum specified in Section 12.2.1
applicable to the non-consent portion of the well out of the proceeds received
from production from the non-consent portion of the well, less any amount
received under this Section 12.3.

              12.4           Operations from Non-Consent
Platforms and Facilities.  Subject to the following, a Party
which did not originally participate in a Platform or Facilities shall be a
Non-Participating Party as to ownership therein and all operations thereon until
the Participating Parties as to such Platform or Facilities have recouped the
full sum specified in Section 12.2.1 applicable to such non-consent Platform or
Facilities and the Non-Consent Operations which resulted in the setting of such
Platform or Facilities and other Non-Consent Operations thereon or
therefrom.  However, any original Non-Participating Party may
participate in additional operations from such Platform or Facilities by
notifying the Operator within thirty (30) days after receiving a proposal for
operations from such Platform or Facilities that it will join in such proposed
operations by paying to the Participating Parties in such Platform or Facilities
an amount equal to the non-consent penalty provided for in Section 12.2.1
applicable to such Non-Participating Party’s Share of the actual cost of such
Platform or Facilities, less any recoupment therefor previously
obtained.  Thereafter, such original Non-Participating Party in such
non-consent Platform or Facilities shall own its proportionate share
thereof.  The Participating Parties in such non-consent Platform or
Facilities shall continue to be entitled to recoup the full sum specified in
Section 12.2.1 applicable to any other Non-Consent Operations thereon or
therefrom.

               

              
                
                  
                  

                

                
                  31

                  
                    

                  

                

                
                  
                  

                

              

              12.5           Discovery or Extension from
Mobile Drilling Operations.  If a Non-Consent Well is drilled
from a mobile drilling rig or floating drilling vessel and results in the
discovery of oil or gas or extension of a Producible Reservoir and, if within
one (1) year from the date the drilling equipment is released, a Platform or
other fixed structure is ordered and if its location is within three thousand
(3,000) feet from the vertical projection of the bottom-hole location of any
such well (unless limited by surface restrictions or seabed conditions), 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 subsequently completed wells on the Contract 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 Contract 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           Non-Consent Operations to
Maintain Lease.  Notwithstanding any other provision hereof, if
a Lease has no wells thereon capable of commercial production in the final six
(6) months of the primary term of such Lease and such Lease is not held by a
unit or a Suspension of Production pursuant to other operations on the Lease or
in the unit, any Party electing not to participate in the drilling of a well or
other operation in the final six (6) months of the primary term or at any time
during the secondary term, shall assign its full interest in such Lease pro-rata
to the Parties hereto undertaking the drilling of such well or participating in
such operation.  Such assignment shall be executed and delivered
within thirty (30) days after commencement of the well or
operation.  If at any time after the expiration of the primary term of
a Lease, a well must be drilled or an operation conducted because of cessation
of production or to fulfill an obligation to develop such Lease, such well or
operation being required to extend the term of such Lease or a portion thereof,
any Party electing not to participate in the operation or the drilling of such a
well shall assign its full interest in that Lease, or portion thereof, pro-rata
to the Parties hereto undertaking the drilling of such a well.  Such
assignment shall be executed and delivered within thirty (30) days after
commencement of the well or operation, but shall be limited to the portion of
the Lease the term of which was extended by the operation or drilling the well,
and provided any Non-Participating Party shall retain its rights and liabilities
with respect to any previously completed wells on that Lease and the production
therefrom.  Thereafter, that Lease shall no longer be a part of the
Contract Area, and the Non-Participating Party or Parties shall no longer own an
interest in any wells drilled on such Lease, other than those wells drilled
prior to the occurrence set out herein.  Should the Parties electing
to undertake the drilling of a well or conduct operations under this Section
12.6 fail to perform, as Participating Parties, the drilling of the well or
operations substantially as proposed, the Parties receiving the aforementioned
assignment shall assign back to the Party or Parties originally electing not to
participate, that interest which was caused to be assigned pursuant to this
Section 12.6.  A Party hereunder executing an assignment of its
interest in a Lease pursuant to the foregoing shall not be relieved of any
obligation hereunder accruing prior to such assignment.  If more than
one (1) well is drilled or more than one (1) operation conducted, any of which
would maintain or extend such Lease or such portions thereof, an assignment
shall not be required from any Party participating in any such well(s) or
operation(s) as to that portion of the Lease or unit which would have been
maintained by such well(s) or operation(s).

              
                
                   

                

                
                  32

                  
                    

                  

                

                
                   

                

              

               

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

               

              
                	
                      	
                        12.7.1

                      	
                        Charges.  If
      a Non-Consent Well is drilled from a Platform, the Participating Parties
      in such well shall be liable to the Joint Account owners of the Platform
      for the use of 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.  Notwithstanding the foregoing, if the Non-Consent
      Well is abandoned as an unsuccessful well, and no substitute well is
      drilled by the Participating Parties, then, if the slot is abandoned in a
      condition such that it could be used for the drilling of a future well,
      the Participating Parties shall not be required to pay the sum set out in
      this Section 12.7.1.

                      

              

              
                	
                         
      

                      	
                        (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, less accumulated depreciation, which one (1) well
      completion bears to the total number of Producible Well completions
      utilizing the Facilities.

                         

                      

              

               

               

               

              
                
                  
                  

                

                
                  33

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                      	
                        12.7.2

                      	
                        Operating and
      Maintenance Charges.  The Participating Parties shall pay
      on a monthly basis all costs necessary to connect a Non-Consent Well to
      the Facilities and that proportionate part of the expense of operating and
      maintaining the Platform and Facilities applicable to the Non-Consent
      Well.  Platform and Facilities operating and maintenance
      expenses shall be allocated in proportion to the producing well count
      during a calendar month as it relates to the total number of wells
      producing from such Platform during such calendar month.  For
      the purpose of this provision, a producing zone or each completion in a
      multi-completed well shall be considered as a separate well.

                         

                      

              

              
                	
                      	
                        12.7.3

                      	
                        Payments.  Payment
      of sums pursuant to Section 12.7.1 is not a purchase of an additional
      interest in the Platform or Facilities.  Such payments, if the
      recoupment provisions of Section 12.2 are applicable, shall be included in
      the total amount which the Participating Parties are entitled to recoup
      out of production from the Non-Consent Well.

                         

                      

12.8        Allocation of Costs Between
Depths (Single Completion).  For the purpose of allocating
costs on any well with a single completion in which the Participating Interests
of the Parties are not the same for the entire depth or the completion thereof,
the cost of drilling, completing, equipping, and plugging and abandoning such
well shall be allocated on the following basis:

                     

              
                	 	(a)   	 Intangible
      drilling, completion, casing string, and material costs from the surface
      to a depth one hundred feet (100') below the base of the Producible
      Reservoir in which the well is completed shall be charged to the
      Participating Parties in such completion in accordance with their
      respective Participating Interest.
	
                         
      

                      	
                        (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
      Producible Reservoir in which the well is completed to total depth shall
      be charged to the Participating Parties in the well to total depth in
      accordance with their respective Participating
  Interest.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        All
      plugging and abandonment costs directly associated with the Producible
      Reservoir in which the well is completed will be allocated to the
      Participating Parties in that completion in accordance with their
      respective Participating Interests.  All final plugging and
      abandonment costs associated with the wellbore will be allocated
      proportionately among all Participating Parties in the well.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  34

                  
                    

                  

                

                
                  
                  

                

              

               

               

              12.9        Allocation of Costs Between
Depths (Multiple Completions).  For the purpose of allocating
costs on any well completed in dual or multiple Producible Reservoirs in which
the Participating Interests of the Parties are not the same for the entire depth
or the completion thereof, the cost of drilling, completing, equipping, and
plugging and abandoning 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 Producible Reservoir shall be divided equally
      between the completed Producible Reservoirs and charged to the
      Participating Parties in each Producible Reservoir in accordance with
      their respective Participating
Interest.

                      

              

              
                	
                         
      

                      	
                        (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 Producible Reservoir to a depth one hundred feet (100') below
      the base of the second completed Producible Reservoir shall be divided
      equally between the second and any other Producible Reservoir completed
      below such depth and charged to the Participating Parties in each such
      Producible Reservoir in accordance with their respective Participating
      Interest.  If the well is completed in additional Producible
      Reservoirs, the costs applicable to each such Producible Reservoir shall
      be determined and charged to the Participating Parties in the same manner
      as prescribed for wells completed in dual Producible
      Reservoirs.

                      

              

              
              

              
                	
                         
      

                      	
                        (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 lowest
      completed Producible Reservoir to total depth shall be charged to the
      Participating Parties in the well to total depth in accordance with their
      respective Participating Interest.

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Costs
      of tubing strings serving each separate Producible Reservoir shall be
      charged to the Participating Parties in each Producible Reservoir in
      accordance with their respective Participating
  Interest.

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        For
      the purposes of allocating tangible and intangible costs between
      Producible Reservoirs that occur at less than one hundred feet (100')
      intervals, the distance between the base of the upper reservoir to the top
      of the next lower reservoir shall be allocated equally between
      reservoirs.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        All
      plugging and abandonment costs directly associated with a Producible
      Reservoir will be allocated to the Participating Parties in that reservoir
      in accordance with their respective Participating
      Interests.  All final plugging and abandonment costs associated
      with the wellbore will be allocated proportionately among all
      Participating Parties in the well.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  35

                  
                    

                  

                

                
                  
                  

                

              

              12.10       Allocation of Costs Between
Depths (Dry Hole).  For the purpose of this Section, a dry hole
shall mean a well drilled to an objective depth in which the Participating
Parties elected not to complete, or if completed, the well was not a Producible
Well and did not establish a Producible Reservoir.  In allocating
costs on any well containing a dry hole, and in which the Participating
Interests of the Parties are not the same for the entire depth or the completion
thereof, the cost of drilling and plugging and abandoning such well shall be
allocated on the following basis:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Costs
      to drill and plug and abandon a well proposed for completion in single,
      dual, or multiple objective depths shall be charged to the Participating
      Parties in the same manner as if the well had established a Producible
      Reservoir at each objective depth.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Additional
      plugging and abandoning costs related to any deepening, completion
      attempt, or other operation shall be at the sole risk and expense of the
      Participating Parties in such operation.

                         

                      

              

              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
Producible Reservoirs, including dry holes as defined in Section 12.10, and
including the interval from one hundred feet (100') below the deepest Producible
Reservoir to total depth on a drilling day ratio basis where the factor for each
reservoir is determined by a fraction for which the
numerator is the number of drilling and completion days applicable to that
reservoir 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.

               

              12.12       Subsequent Operations in
Non-Consent Well.  Except as provided in Section 10.6.4 or
12.3, as applicable, an election not to participate in the drilling,
Sidetracking, or deepening of a well shall be deemed to be an election not to
participate in any subsequent operations in the well before full recovery by the
Participating Parties of the Non-Participating Party's recoupment
amount.  A subsequent operation conducted during the recoupment period
by the Parties entitled to participate shall be subject to the recoupment
provided in Section 12.2.1.

              

              
                
                  
                  

                

                
                  36

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
13

              ABANDONMENT AND
SALVAGE

              

              13.1           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.

               

              13.2           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 unanimous approval 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, plugging and abandoning, the abandoning Party
shall pay the Operator, for the benefit of the non-abandoning Parties, a sum
equal to the deficiency.

               

              13.3           Assignment of
Interest.  Each Participating Party desiring to abandon a well
pursuant to Section 13.2 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, after delivering the assignment, from any further
liability with respect to said well, and each non-abandoning Party shall assume
and bear all such liabilities in proportion to the share of interest that it
receives from the abandoning Parties.  Notwithstanding Section 13.2,
no Party shall be required to accept an assignment of an interest of a Party
desiring to abandon a well.  If no Party is willing to accept
the assignment, the Party seeking to abandon the well shall remain an owner in
the well. 

               

              13.4           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
14

              WITHDRAWAL

              

              14.1           Withdrawal.  A
Party may withdraw from this Agreement by assigning to the other Parties who do
not desire to withdraw, all of its interest in the Contract Area and the wells,
Platforms and Facilities used in operations thereon; 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.  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 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 ninety (90) 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 the withdrawing Party
shall thereafter be relieved from all further obligations and liabilities with
respect to the Contract Area; provided, however, that such withdrawing Party
shall remain liable for any costs, expenses, or damages theretofore accrued or
arising out of any event accruing prior to such Party's withdrawal.

               

              
                
                  
                  

                

                
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              14.2           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.  Notwithstanding Section 14.1, no Party shall be required
to accept an assignment of a withdrawing Party's interest.  If no
Party is willing to accept the assignment, the Party seeking to withdraw shall
remain subject to this Agreement.

              ARTICLE
15

              RENTALS, ROYALTIES, AND
OTHER PAYMENTS

              

              15.1           Creation of Overriding
Royalty.  If the Working Interest or Participating Interest of
a Party is subject to an overriding royalty, production payment, net profits
interest, mortgage, lien, security interest, or other burden or encumbrance,
other than lessor’s royalty, the Party so burdened shall pay and bear all
liabilities and obligations created or secured by the burden or encumbrance and
shall indemnify and hold the other Parties harmless from all claims and demands
for payment asserted by the owners of the burdens or encumbrances. If any
Non-Participating Party's interest is subject to an overriding royalty,
production payment, or other charge or burden other than the “Permitted
Encumbrance” shown on Exhibit “A”, then the Participating Parties shall, during
recoupment of costs to be recovered under Section 12.2 above, receive the
Working Interest production of such Non-Participating Party free from such
charge or burden, which shall be paid and discharged by the Non-Participating
Party out of his own separate funds.  Such Non-Participating Party
shall hold the Participating Parties harmless with regard to such
payment.

               

              
                
                  
                  

                

                
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              15.2           Payment of Rentals and
Minimum Royalties.  Operator shall 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 Lease(s) and submit evidence of each
such payment to the Parties.  Operator 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, or
is erroneously paid.  The loss of any Lease or interest therein which
results from a failure to pay or an erroneous payment of rental or minimum
royalty shall be a joint loss and there shall be no readjustment of
interest.

               

              15.3           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 such Lease as would be maintained by such
payment.  Unless otherwise agreed, such assigned interest shall be
owned by each Participating Party in proportion to its Participating
Interest.

               

              15.4           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 Contract Area for its
account and on its share of any production used, consumed, or lost on the
Contract Area.  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
16

              TAXES

              

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

               

              
                
                  
                  

                

                
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              16.2           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.

               

              16.3           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.

               

              16.4           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, provided that should a Party's
unilateral action cause a change in status of the entire Lease, Platform or
Facilities thereon for tax purposes, that Party shall bear the entire increased
portion of taxes caused by that Party's action.

               

              16.5           Gas
Balancing.  Each Party agrees that with respect to gas
production, each Party taking gas under the Gas Balancing Agreement attached
hereto as Exhibit "D" shall account for such gas for federal income tax purposes
in accordance with proposed Treasury Regulation Section 1.761-2(d)(3), or in
accordance with binding laws, rules, regulations, and orders affecting
production from the Contract Area which hereafter may be adopted, promulgated,
or issued by an agency or other governmental authority having jurisdiction over
the Contract Area.

              

              ARTICLE
17

              INSURANCE

              

              17.1           Insurance.  Operator
shall at times when operations are conducted herein during the term of this
Agreement, carry, pay for and charge each Party its proportionate share of
the cost of (i) Worker’s Compensation and Employer’s Liability Insurance
covering the employees of Operator engaged in operations hereunder in compliance
with all applicable State and Federal laws and (ii) Contingent Maritime
Employer’s Liability Insurance.  The Worker’s Compensation policy
shall have attached the “Longshoreman’s Harbor Worker’s Compensation Act
(Federal) Endorsement” and “Outer Continental Shelf Land’s
Endorsement”.  The Contingent Maritime Employer’s Liability Insurance
shall provide for a limit of liability of not less than $1,000,000 per
accident.  Such policies shall contain waivers of subrogation in favor
of Non-Operators.  Each Party to this Agreement shall be responsible
for insuring its own interest in property and equipment, well control and
redrill expense, or loss of income and any other loss not covered by the
insurance referred to herein.  Each Party for its account shall carry,
pay for and maintain throughout the term of this Agreement policies of insurance
specified in Exhibit “B” of this Agreement.

              

              
                
                  
                  

                

                
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              ARTICLE
18

              LIABILITY, CLAIMS AND
LAWSUITS

              

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

               

              18.2           Notice of Claim or
Lawsuit.  If a claim is made against any Party or if any Party
is sued on an alleged cause of action arising out of operations hereunder or an
alleged cause of action involving title to any interest subject hereto, such
Party shall give prompt written notice to the other Parties.

               

              18.3           Settlements.  Operator
may settle any single damage claim or suit involving operations or title to any
interest hereunder if the expenditure does not exceed Fifty Thousand Dollars
($50,000.00) and if the payment is in complete settlement of such claim or
suit.  If the amount required for settlement exceeds such amount, the
Participating Parties shall determine the further handling of the claim or
suit.  Operator will keep the Participating Parties appropriately
advised of all material events in each lawsuit and claim arising from operations
hereunder.

               

              18.4           Legal
Expense.  Legal expenses shall be handled pursuant to Exhibit
"C"; however, such legal expenses shall be approved and borne in accordance with
Exhibit "C" by only the Participating Parties in the operations out of which
such liability giving rise to same occurs.

               

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

               

              18.6           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.

               

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

              

              
                
                  
                  

                

                
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              ARTICLE
19

              INTERNAL REVENUE
PROVISION

              

              19.1           Internal Revenue
Provision.  Notwithstanding any provisions herein that the
rights and liabilities are several and not joint or collective, or that this
Agreement and the operations hereunder shall not constitute a partnership, each
Party elects not to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A, Internal Revenue Code of 1986, as amended, and similar provisions of
applicable state laws.  The tax partnership shall be governed by
Exhibit
“F”                                           .

              

              ARTICLE
20

              CONTRIBUTIONS

              

              20.1           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, in support of the drilling of any well on the Contract
Area.  Payments received as consideration for entering into a contract
for sale of production from the Contract Area, loans, and other financing
arrangements shall not be considered contributions for the purposes of this
Article.

               

              20.2           Cash
Contributions.  In the event a Party contracts for a cash
contribution toward the drilling of a well, said cash contribution shall be paid
to Operator and Operator shall apply the amount thereof against the cost of such
drilling.  If such well is a Non-Consent Well, the amount of the
contribution shall be deducted from the cost specified in Section
12.2.1.(a).

               

              
                
                  
                  

                

                
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              20.3           Acreage
Contributions.  In the event a Party contracts for 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 the cost of drilling the
well.  Such acreage shall become a separate contract area and,
to the extent possible, be subject to provisions identical to those contained in
this Agreement.  For purposes of this Agreement, the word "acreage"
shall mean lands or leases or interests therein.

              

              ARTICLE
21

              DISPOSITION OF
PRODUCTION

              

              21.1           Facilities to Take in
Kind.  Any Party shall have the right, at its sole risk and
expense, to construct Facilities for taking its share of production in kind,
provided that such Facilities, at the time of installation, do not interfere
with continuing operations on the Contract Area.

               

              21.2           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
Contract Area.

               

              21.3           Failure to Take in
Kind.  If any Party fails to take in kind and dispose of its
share of the oil and/or condensate, Operator shall have the option, but not the
obligation, to either (a) purchase oil and/or condensate at Operator's posted
price for liquids of the same kind, gravity, and quality in the field where the
Leases are located or, in the absence of such posted price, at the price
prevailing in the field or area for oil and/or condensate of the same kind,
gravity, and quality, or (b) sell such oil and/or condensate to others under
commercially reasonable terms negotiated by Operator in good faith , 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 be only for such
reasonable periods of time as are consistent with the minimum needs of the
industry under the circumstances, but in no event shall any contract be for a
period in excess of one hundred and eighty (180) days.  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 or dispose of
its share of gas, such gas shall be accounted for in accordance with the
provisions of Exhibit "D", Gas Balancing Agreement, attached hereto and made a
part hereof.

               

              21.4           Expenses of Delivery in
Kind.  Any cost incurred in making delivery of any Party's
share of oil and/or condensate or disposing of same pursuant to Section 21.3,
shall be borne by such Party.

               

              21.5           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
the attached Exhibit "D".

              
                
                   

                

                
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              ARTICLE
22

              APPLICABLE
LAW

              

              22.1           Applicable
Law.  THIS AGREEMENT AND ALL OPERATIONS CONDUCTED HEREUNDER BY
THE PARTIES SHALL BE SUBJECT TO ALL VALID AND APPLICABLE FEDERAL LAWS, RULES,
REGULATIONS AND ORDERS ("FEDERAL LAW").  TO THE EXTENT REQUIRED BY
FEDERAL LAW, THE LAWS OF THE STATE ADJACENT TO THE CONTRACT AREA SHALL
APPLY.  THIS AGREEMENT SHALL OTHERWISE BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF LOUISIANA, EXCLUDING CHOICE
OF LAW RULES THAT WOULD REFER THE MATTER TO THE LAW OF ANY OTHER
JURISDICTION.

              

              ARTICLE
23

              LAWS AND
REGULATIONS

              

              23.1           Laws and
Regulations.  This Agreement and all operations and activities
conducted under it shall be subject to all applicable laws, rules, regulations
and orders (federal, state, and local).  A provision of this Agreement
found to be contrary to or inconsistent with any such law, rule, regulation or
order shall be deemed to have been modified accordingly.

              

              ARTICLE
24

              FORCE
MAJEURE

              

              24.1           Force
Majeure.  The obligations imposed by this Agreement on a Party,
except for indemnity obligations and the payment of money, shall be suspended
with respect to such Party to the extent that compliance is prevented, in whole
or in part, by a labor dispute, fire, storm, 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
removed; and provided further that no Party shall be required against its will
to settle any labor dispute.

               

              24.2           Notice.  Whenever
a Party's obligations are suspended under Section 24.1, such Party shall
immediately notify the other Parties and give full particulars of the reason for
such suspension.

               

               

              
                
                  
                  

                

                
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              ARTICLE
25

              SUCCESSORS, ASSIGNS AND
PREFERENTIAL RIGHTS

              

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

              25.2           Transfer of Interest.
No transfer, assignment, or other disposition of interest by a Party shall
relieve the Party of liabilities and obligations it has incurred or that are
attributable to the interest transferred before the date of the transfer, and
the obligation to pay and bear all costs and risks attributable to an operation
in which the Party was a Participating Party before making the transfer, and the
lien and security rights granted by Section 8.5 (Security Rights) shall continue
to burden the interest transferred to secure payment of the obligations. The
transferor shall be liable for all costs, expenses, and liabilities for well
plugging and abandonment, Platform and Facilities removal and disposal, and site
clearance for property and equipment attributable to the assigned interest
before the date of the transfer, net of salvage proceeds.

               

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

               

              
                	
                         
      

                      	
                        (a)

                      	
                        the
      transferee is financially capable of assuming the obligations hereunder
      and, in accordance with Subsection 25.3(c), the transferor furnishes the
      Parties with proof of such financial capability that, in the case of Outer
      Continental Shelf leases, shall be proof that the transferee is currently
      qualified by the Minerals Management Service, an agency of the United
      States Department of the Interior, or a successor agency having
      jurisdiction (hereinafter “MMS”), to own Outer Continental Shelf leases
      and that the transferee has on file with the MMS the appropriate lessee
      and Operator bonds;

                      

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              
                	
                         
      

                      	
                        (c)

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

                         

                      

              

              The
requirements of this Section 25.3 shall not apply to a merger, consolidation,
reorganization, sale or transfer to an Affiliate, a mortgage by a Party of its
interest in the Leases within the Contract 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.

               

              
                
                  
                  

                

                
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              25.4           Transfers Between
Parties. A transfer, relinquishment, or other disposition of interests in
the Leases between Parties under Section 12.6 (Non-Consent Operations to
Maintain Lease); Article 14 (Withdrawal); or Section 15.3 (Non-participation in
Payments) shall be made without warranty of title. Any such transfer between the
Parties, if applicable, shall be free and clear of all overriding royalty,
production payment, net profits
interest, mortgage, lien, security interest, or other burden or encumbrance,
other than lessor’s royalty burdens and the Permitted Encumbrance shown on
Exhibit “A”.

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

               

              25.6           Preferential Rights.
If a Party desires to transfer, sell, farmout, assign, or otherwise dispose of
all or part of its Working Interest (“Disposing Party”), it shall promptly give
written notice to the other Parties with full information about the proposed
transaction, including, but not limited to, the name and address of the
prospective transferee (who must be ready, willing, and able to acquire the
interest and deliver the stated consideration therefor), the consideration for
the transfer, farmout terms, and all other terms of the offer. In the case of a
package sale of oil and gas interests that includes all or part of the Disposing
Party’s Working Interest, or if the proposed transaction is structured as a
non-simultaneous, like-kind exchange under Section 1031 of the Internal Revenue
Code of 1986, as amended (“Code”), the Working Interest that is subject to this
preferential right shall be separately valued and the notice shall state the
value attributed to the interest by the prospective transferee. The other
Parties shall then have an optional prior right, for a period of thirty (30)
days after receipt of the notice, to elect to purchase or acquire on the same
terms and conditions, or on equivalent terms for a non-cash transaction, all of
the Working Interest that the Disposing Party is proposing to transfer. If this
preferential right is exercised by a Party, the purchasing or acquiring Parties
shall share the purchased or acquired interest in the proportions that the
Working Interest of each bears to the total Working Interest of all acquiring
Parties, or in such proportions as the acquiring Parties otherwise agree. This
preferential right shall apply separately to each Working Interest or part
thereof covered by this Agreement, regardless of whether it is included in the
proposed transaction along with other oil and gas interests, whether as a sale,
farmout, or non-simultaneous, like-kind exchange, and no provision in this
Agreement shall be interpreted to defeat this preferential right. Upon exercise
of this preferential right, the acquiring Parties shall agree to perform all
obligations of the prospective transferee under the proposed transaction only
for the Working Interest subject to the proposed transaction. This preferential
right, however, shall not exist or apply when a Party proposes (a) to mortgage
its interest; (b) to dispose of or transfer its interest to an Affiliate by (i)
merger, (ii) reorganization, or (iii) consolidation; (c) to sell all, or
substantially all, of its exploration and production properties located in the
United States of
America; or (d) to transfer the interest under a property exchange transaction
other than a non-simultaneous, like-kind exchange under Section 1031 of the
Code. If the proposed transaction is not consummated within six (6) months after
receipt of the notice by the other Parties, the Working Interest shall again be
governed by this Section 25.6 and the preferential right shall again arise for
the offered interest as herein described.

              
                
                   

                

                
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              ARTICLE
26

              TERM

              

              26.1           Term.  This
Agreement shall remain in effect so long any Lease or part thereof within the
Contract Area remains in force and effect and thereafter until: (a) all wells
within the Contract Area have been abandoned and plugged or turned over to a
single Working Interest owner in accordance with Article 14; (b) all 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
"D".  Termination of this Agreement shall not relieve a Party of any
liability or obligation which accrued or was incurred before such
termination.

              

              ARTICLE
27

              MISCELLANEOUS
PROVISIONS

              

              27.1           
Headings.  Except
for the headings contained in Article 2 (Definitions), the headings and table of
contents used herein are inserted for convenience only and shall be disregarded
in construing this Agreement.

               

              27.2           
Waiver.  Failure
to act upon a breach of any provision of this Agreement does not waive a Party's
right to enforce a subsequent breach of the same or any other
provision.

              

              ARTICLE
28

              EXECUTION

              

              28.1           Counterpart
Execution.  This Agreement may be executed by signing the
original or a counterpart thereof.  If this Agreement is executed in
counterparts, all counterparts taken together shall have the same effect as if
all the Parties had signed the same instrument.

               

              28.2           Amendments.  No
amendments hereof shall be effective unless they are in writing and executed by
the relevant Parties.

              

              
                
                   

                

                
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              IN
WITNESS WHEREOF, this Agreement has been executed by the Parties on the date
shown below, but effective as of the day and year first above
written.

              

              WITNESSES:

              

              OPERATOR:

              

              Ridgelake Energy, Inc.

              _______________________________

              

              By:_________________________________

              _______________________________                        William
M. Hines

                                                                                                             
Vice President

              Date: September 26, 2006

              

              

              

              WITNESSES:

              NON-OPERATORS:

              

              GulfX, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Paul Garner

              Title: Vice
President

              Date: Oct 6,
2006

              

              

              South Marsh, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Paul Garner

              Title: Vice
President

              Date: Oct 6,
2006

              

              
 

              Lion Energy Limited, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Russell
Brimage

              Title: President

              Date: Oct 6,
2006

              

              

              

              

              

              
                
                   

                

                
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              EXHIBIT
"A"

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day
of  September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited, LLC.

              

              

              
                	
                        I.

                      	
                        Description of
      Lease(s):

                      

              

              

              
                That
certain Lease dated effective May 1, 2005, by and between the United States of
America (“Lessor”) and Ridgelake Energy, Inc. (“Lessee”), designated by the
Minerals Management Service as OCS-G 27078, and covering 5,000 acres of
submerged lands within the Outer Continental Shelf, described as
follows:

                

                “All of Block 317, Vermilion Area,
South Addition, , OCS Leasing Map, Louisiana Map No. 3B”

              

              

              
                	
                        II.

                      	
                        Contract
      Area:

                      

              

              

              The
Contract Area shall cover all of the acreage covered by OCS-G
27078.

              

              
                	
                        III.

                      	
                        Interest of
      Parties:

                      

              

              

              Party:                                                                                                        
Interest:

              

              RIDGELAKE
ENERGY, INC. (“OPERATOR”)    40.00%

              GULFX,
LLC                                                                                                           **20.00%

              SOUTH
MARSH
LLC                                                                                           **10.00%

              LION ENERGY LIMITED
LLC                                                                             **30.00%

                                                                                                                                                          100.00%

               

               

              
                * (NOTE:
It is recognized that, pursuant to the terms of that certain Seismic Acquisition
and Exploration Agreement dated effective September 7, 2004, by and between
Ridgelake Energy, Inc. and Beacon Exploration and Production Company, L.L.C.,
Beacon has the right to participate for up to a 10% working interest in OCS-G
27078. Should Beacon or its designee be determined to have properly elected to
acquire a working interest in OCS-G 27078, then it is understood that such
interest will be conveyed by Ridgelake to Beacon or its designee. Furthermore,
it is agreed that the conveyance by Ridgelake to Beacon or its designee under
the terms of the aforesaid Seismic Acquisition and Exploration Agreement shall
not be subject to the terms of this agreement until such time as Beacon or it
designee has ratified and/or otherwise accepted the terms of this Operating
Agreement. In particular, the Parties herein specifically understand and agree
that the aforesaid conveyance by Ridgelake to Beacon ir its designee is not
subject to the terms of Article 25.3 and 25.6 of this Operating
Agreement.)

                

              

               

              ** (NOTE:
It is recognized and understood that the respective interests credited to GulfX,
LLC, South Marsh LLC and Lion Energy Limited LLC are subject to the terms and
conditions of the following Participation Agreements: 1) that certain Agreement
dated January 18, 2006, by and between Ridgelake and GulfX, LLC,
(2)  that certain Agreement dated September 18, 2006, by and between
Ridgelake and South Marsh LLC, and (3) that certain Agreement dated September
18,2006, by and between Ridgelake and Lion Energy Limited LLC. As such, the
interest, which is conditioned upon the performance by GulfX, South Marsh and
Lion of all of the terms and conditions contained in the aforesaid Participation
Agreements. Should the said parties fail to earn an interest in OCS-G 27078
under the terms of the Participation Agreement that is applicable to that
party’s conditional interest, then it is recognized that the interest credited
to that party shall revert to Ridgelake. Furthermore, it is understood and
agreed that if there is a conflict between the terms and conditions of the
Participation Agreements referenced herein and this Operating Agreement, then
the terms of the applicable Participation Agreement shall apply and take
precedence over the terms and conditions contained in this Operating
Agreement.)

              

              
                
                  
                  

                

                
                  A-1

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        IV.

                      	
                        Designated
      Representatives:

                      

              

              

              RIDGELAKE ENERGY,
INC.                                                                                   GULFX,
LLC

              3636 N. Causeway Boulevard, Suite
300                                                               45
Ventnor Avenue

              Metairie, Louisiana
70002-7216                                                                              West
Perth 6005

              Attention:  Mr. John
Rubin                                                                                    
Western Australia, Australia

                                                  
Attention: ______________

              

              SOUTH MARSH
LLC                                                                                             
LION ENERGY LIMITED LLC

              P.O. Box
512                                                                                                              
P.O. Box 512

              West Perth Business Center
6872                                                                         
West Perth Business Center 6872

              Western Australia,
Australia                                                                                 
Western Australia, Australia

              Attention:
_________________                                                                         
Attention: _________________

              

              

              
                	
                        V.

                      	
                        Permitted
      Encumbrance:

                      

              

              

              
                In
addition to Lessor’s royalty, OCS-G 27078 is burdened with a 3.33333% of 8/8ths
Overriding Royalty Interest, which has been granted by Ridgelake Energy, Inc. to
Beacon Exploration and Production Company, L.L.C., pursuant the terms of that
certain letter agreement dated September 7, 2004, by and between Ridgelake and
Beacon Exploration and Production Company L.L.C. The aforesaid burdens are
Permitted Encumbrances under the terms of this Operating
Agreement.

              

              
                
                   

                

                
                  A-2

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“B”

              INSURANCE

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              INSURANCE
PROVISIONS

              

              1           Operator shall carry the
following insurance for the joint account:

              

              
                	
                         
      

                      	
                        a.

                      	
                        Workmen's
      Compensation and Employer's Liability Insurance covering employees of
      Operator engaged in operations hereunder in compliance with all applicable
      State and Federal Laws. The Workmen's Compensation policy shall have
      attached the "Longshoreman's Harbor Worker's Compensation Act (Federal)
      Endorsement" and "Outer Continental Shelf Lands
    Endorsement".

                      
	 	 	 
	 	
                        b.

                      	
                        Contingent
      Maritime Employer's Liability Insurance shall provide for a limit of
      liability of not less than $1,000,000 per
  accident.

                      

              

              

              
              

              

              
                 
2.           
Each
Party shall carry the insurance noted below with the minimum limits as set
out:

              

              

              
                	
                         
      

                      	
                        a.

                      	
                        General
      Liability and Property Damage Insurance endorsed to include offshore
      operations and non-owned watercraft liability, covering operations
      conducted hereunder with a combined single limit each occurrence of
      $1,000,000 for bodily injury and property damage.

                      
	 	 	 
	 	
                        b.

                      	
                        Commercial
      Automobile Liability Insurance covering owned, non-owned and hired
      automobiles with a combined single limit of $1,000,000 per occurrence and
      Property Damage Insurance covering operations conducted hereunder with a
      combined single limit each occurrence of $500,000 for bodily injury and
      property damage.

                      
	 	 	 
	 	
                        c.

                      	
                        Excess
      Liability Insurance, including sudden and accidental pollution liability,
      with a limit of $35,000,000.00.

                      
	 	 	 
	 	d. 	
                        Non-Owned
      Aircraft Liability Insurance with a limit of $5,000,000 each
      occurrence.

                      
	 	 	 
	 	
                        e.

                      	
                        Insurance
      for Control of Well, Redrilling and Restoration due to blowout and/or
      cratering above or below surface, and Seepage and Pollution Liability
      coverage including cleanup and containment with a minimum limit of
      $25,000,000 per occurrence. Coverage shall also include Care Custody and
      Control Insurance with a minimum limit of $500,000 per
      occurrence.

                      

              

              
 

              
                	
                        3.

                      	
                        Any
      Party hereto may acquire such additional insurance as it deems proper to
      protect itself against any claims, losses, damages or destruction arising
      out of operations hereunder.

                      

              

              

              
                	
                        4.

                      	
                        Operator
      shall use reasonable efforts to require all contractors and subcontractors
      working or performing services hereunder to comply with the Workmen's
      Compensation and Employer's Liability Laws, both State and Federal, and to
      carry Comprehensive General Liability and such other insurance as Operator
      deems necessary.

                      

              

              

              In the
event that construction operations are performed, Operator shall determine the
amount(s) of Builder’s Risks Insurance appropriate for the project and shall:
(i) cause the pertinent contractor(s) and, as applicable, subcontractor(s) to
carry, in the aggregate and as Operator deems appropriate, such coverage and/or
(ii) carry for the joint account (and charge it accordingly) for such portion
of, of all, the coverage as operator deems appropriate.  In any such
event, Operator shall cause certificates of insurance reflective of such
coverage to be forwarded to the Non-Operator(s).

              
                
                   

                

                
                  B-1 

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“C”

              

              Attached
to and made a part of that certain Operating Agreement,

              dated the
18th
day of September, 2006,

              by and between Ridgelake Energy, Inc.,
GulfX, LLC, South Marsh LLC and Lion Energy Limited LLC.

              

              ACCOUNTING
PROCEDURE

              OFFSHORE
JOINT OPERATIONS

              

              

              I.
GENERAL PROVISIONS

              

              
                	
                         
      

                      	
                        1.

                      	
                        Definitions

                      

              

              

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

              

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

              

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

              

              “Operator”
shall mean the party designated to conduct the Joint Operations.

              

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

              

              “Parties"
shall mean Operator and Non-Operators.

              

              “First
Level Supervisors” shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or contract labor
directly employed on the Joint Property in a field operating
capacity.  The First Level Supervisor shall not be required to be
located on the Joint Property, but shall be located at a field location near the
Joint Property.

              

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

              

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

              

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

              

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

              

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

              

              “Offshore
Facilities” shall mean platforms and support systems such as oil and gas
handling facilities, living quarters, offices, shops, cranes, electrical supply
equipment and systems, fuel and water storage and piping, heliport, marine
docking installations, communication facilities, navigation aids, and
other

              similar
facilities necessary in the conduct of offshore operations.

              

              
                
                  
                  

                

                
                  C-1

                  
                    

                  

                

                
                  
                  

                

              

              2.         Statements and
Billings

              

              
                	
                         
      

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

                      

              

              
 

              

              3.         Advances and Payments by
Non-Operators

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                	
                        4.

                      	
                        Adjustments

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        5.

                      	
                        Audits

                      

              

              

              
                	
                         
      

                      	
                        A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                
                  
                  

                

                
                  C-2

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        6.

                      	
                        Approval
      by Non-Operators

                      

              

              

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

              

              II.
DIRECT CHARGES

              

              Operator
shall charge the Joint Account with the following items:

              

              
                	
                        1.

                      	
                        Rentals
      and Royalties

                      

              

              

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

              

              
                	
                        2.

                      	
                        Labor

                      

              

               

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

               

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

              

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

              

              

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

              

               

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

               

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

               

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

               

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

              

              
                	
                        3.

                      	
                        Employee
      Benefits

                      

              

              

              Operator's
current costs of established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus, and other
benefit plans of a like nature, applicable to Operator's labor cost chargeable
to the Joint Account under Paragraphs 2A and 2B of this Section II shall be
Operator's actual cost not to exceed the percent most recently recommended by
the Council of Petroleum Accountants Societies.

              

              
                
                  
                  

                

                
                  C-3

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        4.

                      	
                        Material

                      

              

              

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

              

              
                 
5.      Transportation

              

              

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

              

              
                	
                         
      

                      	
                        A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                	
                         
      

                      	
                        C.

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

                      

              

              

              
                	
                        6.

                      	
                        Services

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        7.

                      	
                        Equipment
      and Facilities Furnished by
Operator

                      

              

              

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

              

              

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

              

              

              
                
                  
                  

                

                
                  C-4

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        8.

                      	
                        Damages
      and Losses to Joint Property

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        9.

                      	
                        Legal
      Expense

                      

              

              

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

              

              
                	
                        10.

                      	
                        Taxes

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        11.

                      	
                        Insurance

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        12.

                      	
                        Communications

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                
                  
                  

                

                
                  C-5

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        13.

                      	
                        Ecological
      and Environmental

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        14.

                      	
                        Abandonment
      and Reclamation

                      

              

              

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

              

              
                	
                        15.

                      	
                        Other
      Expenditures

                      

              

              

              
                	
                         
      

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

                      

              

              

              III.  OVERHEAD

              

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

              

              Unless
otherwise agreed to by the Parties, such charge shall be in lieu of costs and
expenses of all offices and salaries or wages plus applicable burdens and
expenses of all personnel, except those directly chargeable under Section
II.  The cost and expense of services from outside sources in
connection with matters of taxation, traffic, accounting or matters before or
involving governmental agencies, except as herein described, shall be considered
as included in the overhead rates provided for in this Section III unless such
cost and expense are agreed to by the Parties as a direct charge to the Joint
Account. Notwithstanding anything
herein contained to the contrary, it is agreed that such costs and services when
directly employed on the Joint Property shall not be covered by the overhead
rates. Furthermore, the reasonable and customary fees and expenses incurred by
contract personnel and professional consultants as such fees relate to matters
before or involving governmental agencies (including but not limited to the
Minerals Management Service and other regulatory agencies) , even if such
contract or professional consultants are working in Operator’s office, shall be
directly chargeable to the Joint Account, to the extent that such fees and
expenses are associated with the operation of the Joint
Property.

              

              
                	
                         
      

                      	
                        i.

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

                      

              

              

              
                	
                         
      

                      	
                        (    
       ) shall be covered by the overhead
rates.

                      

              

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

                      

              

              

              
                	
                         
      

                      	
                        ii.

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

                      

              

              

              
                	
                         
      

                      	
                        (  x  )
      shall be covered by the overhead
rates.

                      

              

              
                	
                         
      

                      	 	 	
                        (      )
      shall not be covered by the overhead
rates.

                      

              

              

              
                
                  
                  

                

                
                  C-6

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        1.

                      	
                        Overhead
      - Drilling and Producing Operations

                      

              

              

              
                	
                         
      

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

                      

              

               

               

              

               

              
                	
                        (  x  )
    

                      	
                        Fixed
      Rate Basis, Paragraph 1A, or

                      
	
                        (      )

                      	
                        Percentage
      Basis, Paragraph 1B

                      

              

               

              

              

              
                	
                        A.

                      	
                        Overhead
      - Fixed Rate Basis

                      

              

              

              
                	
                         
      

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

                      

              

              
                	
                         
      

                      	
                                    
      Drilling Well Rate $30,000.  (Prorated for
      less than a full month)

                      

              

              
                	
                         
      

                      	
                                    
      Producing Well Rate $3,000.

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              

              
                	
                         
      

                      	
                        (3)

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      
	 	 	 
	 	
                        (b)

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

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

              

              

              
              

              

              
              

              

              
                
                  
                  

                

                
                  C-7

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        (d)

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

                      
	 	 	 
	 	
                        (e)

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

                      

              

              

              
              

              

              
                	
                         
      

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

                      

              

              

              
                 
B.     
Overhead - Percentage Basis

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)
      Development

                      

              

              
                	 	
                        __________________ Percent
      (___%) of cost of Development of the Joint Property exclusive of
      costs provided under Paragraph 9 of Section II and all salvage
      credits.

                      

              

              

              

              
                	
                         
      

                      	
                        (b)
      Operating

                      

              

              
                	 	
                             ______________________
      Percent (___%) of the cost of Operating the
  Joint

                      

              

              

              
                	
                         
      

                      	
                        Property
      exclusive of costs provided under Paragraphs 1 and 9 of Section II, all
      salvage credits, the value of injected substances purchased for secondary
      recovery and all taxes and assessments which are levied, assessed and paid
      upon the mineral interest in and to the Joint
  Property.

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                         Application
      of Overhead - Percentage Basis shall be as
      follows:

                      

              

              

              For the
purpose of determining charges on a percentage basis under Paragraph 1B of this
Section III, development shall include all costs in connection with drilling,
redrilling, deepening, or any project with a primary purpose to extend or expand
a wellbore in order to recover new reserves not previously recoverable by the
wellbore; also,
preliminary expenditures necessary in preparation for drilling and expenditures
incurred in abandoning when the well is not completed as a producer, and
original cost of construction or installation of fixed assets, the expansion of
fixed assets and any other project clearly discernible as a fixed asset, except
Major Construction as defined in Paragraph 2 of this Section III.  All
other costs shall be considered as Operating except that catastrophe costs shall
be assessed overhead as provided in Section III, Paragraph 3.

              

              
                
                  
                  

                

                
                  C-8

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        2.

                      	
                        Overhead
      - Major Construction

                      

              

              

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

              

              (1) 6%  of
total costs if such costs are more than $25,000
but less than $100,000; plus

               

              (2)  4
%  of
total costs in excess of $100,000 but less than $1,000,000; plus

               

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

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              (1) 
4%  of
total costs if such costs are more than $
25,000 but less than $100,000; plus

              

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

              

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

              

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

              

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

              

              
                	
                         
      

                      	
                        3.

                      	
                        Overhead
      - Catastrophe

                      

              

              

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

               

              (1) 4%  of
total costs through $100,000; plus

               

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

               

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

              

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

              

              
                
                  
                  

                

                
                  C-9

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        4.

                      	
                        Amendment
      of Rates

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        *IV.

                      	
                        PRICING
      OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
      DISPOSITIONS

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        * Operator shall account
      for material purchase and transfers in accordance with
      COPAS    Interpretation 23, attached hereto, or the
      pricing procedur5e most recently recommended by
  COPAS.

                      

              

              
                	
                        1.

                      	
                        Purchases

                      

              

              

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

              

              
                	
                        2.

                      	
                        Transfers
      and Dispositions

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                
                  
                  

                

                
                  C-10

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        A.

                      	
                        New
      Material (Condition A)

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Tubular
      Goods Other than Line Pipe

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

                      	
                        For
      grades which are special to one mill only, prices shall be computed at the
      mill base of that mill plus transportation cost from that mill to the
      railway receiving point nearest the Joint Property as provided above in
      Paragraph 2.A.(1)(a).  For transportation cost from points other
      than Eastern mills, the 30,000 pound Oil Field Haulers Association
      interstate truck rate shall be
used.

                      

              

              

              
                	
                         
      

                      	
                        (c)

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

                      

              

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                        Line
      Pipe

                      

              

              

              
                	
                         
      

                      	
                        (a)

                      	
                        Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      Over) 30,000 pounds or more shall be priced under provisions of tubular
      goods pricing in Paragraph A.(1 )(a) as provided above. Freight charges
      shall be calculated from Lorain,
Ohio.

                      

              

              

              
                	 	
                        (b)

                      	
                        Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      over) less than 30,000 pounds shall be priced at Eastern mill published
      carload base prices effective as of date of shipment, plus 20 percent,
      plus transportation costs based on freight rates as set forth under
      provisions of tubular goods pricing in Paragraph A.(1)(a) as provided
      above. Freight charges shall be calculated from Lorain,
    Ohio.

                      

              

              

              
                	
                         
      

                      	
                        (c)

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

                      

              

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              

              
                	
                         
      

                      	
                         (3)

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

                      

              

              

              
                	
                         
      

                      	
                         (4)

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

                      

              

              

              
                
                  
                  

                

                
                  C-11

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        B.

                      	
                        Good
      Used Material (Condition B)

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Material
      moved to the Joint Property

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

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

              

               

              
                	 	
                        (a)

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

                      
	 	 	 
	 	
                        (b)

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

                      

              

               

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

                      

              

              
              

              
 

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

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

              

              

              

              
                	
                         
      

                      	
                        C.

                      	
                        Other
      Used Material

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Condition
      C

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                        Condition
      D

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              

              
                
                  
                  

                

                
                  C-12

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        (3)     
      Condition E

                      

              

              

              
                	
                         
      

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

                      

              

              

                   
D.     Obsolete Material

              

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

              

                  E.      Pricing
Conditions

              

              
                	
                         
      

                      	
                            (1)

                      	
                        Loading
      or unloading costs may be charged to the Joint Account at the rate
      of  twenty-five cents ($0.25) per hundred weight on all tubular
      goods movements, in lieu of actual loading or unloading costs sustained at
      the stocking point.  The above rate shall be adjusted as of the
      first day of April each year following January 1, 1985 by the same
      percentage increase or decrease used to adjust overhead rates in Section
      III, Paragraph 1.A(4). Each year, the rate calculated shall be rounded to
      the nearest cent and shall be the rate in effect until the first day of
      April next year.  Such rate shall be published each year by the
      Council of Petroleum Accountants
Societies.

                      

              

              

              
                	
                         
      

                      	
                            (2)

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

                      

              

              

              
                	
                        3.

                      	
                        Premium
      Prices

                      

              

              

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

              

              
                	
                        4.

                      	
                        Warranty
      of Material Furnished By Operator

                      

              

              

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

              

              
                
                  
                  

                

                
                  C-13

                  
                    

                  

                

                
                  
                  

                

              

              V.
INVENTORIES

              

              The Operator shall maintain detailed
records of Controllable Material.

              

              
                	
                        1.

                      	
                        Periodic
      Inventories, Notice and
Representation

                      

              

              

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

              

              2.         Reconciliation
and Adjustment of Inventories

              

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

              

              
                	
                        3.

                      	
                        Special
      Inventories

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        4.

                      	
                        Expense
      of Conducting Inventories

                      

              

              

              
                	
                                   
      A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              

              

              
                
                   

                

                
                  C-14

                  
                    

                  

                

                
                   

                

              

              

              EXHIBIT
"D"

              GAS
BALANCING AGREEMENT (“Agreement”)

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              
                
                   

                

                
                  D-1 

                  
                    

                  

                

                
                   

                

              

              

              EXHIBIT
“E”

              

              

              Attached
to and made part of that certain Operating Agreement,

              Dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              MEMORANDUM
OF OPERATING AGREEMENT

              AND

              FINANCING
STATEMENT

              

              This
Memorandum of Operating Agreement and Financing Statement is executed to be
effective concurrently with that certain Operating Agreement (the “Operating
Agreement”) by and between Ridgelake Energy Inc., as Operator,
and                                                                ,
as Non-Operator(s), covering, among other things, the development and production
of crude oil, natural gas and associated substances from the lands and leases
(hereinafter called the “Contract Area”) described on Exhibit A attached
hereto and owned by Operator and Non-Operator(s) in the respective percentages
of shares indicated on
Exhibit A. The attached Exhibit A consists of
one or more of the Exhibits A to the
Operating Agreement and refers severally to all Exhibits A attached
hereto.

              

              The
Operating Agreement contains an Accounting Procedure, along with provisions
giving the parties hereto mutual liens and security interests where one or more
parties hereto are or may become Debtors to one or more other parties hereto.
This Memorandum of Operating Agreement and Financing Statement incorporates by
reference all of the terms and conditions of the Operating Agreement, including
but not limited to the lien and security interest provisions.

              

              The
purpose of this Memorandum of Operating Agreement and Financial Statement is to
place third parties on notice of the Operating Agreement and to secure and
perfect the mutual liens and security interests of the parties
hereto.

              

              The
Operating Agreement specifically provides and the parties do hereby confirm and
agree that:

              

              
                	
                         
      

                      	
                        1.

                      	
                        The
      Operator shall conduct and direct and have full control of all operations
      on the Contract Area as permitted and required by, and within the limits
      of, the Operating Agreement.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        The
      Liability of the parties under the Operating Agreement shall be several,
      not joint or collective. Each party shall be responsible only for its
      obligations and shall be liable only for its proportionate share of
      costs.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        Each
      Non-Operator grants the Operator a lien upon its oil and gas rights, oil
      and gas leases and mineral interests in the Contract Area, and a security
      interest in its share of oil and/or gas when extracted and its interest in
      all fixtures, inventory, personal property and equipment located on or
      used on the Contract Area and in all its contract rights and receivables
      related thereto and arising therefrom to secure payment of its present and
      future share of costs and expenses, together with interest thereon at the
      rate provided in the Accounting Procedure referred to above, To the extent
      that Operator has security interest under the Uniform Commercial Code (the
      “Code”) of the state or the states in which the Contract Area is located,
      Operator without prejudice and in addition to all other legal, equitable
      and contractual remedies which are expressly reserved, shall be entitled
      to exercise the rights and remedies of a secured party under the Code. The
      bringing of a suit and the obtaining of judgment by Operator for the
      secured indebtedness shall not be deemed an election of remedies or
      otherwise affect the rights or security interests fir the payment
      thereof.

                      

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        If
      any Non-Operator fails to pay its share of costs and expenses when due,
      Operator may require other Non-Operators to pay their proportionate part
      of the unpaid share whereupon the other Non-Operators shall be subrogated
      to Operator’s Lien and Security Interest described
  herein.

                      

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        The
      Operator grants the Non-Operator(s) a lien and security interest
      equivalent to that granted to Operator as described in paragraph 3 above,
      to secure payment by the Operator of its won share of costs and expenses
      when due.

                      

              

              

              
                
                  
                  

                

                
                  E-1

                  
                    

                  

                

                
                  
                  

                

              

              As
reflected above, either or both Operator and Non-Operator(s) may become Debtors
if they default in their payment obligations under the terms of the Operating
Agreement. On default, the non-defaulting party(ies) will be considered secured
party(ies).

              

              The
Operating Agreement contains other provisions which do not conflict but
supplement the above-described provisions, including non-consent provisions
which provide that parties who elect not to participate in certain operations
shall be deemed to have relinquished their interest until the consenting parties
are able to recover their costs of such operations plus a specified amount.
Should any person or firm desire additional information regarding the Operating
Agreement or wish to inspect a copy of the Operating Agreement, said person or
firm should contact the Operator.

              

              For
purposes of protecting said liens and security interest, the undersigned parties
agree that this Memorandum of Operating Agreement and Financing Statement covers
all right, title and interest of the Debtor(s) in:

              

              Property Subject to Security
Interests:

              

              
                	
                         
      

                      	
                        1.

                      	
                        All
      personal property located upon or used in connection with the Contract
      Area.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        All
      fixtures on the Contract Area.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        All
      oil, gas and associated substances of value in, on or under the Contract
      Area, or which may be extracted
therefrom.

                      

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        All
      accounts and receivables resulting from the sale of the items described in
      subparagraph 3 at the wellhead of every well located on the Contract Area
      or on lands pooled therewith.

                      

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        All
      items used, useful, or purchased for the production, treatment, handling,
      storage, transportation, processing, manufacture, or sale of the items
      described in subparagraph 3.

                      

              

              

              
                	
                         
      

                      	
                        6.

                      	
                        All
      accounts, contract rights, rights under any gas balancing agreement,
      general intangibles, equipment, inventory, farmout rights, option farmout
      rights, acreage and/or cash contributions, and conversion rights, whether
      now owned or existing or hereafter acquired or arising, including but not
      limited to all interest in any enterprise that holds, owns, or controls
      any interest in the Contract Area or in any property encumbered by the
      Memorandum.

                      

              

              

              
                	
                         
      

                      	
                        7.

                      	
                        All
      severed and extracted oil, gas and associated substances now or hereafter
      produced from or attributable to the Contract Area, including without
      limitation, oil, gas and associated substances in tanks or pipelines or
      otherwise held by any person or entity fro treatment, storage,
      transportation, manufacture, processing or
sale.

                      

              

              

              
                	
                         
      

                      	
                        8.

                      	
                        All
      the proceeds and products of the items described in the foregoing
      paragraphs now existing or hereafter arising, and all substitutions
      therefore, improvements and enhancements thereto, replacements thereof, or
      accessions thereto.

                      

              

              

              
                	
                         
      

                      	
                        9.

                      	
                        All
      personal property and fixtures now and hereafter acquired in furtherance
      of the purposes of this Operating Agreement. Certain of the
      above-described items are, or are to become, fixtures on the Contract
      Area.

                      
	 	 	 
	 	
                        10.

                      	
                        The
      proceeds and products of collateral are also specifically
      covered.

                      

              

              

              
              

              

              
                
                  
                  

                

                
                  E-2

                  
                    

                  

                

                
                  
                  

                

              

              Property Subject to
Liens:

              

              
                	
                         
      

                      	
                        1.

                      	
                        All
      real property, oil, gas and mineral leases, severed and unsevered surface
      fees, mineral fees and interest, royalty interests, overriding royalty
      interests, production payments, net profit interests, and other oil and
      gas interests of any nature, including reversionary interests, all as may
      be located within the Contract Area, including all oil, gas and associated
      substances of value in, on or under the Contract Area, or which may be
      extracted therefrom.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        All
      fixtures within the Contact Area.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        All
      real property and fixtures now and hereafter acquired in furtherance of
      the purposes of this Operating
Agreement.

                      

              

              

              The above
items will be financed at the wellhead of the well or the wells located in the
Contract Area, and this Memorandum is to be filed for record in the real estate
records of the county(ies) or parish(es) and in the Uniform Commercial Code
records in which the Contract Area is located.

              

              On
default of any covenant or condition of the Operating Agreement, in addition to
any other remedy affected by law, each party to the Operating Agreement and any
successor to such part by assignment, operation of law, or otherwise, shall
have, and is hereby given and vested with, the power and authority to take
possession of and sell any interest which the defaulting party has in the
property identified above securing the obligations provided in the Operating
Agreement and to foreclose this lien and security interest in the manner
provided by law.

              

              Upon
expiration of the Operating Agreement and the satisfaction of all the debts and
the outstanding interest, the Operator shall file of record a release and
termination on behalf of all parties concerned. Upon the filing of such release
and termination, all benefits and obligations under this Memorandum shall
terminate as to all parties who have executed or ratified this Memorandum. In
addition, the Operator shall have the right to file a continuation statement on
behalf of all the parties that have executed or ratified this Memorandum when
Operator in its sole discretion deems such action appropriate.

              

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

              

              This
Memorandum shall be binding upon and shall inure to the benefit of the parties
hereto and to their respective heirs, devisees, legal representatives,
successors and assigns.

              

              A party
having an interest in the Contract Area can ratify this Memorandum by execution
hereof or a separate counterpart hereof or by execution and delivery of an
instrument of ratification adopting the provisions of this Memorandum or
agreeing to be bound by the terms thereof. Any such ratification shall have the
same effect as if the ratifying party had executed this Memorandum or a
counterpart thereof. By execution or ratification of this Memorandum, such party
hereby consents to its ratification and adoption by any party who may have or
may acquire any interest in the Contract Area.

              

              
                
                  
                  

                

                
                  E-3

                  
                    

                  

                

                
                  
                  

                

              

              This
Memorandum may be executed or ratified in one or more counterparts and all of
the executed or ratified counterparts shall together constitute one instrument.
For purpose of recording, only one copy of this Memorandum with individual
signature pages attached thereto needs to be filed of record.

              

              Executed
this ___________ day of ____________________, ____.

              

              

              OPERATOR:                         Ridgelake
Energy, Inc.

              

              

              

              

              By:
_______________________________________

              

              Printed Name:
_______________________

              

              Title:
_______________________________

              

              

              

              

              NON_OPERATOR:             ___________________________________________

              

              

              By:
_______________________________________

              

              Printed Name:
_______________________

              

              Title:
_______________________________

              

               

              
                
                   

                

                
                  E-4

                  
                    

                  

                

                
                   

                

              

              Exhibit A
attached to and made part of the Memorandum of Operating Agreement and Financing
Statement dated ___________________, _____ between Ridgelake Energy, Inc., as
Operator, and ___________________________, as Non-Operator, covering lands in
______________________.

              

              

              

              
                	
                         
      

                      	
                        1.

                      	
                        Contract
      Area:

                      

              

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        Depth
      Limitations:

                      

              

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        Substances
      Covered:

                      

              

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        Interest
      of Parties:

                      

              

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        Oil
      and Gas leases Subject to this
Agreement:

                      

              

              

              

              
                	
                         
      

                      	
                        6.

                      	
                        Addresses
      of Parties for Notice:

                      

              

              

              

              

              

              

              

              

              

               

              
                
                   

                

                
                  E-5

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“F”

              

              

              Attached
to and made part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              TAX
PARTNERSHIP PROVISIONS

              

              OF
THE _______________________________________________

              PARTNERSHIP

              (For Name
of Tax Reporting Partner and Special Elections, See Secs. 8 and 9)

               

              
                Table of
Contents

                
                  	
                          1.1

                        	
                          Designation
      Of Documents

                        	
                          1

                        
	
                          1.2

                        	
                          Relationship
      of the Parties

                        	
                          1

                        
	
                          1.3

                        	
                          Priority
      Of Provisions Of This Exhibit

                        	
                          1

                        
	
                          1.4

                        	
                          Survivorship

                        	
                          1

                        
	
                          2.2

                        	
                          IF
      SMALL PARTNERSHIP EXEPTION FOM TEFRA NOT APPLICABLE

                        	
                          2

                        
	
                          3.1

                        	
                          Tax
      Returns

                        	
                          2

                        
	
                          3.2

                        	
                          Fair
      Market Value Capital Accounts

                        	
                          2

                        
	
                          3.3

                        	
                          Information
      Requests

                        	
                          2

                        
	
                          3.4

                        	
                          Best
      Efforts without Liability

                        	
                          2

                        
	
                          4.1

                        	
                          General
      Elections

                        	
                          2

                        
	
                          4.2

                        	
                          Depletion

                        	
                          2

                        
	
                          4.3

                        	
                          Election
      Out Under Code §761(a)

                        	
                          3

                        
	
                          4.4

                        	
                          Consent
      Requirements For Subsequent Tax Or FMV Capital Account
      Elections

                        	
                          3

                        
	
                          5.1

                        	
                          Capital
      Contributions

                        	
                          3

                        
	
                          5.2

                        	
                          FMV
      Capital Accounts

                        	
                          3

                        
	
                          6.1

                        	
                          FMV
      Capital Accounts Allocations

                        	
                          3

                        
	
                          6.2

                        	
                          Tax
      Return and Tax Basis Capital Account Allocation

                        	
                          4

                        
	
                          7.1

                        	
                          Termination
      of the Partnership

                        	
                          4

                        
	
                          7.2

                        	
                          Balancing
      of FMV Capital Accounts

                        	
                          4

                        
	
                          7.3

                        	
                          Deemed
      Sale Gain/Loss Charge Back

                        	
                          4

                        
	
                          7.4

                        	
                          Deficit
      make-up Obligation and Balancing Cash Contributions

                        	
                          4

                        
	
                          7.5

                        	
                          Distribution
      to balance capital accounts

                        	
                          4

                        
	
                          7.6

                        	
                          FMV
      determination

                        	
                          4

                        
	
                          7.7

                        	
                          Final
      Distribution

                        	
                          4

                        
	
                          8.1

                        	
                          Transfer
      of Partnership Interests

                        	
                          5

                        
	
                          8.2

                        	
                          Correspondence

                        	
                          5

                        
	
                          9.1

                        	
                          Operator
      not the TRP

                        	
                          5

                        
	
                          9.2

                        	
                          Special
      Tax Elections

                        	
                          5

                        
	
                          9.3

                        	
                          Change
      of Majority for Other Tax Elections

                        	
                          5

                        

                

              

              

              
                
                  
                  

                

                
                  F-1

                  
                    

                  

                

                
                  
                  

                

              

              1.           General
Provisions

              1.1           Designation
Of Documents.

               

              This
exhibit is referred to in, and is part of, that Agreement identified above and,
if so provided, a part of any agreement to which the Agreement is an exhibit.
Such agreement(s) (including all exhibits thereto, other than this exhibit)
shall be hereafter referred to as the “Agreement” and this exhibit is
hereinafter referred to as the “Exhibit” or the “Tax Partnership Provisions”
(the “TPPs”). Except as may be otherwise provided in this Exhibit, terms defined
and used in the Agreement shall have the same meaning when used
herein.

              

              

              1.2           Relationship
of the Parties.

               

              The
parties to the Agreement shall be hereinafter referred to as “Party” or
“Parties”. The Parties understand and agree that the arrangement and
undertakings evidenced by the Agreement result in a partnership for purposes of
Federal income taxation and certain State income tax laws which incorporate or
follow Federal income tax principals as to tax partnerships. Such partnership
for tax purposes is hereinafter referred to as the “Partnership”. For every
other purpose of the Agreement the Parties understand and agree that their legal
relationship to each other under applicable State law with respect to all
property subject to the Agreement is one of tenants in common, or undivided
interest owners, or lessee(s) sublessee(s) and not a partnership; that the
liability of the Parties shall be several and not joint or collective; and that
each Party shall be responsible solely for its own obligations.

              

              1.3           Priority
Of Provisions Of This Exhibit.

               

              If there
is a conflict or inconsistency, whether direct or indirect, actual or apparent,
between the terms and the conditions of this Exhibit and the terms and
conditions of the Agreement, or any other exhibit or any part thereof, the terms
and conditions of this Exhibit shall govern and control.

              

              1.4
Survivorship.

               

              
                	
                        1.4.1

                      	
                        Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the termination and liquidation.

                         

                      

              

              
                	
                        1.4.2

                      	
                        Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the resolution of all matters regarding Federal and State
      income reporting.

                         

                      

              

              
                	
                        1.4.3

                      	
                        These
      TPPs shall inure to the benefit of, and be binding upon, the Parties
      hereto and their successors and assigns.

                         

                      

              

              
                	
                        1.4.4

                      	
                        The
      effective date of the Agreement shall be the effective date of these TPPs.
      The Partnership shall continue in full force and effect from, and after
      such date, until termination and
liquidation.

                      

              

              

              
                
                  
                  

                

                
                  F-2

                  
                    

                  

                

                
                  
                  

                

              

              2.           Tax
Reporting Partner and Tax Matters Partner

              

              2.1           Tax
Reporting Partner.

               

              The
Operator (or the Party listed in Sec. 9.1) as the Tax Reporting Partner (“TRP”)
is responsible for compliance with all tax reporting obligations of the
Partnership, see Sec. 3.1. below. In the event of any change in the TRP, the
Party serving as the TRP at the beginning of a given taxable year shall continue
as TRP with respect to all matters concerning such year.

              

              2.2           IF SMALL PARTNERSHIP EXCEPTION FROM
TEFRA NOT APPLICABLE

               

              If the
Partnership does not qualify for the “small partnership exception” from, or if
the Partnership elects (see infra Elections at
Sec. 4.1 and 9.2) to be subject to, §§6221 et seq., Subchapter C of Chapter 63
of Subtitle F (the “TEFRA rules”) of the Internal Revenue Code (the “Code”) the
TRP shall also be the Tax Matters Partner as defined in Code §6231(a) (the
“TMP”) and references to the TRP shall then include references to TMP and vice
versa.

               

              
                	
                        2.2.1

                      	
                        The
      TMP shall not be required to incur any expenses for the preparation for,
      or pursuance of, administrative or judicial proceedings, unless the
      Parties agree on a method for sharing such expenses.

                         

                      

              

              
                	
                        2.2.2

                      	
                        The
      Parties shall furnish the TMP, within two weeks from the receipt of the
      request, the information the TMP may reasonably request to comply with the
      requirements on furnishing information to the Internal Revenue
      Service.

                         

                      

              

              
                	
                        2.2.3

                      	
                        The
      TMP shall not agree to any extension of the statute of limitations for
      making assessments on behalf of the Partnership without first obtaining
      the written consent of all Parties. The TMP shall not bind any other Party
      to a settlement agreement in tax audits without obtaining the written
      concurrence of any such Party.

                         

                      

              

              
                	
                        2.2.4

                      	
                        Any
      other Party who enters in a settlement agreement with the Secretary of the
      Treasury with respect to any partnership items, as defined in Code
      §6231(a)(3), shall notify the other Parties of the terms within ninety
      (90) days from the date of such settlement.

                         

                      

              

              
                	
                        2.2.5

                      	
                        If
      any Party intends to file a notice of inconsistent treatment under Code
      §6222(b), such Party shall, prior to filing of such notice, notify the TMP
      of the (actual or potential) inconsistency of the Party’s intended
      treatment of a partnership item with the treatment of that item by the
      Partnership. Within one week of receipt the TMP shall remit copies of such
      notification to the other Parties. If an inconsistency notice is filed
      solely because a Party has not received a Schedule K-1 in time for filing
      of its income tax return, the TMP need not be notified.

                         

                      

              

              
                	
                        2.2.6

                      	
                        No
      Party shall file pursuant to Code §6227 a request for an administrative
      adjustment of partnership items (the “RFAA”) without first notifying all
      other Parties. If all other Parties agree with the requested adjustment,
      the TMP shall file the RFAA on behalf of the Partnership. If unanimous
      consent is not obtained within thirty (30) days from such notice, or
      within the period required to timely file the RFAA, if shorter, any Party,
      including the TMP, may file a RFAA on its own behalf.

                         

                      

              

              
                	
                        2.2.7

                      	
                        Any
      Party intending to file with respect to any partnership item, or any other
      tax matter involving the Partnership, a petition under Code §§6226, 6228,
      or any other provision, shall notify the other Parties prior to such
      filing of the nature of the contemplated proceeding. In the case where the
      TMP is the Party intending to file such petition, such notice shall be
      given within reasonable time to allow the other Parties to participate in
      the choice of the form of such petition. If the Parties do not agree on
      the appropriate forum, then the forum shall be chosen by majority vote.
      Each Party shall have a vote in accordance with its percentage interest in
      the Partnership for the year under audit. If a majority cannot agree, the
      TMP shall choose the forum. If a Party intends to seek review of any court
      decision rendered as a result of such proceeding, the Party shall notify
      the other Parties prior to seeking such
review.

                      

              

              

              
                
                  
                  

                

                
                  F-3

                  
                    

                  

                

                
                  
                  

                

              

              3.           Income
Tax Compliance and Capital Accounts

              

              3.1           Tax
Returns.

               

              The TRP
shall prepare and file all required Federal and State partnership income tax
returns. Not less than thirty (30) days prior to the return due date (including
extensions), the TRP shall submit to each Party for review a copy of the return
as proposed.

              

              3.2           Fair
Market Value Capital Accounts.

               

              The TRP
shall establish and maintain for each Party fair market value (“FMV”) capital
accounts and tax basis capital accounts. Upon request, the TRP shall submit to
each Party along with a copy of any proposed partnership income tax return an
accounting of such Party’s FMV capital accounts as of the end of the return
period.

              

              
                3.3.       
Information
requests.

                 

              

              In
addition to any obligation under Sec. 2.2.2, each Party agrees to furnish to the
TRP not later than sixty (60) days before the return due date (including
extensions) such information relating to the operations conducted under the
Agreement as may be required for the proper preparation of such returns.
Similarly, each Party agrees to furnish timely to the TRP, as requested, any the
information and data necessary for the preparation and/or filing of other
required reports and notifications, and for the computation of the capital
accounts. As provided in Code  §6050K(c), a Party transferring its
interest must notify the TRP to allow compliance with Code §6050K(a) (see also
Sec.8.1).

              

              
                3.4       
Best
Efforts without Liability.

                 

              

              The TRP
and the other Party(ies) shall use its/their best effort to comply with
responsibilities outlined in this Section, and with respect to the services as
TMP as outlined Sec.2.2 and in doing so shall incur no liability to any other
Party.

              

              
                	
                        4.

                      	
                        Tax
      and FMV Capital Account Elections

                      

              

              

              
                4.1       
General
Elections.

                 

              

              For both
income tax and capital account purposes, the Partnership shall
elect:

               

              
                	
                        a)

                      	
                        to
      deduct when incurred intangible drilling and development costs
      (“IDC”);

                      

              

              
                	
                        b)

                      	
                        to
      use the maximum allowable accelerated tax method and the shortest
      permissible tax life for
depreciation;

                      

              

              
                	
                        c)

                      	
                        the
      accrual method of accounting;

                      

              

              
                	
                        d)

                      	
                        to
      report income on a calendar year basis; and
      the Partnership shall also make any elections as specially noted in
      Sec.9.2, below.

                      

              

              

              
                
                  
                  

                

                
                  F-4

                  
                    

                  

                

                
                  
                  

                

              

              
                4.2       
Depletion.

                 

              

              Solely
for FMV capital account purposes, depletion shall be calculated by using
simulated cost depletion within the meaning of Treas. Reg.
§1.704-1(b)(2)(iv)(k)(2), unless the use of simulated percentage depletion is
elected in Sec.9.2, below. The simulated cost depletion allowance shall be
determined under the principles of Code  §612 and be based on the FMV
capital account basis of each Lease. Solely for purposes of this calculation,
remaining shall be determined consistently by the TRP.

              

              
                4.3       
Election
Out Under Code §761(a).

                 

              

              
                	
                        4.3.1

                      	
                        The
      TRP shall notify all Parties of an intended election to be excluded from
      the application of Subchapter K of Chapter 1 of the Code not later than
      sixty (60) days prior to the filling date or due date (including
      extensions) for the Federal partnership income tax return, whichever comes
      earlier. Any Party that does not consent must provide the TRP with written
      objection within thirty (30) days of such notice. Even after an effective
      election-out the TRP’s right and obligations, other than the relief from
      tax return filing obligations of the partnership, continue.

                         

                      

              

              
                	
                        4.3.2

                      	
                        After
      an election-out, to avoid an unintended impairment of the election-out:
      The Parties will avoid, without prior coordination, any operational
      changes which could terminate the qualification for the election-out
      status; all Parties will monitor the continuing qualification of the
      Partnership for the election-out status and will notify the other Parties
      if, in their opinion, a change in operations will jeopardize the
      election-out; and, all Parties will use, unless agreed to by them
      otherwise, the cumulative gas balancing method as described in Treas. Reg.
      §1.761-2(d)(2).

                         

                      

              

              

              
                4.4       
Consent
Requirements For Subsequent Tax Or FMV Capital Account Elections.

                 

              

              Unless
stipulated differently in Sec. 9.3, future elections, in addition to or in
amendment of those in this agreement, must be approved by the affirmative vote
of two (2) or more Parties owning a majority of the working interest based upon
post-Payout ownership.

              

              
                	
                        5.

                      	
                        Capital
      Contributions and FMV Capital
Accounts

                      

              

               

              The
provisions of this Sec. 5 and any other provisions of the TPPs relating to the
maintenance of the capital accounts are intended to comply with Treas. Reg.
§1.704-1(b) and shall be interpreted and applied in a manner consistent with
such regulations.

              

              
                5.1       
Capital
Contributions.

                 

              

              The
respective capital contributions of each Party to the Partnership shall be (a)
each Party’s interest in the oil and gas lease(s), including all associated
lease and well equipment, committed to the Partnership, and (b) all accounts of
money paid by each Party in connection with the acquisition, exploration,
development, and operation of the lease(s), and all other costs characterized as
contributions or expenses borne by such Party under the Agreement. The
contribution of the leases and any other properties committed to the Partnership
shall be made by each Party’s agreement to hold legal title to its interest in
such leases or other property as nominee of the Partnership.

              

              
                
                  
                  

                

                
                  F-5

                  
                    

                  

                

                
                  
                  

                

              

              
                5.2       
FMV
Capital Accounts.

                 

              

              The FMV
capital accounts shall be increased and decreased as follows:

               

              
                	
                        5.2.1

                      	
                        The
      FMV capital account of a Party shall be increased by:

                         

                      

              

              
                	
                      	
                        (i)

                      	
                        the
      amount of money and the FMV (as of the date of contribution) of any
      property contributed by such Party to the Partnership (net of liabilities
      assumed by the Partnership or to which the contributed property is
      subject);

                      

              

              
                	
                      	
                        (ii)

                      	
                        that
      Party’s share of Partnership items of income or gain, allocated in
      accordance with Sec. 6.1; and

                      

              

              
                	
                      	
                        (iii)

                      	
                        that
      Party’s share of any Code §705(a)(1)(B)item.

                         

                      

              

              
                	
                        5.2.2

                      	
                        The
      FMV capital account of a Party shall be decreased by:

                         

                      

              

              
                	
                      	
                        (i)

                      	
                        the
      amount of money and the FMV of property distributed to a Party (net of
      liabilities assumed by such Party or to which the property is
      subject):

                      

              

              
                	
                      	
                        (ii)

                      	
                        that
      Party’s Sec. 6.1 allocated share of Partnership loss and deductions, or
      items thereof; and,

                      

              

              
                	
                      	
                        (iii)

                      	
                        that
      Party’s share of any Code §705(a)(2)(B) item.

                         

                      

              

              
                	
                        5.2.3

                      	
                        The
      “FMV” when it applies to property contributed by a Party to the
      Partnership shall be assumed, for purposes of Sec.5.2.1, to equal the
      adjusted tax basis, as defined in Code § 1011, of that property unless the
      Parties agree otherwise as indicated in Sec. 9.2.

                         

                      

              

              
                	
                        5.2.4

                      	
                        As
      provided in Treas. Reg. §1.704-1(b)(2)(iv)(e), upon distribution of
      Partnership property to a Party the capital accounts will be adjusted to
      reflect the manner in which the unrealized income, gain, loss and
      deduction inherent in distributed property (not previously reflected in
      the capital accounts) would be allocated among the Parties if there were a
      disposition of such property at its FMV as of the time of distribution.
      Furthermore, if so agreed to in Sec. 9.2, under the rules of Treas. Reg.
      §1.704-1(b)(2)(iv)(f), the FMV capital accounts shall be revalued at
      certain times to reflect value changes of the Partnership
      property.

                         

                      

              

              
                	
                        5.2.5

                      	
                        The
      provisions of section 5 is intended to satisfy the requirements of section
      704(b) of the Code and section 1.704-1(b)(2)(iv) of the Treasury
      Regulations and shall be so construed and, if necessary, modified, to
      cause the allocation of profits, losses, income, gain and credit under
      section 6, to have substantial economic effect under such sections of the
      Code and Regulations, and in the event of any conflict between the
      provisions of this section 5.2 and such Regulations, the Regulations shall
      control.

                      

              

              

              

              
                
                  
                  

                

                
                  F-6

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        6.

                      	
                        Partnership
      Allocations.

                      

              

              

              
                6.1          
FMV
Capital Account Allocations.

                 

              

              Each item
of income, gain, loss or deduction shall be allocated to each Party as
follows:

               

              
                	
                        6.1.1

                      	
                        Actual
      or deemed income from the sale, exchange, distribution or other
      disposition of production shall be allocated to the Party entitled to such
      production or the proceeds from the sale of such production. The amount
      received from the sale of production and the amount of the FMV of
      production taken in kind by the Parties are deemed to be identical;
      accordingly, such items may be omitted from the adjustments made to the
      Parties’ FMV capital accounts.

                         

                      

              

              
                	
                        6.1.2

                      	
                        Exploration
      cost, IDC, operating and maintenance cost shall be allocated to each Party
      in accordance with its respective contribution, or obligation to
      contribute, to such cost.

                         

                      

              

              
                	
                        6.1.3

                      	
                        Depreciation
      shall be allocated to each Party in accordance with its contributions, or
      obligations to contribute, to the cost of the underlying
      asset.

                         

                      

              

              
                	
                        6.1.4

                      	
                        Simulated
      depletion shall be allocated to each Party in accordance with its FMV
      capital account adjusted basis in each oil and gas property of the
      Partnership.

                         

                      

              

              
                	
                        6.1.5

                      	
                        Loss
      (or simulated loss) upon the sale, exchange, distribution, abandonment or
      other disposition of depreciable or depletable property shall be allocated
      to the Parties in the ratio of their respective FMV capital account
      adjusted bases n the depreciable or depletable property.

                         

                      

              

              
                	
                        6.1.6

                      	
                        Gain
      (or simulated gain) upon the sale, exchange, distribution, or other
      disposition of depreciable or depletable property shall be allocated to
      the Parties so that the FMV capital account balances of the Parties will
      most closely reflect their respective percentage of fractional interests
      under the Agreement.

                         

                      

              

              
                	
                        6.1.7

                      	
                        Costs
      or expenses of any other kind shall be allocated to each Party in
      accordance with its respective contribution, or obligation to contribute,
      to such cost or expense.

                         

                      

              

              
                	
                        6.1.8

                      	
                        Any
      other income item shall be allocated to the Parties in accordance with the
      manner in which such income is realized by each Party.

                         

                      

              

              6.2           Tax
return and Tax Basis Capital Account allocations.

               

              
                	
                        6.2.1

                      	
                        Unless
      otherwise expressly provided in the Sec. 6.2, the allocations of the
      Partnership’s items of income, gain, loss, or deduction for tax return and
      tax basis capital account purposes shall follow the principles of the
      allocation under Sec. 6.1. However, the Partnership’s gain or loss on the
      taxable disposition of a Partnership property in excess of the gain or
      loss under Sec 6.1, if any, is allocated to the contributing Party to the
      extent of such Party’s pre-contribution gain or loss.

                         

                      

              

              
                	
                        6.2.2

                      	
                        The
      Parties recognize that under Code §613A(c)(7)(D) the depletion allowance
      is to be computed separately by each Party. For this purpose, each Party’s
      share of the adjusted tax basis in each oil and gas property shall be
      equal to its contribution to the adjusted tax basis of such
      property.

                         

                      

              

              
                	
                        6.2.3

                      	
                        Under
      Code §613A(c)(7)(D) gain or loss on the disposition of an oil and gas
      property is to be computed separately by each Party. According to Treas.
      Reg. §1.704-1(b)(4)(v), the amount realized shall be allocated as follows:
      (i) An amount that represents recovery of the adjusted simulated depletion
      basis is allocated (without being credited t the capital accounts) to the
      Parties in the same proportion as the aggregate simulated depletion basis
      was allocated to such Parties under Sec. 5.2; and (ii) any remaining
      realization is allocated in accordance with Sec. 6.1.6.

                         

                      

              

              
                	
                        6.2.4

                      	
                        Depreciation
      shall be allocated to each Party in accordance with its contribution to
      the adjusted tax basis of the depreciable asset.

                         

                      

              

              
                	
                        6.2.5

                      	
                        In
      accordance with Treas. Reg. §1.1245-I(c),
      depreciation  recapture shall be allocated, to the extent
      possible, among the Parties to reflect their prior sharing of the
      depreciation.

                         

                      

              

              
                	
                        6.2.6

                      	
                        In
      accordance with the principles of Treas. Reg. §1.1254-5, any recapture of
      IDC is determined and reported by each Party separately. Similarly, any
      recapture of depletion shall be computed separately by each Party, in
      accordance with its depletion allowance computed pursuant to Sec.
      6.2.2.

                         

                      

              

              
                	
                        6.2.7

                      	
                        For
      Partnership properties with FMV capital account values different from
      their adjusted tax bases the Parties intend that the allocations described
      in the Section 6.2 constitute a “reasonable method” of allocating gain or
      loss under Treas. Reg. §1.704-3(a)(1).

                         

                      

              

              
                	
                        6.2.8

                      	
                        Take-in-kind.

                         

                      

              

              If
checked “Yes” in Sec. 9.2, below, each Party has the right to determine the
market for its proportionate share of production. All items of income,
deductions, and credits arising from such marketing of production shall be
recognized by the Partnership and shall be allocated to the Party whose
production is so marketed.

              

              

              
                
                  
                  

                

                
                  F-7

                  
                    

                  

                

                
                  
                  

                

              

              
                7.       
Termination
and Liquidating Distribution

              

              

              7.1           Termination
of the Partnership.

               

              
                	
                        7.1.1

                      	
                        Upon
      termination, as provided in Code §708(b)(I)(A), the business shall be
      wound-up and concluded, and the assets shall be distributed to the Parties
      as described below by the end of such calendar year (or, if later, within
      ninety (90) days after the date of such termination). The assets shall be
      valued and distributed to the Parties in the order provided in Secs.
      7.1.2, 7.5. and 7.7.

                         

                      

              

              
                	
                        7.1.2

                      	
                        First,
      all cash representing unexpended contributions by any Party and any
      property in which no interest has been earned by any other Party under the
      Agreement shall be returned to the contributor.

                         

                      

              

              7.2           Balancing
of FMV Capital Accounts.

               

              Second,
the FMV capital accounts of the Parties shall be determined as described
hereafter. The TRP shall take the actions specified under Secs. 7.2 through 7.5
in order to cause the ratios of the Parties’ FMV capital accounts to reflect as
closely as possible their interests under the Agreement. The ratio of a Party’s
FMV capital account is represented by a fraction, the numerator of which the
Party’s FMV capital account balance and the denominator of which is the sum of
all Parties’ FMV capital account balances. This is thereafter referred to as the
“balancing of the FMV capital accounts” and, when completed, the FMV capital
accounts of the Parties shall be referred to as “balanced”.

               

              

              7.3           Deemed
Sale Gain/Loss Charge Back.

               

              The FMV
of all Partnership properties shall be determined and the gain or loss for each
property, which would have resulted if sold at such FMV, shall be allocated in
accordance with Secs. 6.1.5 and 6.1.6.

              

              
                7.4       
Deficit
make-up Obligation and Balancing Cash Contributions.

                 

              

              If
hereafter a Party has a negative FMV capital account balance, that is a balance
of less than zero, in accordance with Treas. Reg. §1.1704-I(b)(2)(ii)(b)(3) such
Party is obligated to contribute, by the end of the taxable year, or if later,
within ninety (90) days form the Partnership’s liquidation, an amount of money
to the Partnership sufficient to achieve a zero balance FMV capital account (the
“Deficit Make-Up Obligation”). Moreover, any Party may contribute an amount of
cash to the Partnership to facilitate the balancing of the FMV capital accounts.
If after these adjustments the FMV capital accounts are not balanced, Sec. 7.5
shall apply.

              

              7.5           Distribution
to balance capital accounts.

               

              
                	
                        7.5.1

                      	
                        If
      all Parties agree, any cash or an undivided interest in certain selected
      properties shall be distributed to one or more Parties as necessary for
      the purpose of balancing the FMV capital accounts.

                         

                      

              

              
                	
                        7.5.2

                      	
                        Distribution
      of undivided interests.

                         

                      

              

              Unless
Sec. 7 applies, an undivided interest in each and every property shall be
distributed to one or more Parties in accordance with the ratios of their FMV
capital accounts.

              

              7.6           FMV
determinations.

               

              If a
property is to be valued for purposes of balancing the capital accounts and
making distributions under this Sec. 7, the Parties must first attempt to agree
on the FMV of the property; failing such an agreement, the TRP shall cause a
nationally recognized independent engineering firm to prepare an appraisal of
the FMV of such property.

              

              7.7           Final
Distribution.

               

              After the
FMV capital accounts of the Parties have been adjusted pursuant to Secs. 7.2 to
7.5, all remaining property and interests then held by the Partnership shall be
distributed to the Parties in accordance with their positive FMV capital account
balances.

              

              
                
                  
                  

                

                
                  F-8

                  
                    

                  

                

                
                  
                  

                

              

              8.           Transfers
and Correspondence

              

              8.1           Transfer
of Partnership Interests.

               

              Transfers
of Partnership interests shall be governed by the Agreement. A Party
transferring its interest, or any part thereof, shall notify the TRP in writing
within two weeks after such transfer.

              

              8.2           Correspondence.

               

              All
correspondence relating to the preparation and filing of the Partnership’s
income tax returns and capital accounts shall be sent to:

              

              

              (Attach
separate list, if necessary)

              
                	
                        TRP

                         

                      	
                        “Att
      to:” reference

                      
	
                        Operator

                         

                      	 
      

              

              Other
Parties:

              
                	
                        Non-Operators

                         

                         

                      	 
      

              

              

              

              9.              Elections
and Changes to above Provisions.

               

              9.1             Operator
not the TRP.

               

              With
respect to Sec. 2.1, (insert name of Party to be TRP instead of Operator, or
indicate “N/A”)______________________is
designated as TRP.

               

              9.2             Special
Tax Elections.

               

              With
respect to Sec. 4.1, the Parties agree (if not applicable insert “N/A” or
strike):

              

              

              
                
                  
                  

                

                
                  F-9

                  
                    

                  

                

                
                  
                  

                

              

              

              

              
                	
                        e)
      that the Partnership shall elect to account for dispositions of
      depreciable assets under the general asset method to the extent permitted
      by Code §168(i)(4);

                      	
                        No

                      
	
                        f)
      that the Partnership shall elect under Code §754 to adjust the basis of
      Partnership property, with the adjustments provided in Code§734 for a
      distribution of property and in Code §743 for a transfer of a partnership
      interest. In case of distribution of property the TRP shall adjust all tax
      basis capital accounts. In the case of a transfer of a partnership
      interest the acquiring party(ies) shall establish and maintain its(their)
      tax basis capital account(s);

                      	
                        Elect-at-time-of-sale

                      
	
                        g)that
      the Partnership shall elect under Code §6231 to be subject to the TEFRA
      rules

                      	
                        Yes

                      

              

              

              

              

              
                	
                        With
      respect to  Sec. 4.2, Depletion the Parties agree that the
      Partnership shall use simulated percentage depletion instead of simulated
      cost depletion.

                      	
                        Yes

                      
	
                        With
      respect to Sec.5.2.4, under the rules of Treas. Reg. §
      1.704-1(b)(2)(iv)(f) the Parties agree that the FMV capital accounts shall
      be revalued to reflect value changes of the Partnership property upon the
      occurrence of the events specified in (5)(i) through (iii) of said –
      1.704-1(b)(2)(iv)(f) regulations.

                      	
                        Yes

                      
	
                        With
      respect to Sec. 6.2.8, the income attributable to take-in-kind production
      will be reflected on the tax return.

                      	
                        No

                      

              

              

              With
respect to Sec. 5.2.3 the FMV for the listed properties are determined as
follows (mark as “N/A” if not applicable; use separate sheet if
necessary)

              

              
                	
                        Property
      Description

                      	
                        FMV

                      
	 
      	 
      
	 
      	 
      
	 
      	 
      

              

              

              
                9.3             
Change of
Majority for Other Tax Elections.

                 

              

              INSTEAD
OF THE Sec. 4.4 majority for other tax elections, a majority shall be considered
if consisting of (specify or line out blanks)
_____________________________________________________.

              

              

              

              

              THE
END

              

              

              
                
                   

                

                
                  F-10

                  
                    

                  

                

                
                   

                

              

              

              

              

              EXHIBIT
“D”

              JOINT
OPERATING AGREEMENT

              

              Attached
to and made a part of that certain Amended and Restated Participation
Agreement

              dated the
____ day of December, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC and South Marsh LLC

              

              

              

              

              

              OFFSHORE

              OPERATING
AGREEMENT

              

              South
Marsh Island Area, South Addition, Block 138

              (OCS-G
27089)

              

              DATED
EFFECTIVE:   September
18,2006

              

              

              BETWEEN

              

              

              RIDGELAKE
ENERGY, INC.,

              GULFX,
LLC,

              SOUTH
MARSH LLC and

              LION
ENERGY LIMITED LLC

              

              

              

              

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              OPERATING
AGREEMENT

              

              TABLE OF
CONTENTS

              

              

              ARTICLE
1

               

              
                	 	 	APPLICATION   	 
      1
	
                         
      

                      	
                        1.1

                      	
                        Application 

                      	
                          1

                      

              

              

              ARTICLE
2

               

              
                	 	 	DEFINITIONS    	 
      1
	
                         
      

                      	
                        2.1

                      	
                        Affiliate 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.2

                      	
                        Contract
      Area 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.3

                      	
                        Development
      Operations 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.4

                      	
                        Development
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.5

                      	
                        Exploratory
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.6

                      	
                        Exploratory
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.7

                      	
                        Facility(ies) 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.8

                      	
                        Joint
      Account 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.9

                      	
                        Lease 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.10

                      	
                        Non-Consent
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.11

                      	
                        Non-Consent
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.12

                      	
                        Non-Operator 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.13

                      	
                        Non-Participating
      Party 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.14

                      	
                        Non-Participating Party's
      Share 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.15

                      	
                        Operator 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.16

                      	
                        Participating
      Interest 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.17

                      	
                        Participating
      Party 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.18

                      	
                        Platform 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.19

                      	
                        Producible
      Well 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.20

                      	
                        Producible
      Reservoir 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.21

                      	
                        Sidetrack(ing) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.22

                      	
                        Subsequent
      Facility(ies) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.23

                      	
                        Working
      Interest 

                      	
                          3

                      

              

               

              ARTICLE
3

               

              
                	 	 	EXHIBITS    	 
      4
	
                         
      

                      	
                        3.1

                      	
                        Exhibits 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.1

                      	
                        Exhibit
      "A" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.2

                      	
                        Exhibit
      "B" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.3

                      	
                        Exhibit
      "C" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "D" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "E" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.2

                      	
                        Conflicts 

                      	
                          4

                      

              

               

              
                ARTICLE
4

                 

                
                  	 	 	OPERATOR  	 
      4
	
                           
      

                        	
                          4.1

                        	
                          Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.2

                        	
                          Resignation or Removal of
      Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.3

                        	
                          Selection of
      Successor 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.4

                        	
                          Delivery of
      Property 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.5

                        	
                          Liability of
      Operator 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.6

                        	
                          Removal and selection of
      Operator in a two Party Agreement 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.7

                        	
                          Designation of
      Operator 

                        	
                            5

                        

                

                 

              

              
 

              
                
                  
                  

                

                
                  
                  

                  
                    

                  

                

                
                  
                  

                

              

              

              

              ARTICLE
5

               

              
                	 	 	AUTHORITY AND DUTIES OF
      OPERATOR    	 
      5
	
                         
      

                      	
                        5.1

                      	
                        Exclusive Right to
      Operate 

                      	
                          5

                      

              

              
                	
                         
      

                      	
                        5.2

                      	
                        Workmanlike
      Conduct 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.3

                      	
                        Liens and
      Encumbrances 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.4

                      	
                        Employees 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.5

                      	
                        Records 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.6

                      	
                        Compliance 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.7

                      	
                        Contractors 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.8

                      	
                        Governmental
      Reports 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.9

                      	
                        Information to Participating
      Parties 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.10

                      	
                        Information to
      Non-Participating Parties 

                      	
                          7

                      

              

              

              ARTICLE
6

               

              
                	 	 	VOTING AND VOTING
      PROCEDURES    	 
      7
	
                         
      

                      	
                        6.1

                      	
                        Designation of
      Representatives 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2

                      	
                        Voting
      Procedures 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.1

                      	
                        Voting
      Interest 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.2

                      	
                        Vote
      Required 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.3

                      	
                        Votes

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        6.2.4

                      	
                        Meetings 

                      	
                          8

                      

              

              

              ARTICLE
7

               

              
                	 	 	ACCESS    	 
      8
	
                         
      

                      	
                        7.1

                      	
                        Access to Contract
      Area 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.2

                      	
                        Reports 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.3

                      	
                        Confidentiality 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.4

                      	
                        Exceptions 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.5

                      	
                        Limited
      Disclosure 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.6

                      	
                        Proceeds 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        7.7

                      	
                        Media
      Releases 

                      	
                          10

                      

              

              

              ARTICLE
8

              

              
                	 	 	EXPENDITURES   	 
      10
	
                         
      

                      	
                        8.1

                      	
                        Basis of Charge to the
      Parties 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        8.2

                      	
                        Authorization 

                      	
                         
      10

                      

              

              
                	
                         
      

                      	
                        8.3

                      	
                        Advance
      Billings 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.4

                      	
                        Commingling of
      Funds 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.5

                      	
                        Security
      Rights 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.6

                      	
                        Default 

                      	
                         
      17

                      
	 	8.7 	Unpaid
      Charges 	  18

              

              
                	
                         
      

                      	
                        8.8

                      	
                        Carved-out
      Interest 

                      	
                         
      18

                      

              

              

              ARTICLE
9

               

              
                	 	 	NOTICES  	 
      19
	
                         
      

                      	
                        9.1

                      	
                        Giving and Responding to
      Notices 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.2

                      	
                        Content of
      Notice 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.3

                      	
                        Response to
      Notices 

                      	
                         
      19

                      
	 	 	9.3.1  
         Platform
      Construction	 
      19 
	 	 	9.3.2     
      Proposal Without
      Platform 	 
      20 
	 	 	9.3.3     
      Other
      Matters 	 
      20 

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        9.4

                      	
                        Failure to
      Respond 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        9.5

                      	
                        Restriction on Multiple Well
      Proposals 

                      	
                         
      20

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              
                 
ARTICLE
10

              

               

              
                	 	 	EXPLORATORY
      OPERATIONS 	 
      20
	
                         
      

                      	
                        10.1

                      	
                        Operations by All
      Parties 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        10.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.3

                      	
                        Final Election to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.5

                      	
                        Substitute
      Well 

                      	
                         
      22

                      

              

              
                	
                         
      

                      	
                        10.6

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      23

                      
	 	 	
                        10.6.1      
      Operation by All
      Parties 

                      	 
      24
	 	 	
                        10.6.2      
      Operations by Fewer than
      All Parties 

                      	 
      24
	 	 	
                        10.6.3      
      Obligations and
      Liabilities of Participating Parties 

                      	 
      24
	 	 	
                        10.6.4      
      Deepening or Sidetracking
      of Non-Consent Exploratory Well 

                      	 
      24
	 	 	
                        10.6.5      
      Plugging and Abandoning
      Cost 

                      	 
      25

              

              
              

              
              

              
              

              
              

              
              

              

              ARTICLE
11

               

              
                	 	 	DEVELOPMENT
      OPERATIONS  	 
      25
	
                         
      

                      	
                        11.1

                      	
                        Operations by All
      Parties 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.3

                      	
                        Final Election to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.5

                      	
                        Timely
      Operations 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.6

                      	
                        Substitute
      Well 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.7

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      27

                      

              

              
              

              
              

              
              

              
                	 	 	
                        11.7.1     
      Operations by All
      Parties

                      	 
      28
	 	 	
                        11.7.2     
      Operations by Fewer than
      All Parties

                      	 
      28
	 	 	
                        11.7.3     
      Obligations and
      Liabilities of Participating Parties 

                      	 
      28
	
                         
      

                      	
                        11.8

                      	
                        Deeper
      Drilling 

                      	
                         
      28

                      

              

              
                	
                         
      

                      	
                        11.9

                      	
                        Plugging and Abandoning
      Cost 

                      	
                         
      28

                      
	 	11.10	
                        Subsequent Facilities
      

                      	 
      29
	 	11.11 	
                        Contracts
    

                      	 
      29

              

              
              

              
              

              

              ARTICLE
12

               

              
                	 	 	NON-CONSENT
      OPERATIONS   	  29
	
                         
      

                      	
                        12.1

                      	
                        Non-Consent
      Operations 

                      	
                          29

                      
	 	 	12.1.1     
      Non-Interference	 
      29
	 	 	12.1.2     
      Multiple Completion
      Limitation  	 
      29
	 	 	12.1.3     
      Metering 	 
      29
	 	 	12.1.4     
      Non-Consent
      Well	 
      29
	 	 	12.1.5     
      Cost Information
      	 
      29
	 	 	12.1.6     
      Completion	 
      30

              

              
              

              
              

              
              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.2

                      	
                        Forfeiture of
      Interest 

                      	
                         
      30

                      
	 	 	12.2.1     
      Production
      Reversion	 
      30
	 	 	12.2.2     
      Non-Production
      Reversion	 
      31

              

              
              

              
              

              
                	
                         
      

                      	
                        12.3

                      	
                        Deepening or Sidetracking of
      Non-Consent Development Well 

                      	
                         
      31

                      
	 	12.4 	Operations from Non-Consent
      Platforms and Facilities  	 
      31

              

              
              

              
                	
                         
      

                      	
                        12.5

                      	
                        Discovery or Extension from
      Mobile Drilling Operations 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.6

                      	
                        Non-Consent Operations to
      Maintain Lease 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.7

                      	
                        Allocation of Platform Costs to
      Non-Consent Operations 

                      	
                         
      33

                      
	 	 	12.7.1     
      Charges 	 
      33
	 	 	12.7.2     
      Operating and Maintenance
      Charges 	 
      34
	 	 	12.7.3     
      Payments 	 
      34

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.8

                      	
                        Allocation of Costs Between
      Depths (Single Completion) 

                      	
                         
      34

                      

              

              
                	
                         
      

                      	
                        12.9

                      	
                        Allocation of Costs Between
      Depths (Multiple Completions) 

                      	
                         
      35

                      

              

              
              

              
                	 	12.10	Allocation of Costs Between
      Depths (Dry Hole) 	 
      36
	
                         
      

                      	
                        12.11

                      	
                        Intangible Drilling and
      Completion Cost Allocations 

                      	
                         
      36

                      

              

              
                	
                         
      

                      	
                        12.12

                      	
                        Subsequent Operations in
      Non-Consent Well 

                      	
                         
      36

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              
                 
ARTICLE
13

              

               

              
                	 	 	ABANDONMENT AND
      SALVAGE 	 
      37
	
                         
      

                      	
                        13.1

                      	
                        Platform Salvage and Removal
      Costs 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.2

                      	
                        Abandonment of Producing
      Well 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.3

                      	
                        Assignment of
      Interest 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.4

                      	
                        Abandonment Operations Required
      By Governmental Authority 

                      	
                         
      37

                      

              

              

              ARTICLE
14

               

              
                	 	 	WITHDRAWAL 	 
      37
	
                         
      

                      	
                        14.1

                      	
                        Withdrawal 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        14.2

                      	
                        Limitations on
      Withdrawal 

                      	
                         
      38

                      

              

              

              ARTICLE
15

               

              
                	 	 	RENTALS, ROYALTIES AND OTHER
      PAYMENTS  	 
      38
	
                         
      

                      	
                        15.1

                      	
                        Creation of Overriding
      Royalty 

                      	
                         
      38

                      

              

              
                	
                         
      

                      	
                        15.2

                      	
                        Payment of Rentals and Minimum
      Royalties 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.3

                      	
                        Non-Participation in
      Payments 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.4

                      	
                        Royalty
      Payments 

                      	
                         
      39

                      

              

              

              ARTICLE
16

               

              
                	 	 	TAXES 	 
      39
	
                         
      

                      	
                        16.1

                      	
                        Property
      Taxes 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        16.2

                      	
                        Contest of Property Tax
      Valuation 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.3

                      	
                        Production and Severance
      Taxes 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.4

                      	
                        Other Taxes and
      Assessments 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.5

                      	
                        Gas
      Balancing 

                      	
                         
      40

                      

              

              

              ARTICLE
17

               

              
                	 	 	INSURANCE  	 
      40
	
                         
      

                      	
                        17.1

                      	
                        Insurance 

                      	
                         
      40

                      

              

              

              ARTICLE
18

               

              
                	 	 	LIABILITY, CLAIMS AND
      LAWSUITS  	 
      41
	
                         
      

                      	
                        18.1

                      	
                        Individual
      Obligations 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.2

                      	
                        Notice of Claim or
      Lawsuit 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.3

                      	
                        Settlements 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.4

                      	
                        Legal
      Expense 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.5

                      	
                        Liability for Losses, Damages,
      Injury or Death 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.6

                      	
                        Indemnification 

                      	
                         
      41

                      
	 	18.7 	Damage to Reservoir, Loss of
      Reserves and Profits 	 
      41 

              

              
              

              

              ARTICLE
19

               

              
                	 	 	INTERNAL REVENUE
      PROVISION	 
      42
	
                         
      

                      	
                        19.1

                      	
                        Internal Revenue
      Provision 

                      	
                         
      42

                      

              

              

              ARTICLE
20

               

              
                	 	 	CONTRIBUTIONS 	 
      42
	
                         
      

                      	
                        20.1

                      	
                        Notice of Contributions Other
      than Advances for Sale of Production 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.2

                      	
                        Cash
      Contributions 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.3

                      	
                        Acreage
      Contributions 

                      	
                         
      43

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              ARTICLE
21

               

              
                	 	 	DISPOSITION OF
      PRODUCTION  	 
      43
	
                         
      

                      	
                        21.1

                      	
                        Facilities to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.2

                      	
                        Taking Production In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.3

                      	
                        Failure to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.4

                      	
                        Expenses of Delivery In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.5

                      	
                        Gas Balancing
      Provisions 

                      	
                         
      43

                      

              

              

              ARTICLE
22

               

              
                	 	 	APPLICABLE
      LAW 	 
      44 
	
                         
      

                      	
                        22.1

                      	
                        Applicable
      Law 

                      	
                         
      44

                      

              

              

              

              ARTICLE
23

               

              
                	 	 	LAWS AND
      REGULATIONS 	  44
	
                         
      

                      	
                        23.1

                      	
                        Laws and
      Regulations 

                      	
                         
      44

                      

              

              

              

              ARTICLE
24

               

              
                	 	 	FORCE
      MAJEURE 	 
      44
	
                         
      

                      	
                        24.1

                      	
                        Force
      Majeure 

                      	
                         
      44

                      

              

              
                	
                         
      

                      	
                        24.2

                      	
                        Notice 

                      	
                         
      44

                      

              

              

              ARTICLE
25

              

              
                	 	 	SUCCESSORS, ASSIGNS AND
      PREFERENTIAL RIGHTS 	 
      45
	
                         
      

                      	
                        25.1

                      	
                        Successors and
      Assigns 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.2

                      	
                        Transfer of
      Interest 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.3

                      	
                        Consent to
      Assign 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.4

                      	
                        Transfers Between
      Parties 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.5

                      	
                        Division of
      Interest 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.6

                      	
                        Preferential
      Rights 

                      	
                         
      46

                      

              

               

              ARTICLE
26

               

              
                	 	 	TERM  	 
      47
	
                         
      

                      	
                        26.1

                      	
                        Term 

                      	
                         
      47

                      

              

              

              ARTICLE
27

               

              
                	 	 	MISCELLANEOUS
      PROVISIONS 	 
      47
	
                         
      

                      	
                        27.1

                      	
                        Headings 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        27.2

                      	
                        Waiver 

                      	
                         
      47

                      

              

              

               ARTICLE
28

               

              
                	 	 	EXECUTION   	 
      47
	
                         
      

                      	
                        28.1

                      	
                        Counterpart
      Execution 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        28.2

                      	
                        Amendments 

                      	
                         
      47

                      

              

              

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

               

              
                OPERATING
AGREEMENT

                South
Marsh Island Block 138 (OCS-G 27089)

                

                THIS AGREEMENT is made effective the
18th day of September , 2006, by and between Ridgelake Energy, Inc., GulfX, LLC,
South Marsh LLC and Lion Limited LLC, herein referred to collectively as
"Parties" and individually as "Party".

                

                W I T N E
S S E T H:

                 

                WHEREAS, the Parties own an interest in
the oil and gas Lease identified in Exhibit "A" attached hereto;
and,

                

                WHEREAS,
the Parties desire to enter into this Agreement in order to efficiently explore,
develop, produce, and operate the said Lease.

                

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

                

                ARTICLE
1

                APPLICATION

                

                1.1           Application.  This
Agreement applies to and is applicable to all operations on the Oil and Gas
Lease described on Exhibit “A” attached hereto.

                

                ARTICLE
2

                DEFINITIONS

                

                2.1           Affiliate.  Any
person, corporation, partnership, limited partnership, or legal entity, whether
of a similar or dissimilar nature, which (a) controls, either directly or
indirectly, a Party, or (b) is controlled, either directly or indirectly, by
such Party, or (c) is controlled, either directly or indirectly, by a person or
entity which directly or indirectly controls such Party.  "Control"
means the ownership (or the right to exercise or direct) fifty percent (50%) or
more of the voting rights in the appointment of directors of such company, or
fifty percent (50%) or more of the interests in the partnership or other
entity.

                 

                2.2           Contract
Area.  The acreage subject to this Operating Agreement includes
all acreage covered by the Oil and Gas Lease identified in Exhibit "A" attached
to this Agreement.

                 

                2.3           Development
Operations.  Operations on the Contract Area other than
Exploratory Operations as defined in Section 2.6 below, including operations
conducted off the Contract Area for the purpose of development or production of
hydrocarbons under the Contract Area.

                

                
                  
                    
                    

                  

                  
                    1

                    
                      

                    

                  

                  
                    
                    

                  

                

                2.4           Development
Well.  Any well proposed as a Development
Operation.

                

                2.5           Exploratory
Operations.  Operations within the Contract Area:

                 

                
                  	
                           
      

                        	
                          (a)

                        	
                          to
      a proposed objective zone, horizon, or formation which does not have a
      Producible Well and all activities necessary for the accomplishment of
      such drilling up to, but not including, the election following the
      Operator's recommendation in Section 10.6
below.

                        

                

                
                  	
                           
      

                        	
                          (b)

                        	
                          to
      a proposed objective zone, horizon, or formation which does have one (1)
      or more Producible Well(s), but such objective will be penetrated at a
      location which all of the Participating Parties in the preexisting
      Producible Well(s) agree, at the time that the proposed Exploratory Well
      is approved, will be in a totally separate reservoir or will not drain or
      produce reserves that would be recovered by the preexisting Producible
      Well(s), and all activities necessary for the accomplishment of such
      drilling up to, but not including, the election following the Operator's
      recommendation in Section 10.6 below;
or

                        

                

                 

                2.6           Exploratory
Well.  Any well drilled as an Exploratory
Operation.

                 

                2.7           Facility(ies).  All
equipment and piping beyond the wellhead connections (including pipeline(s)
and/or flowline(s) to separate processing facilities) acquired pursuant to this
Agreement necessary to establish initial production on any Exploratory or
Development Well operation, excluding Platforms and excluding pipelines used to
transport production from the Contract Area or processing site to
shore.

                 

                2.8           Joint
Account.  The combined interests of the Parties in the Contract
Area now or hereafter subject to this Agreement.

                 

                2.9           Lease.  Individually,
each of the offshore oil and gas leases which are described in Exhibit "A"
attached hereto, to the extent that such leases authorize exploration,
development, and production activities on lands contained within the Contract
Area.

                 

                2.10           Non-Consent
Operations.  Exploratory or Development Operations conducted by
fewer than all Parties.

                 

                2.11           Non-Consent
Well.  An Exploratory or Development Well which is drilled by
fewer than all Parties and with respect to which no reversion of interest has
taken place pursuant to Article 12.

                 

                2.12           Non-Operator.  Any
Party to this Agreement other than the Operator.

                 

                2.13           Non-Participating
Party.  Any Party other than a Participating
Party.

                 

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

                

                
                  
                    
                    

                  

                  
                    2

                    
                      

                    

                  

                  
                    
                    

                  

                

                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, or in a Platform, well, or Facility owned, pursuant
to this Agreement.

                 

                2.17           Participating
Party.  A Party who joins in an operation, pays its portion of
the cost and expense of the operation, and is entitled to its proportionate part
of the benefits of the operation pursuant to the terms of this
Agreement.

                 

                2.18           Platform.  A
drilling or production platform, caisson or well protector, or similar
structure.

                 

                2.19           Producible
Well.  A well producing oil or gas, or, if not producing oil or
gas, a well determined to be capable of producing oil or gas in paying
quantities pursuant to any applicable order or regulation issued by appropriate
governmental authority; however, any well shall be considered a Producible Well
if so determined by two (2) or more participating Parties with a combined
working interest of 50% of said well, whether or not said well is plugged and
abandoned.  Each separate completion in a Producible Reservoir shall
be considered a Producible Well.

                 

                2.20           Producible
Reservoir.  Based on electric log data, core analysis data, a
drill stem test, a wire line formation test, or any combination of these, an
accumulation of oil or gas, or both, separated from and not in oil or gas
communication with any other accumulation and having rock properties indicating
it to be capable of hydrocarbon production in quantities sufficient to yield a
return in excess of the costs of equipping, completing, and operating it,
including allocated costs for a Platform, Facilities, and their operations, as
determined by the affirmative vote of two (2) or more Parties having a combined
Participating interest of fifty percent (50%) or more.  In addition,
any accumulation of oil or gas, or both, within the Contract Area shall be
designated a Producible Reservoir upon the approval of a Platform to produce
such oil or gas.

                 

                2.21           Sidetrack(ing).  Directionally
drilling by intentionally deviating a well bore to a target bottomhole location
other than that target bottomhole location to which such well bore would have
penetrated absent such deviation.  Operations undertaken to straighten
the hole or to drill around junk in the hole resulting from other mechanical
difficulties shall not be considered as a sidetrack or
sidetracking.

                 

                2.22           Subsequent
Facility(ies).  Those Facilities, excluding Platforms, which
are proposed subsequent, or in addition, to the Facilities.

                 

                2.23           Working
Interest.  The ownership of each Party in and to the Lease and
Contract Area as set forth in Exhibit "A".

                 

                 

                
                  
                    
                    

                  

                  
                    3

                    
                      

                    

                  

                  
                    
                    

                  

                

                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, Contract Area, Interests of the Parties and Designated
      Representatives.

                          
	
                            3.1.2

                          	
                            Exhibit
      "B".

                          	
                            Insurance
      Requirements.

                          
	
                            3.1.3

                          	
                            Exhibit
      "C".

                          	
                            Accounting
      Procedure.

                          
	
                            3.1.4

                          	
                            Exhibit
      "D".

                          	
                            Gas
      Balancing Agreement.

                          
	
                            3.1.5

                          	
                            Exhibit
      “E”

                          	
                            Memorandum
      of Operating Agreement and Financing Agreement.

                          
	
                            3.1.6

                          	
                            Exhibit
      “F”

                          	
                            Tax
      Partnership.

                          

                  

                

                 

                 

                3.2           Conflicts.  If
a provision contained in an Exhibit is inconsistent with a provision contained
in the body of this Agreement, then the provision contained in the body of this
Agreement shall prevail.

                

                ARTICLE
4

                OPERATOR

                

                4.1           Operator. RIDGELAKE
ENERGY, INC. is hereby designated as Operator for the purposes of this
Agreement, and for all operations conducted on or related to the Contract
Area.

                 

                4.2           Resignation or Removal of
Operator.  Operator may resign at any time by giving written
notice thereof to Non-Operators.  In addition, Operator may be removed
by the affirmative vote of the Parties owning a combined Working Interest of
fifty-one percent (51%) or more after excluding Operator’s Working Interest
if:

                 

                
                  	
                           
      

                        	
                          (a)

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

                        

                

                
                  	
                           
      

                        	
                          (b)

                        	
                          a
      receiver is appointed for Operator or for substantially all of its
      property or affairs.

                        

                

                
                  	
                           
      

                        	
                          (c)

                        	
                          Operator
      sells, trades, transfers or assigns all or a portion of its Working
      Interest, thereby reducing its Working Interest to less than ten percent
      (10%); or

                        

                

                
                  	
                           
      

                        	
                          (d)

                        	
                          Operator
      commits a substantial breach of a material provision of this Agreement and
      fails to cure such breach within sixty (60) days after receipt of a
      Non-operator’s notice to Operator of such
  breach.

                        

                

                 

                 

                
                  
                    
                    

                  

                  
                    4

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                The
resignation or removal of the Operator shall become effective as soon as
practical, but not later than 7:00 o'clock a.m. on the first day of the calendar
month following a period of ninety (90) days after i) the date of notice of
resignation by Operator or ii) the date of receipt of written notice by Operator
from Non-Operator detailing the alleged grounds for removal and Operator has
failed to cure same within sixty (60) days from its
receipt of the notice, unless a longer period is required for the Parties to
obtain approval of the designation of the successor Operator by the MMS;
however, in no event shall the resignation or removal of Operator become
effective until a successor Operator has assumed the duties of
Operator.  Upon approval of the designation of the successor Operator
by the MMS, the resigning or removed Operator shall be bound by the terms of
this Joint Operating Agreement as a Non-Operator.  A change of a
corporate name or structure of Operator or transfer of Operator’s interest to
any single subsidiary, parent or successor corporation shall not be the basis
for removal of Operator.

                 

                4.3           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 majority Working Interest.  However, if the removed
or resigned Operator fails to vote or votes only to succeed itself, the
successor Operator shall be selected by an affirmative vote of the Parties
having a combined Working Interest of fifty-one percent (51%) or more of the
remaining Working Interest 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 elected and assumed its duties.

                 

                4.4   Delivery of
Property.  Prior to the effective date of resignation or
removal, the former Operator shall deliver to the successor Operator all records
and data relating to the operations conducted by the former Operator that the
successor Operator is entitled to have and that are not already in the
possession of the successor Operator, as well as all other property in the
possession of the former Operator that was acquired for the Joint
Account.

                 

                4.5           Liability of
Operator.  If Operator resigns, or if Operator is removed as
Operator, such resignation, or removal shall not relieve Operator of any
liabilities it may have to Non-Operator(s) or third parties for damages arising
out of Operator's breach of this Agreement.

                 

                4.6           Removal and Selection of a
Successor Operator in a Two-party Agreement.  If this Agreement
involves only two parties, the following provisions shall apply:

                 

                
                  	
                           
      

                        	
                          4.6.1  On
      the occurrence of an event specified in Section 4.2 that allows removal of
      Operator, Non-Operator shall have the option of either becoming Operator
      or allowing Operator to continue in that position.

                           

                        

                

                
                  	
                           
      

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

                           

                        

                

                4.7           Designation of
Operator.  The Parties hereto agree to execute such Designation
of Operator forms as are required to have the Operator or its successor properly
designated as operator with the Minerals Management Service or any other
governmental authority having jurisdiction over the Lease and the operations
conducted thereunder.

                

                ARTICLE
5

                AUTHORITY AND DUTIES OF
OPERATOR

                

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

                 

                
                  
                    
                    

                  

                  
                    5

                    
                      

                    

                  

                  
                    
                    

                  

                

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

                 

                5.3           Liens and
Encumbrances.  Operator shall endeavor to keep the Lease within
the Contract Area and equipment free from all liens and encumbrances occasioned
by operations hereunder, except those provided for in Section 8.5 (Security
Rights).

                 

                5.4           Employees.  The
number of employees and their selection, and the hours of labor and compensation
for services performed shall be determined by Operator.  Except as
provided in Exhibit “C”, such employees shall be the employees of
Operator.

                 

                5.5           Records.  Operator
shall keep accurate books, accounts, and records of operations under this
Agreement, which, unless otherwise provided for in this Agreement, shall be
available to Non-Operator as provided 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 authorities
having jurisdiction.

                 

                5.7           Contractors.  Operator
may enter into contracts with independent contractors for the design,
construction, installation, or operation of Platforms and
Facilities.  Insofar as possible, Operator shall use competitive
bidding to procure goods and services for the benefit of the
Parties.  All drilling operations conducted under this Agreement shall
be conducted by qualified and responsible drilling contractors under current
competitive contracts.  A drilling contract will be deemed to be a
current competitive contract if it (a) was made within one hundred (180) days
before the commencement of the well and (b) contains terms, rates, and
provisions that, when the contract was made, did not exceed those generally
prevailing in the area for operations involving substantially equivalent rigs
that are capable of drilling the proposed well.  At its
election, Operator may use its own or an Affiliate’s drilling equipment, derrick
barge, tools, or machinery to conduct drilling operations, but the work shall be
(a) performed by Operator acting as an independent contractor, (b) approved by
written agreement with the Participating Parties before commencement of
operations, and (c) conducted under the same terms and conditions and at the
same rates as are customary and prevailing in competitive
contracts  of third parties doing work of a similar
nature.  Before awarding a drilling contract or performing work with
its own or an Affiliate’s drilling equipment, derrick barge, tools, or
machinery, Operator shall attempt to obtain competitive bids for the work from
independent contractors.

                 

                
                  
                    
                    

                  

                  
                    6

                    
                      

                    

                  

                  
                    
                    

                  

                

                5.8           Governmental
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 Participating Parties.

                 

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

                 

                
                  	
                           
      

                        	
                          (a)

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

                        

                

                
                  	
                           
      

                        	
                          (b)

                        	
                          Daily
      drilling reports.

                        

                

                
                  	
                           
      

                        	
                          (c)

                        	
                          A
      complete report of all core analyses, if
any.

                        

                

                
                  	
                           
      

                        	
                          (d)

                        	
                          A
      copy of any logs or surveys as run.

                        

                

                
                  	
                           
      

                        	
                          (e)

                        	
                          A
      copy of any well test results, bottom-hole pressure surveys, gas and
      condensate analyses, or similar
information.

                        

                

                
                  	
                           
      

                        	
                          (f)

                        	
                          A
      copy of reports made to regulatory
agencies.

                        

                

                
                  	
                           
      

                        	
                          (g)

                        	
                          To
      the extent possible, twenty-four (24) hour advance notice by telephone to
      the designated representative listed in Exhibit "A" (or the designated
      alternate), of logging, coring and testing
  operations.

                        

                

                
                  	
                           
      

                        	
                          (h)

                        	
                          If
      available, upon written request, samples of cuttings and cores marked as
      to depth, to be packaged and shipped at the expense of the requesting
      Party.

                        

                

                 

                5.10         Information to
Non-Participating Parties.  Operator shall furnish to each
Non-Participating Party a copy of Operator’s governmental reports that are
available to the public and associated with the applicable Non-consent
operation.  A Non-Participating Party shall be entitled to receive the
information specified in Section 5.9 after the recoupment provisions in Section
10.4 and/or Section 12.2.1 have been satisfied.

                
 

                ARTICLE
6.

                VOTING AND VOTING
PROCEDURES

                

                6.1           Designation of
Representatives.  The names and addresses of the representative
and alternate, who are authorized to represent each Party with respect to
operations hereunder, are set forth in Exhibit "A".  The designated
representative or alternate may be changed by written notice to the other
Parties.

                 

                6.2           Voting
Procedures.  Unless otherwise provided, any matter requiring
approval of the Parties, except an amendment to this Agreement, shall be
determined as follows:

                 

                
                  	
                           
      

                        	
                          6.2.1

                        	
                          Voting
      Interest.  Subject to section 8.6, each Party shall have
      a voting interest equal to its Working Interest or its Participating
      Interest, as applicable.

                        

                

                
                  	
                           
      

                        	
                          6.2.2

                        	
                          Vote
      Required.  Proposals requiring approval of the Parties
      shall be decided by an affirmative vote of two (2) or more Parties having
      a combined voting interest of fifty-one percent (51%) or
      more.  If there are only two (2) Parties to this Agreement, the
      matter shall be determined by the Party having the majority voting
      interest, or, if the interests are equal, the matter shall require
      unanimous consent.

                        

                

                 

                 

                 

                
                  
                    
                    

                  

                  
                    7

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                
                  	
                           
      

                        	
                          6.2.3

                        	
                          Votes.  The
      Parties may vote personally at meetings, or by telephone, promptly
      confirmed in writing to Operator, or by letter, telegram, telex, telecopy,
      or other form of facsimile
transmission.

                        

                

                
                  	
                           
      

                        	
                          6.2.4

                        	
                          Meetings.  Meetings
      of the Parties may be called by Operator upon its own motion or at the
      request of any Party(ies) having a combined voting interest of not less
      than twenty percent (20%).  Except in the case of emergency, or
      except when agreed by unanimous consent, no meeting shall be called on
      less than seven (7) 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,
      that by unanimous agreement of the Parties present at such meeting, the
      agenda and items included therein may be amended.  If a meeting
      is called, it shall take place at Operator’s offices, unless it is
      unanimously agreed to be held at some other
  location.

                        

                

                

                
                  	
                           
      

                        	
                          ARTICLE
      7

                        

                

                
                  	
                           
      

                        	
                          ACCESS

                        

                

                

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

                 

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

                 

                
                  
                    
                    

                  

                  
                    8

                    
                      

                    

                  

                  
                    
                    

                  

                

                7.3           Confidentiality.  For
the purposes of this Agreement, the term "Confidential Information" shall mean
any geological, geophysical, engineering, technical, production test,
exploratory, or reservoir information, or any logs or other information
pertaining to any well drilled pursuant to this Agreement or any operation
conducted under the terms of this Agreement to the extent that such information
was acquired at joint expense.  Except as provided in Section 7.5 and
except for necessary disclosures to governmental authorities having
jurisdiction, no Party shall during the term of this Agreement and for a period
of three (3) years thereafter, trade, sell, publish or release any such
Confidential Information without the agreement of all Participating
Parties.  Otherwise, the Parties shall jointly own all such
Confidential Information without duty to account.  Each Party's
obligation to protect Confidential Information shall be considered met by each
Party using at least the same degree of care as it uses in protecting its own
proprietary materials of like kind.

                 

                7.4           Exceptions.  No
Party shall have any obligation to limit disclosure or use any portion of
Confidential Information which:

                 

                
                  	
                           
      

                        	
                          (a)

                        	
                          is
      already in that Party's possession prior to receipt as a result of this
      Agreement;

                        

                

                
                  	
                           
      

                        	
                          (b)

                        	
                          is
      now in or hereafter becomes publicly available through no fault of that
      Party;

                        

                

                
                  	
                           
      

                        	
                          (c)

                        	
                          is
      disclosed to that Party without obligation of confidence by a third party
      which has the right to make such disclosure;
or;

                        

                

                
                  	
                           
      

                        	
                          (d)

                        	
                          is
      independently developed by or for such Party without reference to
      information received under this
Agreement.

                        

                

                 

                 

                7.5           Limited
Disclosure.  Notwithstanding any other provision of this
Agreement, the Parties may make Confidential Information available to third
parties as follows:

                 

                
                  	
                           
      

                        	
                          (a)

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

                        

                

                 

                
                  
                    
                    

                  

                  
                    9

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                
                  	
                           
      

                        	
                          (b)

                        	
                          gas
      transmission companies for hydrocarbon reserve or technical
      evaluations;

                        

                

                
                  	
                           
      

                        	
                          (c)

                        	
                          reputable
      financial institutions for study before commitment of
    funds;

                        

                

                
                  	
                           
      

                        	
                          (d)

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

                        

                

                
                  	
                           
      

                        	
                          (e)

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

                        

                

                
                  	
                           
      

                        	
                          (f)

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

                        

                

                
                  	
                           
      

                        	
                          (g)

                        	
                          an
      Affiliate of a Party; and

                        

                

                
                  	
                           
      

                        	
                          (h)

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

                        

                

                 

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

                 

                7.6           Proceeds.  During
the term of this Agreement, the Parties agree that any proceeds obtained from
the sale of Confidential Information (excluding, however, transfers of
Confidential Information incidental to a Party’s sale of all or any portion of
its interest in the Contract Area) shall be shared by the Parties in proportion
to their share of the total costs and expenses to acquire same.

                 

                7.7           Media
Releases.  Except as agreed by all parties or otherwise
permitted by this Section, no Party shall issue a news or media release about
operations on the Lease.  In an emergency involving extensive property
damage, operations failure, loss of human life, or other clear emergency, and
for which there is insufficient time to obtain the prior approval of the
Parties, Operator may furnish the minimum, strictly factual, information
necessary to satisfy the legitimate public interest of the media and
governmental authorities having jurisdiction.  Operator shall then
promptly advise the other Parties of the information furnished in response to
the emergency.  Notwithstanding anything to the contrary in this
Agreement, upon prior written notice to the other Parties, a Party shall be
allowed to make any press release or announcement required by a recognized stock
exchange on which the Party’s (or its Affiliate’s) stock is listed; provided,
however, that the press release shall contain the following statement: “The
information, opinions or

                projections
contained in this press release are (the disclosing Party’s) and do not
necessarily reflect the opinions of its co-owners.”

                

                ARTICLE
8

                EXPENDITURES

                

                8.1           Basis of Charge to the
Parties.  Except as otherwise provided in this Agreement,
Operator shall pay all costs incurred 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".

                 

                8.2           Authorization.  Prior
to undertaking any project or making any single expenditure related to the
Contract Area in excess of One Hundred Thousand Dollars ($100,000.00), Operator
shall submit for the approval of the Parties an Authorization for Expenditure
("AFE") for such project or expenditure.  Operator shall furnish
written information to all the Parties on any project or single expenditure
costing less than One Hundred Thousand Dollars ($100,000.00) but in excess of
Fifty Thousand Dollars ($50,000.00) if Operator prepares same for its own
use.  Notwithstanding the One Hundred Thousand Dollar ($100,000.00)
limitation, where such project or expenditure involves changing zones in a well
or a workover operation, an AFE shall be submitted to the Parties for
approval.  Approval of a Development Well or 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.  In the event of an actual or imminently threatened
blowout, explosion, accident, fire, flood, storm, or other emergency, Operator
may immediately conduct such operations and make such expenditures as in its
opinion are required to overcome the emergency, including, but not limited to,
any and all measures to protect life, health, safety, property, natural
resources or the environment.  Operator shall report to the Parties,
as promptly as possible, the nature of the emergency and action
taken.  The Operator shall provide supplemental AFE’s to Participating
Parties, for informational purposes only, if it reasonably determines that the
expected actual costs of an operation will exceed the amount of the approved AFE
by 15% or more, but only if the dollar amount of such expected excess is greater
than Two Hundred Fifty Thousand Dollars ($250,000.00).

                 

                
                  
                    
                    

                  

                  
                    10

                    
                      

                    

                  

                  
                    
                    

                  

                

                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           Security Rights
(Louisiana).  In addition to any other security rights and
remedies provided by law with respect to services rendered or materials and
equipment furnished under this Agreement, for and in consideration of the
covenants and mutual undertakings of the
Operator and the Non-operators herein, the Parties shall have the following
security rights:

                 

                
                  
                    
                    

                  

                  
                    11

                    
                      

                    

                  

                  
                    
                    

                  

                

                (a)           Mortgage in Favor of the
Operator.  Each Non-operator hereby grants to the Operator a
mortgage, hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease within the Contract Area, (b) the oil, gas and
other minerals in, on, under, and that may be produced from the lands within the
Contract Area, and (c) all other immovable property susceptible of mortgage
situated within the Contract Area.

                 

                This
mortgage is given to secure the complete and timely performance of and payment
by each Non-operator of all obligations and indebtedness of every kind and
nature, whether now owed by such Non-operator or hereafter arising, pursuant to
this Agreement.  To the extent susceptible under applicable law, this
mortgage and the security interests granted in favor of the Operator herein
shall secure the payment of all costs and other expenses properly charged to
such Party, together with (A) interest on such indebtedness, costs, and other
expenses at the rate set forth in Exhibit "C" attached hereto (the "Accounting
Procedure") or the maximum rate allowed by law, whichever is the lesser, (B)
reasonable attorneys' fees, (C) court costs, and (D) other directly related
collection costs.  If any Non-operator does not pay such costs and
other expenses or perform its obligations under this Agreement when due, the
Operator shall have the additional right to notify the purchaser or purchasers
of the defaulting Non-operator's production of oil, gas and other minerals and
collect such costs and other expenses out of the proceeds from the sale of the
defaulting Non-operator's share of production of oil, gas and other minerals
until the amount owed has been paid.  The Operator shall have the
right to offset the amount owed against the proceeds from the sale of such
defaulting Non-operator's share of production of oil, gas and other
minerals.  Any purchaser of such production shall be entitled to rely
on the Operator's statement concerning the amount of costs and other expenses
owed by the defaulting Non-operator and payment made to the Operator by any
purchaser shall be binding and conclusive as between such purchaser and such
defaulting Non-operator.

                 

                The
maximum amount for which the mortgage herein granted by each Non-operator shall
be deemed to secure the obligations and indebtedness of such Non-operator to the
Operator as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 (the "Limit of the Mortgage of each
Non-operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of each Non-operator to the Operator is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of each Non-operator, the liability
of each Non-operator under this Agreement and the mortgage and security interest
granted hereby shall be limited to (and the Operator shall not be entitled to
enforce the same against such Non-operator for, an amount exceeding) the actual
obligations and indebtedness [including all interest charges, costs, attorneys'
fees, and other charges provided for in this Agreement or in the Memorandum of
Operating Agreement and Financing Statement (Louisiana), as such term is defined
in Article 8.5.(e) (Recordation) hereof] outstanding and unpaid and that are
attributable to or charged against the interest of such Non-operator pursuant to
this Agreement.

                 

                 

                
                  
                    
                    

                  

                  
                    12

                    
                      

                    

                  

                  
                    
                    

                  

                

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

                 

                
                  
                    
                    

                  

                  
                    13

                    
                      

                    

                  

                  
                    
                    

                  

                

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

                 

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

                 

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

                 

                (c)           Mortgage in Favor of the
Non-operators.  The Operator hereby grants to each Non-operator
a mortgage, hypothecate, and pledge of and over all of its rights, titles,
and
interests in and to (a) the Lease within the Contract Area; (b) the oil, gas and
other minerals in, on, under, and that my be produced from the lands within the
Lease within the Contract Area; and (c) all other immovable property or other
property susceptible of mortgage situated within the Lease within the Contract
Area.

                 

                 

                
                  
                    
                    

                  

                  
                    14

                    
                      

                    

                  

                  
                    
                    

                  

                

                This
mortgage is given to secure the complete and timely performance of and payment
by the Operator of all obligations and indebtedness of every kind and nature,
whether now owed by the Operator or hereafter arising, pursuant to this
Agreement.  To the extent susceptible under applicable law, this
mortgage and the security interests granted in favor of each Non-operator herein
shall secure the payment of all costs and other expenses properly charged to the
Operator, together with (A) interest on such indebtedness, costs, and other
expenses at the rate set forth in Exhibit “C” or the maximum rate allowed by
law, whichever is the lesser, (B) reasonable attorneys' fees, (C) court costs,
and (D) other directly related collection costs.  If the Operator does
not pay such costs and other expenses or perform its obligations under this
Agreement when due, the Non-operators shall have the additional right to notify
the purchaser or purchasers of the Operator’s production of oil, gas and other
minerals and collect such costs and other expenses out of the proceeds from the
sale of the Operator’s share of production of oil, gas and other minerals until
the amount owed has been paid.  The Non-operators shall have the right
to offset the amount owed against the proceeds from the sale of the Operator’s
share of production of oil, gas and other minerals.  Any purchaser of
such production shall be entitled to rely on the Non-operators’ statement
concerning the amount of costs and other expenses owed by the Operator and
payment made to the Non-operators by any purchaser shall be binding and
conclusive as between such purchaser and the Operator.

                 

                The
maximum amount for which the mortgage herein granted by the Operator shall be
deemed to secure the obligations and indebtedness of the Operator to all
Non-operators as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 in the aggregate (the "Limit of the Mortgage of the
Operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of the Operator to the Non-operators is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of the Operator, the liability of the Operator under this Agreement and
the mortgage and security interest granted hereby shall be limited to (and the
Non-operators shall not be entitled to enforce the same against the Operator
for, an amount exceeding) the actual obligations and indebtedness [including all
interest charges, costs, attorneys' fees, and other charges provided for in this
Agreement or in the Memorandum of Operating Agreement and Financing Statement
(Louisiana), as such term is defined in Article 8.5.(e) hereof] outstanding and
unpaid and that are attributable
to or charged against the interest of the Operator pursuant to this
Agreement.

                 

                
                  
                    
                    

                  

                  
                    15

                    
                      

                    

                  

                  
                    
                    

                  

                

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

                 

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

                 

                
                  
                    
                    

                  

                  
                    16

                    
                      

                    

                  

                  
                    
                    

                  

                

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

                 

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

                 

                (e)           Recordation.  To
provide evidence of, and to further perfect the Parties' security rights created
hereunder, upon request, each Party shall execute and acknowledge the Memorandum
of Operating Agreement and Financing Statement (Louisiana) attached as Exhibit
"E" (the "Memorandum of Operating Agreement and Financing Statement
(Louisiana)") in multiple counterparts as appropriate.  The Party
requesting execution of the aforesaid document shall file the Memorandum of
Operating Agreement and Financing Statement (Louisiana) in the public records
set forth below at its sole cost and expense to serve as notice of the existence
of this Agreement as a burden on the title of the Operator and the Non-operators
to their interests in the Leases within
the Contract Area and for purposes of satisfying otherwise relevant recording
and filing requirements of applicable law and to attach an original of the
Memorandum of Operating Agreement and Financing Statement (Louisiana) to a
standard UCC-1 in mutually agreeable forms for filing in the UCC records set
forth below to perfect the security interests created by the Parties in this
Agreement.  Upon the acquisition of a leasehold interest in a Lease
within the Contract Area, the Parties shall, within five business days following
request by one of the Parties hereto, execute and furnish to the requesting
Party for recordation such a Memorandum of Operating Agreement and Financing
Statement (Louisiana) describing such leasehold interest.  Such
Memorandum of Operating Agreement and Financing Statement (Louisiana) shall be
amended from time to time upon acquisition of additional leasehold interests in
the Leases within the Contract Area, and the Parties shall, within five business
days following request by one of the Parties hereto, execute and furnish to the
requesting Party for recordation any such amendment.

                 

                The
Memorandum of Operating Agreement and Financing Statement (Louisiana) is to be
filed or recorded, as the case may be, in (a) the conveyance records of the
parish or parishes adjacent to the lands or offshore blocks covered by the
Leases within the Contract Area or contained within the Leases within the
Contract Area pursuant to La. R.S. 9:2731 et seq., (b) the mortgage records of
such parish or parishes, and (c) the appropriate Uniform Commercial Code
records.

                 

                8.6           Default.  If
any Party does not pay its share of the charges authorized under this Agreement
when due, the Operator may give the defaulting Party notice that unless payment
is made within thirty (30) days from delivery of the notice, the non-paying
Party shall be in default.  A Party in default shall have no further
access to the rig, Platform or Facilities, any Confidential Information or other
maps, records, data, interpretations, or other information obtained in
connection with activities or operations hereunder or be allowed to participate
in meetings.  A Party in default shall not be entitled to vote or to
make an election until such time as the defaulting Party is no longer in
default.  The voting interest of each non-defaulting Party shall be
counted in the proportion its Participating Interest share bears to the total
non-defaulting Participating Interest shares.  As to any operation
approved during the time a Party is in default, such defaulting Party shall be
deemed to be a Non-participating Party, except where such approval is binding on
all Parties or Participating Parties, as applicable. In the event a Party
believes that such statement of charges is incorrect, the Party shall
nevertheless pay the amounts due as provided herein, and the Operator shall
attempt to resolve the issue as soon as practicable, but said attempt shall be
made no later than sixty (60) days after receiving notice from the Party of such
disputed charges.

                 

                
                  
                    
                    

                  

                  
                    17

                    
                      

                    

                  

                  
                    
                    

                  

                

                8.7           Unpaid
Charges.  If any Participating Party fails to pay its share of
the costs and other expenses authorized under this Agreement in accordance with
Exhibit “C” or to otherwise perform any of its obligations under this Agreement
when due, the Party to whom such payment is due, in order to take advantage of
the provisions of Article 8.5, shall notify the other Party by certified or
registered U.S. Mail that it is in default and has thirty (30) days from the
receipt of such notice to pay.  If such payment is not made timely by
the non-paying Party after the issuance of such notice to pay, the Party
requesting such payment may take immediate steps to diligently pursue collection
of the unpaid costs and other expenses owed by such Participating Party and to
exercise the mortgage and security rights granted by this
Agreement.  The bringing of a suit and the obtaining of a judgment by
any Party for the secured indebtedness shall not be deemed an election of
remedies or otherwise affect the security rights granted herein.  In
addition to any other remedy afforded by law, each Party shall have, and is
hereby given and vested with, the power and authority to foreclose the lien,
mortgage, pledge, and security interest established hereby in its favor in the
manner provided by law, to exercise all rights of a secured party under the
Uniform Commercial Code as adopted by the state in which the Leases within the
Contract Area are located or such other states as such Party may deem
appropriate.  The Operator shall keep an accurate account of amounts
owed by the nonperforming Party (plus interest and collection costs) and any
amounts collected with respect to amounts owed by the nonperforming
Party.  In the event there become three or more Parties to this
Agreement, then if any nonperforming Party's share of costs remains delinquent
for a period of sixty (60) days, each other Participating Party shall, upon the
Operator's request, pay the unpaid amount of costs in the proportion that its
Working Interest bears to the total non-defaulting Working
Interests.  Each Participating Party paying its share of the unpaid
amounts of a nonperforming Party shall be subrogated to the Operator's mortgage
and security rights to the extent of the payment made by such Participating
Party.

                 

                8.8           Carved-out
Interests.  Except for the “Permitted Encumbrance” identified
on Exhibit “A”, any agreements creating any overriding royalty, production
payment, net proceeds interest, net profits interest, carried interest or any
other interest carved out of a Working Interest in the Leases within the
Contract Area shall specifically make such interests inferior to the rights of
the Parties to this Agreement. If any Party whose Working Interest is so
encumbered does not pay its share of costs and other expenses authorized under
this Agreement, and the proceeds from the sale of its production of oil, gas and
other minerals pursuant to Article 8.5 are insufficient to pay such costs and
expenses, the security rights provided for in this Article 8.5 may be applied
against the carved-out interests with which the defaulting or non-performing
Party’s interest in the Leases within the Contract Area is burdened. In such
event, the rights of the owner of such carved-out interest shall be subordinated
to the security rights granted by Article 8.5.

                

                
                  
                    
                    

                  

                  
                    18

                    
                      

                    

                  

                  
                    
                    

                  

                

                ARTICLE
9

                NOTICES

                

                9.1           Giving and Responding to
Notices.  All notices and responses thereto shall be in writing
and delivered in person or by telephone followed by United States mail, telex,
telegraph, telecopier (facsimile) or cable; however, if a drilling rig is on
location and standby charges are accumulating, such notices and responses shall
be given by telephone and immediately confirmed in writing.  Notices
and responses shall be deemed given only when received by the Party to whom such
notice or response is directed, except that any notice or response by certified
United States mail or equivalent, telegraph, or cable properly addressed,
pursuant to Section 6.1, and with all postage and charges prepaid shall be
deemed given seventy-two (72) hours after such notice is deposited in the mail
exclusive of Saturdays, Sundays, and federal holidays, or twenty-four (24) hours
after such notice or response is sent by telecopier (facsimile), receipt
confirmed, or filed with an operating telegraph or cable company for immediate
transmission exclusive of Saturdays, Sundays, and federal holidays.

                 

                9.2           Content of
Notice.  Any notice which requires a response shall indicate
the response time specified in Section 9.3.  If a proposal involves a
Platform, Facility or Subsequent Facility, the notice shall contain a
description of same, including location and the estimated costs of design
fabrication, transportation and installation.  If a proposal involves
an Exploratory Operation or a Development Operation, the notice shall include
the proposed depth, the objective zone or zones to be tested, the surface and
bottom-hole locations, applicable details regarding directional drilling, the
equipment to be used, and the estimated costs of the operation including all
necessary expenditures through installation of the wellhead or abandonment of
the well.

                 

                9.3           Response to
Notices.  Each Party's response to a proposal shall be in
writing to all other Parties.  Unless otherwise specified herein,
response times shall be as follows:

                 

                
                  	
                        	
                          9.3.1

                        	
                          Platform
      Construction.  When any proposal for well operations
      involves the construction of a Platform, each Party shall respond within
      sixty (60) days after receipt of
notice.

                        

                

                 

                 

                 

                
                  
                    
                    

                  

                  
                    19

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                
                  	
                        	
                          9.3.2

                        	
                          Proposal Without
      Platform.  When any proposal for well operations does not
      require construction of a Platform, each Party shall respond within thirty
      (30) days after receipt of notice.  However, if a drilling rig
      is on location as a result of a joint Exploratory or Development Operation
      previously conducted thereon and standby charges are accumulating, the
      response shall be made within twenty-four (24) hours, inclusive of
      Saturdays, Sundays, and federal holidays, after receipt of
      notice.

                        

                

                
                  	
                        	
                          9.3.3

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

                        

                

                
                   

                  9.4          
Failure to
Respond.  Failure of any Party to respond to a proposal or
notice, to vote, or to elect to participate within the period required by this
Agreement shall be deemed to be a negative response, vote, or
election.

                

                 

                9.5           Restrictions on Multiple
Well Proposals.  Notwithstanding any provision herein to the
contrary, it is specifically provided that no notice shall be given under this
Article 9 hereof which simultaneously proposes the drilling of more than two (2)
wells, or proposes the drilling of more than one (1) more well while there is an
outstanding proposal.  Further, these provisions of this Article 9,
insofar as they pertain to notification by a Party of its desire to drill a
well, shall be suspended for so long as: (1) a prior notice has been given which
is still in force and effect and the period of time during which the well
regarding same may be commenced has not expired; or (2) a well is presently
drilling hereunder.  This section shall not apply under those
circumstances where the well to which notice is directed is a well which is
required under the terms of a Lease or one required to maintain a portion
thereof in force.  In the event drilling operations are necessary to
perpetuate a Lease, any Party may propose and commence the drilling of such
additional well(s) pursuant to the terms and conditions hereof no earlier than
one hundred eighty (180) days prior to the date operations must be commenced,
regardless of other proposals then under consideration or drilling operations
then in progress.

                

                ARTICLE
10

                EXPLORATORY
OPERATIONS

                

                10.1           Operations by All
Parties.  Any Party may propose an Exploratory Well by
notifying the other Parties.  If all the Parties agree to participate
in drilling the proposed well, Operator shall drill same at their cost and
risk.  If a mobile drilling rig is not already on location as a result
of a prior Exploratory or Development Operation and the proposal ("Original
Proposal") has not already been approved, then any Party may submit an alternate
well proposal for consideration within ten (10) days after receiving the
Original Proposal to drill a well.  If one or more alternate proposals
have been submitted in accordance with the foregoing, then the Operator shall
call a meeting of the Parties to be held within seven (7) days following receipt
of the alternate proposal(s), at which the Parties shall determine by majority
vote in interest which proposal shall be considered by the Joint
Account.  In the event that no proposal receives support of a majority
in interest, then the proposal receiving the greatest support shall
prevail.  In the event of a tie between two or more proposals, then
the proposal (including the Original Proposal) supported by the largest number
of Parties shall prevail.  Each Party having the right to participate
in the proposal so selected shall make its election whether to join in the
drilling of such well within fifteen (15) days after the meeting was
held.  If drilling of 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; however, the one hundred twenty
(120) day period shall automatically be extended for an additional
period, not to exceed sixty (60) days, as may be necessary, in order to obtain
all applicable required regulatory permits, so long as applications for such
required permits were properly filed within thirty (30) days after the last
applicable election date.  Drilling operations shall be deemed to have
commenced on the date rig charges begin according to the terms of the drilling
contract.

                 

                
                  
                    
                    

                  

                  
                    20

                    
                      

                    

                  

                  
                    
                    

                  

                

                10.2           Second Opportunity to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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
information.  This provision shall apply only in the event that there
are three (3) or more Parties to this Agreement.

                 

                 

                10.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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 working
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 Section
9.4.  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' interests 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 any response under
this Article 10 shall not exceed a total of twenty-four (24) hours, inclusive of
Saturdays, Sundays, and federal holidays.  This provision shall apply
only in the event that there are three (3) or more Parties to this
Agreement.

                 

                10.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all of the cost and risk of drilling the proposed well,
Operator shall drill such well under this Agreement and the applicable
provisions of Article 12 and the following special provisions shall
apply:

                 

                
                  	
                           
      

                        	
                          (a)

                        	
                          If
      the well will be the first Exploratory Well drilled under this Agreement,
      then as of the last applicable election date, each Non-Participating Party
      shall be deemed to have relinquished to the Participating Parties, in
      proportion to their Participating Interests or in the proportions
      otherwise agreed by the Participating Parties, all of its interest in the
      Contract Area.  If such well is commenced within the time
      provided in Section 10.1 and is drilled as proposed in accordance with
      this Agreement, each Non-Participating Party shall
      execute an assignment of all of its interest in the Contract Area to the
      Participating Parties, in proportion to their Participating Interests or
      in the proportions otherwise agreed by the Participating
      Parties.

                        

                

                
                  	
                           
      

                        	
                           

                        

                

                
                  	
                           
      

                        	
                          (b)

                        	
                          If
      the well will not be the first Exploratory Well drilled under this
      Agreement and if such well is commenced within the time provided in
      Section 10.1 and is drilled as proposed in accordance with this Agreement,
      then, all of the Non-Participating Party's(ies') operating rights and
      interests in production from such well shall be vested in the
      Participating Parties in proportion to their Participating Interest,
      whether or not any instrument evidencing a transfer of rights and
      interests has been delivered by the Non-Participating
      Party(ies).  The Participating Party(ies) shall have the right
      to recoup the costs applicable to such well as determined by Section 12.2
      and/or Section 12.5 and the drilling of such well shall be governed by
      Article 12, except that the percentage of recoupment as provided in
      Section 12.2.1 (a) shall be eight hundred percent (800%) of the
      Non-Participating Party's Share of the cost of drilling the
      well.

                        

                

                 

                 

                
                  
                    
                    

                  

                  
                    21

                    
                      

                    

                  

                  
                    
                    

                  

                

                If the
well is not commenced within the time period provided in Section 10.1, the
effect shall be as if the proposal had not been made.

                 

                10.5           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Initial Exploratory Well or Exploratory Well
as originally proposed, the Participating Party or Parties encounter mechanical
difficulties, inpenetrable formation, and/or Gulf Coast conditions which render
drilling impractical, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced as
if it were the original proposed Initial Exploratory Well or Exploratory Well
for which it is the substitute; and the relationship, rights and obligations as
between the Participating Party and Non-Participating Party or Parties shall be
the same as if the Substitute Well were, in fact, the proposed Initial
Exploratory Well or Exploratory Well, as applicable.

                 

                
                  
                    
                    

                  

                  
                    22

                    
                      

                    

                  

                  
                    
                    

                  

                

                10.6           Course of Action After
Drilling to Initial Objective Depth.  At such time as an
Exploratory Well has been drilled to the initial objective depth as proposed, or
a mutually agreed upon lesser depth, and all approved logs, cores, and other
tests have been completed, and the results thereof furnished to the
Participating Parties, Operator shall notify the Participating Parties setting
forth Operator's recommendation to either:

                 

                
                  	
                           
      

                        	
                          (a)

                        	
                          Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall

                        

                

                
                  	
                           
      

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

                        

                

                
                  	
                           
      

                        	
                          (b)

                        	
                          Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                        

                

                
                  	
                           
      

                        	
                          (c)

                        	
                          Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in zones all of which are deeper than the zone
      approved for the single
completion.)

                        

                

                
                  	
                           
      

                        	
                          (d)

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

                        

                

                
                  	
                           
      

                        	
                          (e)

                        	
                          Sidetrack
      the well to another bottom hole location not deeper than the stratigrephic
      equivalent of the initial objective
depth.

                        

                

                
                  	
                           
      

                        	
                          (f)

                        	
                          Perform
      other operations on the well. (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                        

                

                
                  	
                           
      

                        	
                          (g)

                        	
                          Plug
      and abandon the well.

                        

                

                 

                The
Participating Parties, within twenty-four (24) hours, inclusive of Saturdays,
Sundays, and federal Holidays, 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, inclusive of Saturdays, Sundays, and federal holidays,
to respond thereto.  If conflicting proposals are made, the priority
of operations 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.

                 

                 

                
                  
                    
                    

                  

                  
                    23

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                
                  	
                        	
                          10.6.1

                        	
                          Operation by All
      Parties.  Subject to Section 10.6.4, if all Participating
      Parties approve a proposal, Operator shall conduct the operation at the
      Participating Parties’ cost and risk.

                           

                        

                

                
                  	
                        	
                          10.6.2

                        	
                          Operations by Fewer
      than All Parties.  If one (1) or more Parties having a
      combined Participating Interest in the well of twenty percent (20%) or
      more approve a proposal and agree to bear the cost, risk and liabilities
      (including loss of the hole due to deepening of any well) thereof, except
      a proposal to plug and abandon, Operator shall conduct the same as a
      Non-Consent Operation for such
      Parties pursuant to the provisions of Article 12, except that the
      percentage of recoupment as provided in Section 12.2.1(a) shall be the
      same as provided for in Section 10.4(b).  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, inclusive of Saturdays,
      Sundays, and federal holidays, 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) Participating Party, each of which is willing to assume all
      costs, risks and liabilities of further operations, but each desires to
      perform a different operation, then the order of priority as listed above
      herein shall prevail and
govern.

                        

                

                
                  	
                           
      

                        	
                           

                        

                

                
                  	
                        	
                          10.6.3

                        	
                          Obligations and
      Liabilities of Participating Parties.  If the decision is
      to complete at initial objective depth, to plug back and complete at a
      lesser depth, to deepen or to Sidetrack to another bottomhole location, 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 that portion of the well in which
      it was a Participating Party.

                           

                        

                

                
                  	
                        	
                          10.6.4

                        	
                          Deepening or
      Sidetracking of Non-Consent Exploratory Well.  Subject to
      the terms of Section 10.6 above, 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 or Sidetrack, 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 or Sidetracking operation by notifying the
      Operator, within forty-eight (48) hours, inclusive of Saturdays, Sundays,
      and federal holidays, after receiving notice of the
      decision.  In such event any Non-Participating Party which
      elects to participate in deepening or Sidetracking 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 or that point the Sidetracking
      operation is commenced if lesser than the initial objective
      depth.  Thereafter such Non-Participating Party shall be deemed
      for all purposes to be a Participating Party as to such deepening or
      Sidetracking operations, and the provisions of Section 10.4 shall not be
      applicable to such Party as to the deepened or Sidetracked 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 portion of the Non-Consent Well any
      balance remaining pursuant to 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 Section 10.6.4.

                           

                        

                

                 

                 

                 

                 

                
                  
                    
                    

                  

                  
                    24

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                
                  	
                        	
                          10.6.5

                        	
                          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.

                        

                

                

                ARTICLE
11

                DEVELOPMENT
OPERATIONS

                

                11.1           Operations by All
Parties.  Any Party may propose Development Operations,
including any wells (whether drilling, completing, recompleting, deepening,
deviating or Sidetracking, plugging back or working over),
Platform,  Facilities and/or Subsequent Facilities required by such
operations, by submitting a Development Operation AFE to the other Parties for
approval pursuant to the response to notice procedures set forth in Article
9.  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 one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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.  This provision shall
apply only in the event that there are three (3) or more Parties to this
Agreement.

                 

                11.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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 Section 9.4.  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 any response under this Article 11 shall not exceed a total of
twenty-four (24) hours, inclusive of Saturdays, Sundays, and federal
holidays.  This provision shall apply only in the event that there are
three (3) or more Parties to this Agreement.

                 

                
                  
                    
                    

                  

                  
                    25

                    
                      

                    

                  

                  
                    
                    

                  

                

                11.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all 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; however, the one hundred twenty (120) day period shall
automatically be extended for an additional period, not to exceed sixty (60)
days, as may be necessary, in order to obtain all applicable required regulatory
permits so long as applications for such required permits were properly filed
within thirty (30) days after the last applicable election date.  If
no operations are commenced within such time period, the effect shall be as if
the proposal had not been made.  Operations shall be deemed to have
commenced: (a) on the date the contract for a new Platform is let, if the notice
indicated a need for such Platform, or (b) on the date the rig charges begin
according to the terms of the drilling contract.  For all other
Development Operations, Development Operations shall be deemed to have commenced
on the day charges are incurred pursuant to an approved AFE.

                 

                11.6           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Development Operation as originally proposed,
the Participating Party or Parties encounter mechanical difficulties,
inpenetrable formation, and/or Gulf Coast conditions which render further
drilling impossible, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced
were the original proposed Development Operation for which it is the substitute,
and the relationship, rights and obligations as between the Participating Party
and Non-Participating Party or Parties shall be the same as if the Substitute
Well were, in fact, the proposed Development Operation, as
applicable.

                 

                
                  
                    
                    

                  

                  
                    26

                    
                      

                    

                  

                  
                    
                    

                  

                

                11.7           Course of Action After
Drilling to Initial Objective Depth.  At such time as a
Development Well has been drilled to the initial objective depth as proposed and
all approved logs, cores and other tests have been completed and the results
thereof furnished to the Participating Parties, Operator shall notify the
Participating Parties setting forth Operator's recommendation to
either:

                 

                
                  	
                           
      

                        	
                          (a)

                        	
                          Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                        

                

                
                  	
                           
      

                        	
                          (b)

                        	
                          Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                        

                

                
                  	
                           
      

                        	
                          (c)

                        	
                          Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in zones all of which are deeper than the zone
      approved for the single
completion.)

                        

                

                
                  	
                           
      

                        	
                          (d)

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

                        

                

                
                  	
                           
      

                        	
                          (e)

                        	
                          Sidetrack
      the well to another bottom hole location not deeper than the stratigraphic
      equivalent of the initial objective
depth;

                        

                

                
                  	
                           
      

                        	
                          (f)

                        	
                          Perform
      other operations on the well.  (If conflicting proposals are
      approved, the proposal receiving the largest percentage of Working
      Interest approval shall take precedence.  In the event of a tie
      between two or more approved proposals, the approved proposal first
      received by the Parties shall take
precedence.)

                        

                

                
                  	
                           
      

                        	
                          (g)

                        	
                          Plug
      and abandon the well.

                           

                        

                

                The Participating Parties, within
forty-eight (48) hours, inclusive of Saturdays, Sundays, and federal holidays,
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, the priority of
operations 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.

                 

                
                  
                    
                    

                  

                  
                    27

                    
                      

                    

                  

                  
                    
                    

                  

                

                11.7.1       Operations by All
Parties.  If all Participating Parties approve a proposal,
Operator shall conduct the operation at the Participating Parties' cost and
risk.

                 

                11.7.2       Operations by Fewer than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Participating Interest in the well of twenty percent (20%) or more
approve a proposal and agree to bear the cost, risk, and liabilities (including
loss of the hole due to deepening of any well) thereof, except a proposal to
plug and abandon, Operator shall conduct the same as a Non-Consent Operation for
such Parties pursuant to the provisions of Article 12.  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, risks and liabilities of further operations, but
each desires to perform a different operation, then the order of priority as
listed above herein shall prevail and govern.

                 

                11.7.3       Obligations and Liabilities
of Participating Parties.  If the decision is to complete at
initial objective depth, to plug back and complete at a lesser depth, to deepen
or to Sidetrack to another bottomhole location, 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 that portion of the well in which it was a Participating
Party.

                 

                11.8           Deeper
Drilling.  If a well is proposed to be drilled below the
deepest Producible Reservoir 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 Reservoir.  A Party electing to participate in such
well to the base of said Producible Reservoir shall bear its proportionate part
of the cost and risk of drilling to said Producible Reservoir including
completion or abandonment. All operations below the depth to which such Party
agreed to participate shall be governed by Article 12.  However, if
the proposal to drill below the deepest Producible Reservoir penetrated by a
Producible Well meets the requirements of an Exploratory Operation, the
percentage of recoupment shall be that specified in Section 10.4(b) and shall be
subject to the provisions of Article 10 with respect to such
operations.

                 

                11.9           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.

                 

                
                  
                    
                    

                  

                  
                    28

                    
                      

                    

                  

                  
                    
                    

                  

                

                11.10          Subsequent
Facilities.  The affirmative vote of one (1) or more Parties
having a combined Participating Interest of fifty-one percent (51%) or more in
the wells to be served by the proposed Subsequent Facilities shall constitute
approval for the construction of such Subsequent Facilities and all Parties
having an interest in the wells to be served shall be bound by such approval and
be required to participate in the costs therefor.  Nothing hereunder
shall limit a Party's rights under Section 21.1 to incur additional costs for
separate facilities.

                 

                11.11          Contracts.  Operator
may enter into contracts with independent contractors for Development Operations
and shall utilize competitive bidding.

                 

                ARTICLE
12

                NON-CONSENT
OPERATIONS

                

                12.1           Non-Consent
Operations.  Operator shall conduct Non-Consent Operations at
the sole risk, expense, and liability of the Participating Parties, in
accordance with the following provisions:

                 

                
                  	
                        	
                          12.1.1

                        	
                          Non-Interference.  Non-Consent
      Operations shall not interfere unreasonably with any other operations
      being conducted within the Contract Area.

                           

                        

                

                
                  	
                        	
                          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 participating in the Non-Consent
      Operations and 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
      subject to approval by appropriate governmental authority, may be
      determined on the basis of well tests.

                           

                        

                

                
                  	
                        	
                          12.1.4

                        	
                          Non-Consent
      Well.  Operations on a Non-Consent Well shall not be
      conducted in any Producible Reservoir penetrated by a Producible Well
      without written approval of each Non-Participating Party unless these four
      (4) conditions are satisfied: (a) such Producible Reservoir shall have
      been designated in the notice as an objective zone; (b) completion of such
      well in said Producible Reservoir will not increase the well density
      governmentally prescribed or approved for such Producible Reservoir; (c)
      the horizontal distance between the vertical projections of the midpoint
      of the Producible Reservoir in such well and any existing well in the same
      Producible Reservoir will be at least one thousand (1,000) feet if an
      oil-well completion or two thousand (2,000) feet if a gas-well completion;
      and (d) completion of such well as a producer will not cause or result in
      a decreased "MER" or "MPR" for any existing Producible Reservoir or
      Producible Well.  The terms "MER" and "MPR" are defined under 30
      Code of Federal Regulations, Subpart K-Production rates, Parts 250.170
      through 250.177.

                           

                        

                

                 

                 

                 

                
                  
                    
                    

                  

                  
                    29

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                 

                
                  	
                        	
                          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 either a joint interest billing or an itemized statement of
      the cost of such well and equipment pertaining
      thereto.  Operator shall furnish to the Parties a quarterly
      statement showing operating expenses and the proceeds from the sale of
      production from the well for the preceding three (3) month
      period.  When Operator’s payout calculation indicates that
      payout has occurred, Operator shall promptly notify all
      Parties.

                           

                        

                

                
                  	
                        	
                          12.1.6

                        	
                          Completion.  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 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.  Such leasehold operating rights and title to
      production shall revert to each Non-Participating Party at 7:00 a.m. on
      the day following the date 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 12.3, equals the sum of the
      following:

                           

                        

                

                
                  	
                           
      

                        	
                          (a)

                        	
                          Six
      hundred percent (600%) of the Non-Participating Party's Share of the cost
      of drilling, testing, completing, recompleting, working over, deepening,
      deviating or Sidetracking, plugging back, or temporarily plugging and
      abandoning each Non-Consent Well (or any Non-Consent Operation(s) in a
      joint well), and equipping it through the wellhead connections, reduced by
      any contribution received under Article 20;
plus

                        

                

                
                  	
                           
      

                        	
                          (b)

                        	
                          Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Non-Consent Facilities necessary to establish the production
      resulting from the operations defined in Section 12.2.1.(a) above;
      plus

                        

                

                
                  	
                           
      

                        	
                          (c)

                        	
                          Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Platform in which it does not participate and which must be
      installed to establish the production resulting from the operations
      defined in Section 12.2.1.(a) above;
plus,

                        

                

                
                  	
                           
      

                        	
                          (d)

                        	
                          Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Platform, whether or not owned by the Joint Account;
      plus,

                        

                

                
                  	
                           
      

                        	
                          (e)

                        	
                          Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Facilities not owned by the Joint Account, including
      leased facilities; plus

                        

                

                
                  	
                           
      

                        	
                          (f)

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

                        

                

                 

                At 7:00
a.m. upon the day following the date of recoupment of such costs, a
Non-Participating Party shall become a Participating Party in such
operations.

                 

                 

                
                  
                    
                    

                  

                  
                    30

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                
                  	
                        	
                          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 wells (or portions thereof associated with any Non-Consent
      Operation(s) in a joint well), Platforms and Facilities of the Non-Consent
      Operations, as well as all liabilities and benefits related thereto, shall
      remain vested in the Participating Parties; however, any salvage in excess
      of the sum remaining under Section 12.2.1 shall be credited to all
      Parties.

                        

                

                
                  	
                           
      

                        	
                           

                        

                

                12.3           Deepening or Sidetracking of
Non-Consent Development Well.  If any Participating Party
proposes to deepen or Sidetrack a Non-Consent Development Well, a
Non-Participating Party may participate by notifying the Operator within thirty
(30) days after receiving the proposal (forty-eight (48) hours, inclusive of
Saturdays, Sundays, and federal holidays, if a rig is on location) that it will
join in the deepening or Sidetracking operation and by paying to the
Participating Parties; 1) if it is a deepening an amount equal to the costs of
the well as if such Non-Participating Party had originally participated to the
objective depth or; 2) if it is a sidetrack operation an amount equal to the
Non-Participating Parties share of drilling the non-consent well to that point
the Sidetracking operation is commenced.  The Participating Parties
shall continue to be entitled to recoup the full sum specified in Section 12.2.1
applicable to the non-consent portion of the well out of the proceeds received
from production from the non-consent portion of the well, less any amount
received under this Section 12.3.

                 

                 

                12.4           Operations from Non-Consent
Platforms and Facilities.  Subject to the following, a Party
which did not originally participate in a Platform or Facilities shall be a
Non-Participating Party as to ownership therein and all operations thereon until
the Participating Parties as to such Platform or Facilities have recouped the
full sum specified in Section 12.2.1 applicable to such non-consent Platform or
Facilities and the Non-Consent Operations which resulted in the setting of such
Platform or Facilities and other Non-Consent Operations thereon or
therefrom.  However, any original Non-Participating Party may
participate in additional operations from such Platform or Facilities by
notifying the Operator within thirty (30) days after receiving a proposal for
operations from such Platform or Facilities that it will join in such proposed
operations by paying to the Participating Parties in such Platform or Facilities
an amount equal to the non-consent penalty provided for in Section 12.2.1
applicable to such Non-Participating Party’s Share of the actual cost of such
Platform or Facilities, less any recoupment therefor previously
obtained.  Thereafter, such original Non-Participating Party in such
non-consent Platform or Facilities shall own its proportionate share
thereof.  The Participating Parties in such non-consent Platform or
Facilities shall continue to be entitled to recoup the full sum specified in
Section 12.2.1 applicable to any other Non-Consent Operations thereon or
therefrom.

                 

                
                  
                    
                    

                  

                  
                    31

                    
                      

                    

                  

                  
                    
                    

                  

                

                12.5           Discovery or Extension from
Mobile Drilling Operations.  If a Non-Consent Well is drilled
from a mobile drilling rig or floating drilling vessel and results in the
discovery of oil or gas or extension of a Producible Reservoir and, if within
one (1) year from the date the drilling equipment is released, a Platform or
other fixed structure is ordered
and if its location is within three thousand (3,000) feet from the vertical
projection of the bottom-hole location of any such well (unless limited by
surface restrictions or seabed conditions), 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 subsequently completed wells on the Contract 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 Contract 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           Non-Consent Operations to
Maintain Lease.  Notwithstanding any other provision hereof, if
a Lease has no wells thereon capable of commercial production in the final six
(6) months of the primary term of such Lease and such Lease is not held by a
unit or a Suspension of Production pursuant to other operations on the Lease or
in the unit, any Party electing not to participate in the drilling of a well or
other operation in the final six (6) months of the primary term or at any time
during the secondary term, shall assign its full interest in such Lease pro-rata
to the Parties hereto undertaking the drilling of such well or participating in
such operation.  Such assignment shall be executed and delivered
within thirty (30) days after commencement of the well or
operation.  If at any time after the expiration of the primary term of
a Lease, a well must be drilled or an operation conducted because of cessation
of production or to fulfill an obligation to develop such Lease, such well or
operation being required to extend the term of such Lease or a portion thereof,
any Party electing not to participate in the operation or the drilling of such a
well shall assign its full interest in that Lease, or portion thereof, pro-rata
to the Parties hereto undertaking the drilling of such a well.  Such
assignment shall be executed and delivered within thirty (30) days after
commencement of the well or operation, but shall be limited to the portion of
the Lease the term of which was extended by the operation or drilling the well,
and provided any Non-Participating Party shall retain its rights and liabilities
with respect to any previously completed wells on that Lease and the production
therefrom.  Thereafter, that Lease shall no longer be a part of the
Contract Area, and the Non-Participating Party or Parties shall no longer own an
interest in any wells
drilled on such Lease, other than those wells drilled prior to the occurrence
set out herein.  Should the Parties electing to undertake the drilling
of a well or conduct operations under this Section 12.6 fail to perform, as
Participating Parties, the drilling of the well or operations substantially as
proposed, the Parties receiving the aforementioned assignment shall assign back
to the Party or Parties originally electing not to participate, that interest
which was caused to be assigned pursuant to this Section 12.6.  A
Party hereunder executing an assignment of its interest in a Lease pursuant to
the foregoing shall not be relieved of any obligation hereunder accruing prior
to such assignment.  If more than one (1) well is drilled or more than
one (1) operation conducted, any of which would maintain or extend such Lease or
such portions thereof, an assignment shall not be required from any Party
participating in any such well(s) or operation(s) as to that portion of the
Lease or unit which would have been maintained by such well(s) or
operation(s).

                 

                
                  
                    
                    

                  

                  
                    32

                    
                      

                    

                  

                  
                    
                    

                  

                

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

                 

                 

                
                  	
                        	
                          12.7.1

                        	
                          Charges.  If
      a Non-Consent Well is drilled from a Platform, the Participating Parties
      in such well shall be liable to the Joint Account owners of the Platform
      for the use of 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.  Notwithstanding the foregoing, if the Non-Consent
      Well is abandoned as an unsuccessful well, and no substitute well is
      drilled by the Participating Parties, then, if the slot is abandoned in a
      condition such that it could be used for the drilling of a future well,
      the Participating Parties shall not be required to pay the sum set out in
      this Section 12.7.1.

                        

                

                
                  	
                           
      

                        	
                          (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, less accumulated depreciation, which one (1) well
      completion bears to the total number of Producible Well completions
      utilizing the Facilities.

                           

                        

                

                 

                 

                 

                
                  
                    
                    

                  

                  
                    33

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                 

                
                  	
                        	
                          12.7.2

                        	
                          Operating and
      Maintenance Charges.  The Participating Parties shall pay
      on a monthly basis all costs necessary to connect a Non-Consent Well to
      the Facilities and that proportionate part of the expense of operating and
      maintaining the Platform and Facilities applicable to the Non-Consent
      Well.  Platform and Facilities operating and maintenance
      expenses shall be allocated in proportion to the producing well count
      during a calendar month as it relates to the total number of wells
      producing from such Platform during such calendar month.  For
      the purpose of this provision, a producing zone or each completion in a
      multi-completed well shall be considered as a separate
      well.

                        

                

                

                  
                  

                  
                    	
                          	
                            12.7.3

                          	
                            Payments.  Payment
      of sums pursuant to Section 12.7.1 is not a purchase of an additional
      interest in the Platform or Facilities.  Such payments, if the
      recoupment provisions of Section 12.2 are applicable, shall be included in
      the total amount which the Participating Parties are entitled to recoup
      out of production from the Non-Consent Well.

                             

                          

                  

                  12.8           Allocation of Costs Between
Depths (Single Completion).  For the purpose of allocating
costs on any well with a single completion in which the Participating Interests
of the Parties are not the same for the entire depth or the completion thereof,
the cost of drilling, completing, equipping, and plugging and abandoning such
well shall be allocated on the following basis:

                   

                  
                    	
                             
      

                          	
                            (a)

                          	
                            Intangible
      drilling, completion, casing string, and material costs from the surface
      to a depth one hundred feet (100') below the base of the Producible
      Reservoir in which the well is completed shall be charged to the
      Participating Parties in such completion in accordance with their
      respective Participating Interest.

                          

                  

                  
                    	
                             
      

                          	
                            (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
      Producible Reservoir in which the well is completed to total depth shall
      be charged to the Participating Parties in the well to total depth in
      accordance with their respective Participating
  Interest.

                          

                  

                  
                    	
                             
      

                          	
                            (c)

                          	
                            All
      plugging and abandonment costs directly associated with the Producible
      Reservoir in which the well is completed will be allocated to the
      Participating Parties in that completion in accordance with their
      respective Participating Interests.  All final plugging and
      abandonment costs associated with the wellbore will be allocated
      proportionately among all Participating Parties in the well.

                             

                          

                  

                   

                   

                   

                   

                  
                    
                      
                      

                    

                    
                      34

                      
                        

                      

                    

                    
                      
                      

                    

                  

                   

                  12.9           Allocation of Costs Between
Depths (Multiple Completions).  For the purpose of allocating
costs on any well completed in dual or multiple Producible Reservoirs in which
the Participating Interests of the Parties are not the same for the entire depth
or the completion thereof, the cost of drilling, completing, equipping, and
plugging and abandoning 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 Producible Reservoir shall be divided equally
      between the completed Producible Reservoirs and charged to the
      Participating Parties in

                          

                  

                  
                    	
                             
      

                          	
                            each
      Producible Reservoir in accordance with their respective Participating
      Interest.

                          

                  

                  
                    	
                             
      

                          	
                            (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 Producible Reservoir to a depth one hundred feet (100') below
      the base of the second completed Producible Reservoir shall be divided
      equally between the second and any other Producible Reservoir completed
      below such depth and charged to the Participating Parties in each such
      Producible Reservoir in accordance with their respective Participating
      Interest.  If the well is completed in additional Producible
      Reservoirs, the costs applicable to each such Producible Reservoir shall
      be determined and charged to the Participating Parties in the same manner
      as prescribed for wells completed in dual Producible
      Reservoirs.

                          

                  

                  
                    	
                             
      

                          	
                            (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 lowest
      completed Producible Reservoir to total depth shall be charged to the
      Participating Parties in the well to total depth in accordance with their
      respective Participating Interest.

                          

                  

                  
                    	
                             
      

                          	
                            (d)

                          	
                            Costs
      of tubing strings serving each separate Producible Reservoir shall be
      charged to the Participating Parties in each Producible Reservoir in
      accordance with their respective Participating
  Interest.

                          

                  

                  
                    	
                             
      

                          	
                            (e)

                          	
                            For
      the purposes of allocating tangible and intangible costs between
      Producible Reservoirs that occur at less than one hundred feet (100')
      intervals, the distance between the base of the upper reservoir to the top
      of the next lower reservoir shall be allocated equally between
      reservoirs.

                          

                  

                  
                    	
                             
      

                          	
                            (f)

                          	
                            All
      plugging and abandonment costs directly associated with a Producible
      Reservoir will be allocated to the Participating Parties in that reservoir
      in accordance with their respective Participating
      Interests.  All final plugging and abandonment costs associated
      with the wellbore will be allocated proportionately among all
      Participating Parties in the well.

                             

                          

                  

                   

                   

                   

                   

                  
                    
                      
                      

                    

                    
                      35

                      
                        

                      

                    

                    
                      
                      

                    

                  

                   

                  12.10                      Allocation of Costs Between
Depths (Dry Hole).  For the purpose of this Section, a dry hole
shall mean a well drilled to an objective depth in which the Participating
Parties elected not to complete, or if completed, the well was not a Producible
Well and did not establish a Producible Reservoir.  In allocating
costs on any well containing a dry hole, and in which the Participating
Interests of the Parties are not the same
for the entire depth or the completion thereof, the cost of drilling and
plugging and abandoning such well shall be allocated on the following
basis:

                   

                  
                    	
                             
      

                          	
                            (a)

                          	
                            Costs
      to drill and plug and abandon a well proposed for completion in single,
      dual, or multiple objective depths shall be charged to the Participating
      Parties in the same manner as if the well had established a Producible
      Reservoir at each objective depth.

                          

                  

                  
                    	
                             
      

                          	
                            (b)

                          	
                            Additional
      plugging and abandoning costs related to any deepening, completion
      attempt, or other operation shall be at the sole risk and expense of the
      Participating Parties in such operation.

                             

                          

                  

                  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
Producible Reservoirs, including dry holes as defined in Section 12.10, and
including the interval from one hundred feet (100') below the deepest Producible
Reservoir to total depth on a drilling day ratio basis where the factor for each
reservoir is determined by a fraction for which the numerator is the number of
drilling and completion days applicable to that reservoir 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.

                   

                   

                  12.12                      Subsequent Operations in
Non-Consent Well.  Except as provided in Section 10.6.4 or
12.3, as applicable, an election not to participate in the drilling,
Sidetracking, or deepening of a well shall be deemed to be an election not to
participate in any subsequent operations in the well before full recovery by the
Participating Parties of the Non-Participating Party's recoupment
amount.  A subsequent operation conducted during the recoupment period
by the Parties entitled to participate shall be subject to the recoupment
provided in Section 12.2.1.

                  

                  
                    
                      
                      

                    

                    
                      36

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  ARTICLE
13

                  ABANDONMENT AND
SALVAGE

                  

                  13.1           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.

                   

                  13.2           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 unanimous approval 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, plugging and abandoning, the abandoning Party shall pay the
Operator, for the benefit of the non-abandoning Parties, a sum equal to the
deficiency.

                   

                  13.3           Assignment of
Interest.  Each Participating Party desiring to abandon a well
pursuant to Section 13.2 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, after delivering the assignment, from any further
liability with respect to said well, and each non-abandoning Party shall assume
and bear all such liabilities in proportion to the share of interest that it
receives from the abandoning Parties.  Notwithstanding Section 13.2,
no Party shall be required to accept an assignment of an interest of a Party
desiring to abandon a well.  If no Party is willing to accept the
assignment, the Party seeking to abandon the well shall remain an owner in the
well.

                   

                  13.4           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
14

                  WITHDRAWAL

                  

                  14.1           Withdrawal.  A
Party may withdraw from this Agreement by assigning to the other Parties who do
not desire to withdraw, all of its interest in the Contract Area and the wells,
Platforms and Facilities used in operations thereon; 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.  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 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 ninety (90) 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 the withdrawing Party shall thereafter be relieved
from all further obligations and liabilities with respect to the Contract Area;
provided, however, that such withdrawing Party shall remain liable for any
costs, expenses, or damages theretofore accrued or arising out of any event
accruing prior to such Party's withdrawal.

                   

                  
                    
                      
                      

                    

                    
                      37

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  14.2           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.  Notwithstanding Section 14.1, no Party shall be required
to accept an assignment of a withdrawing Party's interest.  If no
Party is willing to accept the assignment, the Party seeking to withdraw shall
remain subject to this Agreement.

                   

                   

                  

                  ARTICLE
15

                  RENTALS, ROYALTIES, AND
OTHER PAYMENTS

                  

                  15.1           Creation of Overriding
Royalty.  If the Working Interest or Participating Interest of
a Party is subject to an overriding royalty, production payment, net profits
interest, mortgage, lien, security interest, or other burden or encumbrance,
other than lessor’s royalty, the Party so burdened shall pay and bear all
liabilities and obligations created or secured by the burden or encumbrance and
shall indemnify and hold the other Parties harmless from all claims and demands
for payment asserted by the owners of the burdens or encumbrances. If any
Non-Participating Party's interest is subject to an overriding royalty,
production payment, or other charge or burden other than the “Permitted
Encumbrance” shown on Exhibit “A”, then the Participating Parties shall, during
recoupment of costs to be recovered under Section 12.2 above, receive the
Working Interest production of such Non-Participating Party free from such
charge or burden, which shall be paid and discharged by the Non-Participating
Party out of his own separate funds.  Such Non-Participating Party
shall hold the Participating Parties harmless with regard to such
payment.

                   

                  
                    
                      
                      

                    

                    
                      38

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  15.2           Payment of Rentals and
Minimum Royalties.  Operator shall 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 Lease(s) and submit evidence of each
such payment to the Parties.  Operator 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, or
is erroneously paid.  The loss of any Lease or interest therein which
results from a failure to pay or an erroneous payment of rental or minimum
royalty shall be a joint loss and there shall be no readjustment of
interest.

                   

                  15.3           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 such Lease as would be maintained by such
payment.  Unless otherwise agreed, such assigned interest shall be
owned by each Participating Party in proportion to its Participating
Interest.

                   

                  15.4           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 Contract Area for its
account and on its share of any production used, consumed, or lost on the
Contract Area.  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
16

                  TAXES

                  

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

                   

                  
                    
                      
                      

                    

                    
                      39

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  16.2           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.

                   

                  16.3           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.

                   

                  16.4           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, provided that should a Party's
unilateral action cause a change in status of the entire Lease, Platform or
Facilities thereon for tax

                  purposes,
that Party shall bear the entire increased portion of taxes caused by that
Party's action.

                   

                  16.5           Gas
Balancing.  Each Party agrees that with respect to gas
production, each Party taking gas under the Gas Balancing Agreement attached
hereto as Exhibit "D" shall account for such gas for federal income tax purposes
in accordance with proposed Treasury Regulation Section 1.761-2(d)(3), or in
accordance with binding laws, rules, regulations, and orders affecting
production from the Contract Area which hereafter may be adopted, promulgated,
or issued by an agency or other governmental authority having jurisdiction over
the Contract Area.

                  

                  ARTICLE
17

                  INSURANCE

                  

                  17.1           Insurance.  Operator
shall at times when operations are conducted herein during the term of this
Agreement, carry, pay for and charge each Party its proportionate share of the
cost of (i) Worker’s Compensation and Employer’s Liability Insurance covering
the employees of Operator engaged in operations hereunder in compliance with all
applicable State and Federal laws and (ii) Contingent Maritime Employer’s
Liability Insurance.  The Worker’s Compensation policy shall have
attached the “Longshoreman’s Harbor Worker’s Compensation Act (Federal)
Endorsement” and “Outer Continental Shelf Land’s Endorsement”.  The
Contingent Maritime Employer’s Liability Insurance shall provide for a limit of
liability of not less than $1,000,000 per accident.  Such policies
shall contain waivers of subrogation in favor of Non-Operators.  Each
Party to this Agreement shall be responsible for insuring its own interest in
property and equipment, well control and redrill expense, or loss of income and
any other loss not covered by the insurance referred to herein.  Each
Party for its account shall carry, pay for and maintain throughout the term of
this Agreement policies of insurance specified in Exhibit “B” of this
Agreement.

                  

                  
                    
                      
                      

                    

                    
                      40

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  ARTICLE
18

                  LIABILITY, CLAIMS AND
LAWSUITS

                  

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

                   

                  18.2           Notice of Claim or
Lawsuit.  If a claim is made against any Party or if any Party
is sued on an alleged cause of action arising out of operations hereunder or an
alleged cause of action involving title to any interest subject hereto, such
Party shall give prompt written notice to the other Parties.

                   

                  18.3           Settlements.  Operator
may settle any single damage claim or suit involving operations or title to any
interest hereunder if the expenditure does not exceed Fifty Thousand Dollars
($50,000.00) and if the payment is in complete settlement of such claim or
suit.  If the amount required for settlement exceeds such amount, the
Participating Parties shall determine the further handling of the claim or
suit.  Operator will keep the Participating Parties appropriately
advised of all material events in each lawsuit and claim arising from operations
hereunder.

                   

                  18.4           Legal
Expense.  Legal expenses shall be handled pursuant to Exhibit
"C"; however, such legal expenses shall be approved and borne in accordance with
Exhibit "C" by only the Participating Parties in the operations out of which
such liability giving rise to same occurs.

                   

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

                   

                   

                  18.6           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.

                   

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

                  

                  
                    
                      
                      

                    

                    
                      41

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  ARTICLE
19

                  INTERNAL REVENUE
PROVISION

                  

                  19.1           Internal Revenue
Provision.  Notwithstanding any provisions herein that the
rights and liabilities are several and not joint or collective, or that this
Agreement and the operations hereunder shall not constitute a partnership, each
Party elects not to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A, Internal Revenue Code of 1986, as amended, and similar provisions of
applicable state laws.  The tax partnership shall be governed by
Exhibit
“F”                                           .

                  

                  ARTICLE
20

                  CONTRIBUTIONS

                  

                  20.1           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, in support of the drilling of any well on the Contract
Area.  Payments received as consideration for entering into a contract
for sale of production from the Contract Area, loans, and other financing
arrangements shall not be considered contributions for the purposes of this
Article.

                   

                  20.2           Cash
Contributions.  In the event a Party contracts for a cash
contribution toward the drilling of a well, said cash contribution shall be paid
to Operator and Operator shall apply the amount thereof against the cost of such
drilling.  If such well is a Non-Consent Well, the amount of the
contribution shall be deducted from the cost specified in Section
12.2.1.(a).

                   

                  
                    
                      
                      

                    

                    
                      42

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  20.3           Acreage
Contributions.  In the event a Party contracts for 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 the cost of drilling the
well.  Such acreage shall become a separate contract area and, to the
extent possible, be subject to provisions identical to those contained in this
Agreement.  For purposes of this Agreement, the word "acreage" shall
mean lands or leases or interests therein.

                  

                  ARTICLE
21

                  DISPOSITION OF
PRODUCTION

                  

                  21.1           Facilities to Take in
Kind.  Any Party shall have the right, at its sole risk and
expense, to construct Facilities for taking its share of production in kind,
provided that such Facilities, at the time of installation, do not interfere
with continuing operations on the Contract Area.

                   

                  21.2           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
Contract Area.

                   

                  21.3           Failure to Take in
Kind.  If any Party fails to take in kind and dispose of its
share of the oil and/or condensate, Operator shall have the option, but not the
obligation, to either (a) purchase oil and/or condensate at Operator's posted
price for liquids of the same kind, gravity, and quality in the field where the
Leases are located or, in the absence of such posted price, at the price
prevailing in the field or area for oil and/or condensate of the same kind,
gravity, and quality, or (b) sell such oil and/or condensate to others under
commercially reasonable terms negotiated by Operator in good faith , 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 be only for such
reasonable periods of time as are consistent with the minimum needs of the
industry under the circumstances, but in no event shall any contract be for a
period in excess of one hundred and eighty (180) days. 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 or dispose
of its share of gas, such gas shall be accounted for in accordance with the
provisions of Exhibit "D", Gas Balancing Agreement, attached hereto and made a
part hereof.

                   

                  21.4           Expenses of Delivery in
Kind.  Any cost incurred in making delivery of any Party's
share of oil and/or condensate or disposing of same pursuant to Section 21.3,
shall be borne by such Party.

                   

                  21.5           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
the attached Exhibit "D".

                  

                  
                    
                      
                      

                    

                    
                      43

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  ARTICLE
22

                  APPLICABLE
LAW

                  

                  22.1           Applicable
Law.  THIS AGREEMENT AND ALL OPERATIONS CONDUCTED HEREUNDER BY
THE PARTIES SHALL BE SUBJECT TO ALL VALID AND APPLICABLE FEDERAL LAWS, RULES,
REGULATIONS AND ORDERS ("FEDERAL LAW").  TO THE EXTENT REQUIRED BY
FEDERAL LAW, THE LAWS OF THE STATE ADJACENT TO THE CONTRACT AREA SHALL
APPLY.  THIS AGREEMENT SHALL OTHERWISE BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF LOUISIANA, EXCLUDING CHOICE
OF LAW RULES THAT WOULD REFER THE MATTER TO THE LAW OF ANY OTHER
JURISDICTION.

                  

                  ARTICLE
23

                  LAWS AND
REGULATIONS

                  

                  23.1           Laws and
Regulations.  This Agreement and all operations and activities
conducted under it shall be subject to all applicable laws, rules, regulations
and orders (federal, state, and local).  A provision of this Agreement
found to be contrary to or inconsistent with any such law, rule, regulation or
order shall be deemed to have been modified accordingly.

                  

                  ARTICLE
24

                  FORCE
MAJEURE

                  

                  24.1           Force
Majeure.  The obligations imposed by this Agreement on a Party,
except for indemnity obligations and the payment of money, shall be suspended
with respect to such Party to the extent that compliance is prevented, in whole
or in part, by a labor
dispute, fire, storm, 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 removed; and provided further that no
Party shall be required against its will to settle any labor
dispute.

                   

                  24.2           Notice.  Whenever
a Party's obligations are suspended under Section 24.1, such Party shall
immediately notify the other Parties and give full particulars of the reason for
such suspension.

                  

                   

                   

                  
                    
                      
                      

                    

                    
                      44

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  
                    ARTICLE
25

                    SUCCESSORS, ASSIGNS AND
PREFERENTIAL RIGHTS

                    

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

                  

                   

                   

                   

                   

                  25.2           Transfer of Interest.
No transfer, assignment, or other disposition of interest by a Party shall
relieve the Party of liabilities and obligations it has incurred or that are
attributable to the interest transferred before the date of the transfer, and
the obligation to pay and bear all costs and risks attributable to an operation
in which the Party was a Participating Party before making the transfer, and the
lien and security rights granted by Section 8.5 (Security Rights) shall continue
to burden the interest transferred to secure payment of the obligations. The
transferor shall be liable for all costs, expenses, and liabilities for well
plugging and abandonment, Platform and Facilities removal and disposal, and site
clearance for property and equipment attributable to the assigned interest
before the date of the transfer, net of salvage proceeds.

                   

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

                   

                  
                    	
                             
      

                          	
                            (a)

                          	
                            the
      transferee is financially capable of assuming the obligations hereunder
      and, in accordance with Subsection 25.3(c), the transferor furnishes the
      Parties with proof of such financial capability that, in the case of Outer
      Continental Shelf leases, shall be proof that the transferee is currently
      qualified by the Minerals Management Service, an agency of the United
      States Department of the Interior, or a successor agency having
      jurisdiction (hereinafter “MMS”), to own Outer Continental Shelf leases
      and that the transferee has on file with the MMS the appropriate lessee
      and Operator bonds;

                          

                  

                  
                    	
                             
      

                          	
                            (b)

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

                          

                  

                  
                    	
                             
      

                          	
                            (c)

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

                          

                  

                   

                  The
requirements of this Section 25.3 shall not apply to a merger, consolidation,
reorganization, sale or transfer to an Affiliate, a mortgage by a Party of its
interest in the Leases within the Contract 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.

                   

                   

                   

                   

                  
                    
                      
                      

                    

                    
                      45

                      
                        

                      

                    

                    
                      
                      

                    

                  

                   

                   

                   

                  25.4           Transfers Between
Parties. A transfer, relinquishment, or other disposition of interests in
the Leases between Parties under Section 12.6 (Non-Consent Operations to
Maintain Lease); Article 14 (Withdrawal); or Section 15.3 (Non-participation in
Payments) shall be made without warranty of title. Any such transfer between the
Parties, if applicable, shall be free and clear of all overriding royalty,
production payment, net profits interest, mortgage, lien, security interest, or
other burden or encumbrance, other than lessor’s royalty burdens and the
Permitted Encumbrance shown on Exhibit “A”.

                   

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

                   

                  25.6           Preferential Rights.
If a Party desires to transfer, sell, farmout, assign, or otherwise dispose of
all or part of its Working Interest (“Disposing Party”), it shall promptly give
written notice to the other Parties with full information about the proposed
transaction, including, but not limited to, the name and address of the
prospective transferee (who must be ready, willing, and able to acquire the
interest and deliver the stated consideration therefor), the consideration for
the transfer, farmout terms, and all other terms of the offer. In the case of a
package sale of oil and gas interests that includes all or part of the Disposing
Party’s Working Interest, or if the proposed transaction is structured as a
non-simultaneous, like-kind exchange under Section 1031 of the Internal Revenue
Code of 1986, as amended (“Code”), the Working Interest that is subject to this
preferential right shall be separately valued and the notice shall state the
value attributed to the interest by the prospective transferee. The other
Parties shall then have an optional prior right, for a period of thirty (30)
days after receipt of the notice, to elect to purchase or acquire on the same
terms and conditions, or on equivalent terms for a non-cash transaction,
all of the Working Interest that the Disposing Party is proposing to transfer.
If this preferential right is exercised by a Party, the purchasing or acquiring
Parties shall share the purchased or acquired interest in the proportions that
the Working Interest of each bears to the total Working Interest of all
acquiring Parties, or in such proportions as the acquiring Parties otherwise
agree. This preferential right shall apply separately to each Working Interest
or part thereof covered by this Agreement, regardless of whether it is included
in the proposed transaction along with other oil and gas interests, whether as a
sale, farmout, or non-simultaneous, like-kind exchange, and no provision in this
Agreement shall be interpreted to defeat this preferential right. Upon exercise
of this preferential right, the acquiring Parties shall agree to perform all
obligations of the prospective transferee under the proposed transaction only
for the Working Interest subject to the proposed transaction. This preferential
right, however, shall not exist or apply when a Party proposes (a) to mortgage
its interest; (b) to dispose of or transfer its interest to an Affiliate by (i)
merger, (ii) reorganization, or (iii) consolidation; (c) to sell all, or
substantially all, of its exploration and production properties located in the
United States of America; or (d) to transfer the interest under a property
exchange transaction other than a non-simultaneous, like-kind exchange under
Section 1031 of the Code. If the proposed transaction is not consummated within
six (6) months after receipt of the notice by the other Parties, the Working
Interest shall again be governed by this Section 25.6 and the preferential right
shall again arise for the offered interest as herein described.

                  

                  
                    
                      
                      

                    

                    
                      46

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  ARTICLE
26

                  TERM

                  

                  26.1           Term.  This
Agreement shall remain in effect so long any Lease or part thereof within the
Contract Area remains in force and effect and thereafter until: (a) all wells
within the Contract Area have been abandoned and plugged or turned over to a
single Working Interest owner in accordance with Article 14; (b) all 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
"D".  Termination of this Agreement shall not relieve a Party of any
liability or obligation which accrued or was incurred before such
termination.

                  

                  ARTICLE
27

                  MISCELLANEOUS
PROVISIONS

                  

                  27.1         
Headings.  Except
for the headings contained in Article 2 (Definitions), the headings and table of
contents used herein are inserted for convenience only and shall be disregarded
in construing this Agreement.

                   

                  27.2         
Waiver.  Failure
to act upon a breach of any provision of this Agreement does not waive a Party's
right to enforce a subsequent breach of the same or any other
provision.

                  

                  ARTICLE
28

                  EXECUTION

                  

                  28.1           Counterpart
Execution.  This Agreement may be executed by signing the
original or a counterpart thereof.  If this Agreement is executed in
counterparts, all counterparts taken together shall have the same effect as if
all the Parties had signed the same instrument.

                   

                  28.2           Amendments.  No
amendments hereof shall be effective unless they are in writing and executed by
the relevant Parties.

                  

                  
                    
                      
                      

                    

                    
                      47

                      
                        

                      

                    

                    
                      
                      

                    

                  

                

              

              IN
WITNESS WHEREOF, this Agreement has been executed by the Parties on the date
shown below, but effective as of the day and year first above
written.

              
                	 
      	 
      
	
                        WITNESSES:

                      	 
      
	 
      	 
      
	 
      	
                        OPERATOR:

                      
	 
      	 
      
	 
      	
                        Ridgelake
      Energy, Inc.

                      
	
                        _______________________________

                      	 
      
	 
      	 
      
	 
      	
                        By:_________________________________

                      
	
                        _______________________________

                      	
                         William
      M. Hines

                      
	 
      	
                         Vice
      President

                      
	 
      	
                        Date:
      September 26, 2006

                      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	
                        WITNESSES:

                      	 
      
	 
      	
                        NON-OPERATORS:

                      
	 
      	 
      
	 
      	
                        GulfX,
      LLC

                      
	
                        _______________________________

                      	 
      
	 
      	 
      
	 
      	
                        By:_________________________________

                      
	
                        _______________________________

                      	
                        Name: Paul
      Garner

                      
	 
      	
                        Title: Vice
      President

                      
	 
      	
                        Date: Oct 6,
      2006

                      
	 
      	 
      
	 
      	 
      
	 
      	
                        South
      Marsh, LLC

                      
	
                        _______________________________

                      	 
      
	 
      	 
      
	 
      	
                        By:_________________________________

                      
	
                        _______________________________

                      	
                        Name: Paul
      Garner

                      
	 
      	
                        Title: Vice
      President

                      
	 
      	
                        Date: Oct 6,
      2006

                      
	 
      	 
      
	 
      	 
      
	 
      	
                        Lion
      Energy Limited, LLC

                      
	
                        _______________________________

                      	 
      
	 
      	 
      
	 
      	
                        By:_________________________________

                      
	
                        _______________________________

                      	
                        Name: Russell
      Brimage

                      
	 
      	
                        Title:
      President

                      
	 
      	
                        Date: Oct 6,
      2006

                      

              

              

              

              
                
                  
                  

                

                
                  48

                  
                    

                  

                

                
                  
                  

                

              

               

              
                EXHIBIT
"A"

                

                Attached
to and made a part of that certain Operating Agreement,

                dated
effective the 18th day
of  September, 2006,

                by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited, LLC.

                

                

                
                  	
                          I.

                        	
                          Description of
      Lease(s):

                        

                

                

                That
certain Lease dated effective June 1, 2005, by and between the United States of
America (“Lessor”) and Ridgelake Energy, Inc. (“Lessee”), designated by the
Minerals Management Service as OCS-G 27089, and covering 5,000 acres of
submerged lands within the Outer Continental Shelf, described as
follows:

                

                “All of Block 138, South Marsh Island
Area, South Addition, OCS Leasing Map, Louisiana Map No. 3C”

                

                
                  	
                          II.

                        	
                          Contract
      Area:

                        

                

                

                The
Contract Area shall cover all of the acreage covered by OCS-G
27089.

                

                
                  	
                          III.

                        	
                          Interest of
      Parties:

                        

                

                

                
                  	
                          Party:

                        	 	
                          Interest:

                        	 
	 
      	 	 	 
	
                          RIDGELAKE
      ENERGY, INC. (“OPERATOR”)

                        	 	 	*50.00	%
	
                          GULFX,
      LLC

                        	 	 	**12.50	%
	
                          SOUTH
      MARSH LLC

                        	 	 	** 7.50	%
	
                          LION
      ENERGY LIMITED LLC

                        	 	 	**30.00	%
	 
      	 	 	100.00	%

                

                 

                 

                * (NOTE:
It is recognized that, pursuant to the terms of that certain Seismic Acquisition
and Exploration Agreement dated effective September 7, 2004, by and between
Ridgelake Energy, Inc. and Beacon Exploration and Production Company, L.L.C.,
Beacon has the right to participate for up to a 10% working interest in OCS-G
27091. Should Beacon or its designee be determined to have properly elected to
acquire a working interest in OCS-G 27089, then it is understood that such
interest will be conveyed by Ridgelake to Beacon or its designee. Furthermore,
it is agreed that the conveyance by Ridgelake to Beacon or its designee under
the terms of the aforesaid Seismic Acquisition and Exploration Agreement shall
not be subject to the terms of this agreement until such time as Beacon or it
designee has ratified and/or otherwise accepted the terms of this Operating
Agreement. In particular, the Parties herein specifically understand and agree
that the aforesaid conveyance by Ridgelake to Beacon ir its designee is not
subject to the terms of Article 25.3 and 25.6 of this Operating
Agreement.)

                

                ** (NOTE:
It is recognized and understood that the respective interests credited to GulfX,
LLC, South Marsh LLC and Lion Energy Limited LLC are subject to the terms and
conditions of the following Participation Agreements: 1) that certain Agreement
dated January 18, 2006, by and between Ridgelake and GulfX, LLC,
(2)  that certain Agreement dated September 18, 2006, by and between
Ridgelake and South Marsh LLC, and (3) that certain Agreement dated September
18,2006, by and between Ridgelake and Lion Energy Limited LLC. As such, the
interest, which is conditioned upon the performance by GulfX, South Marsh and
Lion of all of the terms and conditions contained in the aforesaid Participation
Agreements. Should the said parties fail to earn an interest in OCS-G 27089
under the terms of the Participation Agreement that is applicable to that
party’s conditional interest, then it is recognized that the interest credited
to that party shall revert to Ridgelake. Furthermore, it is understood and
agreed that if there is a conflict between the terms and conditions of the
Participation Agreements referenced herein and this Operating Agreement, then
the terms of the applicable

                Participation
Agreement shall apply and take precedence over the terms and conditions
contained in this Operating Agreement.)

                 

                 

                
                  
                    
                    

                  

                  
                    A-1

                    
                      

                    

                  

                  
                    
                    

                  

                

                

                
                  	
                          IV.

                        	
                          Designated
      Representatives:

                        

                

                

                
                  	
                          RIDGELAKE
      ENERGY, INC.

                        	
                          GULFX,
      LLC

                        
	
                          3636
      N. Causeway Boulevard, Suite 300

                        	
                          45
      Ventnor Avenue

                        
	
                          Metairie,
      Louisiana 70002-7216

                        	
                          West
      Perth 6005

                        
	
                          Attention:  Mr. John Rubin

                        	
                          Western
      Australia, Australia

                        
	 
      	
                          Attention:
      ______________

                        
	 
      	 
      
	
                          SOUTH
      MARSH LLC

                        	
                          LION
      ENERGY LIMITED LLC

                        
	
                          P.O.
      Box 512

                        	
                          P.O.
      Box 512

                        
	
                          West
      Perth Business Center 6872

                        	
                          West
      Perth Business Center 6872

                        
	
                          Western
      Australia, Australia

                        	
                          Western
      Australia, Australia

                        
	
                          Attention:
      _________________

                        	
                          Attention:
      _________________

                        

                

                

                

                
                  	
                          V.

                        	
                          Permitted
      Encumbrance:

                        

                

                

                In
addition to Lessor’s royalty, OCS-G 27089 is burdened with a 3.33333% of 8/8ths
Overriding Royalty Interest, which has been granted by Ridgelake Energy, Inc. to
Beacon Exploration and Production Company, L.L.C., pursuant the terms of that
certain letter agreement dated September 7, 2004, by and between Ridgelake and
Beacon Exploration and Production Company L.L.C. The aforesaid burdens are
Permitted Encumbrances under the terms of this Operating Agreement.

                 

                 

                 

                
                  
                    
                    

                  

                  
                    A-2

                    
                      

                    

                  

                  
                    
                    
EXHIBIT
“B”

                

                INSURANCE

                

                Attached
to and made a part of that certain Operating Agreement,

                dated
effective the 18th day of
September, 2006,

                by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

                

                INSURANCE
PROVISIONS

                

                1           Operator shall carry the
following insurance for the joint account:

                

                
                   
a.  Workmen's
Compensation and Employer's Liability Insurance covering employees of Operator
engaged in operations hereunder in compliance with all applicable State and
Federal Laws. The Workmen's Compensation policy shall have attached the
"Longshoreman's Harbor Worker's Compensation Act (Federal) Endorsement" and
"Outer Continental Shelf Lands Endorsement".

                

                

                
                   
b.  
Contingent
Maritime Employer's Liability Insurance shall provide for a limit of liability
of not less than $1,000,000 per accident.

                

                

                
                  	
                           
      

                        	
                          2.

                        	
                          Each
      Party shall carry the insurance noted below with the minimum limits as set
      out:

                        

                

                

                
                   
a.  
General
Liability and Property Damage Insurance endorsed to include offshore operations
and non-owned watercraft liability, covering operations conducted hereunder with
a combined single limit each occurrence of $1,000,000 for bodily injury and
property damage.

                

                

                
                   
b. 
Commercial
Automobile Liability Insurance covering owned, non-owned and hired automobiles
with a combined single limit of $1,000,000 per occurrence and Property Damage
Insurance covering operations conducted hereunder with a combined single limit
each occurrence of $500,000 for bodily injury and property
damage.

                

                

                
                   
c.  
Excess
Liability Insurance, including sudden and accidental pollution liability, with a
limit of $35,000,000.00.

                

                

                
                   
d. 
Non-Owned Aircraft Liability Insurance with a limit of $5,000,000 each
occurrence.

                

                

                
                   
e.  
Insurance
for Control of Well, Redrilling and Restoration due to blowout and/or cratering
above or below surface, and Seepage and Pollution Liability coverage including
cleanup and containment with a minimum limit of $25,000,000 per occurrence.
Coverage shall also include Care Custody and Control Insurance with a minimum
limit of $500,000 per occurrence.

                

                

                
                  	
                          3.

                        	
                          Any
      Party hereto may acquire such additional insurance as it deems proper to
      protect itself against any claims, losses, damages or destruction arising
      out of operations hereunder.

                        

                

                

                
                  	
                          4.

                        	
                          Operator
      shall use reasonable efforts to require all contractors and subcontractors
      working or performing services hereunder to comply with the Workmen's
      Compensation and Employer's Liability Laws, both State and Federal, and to
      carry Comprehensive General Liability and such other insurance as Operator
      deems necessary.

                        

                

                

                In the
event that construction operations are performed, Operator shall determine the
amount(s) of Builder’s Risks Insurance appropriate for the project and shall:
(i) cause the pertinent contractor(s) and, as applicable, subcontractor(s) to
carry, in the aggregate and as Operator deems appropriate, such coverage and/or
(ii) carry for the joint account (and charge it accordingly) for such portion
of, of all, the coverage as operator deems appropriate.  In any such
event, Operator shall cause certificates of insurance reflective of such
coverage to be forwarded to the Non-Operator(s).

                 

                 

                
                  
                    
                    

                  

                  
                    B-1

                    
                      

                    

                  

                  
                    
                    

                  

                

                EXHIBIT
“C”

                

                Attached
to and made a part of that certain Operating Agreement,

                dated the
18th
day of September, 2006,

                by and between Ridgelake Energy, Inc.,
GulfX, LLC, South Marsh LLC and Lion Energy Limited LLC.

                

                ACCOUNTING
PROCEDURE

                OFFSHORE
JOINT OPERATIONS

                

                

                I.
GENERAL PROVISIONS

                

                
                  	
                           
      

                        	
                          1.

                        	
                          Definitions

                        

                

                

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

                

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

                

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

                

                “Operator”
shall mean the party designated to conduct the Joint Operations.

                

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

                

                “Parties"
shall mean Operator and Non-Operators.

                

                “First
Level Supervisors” shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or contract labor
directly employed on the Joint Property in a field operating
capacity.  The First Level Supervisor shall not be required to be
located on the Joint Property, but shall be located at a field location near the
Joint Property.

                

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

                

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

                

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

                

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

                

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

                

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

                

                2.         Statements and
Billings

                

                
                  	
                           
      

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

                        

                

                

                

                
                  
                    
                    

                  

                  
                    C-1

                    
                      

                    

                  

                  
                    
                    

                  

                

                

                3.         Advances and Payments by
Non-Operators

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                           
      

                        	
                          B.

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

                        

                

                

                
                  	
                          4.

                        	
                          Adjustments

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          5.

                        	
                          Audits

                        

                

                

                
                  	
                           
      

                        	
                          A.

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

                        

                

                

                
                  	
                           
      

                        	
                          B.

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

                        

                

                

                
                  	
                          6.

                        	
                          Approval
      by Non-Operators

                        

                

                

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

                

                II.
DIRECT CHARGES

                

                Operator
shall charge the Joint Account with the following items:

                

                
                  	
                          1.

                        	
                          Rentals
      and Royalties

                        

                

                

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

                

                
                  	
                          2.

                        	
                          Labor

                        

                

                

                
                  	
                           
      

                        	
                          A.

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

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                        	
                           

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

                        

                

                

                
                  	
                           

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

                        

                

                

                
                  	
                           
      

                        	
                           

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

                        

                

                 

                
 

                
                  
                    
                    

                  

                  
                    C-2

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                           
      

                        	
                          B.

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

                        

                

                

                
                  	
                        	
                          C.

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

                        

                

                

                
                  	
                        	
                          D.

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

                        

                

                

                
                  	
                          3.

                        	
                          Employee
      Benefits

                        

                

                

                Operator's
current costs of established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus, and other
benefit plans of a like nature, applicable to Operator's labor cost chargeable
to the Joint Account under Paragraphs 2A and 2B of this Section II shall be
Operator's actual cost not to exceed the percent most recently recommended by
the Council of Petroleum Accountants Societies.

                

                
                  	
                          4.

                        	
                          Material

                        

                

                

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

                

                
                  	
                           
      

                        	
                          5.

                        	
                          Transportation

                        

                

                

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

                

                
                  	
                           
      

                        	
                          A.

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

                        

                

                

                
                  	
                           
      

                        	
                          B.

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

                        

                

                

                
                  	
                           
      

                        	
                          C.

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

                        

                

                

                
                  	
                          6.

                        	
                          Services

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          7.

                        	
                          Equipment
      and Facilities Furnished by
Operator

                        

                

                

                
                  	
                           
      

                        	
                          A.

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

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          8.

                        	
                          Damages
      and Losses to Joint Property

                        

                

                

                
                  	
                           
      

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

                        

                

                 

                 

                
 

                
                  
                    
                    

                  

                  
                    C-3

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                          9.

                        	
                          Legal
      Expense

                        

                

                

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

                

                
                  	
                          10.

                        	
                          Taxes

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          11.

                        	
                          Insurance

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          12.

                        	
                          Communications

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          13.

                        	
                          Ecological
      and Environmental

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          14.

                        	
                          Abandonment
      and Reclamation

                        

                

                

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

                

                
                  	
                          15.

                        	
                          Other
      Expenditures

                        

                

                

                
                  	
                           
      

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

                        

                

                

                III.  OVERHEAD

                

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

                

                Unless
otherwise agreed to by the Parties, such charge shall be in lieu of costs and
expenses of all offices and salaries or wages plus applicable burdens and
expenses of all personnel, except those directly chargeable under Section
II.  The cost and expense of services from outside sources in
connection with matters of taxation, traffic, accounting or matters before or
involving governmental agencies, except as herein described, shall be considered
as included in the overhead rates provided for in this Section III unless such
cost and expense are agreed to by the Parties as a direct charge to the Joint
Account. Notwithstanding anything
herein contained to the contrary, it is agreed that such costs and services
when directly employed on
the Joint Property shall not be covered by the overhead rates. Furthermore, the
reasonable and customary fees and expenses incurred by contract personnel and
professional consultants as such fees relate to matters before or involving
governmental agencies (including but not limited to the Minerals Management
Service and other regulatory agencies) , even if such contract or professional
consultants are working in Operator’s office, shall be directly chargeable to
the Joint Account, to the extent that such fees and expenses are associated with
the operation of the Joint Property.

                 

                
 

                
                  
                    
                    

                  

                  
                    C-4

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                           
      

                        	
                          i.

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

                        

                

                

                
                  	
                           
      

                        	
                          (     )
      shall be covered by the overhead
rates.

                        

                

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

                        

                

                

                
                  	
                           
      

                        	
                          ii.

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

                        

                

                

                
                  	
                           
      

                        	
                          (  x  )
      shall be covered by the overhead rates.

                        
	 	(      )
      shall not be covered by the overhead
rates.

                

                
                

                

                
                  	
                           
      

                        	
                          1.

                        	
                          Overhead
      - Drilling and Producing Operations

                        

                

                

                
                  	
                           
      

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

                        

                

                 

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

                

                
 

                
                  	
                          A.

                        	
                          Overhead
      - Fixed Rate Basis

                        

                

                

                
                  	
                           
      

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

                        

                

                
                  	
                           
      

                        	
                                         Drilling
      Well Rate $30,000.  (Prorated for
      less than a full month)

                        

                

                
                  	
                           
      

                        	
                                         Producing
      Well Rate $3,000.

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                           
      

                        	
                          (a)

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

                        

                

                

                
                  	
                           
      

                        	
                          (b)

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

                        

                

                

                
                  	
                           
      

                        	
                          (3)

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

                        

                

                

                
                  	
                           
      

                        	
                          (a)

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

                        

                

                

                
                  	
                           
      

                        	
                          (b)

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

                        

                

                

                
                  	
                        	
                          (c)

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

                        

                

                

                
                  	
                           
      

                        	
                          (d)

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

                        

                

                

                
                  	
                        	
                          (e) 

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

                        

                

                 

                 

                
 

                
                  
                    
                    

                  

                  
                    C-5

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                           
      

                        	
                          B.  
      Overhead - Percentage Basis

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                           
      

                        	
                          (a)
      Development

                        

                

                
                  	 	
                          __________________ Percent
      (___%) of cost of Development of the Joint Property exclusive of
      costs provided under Paragraph 9 of Section II and all salvage
      credits.

                        

                

                

                

                
                  	
                        	
                           
      

                        	
                          (b)
      Operating

                        

                

                
                  	
                        	 	
                          ______________________ Percent
      (___%) of the cost of Operating the
Joint

                        

                

                

                
                  	
                           
      

                        	
                          Property
      exclusive of costs provided under Paragraphs 1 and 9 of Section II, all
      salvage credits, the value of injected substances purchased for secondary
      recovery and all taxes and assessments which are levied, assessed and paid
      upon the mineral interest in and to the Joint
  Property.

                        

                

                

                
                  	
                           
      

                        	
                          (2)

                        	
                          Application
      of Overhead - Percentage Basis shall be as
      follows:

                        

                

                

                For the
purpose of determining charges on a percentage basis under Paragraph 1B of this
Section III, development shall include all costs in connection with drilling,
redrilling, deepening, or any project with a primary purpose to extend or expand
a wellbore in order to recover new reserves not previously recoverable by the
wellbore; also,
preliminary expenditures necessary in preparation for drilling and expenditures
incurred in abandoning when the well is not completed as a producer, and
original cost of construction or installation of fixed assets, the expansion of
fixed assets and any other project clearly discernible as a fixed asset, except
Major Construction as defined in Paragraph 2 of this Section III.  All
other costs shall be considered as Operating except that catastrophe costs shall
be assessed overhead as provided in Section III, Paragraph 3.

                

                
                  	
                          2.

                        	
                          Overhead
      - Major Construction

                        

                

                

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

                

                (1) 6%  of
total costs if such costs are more than $25,000
but less than $100,000; plus

                

                
                  	
                           
      

                        	
                          (2)
       4

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

                        

                

                

                
                  	
                           
      

                        	
                          (3)
       2

                        	
                          %  of
      total costs in excess of
$1,000,000.

                        

                

                

                
                  	
                           
      

                        	
                          B.

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

                        

                

                

                (1) 4%  of
total costs if such costs are more than $
25,000 but less than $100,000; plus

                

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

                

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

                

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

                

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

                 

                
                  
                    
                    

                  

                  
                    C-6

                    
                      

                    

                  

                  
                    
                    

                  

                

                
 

                
                  	
                           
      

                        	
                          3.

                        	
                          Overhead
      - Catastrophe

                        

                

                

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

                

                
                  (1) 4%  of
total costs through $100,000; plus

                

                

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

                

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

                

                

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

                

                
                  	
                          4.

                        	
                          Amendment
      of Rates

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          *IV.

                        	
                          PRICING
      OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
      DISPOSITIONS

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                           
      

                        	
                          * Operator shall account
      for material purchase and transfers in accordance with
      COPAS    Interpretation 23, attached hereto, or the
      pricing procedur5e most recently recommended by
  COPAS.

                        

                

                
                  	
                          1.

                        	
                          Purchases

                        

                

                

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

                

                
                  	
                          2.

                        	
                          Transfers
      and Dispositions

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          A.

                        	
                          New
      Material (Condition A)

                        

                

                

                
                  	
                           
      

                        	
                          (1)

                        	
                          Tubular
      Goods Other than Line Pipe

                        

                

                

                
                  	
                           
      

                        	
                          (a)

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

                        

                

                

                
                  	
                           
      

                        	
                          (b)

                        	
                          For
      grades which are special to one mill only, prices shall be computed at the
      mill base of that mill plus transportation cost from that mill to the
      railway receiving point nearest the Joint Property as provided above in
      Paragraph 2.A.(1)(a).  For transportation cost from points other
      than Eastern mills, the 30,000 pound Oil Field Haulers Association
      interstate truck rate shall be
used.

                        

                

                

                
                  	
                           
      

                        	
                          (c)

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

                        

                

                

                
                  	
                           
      

                        	
                          (d)

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

                        

                

                 

                 

                
 

                
                  
                    
                    

                  

                  
                    C-7

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                           
      

                        	
                          (2)

                        	
                          Line
      Pipe

                        

                

                

                
                  	
                           
      

                        	
                          (a)

                        	
                          Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      Over) 30,000 pounds or more shall be priced under provisions of tubular
      goods pricing in Paragraph A.(1 )(a) as provided above. Freight charges
      shall be calculated from Lorain,
Ohio.

                        

                

                

                
                  	 	
                          (b)

                        	
                          Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      over) less than 30,000 pounds shall be priced at Eastern mill published
      carload base prices effective as of date of shipment, plus 20 percent,
      plus transportation costs based on freight rates as set forth under
      provisions of tubular goods pricing in Paragraph A.(1)(a) as provided
      above. Freight charges shall be calculated from Lorain,
    Ohio.

                        

                

                

                
                  	
                           
      

                        	
                          (c)

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

                        

                

                

                
                  	
                           
      

                        	
                          (d)

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

                        

                

                

                
                  	
                           
      

                        	
                           (3)

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

                        

                

                

                
                  	
                           
      

                        	
                          (4)

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

                        

                

                

                
                  	
                           
      

                        	
                          B.

                        	
                          Good
      Used Material (Condition B)

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                           
      

                        	
                          (1)

                        	
                          Material
      moved to the Joint Property

                        

                

                
                  	
                        	
                           
      

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

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                           
      

                        	
                          (a)

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

                        

                

                

                
                  	
                           
      

                        	
                          (b)

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

                        

                

                

                
                  	
                           
      

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

                        

                

                

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

                
                  	
                        	
                           
      

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

                        

                

                

                

                
                  	
                           
      

                        	
                          C.

                        	
                          Other
      Used Material

                        

                

                

                
                  	
                           
      

                        	
                          (1)

                        	
                          Condition
      C

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                           
      

                        	
                          (2)

                        	
                          Condition
      D

                        

                

                

                
                  	
                           
      

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

                        

                

                 

                 

                
 

                
                  
                    
                    

                  

                  
                    C-8

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                           
      

                        	
                          (a)

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

                        

                

                

                
                  	
                           
      

                        	
                          (b)

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

                        

                

                

                
                  	
                           
      

                        	
                          (3)  
      Condition E

                        

                

                

                
                  	
                           
      

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

                        

                

                

                    D.          Obsolete
Material

                

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

                

                    E.      Pricing
Conditions

                

                
                  	
                           
      

                        	
                          (1)

                        	
                          Loading
      or unloading costs may be charged to the Joint Account at the rate
      of  twenty-five cents ($0.25) per hundred weight on all tubular
      goods movements, in lieu of actual loading or unloading costs sustained at
      the stocking point.  The above rate shall be adjusted as of the
      first day of April each year following January 1, 1985 by the same
      percentage increase or decrease used to adjust overhead rates in Section
      III, Paragraph 1.A(4). Each year, the rate calculated shall be rounded to
      the nearest cent and shall be the rate in effect until the first day of
      April next year.  Such rate shall be published each year by the
      Council of Petroleum Accountants
Societies.

                        

                

                

                
                  	
                           
      

                        	
                          (2)

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

                        

                

                

                
                  	
                          3.

                        	
                          Premium
      Prices

                        

                

                

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

                

                
                  	
                          4.

                        	
                          Warranty
      of Material Furnished By Operator

                        

                

                

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

                

                V.
INVENTORIES

                

                The Operator shall maintain detailed
records of Controllable Material.

                

                
                  	
                          1.

                        	
                          Periodic
      Inventories, Notice and
Representation

                        

                

                

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

                

                2.           Reconciliation
and Adjustment of Inventories

                

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

                 

                 

                
 

                
                  
                    
                    

                  

                  
                    C-9

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                          3.

                        	
                          Special
      Inventories

                        

                

                

                
                  	
                           
      

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

                        

                

                

                
                  	
                          4.

                        	
                          Expense
      of Conducting Inventories

                        

                

                

                
                  	
                        	
                          A.

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

                        

                

                

                
                  	
                           
      

                        	
                          B.

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

                        

                

                

                

                
                  
                    
                    

                  

                  
                    C-10

                    
                      

                    

                  

                  
                    
                    

                  

                

                

                

                EXHIBIT
"D"

                GAS
BALANCING AGREEMENT (“Agreement”)

                

                Attached
to and made a part of that certain Operating Agreement,

                dated
effective the 18th day of
September, 2006,

                by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

                

                

                

                

                

                

                

                

                

                

                

                

                

                

                

                
                  
                    
                    

                  

                  
                    D-1

                    
                      

                    

                  

                  
                    
                    

                  

                

                

                EXHIBIT
“E”

                

                

                Attached
to and made part of that certain Operating Agreement,

                Dated
effective the 18th day of
September, 2006,

                by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

                

                MEMORANDUM
OF OPERATING AGREEMENT

                AND

                FINANCING
STATEMENT

                

                This
Memorandum of Operating Agreement and Financing Statement is executed to be
effective concurrently with that certain Operating Agreement (the “Operating
Agreement”) by and between Ridgelake Energy Inc., as Operator,
and                                                                ,
as Non-Operator(s), covering, among other things, the development and production
of crude oil, natural gas and associated substances from the lands and leases
(hereinafter called the “Contract Area”) described on Exhibit A attached
hereto and owned by Operator and Non-Operator(s) in the respective percentages
of shares indicated on
Exhibit A. The attached Exhibit A consists of
one or more of the Exhibits A to the
Operating Agreement and refers severally to all Exhibits A attached
hereto.

                

                The
Operating Agreement contains an Accounting Procedure, along with provisions
giving the parties hereto mutual liens and security interests where one or more
parties hereto are or may become Debtors to one or more other parties hereto.
This Memorandum of Operating Agreement and Financing Statement incorporates by
reference all of the terms and conditions of the Operating Agreement, including
but not limited to the lien and security interest provisions.

                

                The
purpose of this Memorandum of Operating Agreement and Financial Statement is to
place third parties on notice of the Operating Agreement and to secure and
perfect the mutual liens and security interests of the parties
hereto.

                

                The
Operating Agreement specifically provides and the parties do hereby confirm and
agree that:

                

                
                  	
                           
      

                        	
                          1.

                        	
                          The
      Operator shall conduct and direct and have full control of all operations
      on the Contract Area as permitted and required by, and within the limits
      of, the Operating Agreement.

                        

                

                

                
                  	
                           
      

                        	
                          2.

                        	
                          The
      Liability of the parties under the Operating Agreement shall be several,
      not joint or collective. Each party shall be responsible only for its
      obligations and shall be liable only for its proportionate share of
      costs.

                        

                

                

                
                  	
                           
      

                        	
                          3.

                        	
                          Each
      Non-Operator grants the Operator a lien upon its oil and gas rights, oil
      and gas leases and mineral interests in the Contract Area, and a security
      interest in its share of oil and/or gas when extracted and its interest in
      all fixtures, inventory, personal property and equipment located on or
      used on the Contract Area and in all its contract rights and receivables
      related thereto and arising therefrom to secure payment of its present and
      future share of costs and expenses, together with interest thereon at the
      rate provided in the Accounting Procedure referred to above, To the extent
      that Operator has security interest under the Uniform Commercial Code (the
      “Code”) of the state or the states in which the Contract Area is located,
      Operator without prejudice and in addition to all other legal, equitable
      and contractual remedies which are expressly reserved, shall be entitled
      to exercise the rights and remedies of a secured party under the Code. The
      bringing of a suit and the obtaining of judgment by Operator for the
      secured indebtedness shall not be deemed an election of remedies or
      otherwise affect the rights or security interests fir the payment
      thereof.

                        

                

                

                
                  	
                           
      

                        	
                          4.

                        	
                          If
      any Non-Operator fails to pay its share of costs and expenses when due,
      Operator may require other Non-Operators to pay their proportionate part
      of the unpaid share whereupon the other Non-Operators shall be subrogated
      to Operator’s Lien and Security Interest described
  herein.

                        

                

                

                
                  	
                           
      

                        	
                          5.

                        	
                          The
      Operator grants the Non-Operator(s) a lien and security interest
      equivalent to that granted to Operator as described in paragraph 3 above,
      to secure payment by the Operator of its won share of costs and expenses
      when due.

                        

                

                

                As
reflected above, either or both Operator and Non-Operator(s) may become Debtors
if they default in their payment obligations under the terms of the Operating
Agreement. On default, the non-defaulting party(ies) will be considered secured
party(ies).

                

                The
Operating Agreement contains other provisions which do not conflict but
supplement the above-described provisions, including non-consent provisions
which provide that parties who elect not to participate in certain operations
shall be deemed to have relinquished their interest until the consenting parties
are able to recover their costs of such operations plus a specified amount.
Should any person or firm desire additional information regarding the Operating
Agreement or wish to inspect a copy of the Operating Agreement, said person or
firm should contact the Operator.

                

                For
purposes of protecting said liens and security interest, the undersigned parties
agree that this Memorandum of Operating Agreement and Financing Statement covers
all right, title and interest of the Debtor(s) in:

                

                
                  
                    
                    

                  

                  
                    E-1

                    
                      

                    

                  

                  
                    
                    

                  

                

                Property Subject to Security
Interests:

                

                
                  	
                           
      

                        	
                          1.

                        	
                          All
      personal property located upon or used in connection with the Contract
      Area.

                        

                

                

                
                  	
                           
      

                        	
                          2.

                        	
                          All
      fixtures on the Contract Area.

                        

                

                

                
                  	
                           
      

                        	
                          3.

                        	
                          All
      oil, gas and associated substances of value in, on or under the Contract
      Area, or which may be extracted
therefrom.

                        

                

                

                
                  	
                           
      

                        	
                          4.

                        	
                          All
      accounts and receivables resulting from the sale of the items described in
      subparagraph 3 at the wellhead of every well located on the Contract Area
      or on lands pooled therewith.

                        

                

                

                
                  	
                           
      

                        	
                          5.

                        	
                          All
      items used, useful, or purchased for the production, treatment, handling,
      storage, transportation, processing, manufacture, or sale of the items
      described in subparagraph 3.

                        

                

                

                
                  	
                           
      

                        	
                          6.

                        	
                          All
      accounts, contract rights, rights under any gas balancing agreement,
      general intangibles, equipment, inventory, farmout rights, option farmout
      rights, acreage and/or cash contributions, and conversion rights, whether
      now owned or existing or hereafter acquired or arising, including but not
      limited to all interest in any enterprise that holds, owns, or controls
      any interest in the Contract Area or in any property encumbered by the
      Memorandum.

                        

                

                

                
                  	
                           
      

                        	
                          7.

                        	
                          All
      severed and extracted oil, gas and associated substances now or hereafter
      produced from or attributable to the Contract Area, including without
      limitation, oil, gas and associated substances in tanks or pipelines or
      otherwise held by any person or entity fro treatment, storage,
      transportation, manufacture, processing or
sale.

                        

                

                

                
                  	
                           
      

                        	
                          8.

                        	
                          All
      the proceeds and products of the items described in the foregoing
      paragraphs now existing or hereafter arising, and all substitutions
      therefore, improvements and enhancements thereto, replacements thereof, or
      accessions thereto.

                        

                

                

                
                  	
                           
      

                        	
                          9.

                        	
                          All
      personal property and fixtures now and hereafter acquired in furtherance
      of the purposes of this Operating Agreement. Certain of the
      above-described items are, or are to become, fixtures on the Contract
      Area.

                        

                

                

                
                  	
                           
      

                        	
                          10.

                        	
                          The
      proceeds and products of collateral are also specifically
      covered.

                        

                

                

                Property Subject to
Liens:

                

                
                  	
                           
      

                        	
                          1.

                        	
                          All
      real property, oil, gas and mineral leases, severed and unsevered surface
      fees, mineral fees and interest, royalty interests, overriding royalty
      interests, production payments, net profit interests, and other oil and
      gas interests of any nature, including reversionary interests, all as may
      be located within the Contract Area, including all oil, gas and associated
      substances of value in, on or under the Contract Area, or which may be
      extracted therefrom.

                        

                

                

                
                  	
                           
      

                        	
                          2.

                        	
                          All
      fixtures within the Contact Area.

                        

                

                

                
                  	
                           
      

                        	
                          3.

                        	
                          All
      real property and fixtures now and hereafter acquired in furtherance of
      the purposes of this Operating
Agreement.

                        

                

                

                The above
items will be financed at the wellhead of the well or the wells located in the
Contract Area, and this Memorandum is to be filed for record in the real estate
records of the county(ies) or parish(es) and in the Uniform Commercial Code
records in which the Contract Area is located.

                

                On
default of any covenant or condition of the Operating Agreement, in addition to
any other remedy affected by law, each party to the Operating Agreement and any
successor to such part by assignment, operation of law, or otherwise, shall
have, and is hereby given and vested with, the power and authority to take
possession of and sell any interest which the defaulting party has in the
property identified above securing the obligations provided in the Operating
Agreement and to foreclose this lien and security interest in the manner
provided by law.

                

                Upon
expiration of the Operating Agreement and the satisfaction of all the debts and
the outstanding interest, the Operator shall file of record a release and
termination on behalf of all parties concerned. Upon the filing of such release
and termination, all benefits and obligations under this Memorandum shall
terminate as to all parties who have executed or ratified this Memorandum. In
addition, the Operator shall have the right to file a continuation statement on
behalf of all the parties that have executed or ratified this Memorandum when
Operator in its sole discretion deems such action appropriate.

                

                
                  
                    
                    

                  

                  
                    E-2

                    
                      

                    

                  

                  
                    
                    

                  

                

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

                

                This
Memorandum shall be binding upon and shall inure to the benefit of the parties
hereto and to their respective heirs, devisees, legal representatives,
successors and assigns.

                

                A party
having an interest in the Contract Area can ratify this Memorandum by execution
hereof or a separate counterpart hereof or by execution and delivery of an
instrument of ratification adopting the provisions of this Memorandum or
agreeing to be bound by the terms thereof. Any such ratification shall have the
same effect as if the ratifying party had executed this Memorandum or a
counterpart thereof. By execution or ratification of this Memorandum, such party
hereby consents to its ratification and adoption by any party who may have or
may acquire any interest in the Contract Area.

                

                This
Memorandum may be executed or ratified in one or more counterparts and all of
the executed or ratified counterparts shall together constitute one instrument.
For purpose of recording, only one copy of this Memorandum with individual
signature pages attached thereto needs to be filed of record.

                

                Executed
this ___________ day of ____________________, ____.

                

                
                  	 
      	 
      
	
                          OPERATOR:

                        	
                          Ridgelake
      Energy, Inc.

                        
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
                          By:
      _______________________________________

                        
	 
      	 
      
	 
      	
                          Printed
      Name: _______________________

                        
	 
      	 
      
	 
      	
                          Title:
      _______________________________

                        
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	
                          NON_OPERATOR:

                        	
                          ___________________________________________

                        
	 
      	 
      
	 
      	 
      
	 
      	
                          By:
      _______________________________________

                        
	 
      	 
      
	 
      	
                          Printed
      Name: _______________________

                        
	 
      	 
      
	 
      	
                          Title:
      _______________________________

                        

                

                

                

                
                  	
                          [Attach:

                        	
                          -Appropriate
      Acknowledgements

                        
	 
      	
                          -Exhibit
      A

                        
	 
      	
                          -Original
      For Recording]

                        

                

                 

                 

                
 

                
                  
                    
                    

                  

                  
                    E-3

                    
                      

                    

                  

                  
                    
                    

                  

                

                Exhibit A
attached to and made part of the Memorandum of Operating Agreement and Financing
Statement dated ___________________, _____ between Ridgelake Energy, Inc., as
Operator, and ___________________________, as Non-Operator, covering lands in
______________________.

                

                

                

                
                  	
                           
      

                        	
                          1.

                        	
                          Contract
      Area:

                        

                

                

                

                
                  	
                           
      

                        	
                          2.

                        	
                          Depth
      Limitations:

                        

                

                

                

                
                  	
                           
      

                        	
                          3.

                        	
                          Substances
      Covered:

                        

                

                

                

                
                  	
                           
      

                        	
                          4.

                        	
                          Interest
      of Parties:

                        

                

                

                

                
                  	
                           
      

                        	
                          5.

                        	
                          Oil
      and Gas leases Subject to this
Agreement:

                        

                

                

                

                
                  	
                           
      

                        	
                          6.

                        	
                          Addresses
      of Parties for Notice:

                        

                

                

                

                

                

                

                

                

                 

                 

                 

                 

                
                  
                    
                    

                  

                  
                    E-4

                    
                      

                    

                  

                  
                    
                    

                  

                

                EXHIBIT
“F”

                

                

                Attached
to and made part of that certain Operating Agreement,

                dated
effective the 18th day of
September, 2006,

                by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

                

                TAX
PARTNERSHIP PROVISIONS

                

                OF THE
_______________________________________________

                PARTNERSHIP

                (For Name
of Tax Reporting Partner and Special Elections, See Secs. 8 and 9)

                

                Table of
Contents

                
                  	
                          1.1

                        	
                          Designation
      Of Documents

                        	
                          1

                        
	
                          1.2

                        	
                          Relationship
      of the Parties

                        	
                          1

                        
	
                          1.3

                        	
                          Priority
      Of Provisions Of This Exhibit

                        	
                          1

                        
	
                          1.4

                        	
                          Survivorship

                        	
                          1

                        
	
                          2.2

                        	
                          IF
      SMALL PARTNERSHIP EXEPTION FOM TEFRA NOT APPLICABLE

                        	
                          2

                        
	
                          3.1

                        	
                          Tax
      Returns

                        	
                          2

                        
	
                          3.2

                        	
                          Fair
      Market Value Capital Accounts

                        	
                          2

                        
	
                          3.3

                        	
                          Information
      Requests

                        	
                          2

                        
	
                          3.4

                        	
                          Best
      Efforts without Liability

                        	
                          2

                        
	
                          4.1

                        	
                          General
      Elections

                        	
                          2

                        
	
                          4.2

                        	
                          Depletion

                        	
                          2

                        
	
                          4.3

                        	
                          Election
      Out Under Code §761(a)

                        	
                          3

                        
	
                          4.4

                        	
                          Consent
      Requirements For Subsequent Tax Or FMV Capital Account
      Elections

                        	
                          3

                        
	
                          5.1

                        	
                          Capital
      Contributions

                        	
                          3

                        
	
                          5.2

                        	
                          FMV
      Capital Accounts

                        	
                          3

                        
	
                          6.1

                        	
                          FMV
      Capital Accounts Allocations

                        	
                          3

                        
	
                          6.2

                        	
                          Tax
      Return and Tax Basis Capital Account Allocation

                        	
                          4

                        
	
                          7.1

                        	
                          Termination
      of the Partnership

                        	
                          4

                        
	
                          7.2

                        	
                          Balancing
      of FMV Capital Accounts

                        	
                          4

                        
	
                          7.3

                        	
                          Deemed
      Sale Gain/Loss Charge Back

                        	
                          4

                        
	
                          7.4

                        	
                          Deficit
      make-up Obligation and Balancing Cash Contributions

                        	
                          4

                        
	
                          7.5

                        	
                          Distribution
      to balance capital accounts

                        	
                          4

                        
	
                          7.6

                        	
                          FMV
      determination

                        	
                          4

                        
	
                          7.7

                        	
                          Final
      Distribution

                        	
                          4

                        
	
                          8.1

                        	
                          Transfer
      of Partnership Interests

                        	
                          5

                        
	
                          8.2

                        	
                          Correspondence

                        	
                          5

                        
	
                          9.1

                        	
                          Operator
      not the TRP

                        	
                          5

                        
	
                          9.2

                        	
                          Special
      Tax Elections

                        	
                          5

                        
	
                          9.3

                        	
                          Change
      of Majority for Other Tax Elections

                        	
                          5

                        

                

                

                __________________

                

                1.           General
Provisions

                1.1           Designation
Of Documents.

                This
exhibit is referred to in, and is part of, that Agreement identified above and,
if so provided, a part of any agreement to which the Agreement is an exhibit.
Such agreement(s) (including all exhibits thereto, other than this exhibit)
shall be hereafter referred to as the “Agreement” and this exhibit is
hereinafter referred to as the “Exhibit” or the “Tax Partnership Provisions”
(the “TPPs”). Except as may be otherwise provided in this Exhibit, terms defined
and used in the Agreement shall have the same meaning when used
herein.

                

                

                1.2           Relationship
of the Parties.

                The
parties to the Agreement shall be hereinafter referred to as “Party” or
“Parties”. The Parties understand and agree that the arrangement and
undertakings evidenced by the Agreement result in a partnership for purposes of
Federal income taxation and certain State income tax laws which incorporate or
follow Federal income tax principals as to tax partnerships. Such partnership
for tax purposes is hereinafter referred to as the “Partnership”. For every
other purpose of the Agreement the Parties understand and agree that their legal
relationship to each other under applicable State law with respect to all
property subject to the Agreement is one of tenants in common, or undivided
interest owners, or lessee(s) sublessee(s) and not a partnership; that the
liability of the Parties shall be several and not joint or collective; and that
each Party shall be responsible solely for its own obligations.

                

                1.3           Priority
Of Provisions Of This Exhibit.

                If there
is a conflict or inconsistency, whether direct or indirect, actual or apparent,
between the terms and the conditions of this Exhibit and the terms and
conditions of the Agreement, or any other exhibit or any part thereof, the terms
and conditions of this Exhibit shall govern and control.

                

                1.4
Survivorship.

                
                  	
                          1.4.1

                        	
                          Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the termination and
liquidation.

                        

                

                
                  	
                          1.4.2

                        	
                          Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the resolution of all matters regarding Federal and State
      income reporting.

                        

                

                
                  	
                          1.4.3

                        	
                          These
      TPPs shall inure to the benefit of, and be binding upon, the Parties
      hereto and their successors and
assigns.

                        

                

                
                  	
                          1.4.4

                        	
                          The
      effective date of the Agreement shall be the effective date of these TPPs.
      The Partnership shall continue in full force and effect from, and after
      such date, until termination and
liquidation.

                        

                

                 

                
 

                
                  
                    
                    

                  

                  
                    F-1

                    
                      

                    

                  

                  
                    
                    

                  

                

                2.           Tax
Reporting Partner and Tax Matters Partner

                

                2.1           Tax
Reporting Partner.

                The
Operator (or the Party listed in Sec. 9.1) as the Tax Reporting Partner (“TRP”)
is responsible for compliance with all tax reporting obligations of the
Partnership, see Sec. 3.1. below. In the event of any change in the TRP, the
Party serving as the TRP at the beginning of a given taxable year shall continue
as TRP with respect to all matters concerning such year.

                

                2.2           IF SMALL PARTNERSHIP EXCEPTION FROM
TEFRA NOT APPLICABLE

                If the
Partnership does not qualify for the “small partnership exception” from, or if
the Partnership elects (see infra Elections at
Sec. 4.1 and 9.2) to be subject to, §§6221 et seq., Subchapter C of Chapter 63
of Subtitle F (the “TEFRA rules”) of the Internal Revenue Code (the “Code”) the
TRP shall also be the Tax Matters Partner as defined in Code §6231(a) (the
“TMP”) and references to the TRP shall then include references to TMP and vice
versa.

                
                  	
                          2.2.1

                        	
                          The
      TMP shall not be required to incur any expenses for the preparation for,
      or pursuance of, administrative or judicial proceedings, unless the
      Parties agree on a method for sharing such
  expenses.

                        

                

                
                  	
                          2.2.2

                        	
                          The
      Parties shall furnish the TMP, within two weeks from the receipt of the
      request, the information the TMP may reasonably request to comply with the
      requirements on furnishing information to the Internal Revenue
      Service.

                        

                

                
                  	
                          2.2.3

                        	
                          The
      TMP shall not agree to any extension of the statute of limitations for
      making assessments on behalf of the Partnership without first obtaining
      the written consent of all Parties. The TMP shall not bind any other Party
      to a settlement agreement in tax audits without obtaining the written
      concurrence of any such Party.

                        

                

                
                  	
                          2.2.4

                        	
                          Any
      other Party who enters in a settlement agreement with the Secretary of the
      Treasury with respect to any partnership items, as defined in Code
      §6231(a)(3), shall notify the other Parties of the terms within ninety
      (90) days from the date of such
settlement.

                        

                

                
                  	
                          2.2.5

                        	
                          If
      any Party intends to file a notice of inconsistent treatment under Code
      §6222(b), such Party shall, prior to filing of such notice, notify the TMP
      of the (actual or potential) inconsistency of the Party’s intended
      treatment of a partnership item with the treatment of that item by the
      Partnership. Within one week of receipt the TMP shall remit copies of such
      notification to the other Parties. If an inconsistency notice is filed
      solely because a Party has not received a Schedule K-1 in time for filing
      of its income tax return, the TMP need not be
  notified.

                        

                

                
                  	
                          2.2.6

                        	
                          No
      Party shall file pursuant to Code §6227 a request for an administrative
      adjustment of partnership items (the “RFAA”) without first notifying all
      other Parties. If all other Parties agree with the requested adjustment,
      the TMP shall file the RFAA on behalf of the Partnership. If unanimous
      consent is not obtained within thirty (30) days from such notice, or
      within the period required to timely file the RFAA, if shorter, any Party,
      including the TMP, may file a RFAA on its own
  behalf.

                        

                

                
                  	
                          2.2.7

                        	
                          Any
      Party intending to file with respect to any partnership item, or any other
      tax matter involving the Partnership, a petition under Code §§6226, 6228,
      or any other provision, shall notify the other Parties prior to such
      filing of the nature of the contemplated proceeding. In the case where the
      TMP is the Party intending to file such petition, such notice shall be
      given within reasonable time to allow the other Parties to participate in
      the choice of the form of such petition. If the Parties do not agree on
      the appropriate forum, then the forum shall be chosen by majority vote.
      Each Party shall have a vote in accordance with its percentage interest in
      the Partnership for the year under audit. If a majority cannot agree, the
      TMP shall choose the forum. If a Party intends to seek review of any court
      decision rendered as a result of such proceeding, the Party shall notify
      the other Parties prior to seeking such
review.

                        

                

                

                3.           Income
Tax Compliance and Capital Accounts

                

                3.1           Tax
Returns.

                The TRP
shall prepare and file all required Federal and State partnership income tax
returns. Not less than thirty (30) days prior to the return due date (including
extensions), the TRP shall submit to each Party for review a copy of the return
as proposed.

                

                3.2           Fair
Market Value Capital Accounts.

                The TRP
shall establish and maintain for each Party fair market value (“FMV”) capital
accounts and tax basis capital accounts. Upon request, the TRP shall submit to
each Party along with a copy of any proposed partnership income tax return an
accounting of such Party’s FMV capital accounts as of the end of the return
period.

                

                
                  3.3.       
Information
requests.

                

                In
addition to any obligation under Sec. 2.2.2, each Party agrees to furnish to the
TRP not later than sixty (60) days before the return due date (including
extensions) such information relating to the operations conducted under the
Agreement as may be required for the proper preparation of such returns.
Similarly, each Party agrees to furnish timely to the TRP, as requested, any the
information and data necessary for the preparation and/or filing of other
required reports and notifications, and for the computation of the capital
accounts. As provided in Code  §6050K(c), a Party transferring its
interest must notify the TRP to allow compliance with Code §6050K(a) (see also
Sec.8.1).

                

                
                  3.4       
Best
Efforts without Liability.

                

                The TRP
and the other Party(ies) shall use its/their best effort to comply with
responsibilities outlined in this Section, and with respect to the services as
TMP as outlined Sec.2.2 and in doing so shall incur no liability to any other
Party.

                 

                 

                
                  
                    
                    

                  

                  
                    F-2

                    
                      

                    

                  

                  
                    
                    

                  

                

                

                
                  	
                          4.

                        	
                          Tax
      and FMV Capital Account Elections

                        

                

                

                
                  4.1       
General
Elections.

                

                For both
income tax and capital account purposes, the Partnership shall
elect:

                
                  	
                          a)

                        	
                          to
      deduct when incurred intangible drilling and development costs
      (“IDC”);

                        

                

                
                  	
                          b)

                        	
                          to
      use the maximum allowable accelerated tax method and the shortest
      permissible tax life for
depreciation;

                        

                

                
                  	
                          c)

                        	
                          the
      accrual method of accounting;

                        

                

                
                  	
                          d)

                        	
                          to
      report income on a calendar year
basis;

                        

                

                and the
Partnership shall also make any elections as specially noted in Sec.9.2,
below.

                

                
                  4.2       
Depletion.

                

                Solely
for FMV capital account purposes, depletion shall be calculated by using
simulated cost depletion within the meaning of Treas. Reg.
§1.704-1(b)(2)(iv)(k)(2), unless the use of simulated percentage depletion is
elected in Sec.9.2, below. The simulated cost depletion allowance shall be
determined under the principles of Code  §612 and be based on the FMV
capital account basis of each Lease. Solely for purposes of this calculation,
remaining shall be determined consistently by the TRP.

                

                
                  4.3       
Election
Out Under Code §761(a).

                

                
                  	
                          4.3.1

                        	
                          The
      TRP shall notify all Parties of an intended election to be excluded from
      the application of Subchapter K of Chapter 1 of the Code not later than
      sixty (60) days prior to the filling date or due date (including
      extensions) for the Federal partnership income tax return, whichever comes
      earlier. Any Party that does not consent must provide the TRP with written
      objection within thirty (30) days of such notice. Even after an effective
      election-out the TRP’s right and obligations, other than the relief from
      tax return filing obligations of the partnership,
  continue.

                        

                

                
                  	
                          4.3.2

                        	
                          After
      an election-out, to avoid an unintended impairment of the election-out:
      The Parties will avoid, without prior coordination, any operational
      changes which could terminate the qualification for the election-out
      status; all Parties will monitor the continuing qualification of the
      Partnership for the election-out status and will notify the other Parties
      if, in their opinion, a change in operations will jeopardize the
      election-out; and, all Parties will use, unless agreed to by them
      otherwise, the cumulative gas balancing method as described in Treas. Reg.
      §1.761-2(d)(2).

                        

                

                

                
                  4.4       
Consent
Requirements For Subsequent Tax Or FMV Capital Account
Elections.

                

                Unless
stipulated differently in Sec. 9.3, future elections, in addition to or in
amendment of those in this agreement, must be approved by the affirmative vote
of two (2) or more Parties owning a majority of the working interest based upon
post-Payout ownership.

                

                
                  	
                          5.

                        	
                          Capital
      Contributions and FMV Capital
Accounts

                        

                

                The
provisions of this Sec. 5 and any other provisions of the TPPs relating to the
maintenance of the capital accounts are intended to comply with Treas. Reg.
§1.704-1(b) and shall be interpreted and applied in a manner consistent with
such regulations.

                

                
                  5.1       
Capital
Contributions.

                

                The
respective capital contributions of each Party to the Partnership shall be (a)
each Party’s interest in the oil and gas lease(s), including all associated
lease and well equipment, committed to the Partnership, and (b) all accounts of
money paid by each Party in connection with the acquisition, exploration,
development, and operation of the lease(s), and all other costs characterized as
contributions or expenses borne by such Party under the Agreement. The
contribution of the leases and any other properties committed to the Partnership
shall be made by each Party’s agreement to hold legal title to its interest in
such leases or other property as nominee of the Partnership.

                

                
                  5.2       
FMV
Capital Accounts.

                

                The FMV
capital accounts shall be increased and decreased as follows:

                
                  	
                          5.2.1

                        	
                          The
      FMV capital account of a Party shall be increased
  by:

                        

                

                
                  	
                          (i)

                        	
                          the
      amount of money and the FMV (as of the date of contribution) of any
      property contributed by such Party to the Partnership (net of liabilities
      assumed by the Partnership or to which the contributed property is
      subject);

                        

                

                
                  	
                          (ii)

                        	
                          that
      Party’s share of Partnership items of income or gain, allocated in
      accordance with Sec. 6.1; and

                        

                

                
                  	
                          (iii)

                        	
                          that
      Party’s share of any Code
§705(a)(1)(B)item.

                        

                

                
                  	
                          5.2.2

                        	
                          The
      FMV capital account of a Party shall be decreased
  by:

                        

                

                
                  	
                          (i)

                        	
                          the
      amount of money and the FMV of property distributed to a Party (net of
      liabilities assumed by such Party or to which the property is
      subject):

                        

                

                
                  	
                          (ii)

                        	
                          that
      Party’s Sec. 6.1 allocated share of Partnership loss and deductions, or
      items thereof; and,

                        

                

                
                  	
                          (iii)

                        	
                          that
      Party’s share of any Code §705(a)(2)(B)
item.

                        

                

                
                  	
                          5.2.3

                        	
                          The
      “FMV” when it applies to property contributed by a Party to the
      Partnership shall be assumed, for purposes of Sec.5.2.1, to equal the
      adjusted tax basis, as defined in Code § 1011, of that property unless the
      Parties agree otherwise as indicated in Sec.
  9.2.

                        

                

                
                  	
                          5.2.4

                        	
                          As
      provided in Treas. Reg. §1.704-1(b)(2)(iv)(e), upon distribution of
      Partnership property to a Party the capital accounts will be adjusted to
      reflect the manner in which the unrealized income, gain, loss and
      deduction inherent in distributed property (not previously reflected in
      the capital accounts) would be allocated among the Parties if there were a
      disposition of such property at its FMV as of the time of distribution.
      Furthermore, if so agreed to in Sec. 9.2, under the rules of Treas. Reg.
      §1.704-1(b)(2)(iv)(f), the FMV capital accounts shall be revalued at
      certain times to reflect value changes of the Partnership
      property.

                        

                

                
                  	
                          5.2.5

                        	
                          The
      provisions of section 5 is intended to satisfy the requirements of section
      704(b) of the Code and section 1.704-1(b)(2)(iv) of the Treasury
      Regulations and shall be so construed and, if necessary, modified, to
      cause the allocation of profits, losses, income, gain and credit under
      section 6, to have substantial economic effect under such sections of the
      Code and Regulations, and in the event of any conflict between the
      provisions of this section 5.2 and such Regulations, the Regulations shall
      control.

                        

                

                

                

                
                  
                    
                    

                  

                  
                    F-3

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                          6.

                        	
                          Partnership
      Allocations.

                        

                

                

                
                   
6.1       
FMV
Capital Account Allocations.

                

                Each item
of income, gain, loss or deduction shall be allocated to each Party as
follows:

                
                  	
                          6.1.1

                        	
                          Actual
      or deemed income from the sale, exchange, distribution or other
      disposition of production shall be allocated to the Party entitled to such
      production or the proceeds from the sale of such production. The amount
      received from the sale of production and the amount of the FMV of
      production taken in kind by the Parties are deemed to be identical;
      accordingly, such items may be omitted from the adjustments made to the
      Parties’ FMV capital accounts.

                        

                

                
                  	
                          6.1.2

                        	
                          Exploration
      cost, IDC, operating and maintenance cost shall be allocated to each Party
      in accordance with its respective contribution, or obligation to
      contribute, to such cost.

                        

                

                
                  	
                          6.1.3

                        	
                          Depreciation
      shall be allocated to each Party in accordance with its contributions, or
      obligations to contribute, to the cost of the underlying
      asset.

                        

                

                
                  	
                          6.1.4

                        	
                          Simulated
      depletion shall be allocated to each Party in accordance with its FMV
      capital account adjusted basis in each oil and gas property of the
      Partnership.

                        

                

                
                  	
                          6.1.5

                        	
                          Loss
      (or simulated loss) upon the sale, exchange, distribution, abandonment or
      other disposition of depreciable or depletable property shall be allocated
      to the Parties in the ratio of their respective FMV capital account
      adjusted bases n the depreciable or depletable
  property.

                        

                

                
                  	
                          6.1.6

                        	
                          Gain
      (or simulated gain) upon the sale, exchange, distribution, or other
      disposition of depreciable or depletable property shall be allocated to
      the Parties so that the FMV capital account balances of the Parties will
      most closely reflect their respective percentage of fractional interests
      under the Agreement.

                        

                

                
                  	
                          6.1.7

                        	
                          Costs
      or expenses of any other kind shall be allocated to each Party in
      accordance with its respective contribution, or obligation to contribute,
      to such cost or expense.

                        

                

                
                  	
                          6.1.8

                        	
                          Any
      other income item shall be allocated to the Parties in accordance with the
      manner in which such income is realized by each
  Party.

                        

                

                

                6.2           Tax
return and Tax Basis Capital Account allocations.

                
                  	
                          6.2.1

                        	
                          Unless
      otherwise expressly provided in the Sec. 6.2, the allocations of the
      Partnership’s items of income, gain, loss, or deduction for tax return and
      tax basis capital account purposes shall follow the principles of the
      allocation under Sec. 6.1. However, the Partnership’s gain or loss on the
      taxable disposition of a Partnership property in excess of the gain or
      loss under Sec 6.1, if any, is allocated to the contributing Party to the
      extent of such Party’s pre-contribution gain or
  loss.

                        

                

                
                  	
                          6.2.2

                        	
                          The
      Parties recognize that under Code §613A(c)(7)(D) the depletion allowance
      is to be computed separately by each Party. For this purpose, each Party’s
      share of the adjusted tax basis in each oil and gas property shall be
      equal to its contribution to the adjusted tax basis of such
      property.

                        

                

                
                  	
                          6.2.3

                        	
                          Under
      Code §613A(c)(7)(D) gain or loss on the disposition of an oil and gas
      property is to be computed separately by each Party. According to Treas.
      Reg. §1.704-1(b)(4)(v), the amount realized shall be allocated as follows:
      (i) An amount that represents recovery of the adjusted simulated depletion
      basis is allocated (without being credited t the capital accounts) to the
      Parties in the same proportion as the aggregate simulated depletion basis
      was allocated to such Parties under Sec. 5.2; and (ii) any remaining
      realization is allocated in accordance with Sec.
  6.1.6.

                        

                

                
                  	
                          6.2.4

                        	
                          Depreciation
      shall be allocated to each Party in accordance with its contribution to
      the adjusted tax basis of the depreciable
asset.

                        

                

                
                  	
                          6.2.5

                        	
                          In
      accordance with Treas. Reg. §1.1245-I(c),
      depreciation  recapture shall be allocated, to the extent
      possible, among the Parties to reflect their prior sharing of the
      depreciation.

                        

                

                
                  	
                          6.2.6

                        	
                          In
      accordance with the principles of Treas. Reg. §1.1254-5, any recapture of
      IDC is determined and reported by each Party separately. Similarly, any
      recapture of depletion shall be computed separately by each Party, in
      accordance with its depletion allowance computed pursuant to Sec.
      6.2.2.

                        

                

                
                  	
                          6.2.7

                        	
                          For
      Partnership properties with FMV capital account values different from
      their adjusted tax bases the Parties intend that the allocations described
      in the Section 6.2 constitute a “reasonable method” of allocating gain or
      loss under Treas. Reg.
§1.704-3(a)(1).

                        

                

                
                  	
                          6.2.8

                        	
                          Take-in-kind.

                        

                

                If
checked “Yes” in Sec. 9.2, below, each Party has the right to determine the
market for its proportionate share of production. All items of income,
deductions, and credits arising from such marketing of production shall be
recognized by the Partnership and shall be allocated to the Party whose
production is so marketed.

                

                

                
                  	
                          7.

                        	
                          Termination
      and Liquidating Distribution

                        

                

                

                7.1           Termination
of the Partnership.

                
                  	
                          7.1.1

                        	
                          Upon
      termination, as provided in Code §708(b)(I)(A), the business shall be
      wound-up and concluded, and the assets shall be distributed to the Parties
      as described below by the end of such calendar year (or, if later, within
      ninety (90) days after the date of such termination). The assets shall be
      valued and distributed to the Parties in the order provided in Secs.
      7.1.2, 7.5. and 7.7.

                        

                

                
                  	
                          7.1.2

                        	
                          First,
      all cash representing unexpended contributions by any Party and any
      property in which no interest has been earned by any other Party under the
      Agreement shall be returned to the
contributor.

                        

                

                 

                7.2           Balancing
of FMV Capital Accounts.

                Second,
the FMV capital accounts of the Parties shall be determined as described
hereafter. The TRP shall take the actions specified under Secs. 7.2 through 7.5
in order to cause the ratios of the Parties’ FMV capital accounts to reflect as
closely as possible their interests under the Agreement. The ratio of a Party’s
FMV capital account is represented by a fraction, the numerator of which the
Party’s FMV capital account balance and the denominator of which is the sum of
all Parties’ FMV capital account balances. This is thereafter referred to as the
“balancing of the FMV capital accounts” and, when completed, the FMV capital
accounts of the Parties shall be referred to as “balanced”.

                

                
                  
                    
                    

                  

                  
                    F-4

                    
                      

                    

                  

                  
                    
                    

                  

                

                7.3           Deemed
Sale Gain/Loss Charge Back.

                The FMV
of all Partnership properties shall be determined and the gain or loss for each
property, which would have resulted if sold at such FMV, shall be allocated in
accordance with Secs. 6.1.5 and 6.1.6.

                

                
                  7.4       
Deficit
make-up Obligation and Balancing Cash Contributions.

                

                If
hereafter a Party has a negative FMV capital account balance, that is a balance
of less than zero, in accordance with Treas. Reg. §1.1704-I(b)(2)(ii)(b)(3) such
Party is obligated to contribute, by the end of the taxable year, or if later,
within ninety (90) days form the Partnership’s liquidation, an amount of money
to the Partnership sufficient to achieve a zero balance FMV capital account (the
“Deficit Make-Up Obligation”). Moreover, any Party may contribute an amount of
cash to the Partnership to facilitate the balancing of the FMV capital accounts.
If after these adjustments the FMV capital accounts are not balanced, Sec. 7.5
shall apply.

                

                7.5           Distribution
to balance capital accounts.

                
                  	
                          7.5.1

                        	
                          If
      all Parties agree, any cash or an undivided interest in certain selected
      properties shall be distributed to one or more Parties as necessary for
      the purpose of balancing the FMV capital
  accounts.

                        

                

                
                  	
                          7.5.2

                        	
                          Distribution
      of undivided interests.

                        

                

                Unless
Sec. 7 applies, an undivided interest in each and every property shall be
distributed to one or more Parties in accordance with the ratios of their FMV
capital accounts.

                

                7.6           FMV
determinations.

                If a
property is to be valued for purposes of balancing the capital accounts and
making distributions under this Sec. 7, the Parties must first attempt to agree
on the FMV of the property; failing such an agreement, the TRP shall cause a
nationally recognized independent engineering firm to prepare an appraisal of
the FMV of such property.

                

                7.7           Final
Distribution.

                After the
FMV capital accounts of the Parties have been adjusted pursuant to Secs. 7.2 to
7.5, all remaining property and interests then held by the Partnership shall be
distributed to the Parties in accordance with their positive FMV capital account
balances.

                

                8.           Transfers
and Correspondence

                

                8.1           Transfer
of Partnership Interests.

                Transfers
of Partnership interests shall be governed by the Agreement. A Party
transferring its interest, or any part thereof, shall notify the TRP in writing
within two weeks after such transfer.

                

                8.2           Correspondence.

                All
correspondence relating to the preparation and filing of the Partnership’s
income tax returns and capital accounts shall be sent to:

                

                

                (Attach
separate list, if necessary)

                 

                
                  	
                          TRP

                           

                        	
                          “Att
      to:” reference

                        
	
                          Operator

                           

                        	 
      

                

                Other
Parties:

                
                  	
                          Non-Operators

                           

                           

                        	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      

                

                

                

                9.              Elections
and Changes to above Provisions.

                9.1              Operator
not the TRP.

                With
respect to Sec. 2.1, (insert name of Party to be TRP instead of Operator, or
indicate “N/A”)______________________is
designated as TRP.

                 

                9.2             Special
Tax Elections.

                With
respect to Sec. 4.1, the Parties agree (if not applicable insert “N/A” or
strike):

                

                
                  
                    
                    

                  

                  
                    F-5

                    
                      

                    

                  

                  
                    
                    

                  

                

                

                

                

                
                  	
                          e)
      that the Partnership shall elect to account for dispositions of
      depreciable assets under the general asset method to the extent permitted
      by Code §168(i)(4);

                        	
                          No

                        
	
                          f)
      that the Partnership shall elect under Code §754 to adjust the basis of
      Partnership property, with the adjustments provided in Code§734 for a
      distribution of property and in Code §743 for a transfer of a partnership
      interest. In case of distribution of property the TRP shall adjust all tax
      basis capital accounts. In the case of a transfer of a partnership
      interest the acquiring party(ies) shall establish and maintain its(their)
      tax basis capital account(s);

                        	
                          Elect-at-time-of-sale

                        
	
                          g)that
      the Partnership shall elect under Code §6231 to be subject to the TEFRA
      rules

                        	
                          Yes

                        

                

                

                

                

                
                  	
                          With
      respect to  Sec. 4.2, Depletion the Parties agree that the
      Partnership shall use simulated percentage depletion instead of simulated
      cost depletion.

                        	
                          Yes

                        
	
                          With
      respect to Sec.5.2.4, under the rules of Treas. Reg. §
      1.704-1(b)(2)(iv)(f) the Parties agree that the FMV capital accounts shall
      be revalued to reflect value changes of the Partnership property upon the
      occurrence of the events specified in (5)(i) through (iii) of said –
      1.704-1(b)(2)(iv)(f) regulations.

                        	
                          Yes

                        
	
                          With
      respect to Sec. 6.2.8, the income attributable to take-in-kind production
      will be reflected on the tax return.

                        	
                          No

                        

                

                

                With
respect to Sec. 5.2.3 the FMV for the listed properties are determined as
follows (mark as “N/A” if not applicable; use separate sheet if
necessary)

                

                
                  	
                          Property
      Description

                        	
                          FMV

                        
	 
      	 
      
	 
      	 
      
	 
      	 
      

                

                

                
                  9.3   
Change of
Majority for Other Tax Elections.

                

                INSTEAD
OF THE Sec. 4.4 majority for other tax elections, a majority shall be considered
if consisting of (specify or line out blanks)
_____________________________________________________.

                

                

                

                

                THE
END

                 

                 

                 

                 

                
                  
                    
                    

                  

                  
                    F-6

                    
                      

                    

                  

                  
                    
                    

                  

                

              

              

              

              

              EXHIBIT
“D”

              JOINT
OPERATING AGREEMENT

              

              Attached
to and made a part of that certain Amended and Restated Participation
Agreement

              dated the
____ day of December, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC and South Marsh LLC

              

              

              

              

              

              OFFSHORE

              OPERATING
AGREEMENT

              

              
                South
Marsh Island Area, South Addition, Block 152

                (OCS-G
27091)

              

              

              DATED
EFFECTIVE:   September
18,2006

              

              

              BETWEEN

              

              

              RIDGELAKE
ENERGY, INC.,

              GULFX,
LLC,

              SOUTH
MARSH LLC and

              LION
ENERGY LIMITED LLC

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              

              OPERATING
AGREEMENT

              

              TABLE OF
CONTENTS

              

              

              ARTICLE
1

               

              
                	 	 	APPLICATION   	 
      1
	
                         
      

                      	
                        1.1

                      	
                        Application 

                      	
                          1

                      

              

              

              ARTICLE
2

               

              
                	 	 	DEFINITIONS    	 
      1
	
                         
      

                      	
                        2.1

                      	
                        Affiliate 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.2

                      	
                        Contract
      Area 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.3

                      	
                        Development
      Operations 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.4

                      	
                        Development
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.5

                      	
                        Exploratory
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.6

                      	
                        Exploratory
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.7

                      	
                        Facility(ies) 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.8

                      	
                        Joint
      Account 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.9

                      	
                        Lease 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.10

                      	
                        Non-Consent
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.11

                      	
                        Non-Consent
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.12

                      	
                        Non-Operator 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.13

                      	
                        Non-Participating
      Party 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.14

                      	
                        Non-Participating Party's
      Share 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.15

                      	
                        Operator 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.16

                      	
                        Participating
      Interest 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.17

                      	
                        Participating
      Party 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.18

                      	
                        Platform 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.19

                      	
                        Producible
      Well 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.20

                      	
                        Producible
      Reservoir 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.21

                      	
                        Sidetrack(ing) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.22

                      	
                        Subsequent
      Facility(ies) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.23

                      	
                        Working
      Interest 

                      	
                          3

                      

              

               

              ARTICLE
3

               

              
                	 	 	EXHIBITS    	 
      4
	
                         
      

                      	
                        3.1

                      	
                        Exhibits 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.1

                      	
                        Exhibit
      "A" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.2

                      	
                        Exhibit
      "B" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.3

                      	
                        Exhibit
      "C" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "D" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "E" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.2

                      	
                        Conflicts 

                      	
                          4

                      

              

               

              
                ARTICLE
4

                 

                
                  	 	 	OPERATOR  	 
      4
	
                           
      

                        	
                          4.1

                        	
                          Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.2

                        	
                          Resignation or Removal of
      Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.3

                        	
                          Selection of
      Successor 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.4

                        	
                          Delivery of
      Property 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.5

                        	
                          Liability of
      Operator 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.6

                        	
                          Removal and selection of
      Operator in a two Party Agreement 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.7

                        	
                          Designation of
      Operator 

                        	
                            5

                        

                

                 

              

              
 

              
                
                  
                  

                

                
                  
                  

                  
                    

                  

                

                
                  
                  

                

              

              

              

              ARTICLE
5

               

              
                	 	 	AUTHORITY AND DUTIES OF
      OPERATOR    	 
      5
	
                         
      

                      	
                        5.1

                      	
                        Exclusive Right to
      Operate 

                      	
                          5

                      

              

              
                	
                         
      

                      	
                        5.2

                      	
                        Workmanlike
      Conduct 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.3

                      	
                        Liens and
      Encumbrances 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.4

                      	
                        Employees 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.5

                      	
                        Records 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.6

                      	
                        Compliance 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.7

                      	
                        Contractors 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.8

                      	
                        Governmental
      Reports 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.9

                      	
                        Information to Participating
      Parties 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.10

                      	
                        Information to
      Non-Participating Parties 

                      	
                          7

                      

              

              

              ARTICLE
6

               

              
                	 	 	VOTING AND VOTING
      PROCEDURES    	 
      7
	
                         
      

                      	
                        6.1

                      	
                        Designation of
      Representatives 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2

                      	
                        Voting
      Procedures 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.1

                      	
                        Voting
      Interest 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.2

                      	
                        Vote
      Required 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.3

                      	
                        Votes

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        6.2.4

                      	
                        Meetings 

                      	
                          8

                      

              

              

              ARTICLE
7

               

              
                	 	 	ACCESS    	 
      8
	
                         
      

                      	
                        7.1

                      	
                        Access to Contract
      Area 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.2

                      	
                        Reports 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.3

                      	
                        Confidentiality 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.4

                      	
                        Exceptions 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.5

                      	
                        Limited
      Disclosure 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.6

                      	
                        Proceeds 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        7.7

                      	
                        Media
      Releases 

                      	
                          10

                      

              

              

              ARTICLE
8

              

              
                	 	 	EXPENDITURES   	 
      10
	
                         
      

                      	
                        8.1

                      	
                        Basis of Charge to the
      Parties 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        8.2

                      	
                        Authorization 

                      	
                         
      10

                      

              

              
                	
                         
      

                      	
                        8.3

                      	
                        Advance
      Billings 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.4

                      	
                        Commingling of
      Funds 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.5

                      	
                        Security
      Rights 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.6

                      	
                        Default 

                      	
                         
      17

                      
	 	8.7 	Unpaid
      Charges 	  18

              

              
                	
                         
      

                      	
                        8.8

                      	
                        Carved-out
      Interest 

                      	
                         
      18

                      

              

              

              ARTICLE
9

               

              
                	 	 	NOTICES  	 
      19
	
                         
      

                      	
                        9.1

                      	
                        Giving and Responding to
      Notices 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.2

                      	
                        Content of
      Notice 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.3

                      	
                        Response to
      Notices 

                      	
                         
      19

                      
	 	 	9.3.1  
         Platform
      Construction	 
      19 
	 	 	9.3.2     
      Proposal Without
      Platform 	 
      20 
	 	 	9.3.3     
      Other
      Matters 	 
      20 

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        9.4

                      	
                        Failure to
      Respond 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        9.5

                      	
                        Restriction on Multiple Well
      Proposals 

                      	
                         
      20

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              
                 
ARTICLE
10

              

               

              
                	 	 	EXPLORATORY
      OPERATIONS 	 
      20
	
                         
      

                      	
                        10.1

                      	
                        Operations by All
      Parties 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        10.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.3

                      	
                        Final Election to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.5

                      	
                        Substitute
      Well 

                      	
                         
      22

                      

              

              
                	
                         
      

                      	
                        10.6

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      23

                      
	 	 	
                        10.6.1      
      Operation by All
      Parties 

                      	 
      24
	 	 	
                        10.6.2      
      Operations by Fewer than
      All Parties 

                      	 
      24
	 	 	
                        10.6.3      
      Obligations and
      Liabilities of Participating Parties 

                      	 
      24
	 	 	
                        10.6.4      
      Deepening or Sidetracking
      of Non-Consent Exploratory Well 

                      	 
      24
	 	 	
                        10.6.5      
      Plugging and Abandoning
      Cost 

                      	 
      25

              

              
              

              
              

              
              

              
              

              
              

              

              ARTICLE
11

               

              
                	 	 	DEVELOPMENT
      OPERATIONS  	 
      25
	
                         
      

                      	
                        11.1

                      	
                        Operations by All
      Parties 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.3

                      	
                        Final Election to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.5

                      	
                        Timely
      Operations 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.6

                      	
                        Substitute
      Well 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.7

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      27

                      

              

              
              

              
              

              
              

              
                	 	 	
                        11.7.1     
      Operations by All
      Parties

                      	 
      28
	 	 	
                        11.7.2     
      Operations by Fewer than
      All Parties

                      	 
      28
	 	 	
                        11.7.3     
      Obligations and
      Liabilities of Participating Parties 

                      	 
      28
	
                         
      

                      	
                        11.8

                      	
                        Deeper
      Drilling 

                      	
                         
      28

                      

              

              
                	
                         
      

                      	
                        11.9

                      	
                        Plugging and Abandoning
      Cost 

                      	
                         
      28

                      
	 	11.10	
                        Subsequent Facilities
      

                      	 
      29
	 	11.11 	
                        Contracts
    

                      	 
      29

              

              
              

              
              

              

              ARTICLE
12

               

              
                	 	 	NON-CONSENT
      OPERATIONS   	  29
	
                         
      

                      	
                        12.1

                      	
                        Non-Consent
      Operations 

                      	
                          29

                      
	 	 	12.1.1     
      Non-Interference	 
      29
	 	 	12.1.2     
      Multiple Completion
      Limitation  	 
      29
	 	 	12.1.3     
      Metering 	 
      29
	 	 	12.1.4     
      Non-Consent
      Well	 
      29
	 	 	12.1.5     
      Cost Information
      	 
      29
	 	 	12.1.6     
      Completion	 
      30

              

              
              

              
              

              
              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.2

                      	
                        Forfeiture of
      Interest 

                      	
                         
      30

                      
	 	 	12.2.1     
      Production
      Reversion	 
      30
	 	 	12.2.2     
      Non-Production
      Reversion	 
      31

              

              
              

              
              

              
                	
                         
      

                      	
                        12.3

                      	
                        Deepening or Sidetracking of
      Non-Consent Development Well 

                      	
                         
      31

                      
	 	12.4 	Operations from Non-Consent
      Platforms and Facilities  	 
      31

              

              
              

              
                	
                         
      

                      	
                        12.5

                      	
                        Discovery or Extension from
      Mobile Drilling Operations 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.6

                      	
                        Non-Consent Operations to
      Maintain Lease 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.7

                      	
                        Allocation of Platform Costs to
      Non-Consent Operations 

                      	
                         
      33

                      
	 	 	12.7.1     
      Charges 	 
      33
	 	 	12.7.2     
      Operating and Maintenance
      Charges 	 
      34
	 	 	12.7.3     
      Payments 	 
      34

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.8

                      	
                        Allocation of Costs Between
      Depths (Single Completion) 

                      	
                         
      34

                      

              

              
                	
                         
      

                      	
                        12.9

                      	
                        Allocation of Costs Between
      Depths (Multiple Completions) 

                      	
                         
      35

                      

              

              
              

              
                	 	12.10	Allocation of Costs Between
      Depths (Dry Hole) 	 
      36
	
                         
      

                      	
                        12.11

                      	
                        Intangible Drilling and
      Completion Cost Allocations 

                      	
                         
      36

                      

              

              
                	
                         
      

                      	
                        12.12

                      	
                        Subsequent Operations in
      Non-Consent Well 

                      	
                         
      36

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              
                 
ARTICLE
13

              

               

              
                	 	 	ABANDONMENT AND
      SALVAGE 	 
      37
	
                         
      

                      	
                        13.1

                      	
                        Platform Salvage and Removal
      Costs 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.2

                      	
                        Abandonment of Producing
      Well 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.3

                      	
                        Assignment of
      Interest 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.4

                      	
                        Abandonment Operations Required
      By Governmental Authority 

                      	
                         
      37

                      

              

              

              ARTICLE
14

               

              
                	 	 	WITHDRAWAL 	 
      37
	
                         
      

                      	
                        14.1

                      	
                        Withdrawal 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        14.2

                      	
                        Limitations on
      Withdrawal 

                      	
                         
      38

                      

              

              

              ARTICLE
15

               

              
                	 	 	RENTALS, ROYALTIES AND OTHER
      PAYMENTS  	 
      38
	
                         
      

                      	
                        15.1

                      	
                        Creation of Overriding
      Royalty 

                      	
                         
      38

                      

              

              
                	
                         
      

                      	
                        15.2

                      	
                        Payment of Rentals and Minimum
      Royalties 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.3

                      	
                        Non-Participation in
      Payments 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.4

                      	
                        Royalty
      Payments 

                      	
                         
      39

                      

              

              

              ARTICLE
16

               

              
                	 	 	TAXES 	 
      39
	
                         
      

                      	
                        16.1

                      	
                        Property
      Taxes 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        16.2

                      	
                        Contest of Property Tax
      Valuation 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.3

                      	
                        Production and Severance
      Taxes 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.4

                      	
                        Other Taxes and
      Assessments 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.5

                      	
                        Gas
      Balancing 

                      	
                         
      40

                      

              

              

              ARTICLE
17

               

              
                	 	 	INSURANCE  	 
      40
	
                         
      

                      	
                        17.1

                      	
                        Insurance 

                      	
                         
      40

                      

              

              

              ARTICLE
18

               

              
                	 	 	LIABILITY, CLAIMS AND
      LAWSUITS  	 
      41
	
                         
      

                      	
                        18.1

                      	
                        Individual
      Obligations 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.2

                      	
                        Notice of Claim or
      Lawsuit 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.3

                      	
                        Settlements 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.4

                      	
                        Legal
      Expense 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.5

                      	
                        Liability for Losses, Damages,
      Injury or Death 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.6

                      	
                        Indemnification 

                      	
                         
      41

                      
	 	18.7 	Damage to Reservoir, Loss of
      Reserves and Profits 	 
      41 

              

              
              

              

              ARTICLE
19

               

              
                	 	 	INTERNAL REVENUE
      PROVISION	 
      42
	
                         
      

                      	
                        19.1

                      	
                        Internal Revenue
      Provision 

                      	
                         
      42

                      

              

              

              ARTICLE
20

               

              
                	 	 	CONTRIBUTIONS 	 
      42
	
                         
      

                      	
                        20.1

                      	
                        Notice of Contributions Other
      than Advances for Sale of Production 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.2

                      	
                        Cash
      Contributions 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.3

                      	
                        Acreage
      Contributions 

                      	
                         
      43

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              ARTICLE
21

               

              
                	 	 	DISPOSITION OF
      PRODUCTION  	 
      43
	
                         
      

                      	
                        21.1

                      	
                        Facilities to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.2

                      	
                        Taking Production In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.3

                      	
                        Failure to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.4

                      	
                        Expenses of Delivery In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.5

                      	
                        Gas Balancing
      Provisions 

                      	
                         
      43

                      

              

              

              ARTICLE
22

               

              
                	 	 	APPLICABLE
      LAW 	 
      44 
	
                         
      

                      	
                        22.1

                      	
                        Applicable
      Law 

                      	
                         
      44

                      

              

              

              

              ARTICLE
23

               

              
                	 	 	LAWS AND
      REGULATIONS 	  44
	
                         
      

                      	
                        23.1

                      	
                        Laws and
      Regulations 

                      	
                         
      44

                      

              

              

              

              ARTICLE
24

               

              
                	 	 	FORCE
      MAJEURE 	 
      44
	
                         
      

                      	
                        24.1

                      	
                        Force
      Majeure 

                      	
                         
      44

                      

              

              
                	
                         
      

                      	
                        24.2

                      	
                        Notice 

                      	
                         
      44

                      

              

              

              ARTICLE
25

              

              
                	 	 	SUCCESSORS, ASSIGNS AND
      PREFERENTIAL RIGHTS 	 
      45
	
                         
      

                      	
                        25.1

                      	
                        Successors and
      Assigns 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.2

                      	
                        Transfer of
      Interest 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.3

                      	
                        Consent to
      Assign 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.4

                      	
                        Transfers Between
      Parties 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.5

                      	
                        Division of
      Interest 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.6

                      	
                        Preferential
      Rights 

                      	
                         
      46

                      

              

               

              ARTICLE
26

               

              
                	 	 	TERM  	 
      47
	
                         
      

                      	
                        26.1

                      	
                        Term 

                      	
                         
      47

                      

              

              

              ARTICLE
27

               

              
                	 	 	MISCELLANEOUS
      PROVISIONS 	 
      47
	
                         
      

                      	
                        27.1

                      	
                        Headings 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        27.2

                      	
                        Waiver 

                      	
                         
      47

                      

              

              

               ARTICLE
28

               

              
                	 	 	EXECUTION   	 
      47
	
                         
      

                      	
                        28.1

                      	
                        Counterpart
      Execution 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        28.2

                      	
                        Amendments 

                      	
                         
      47

                      

              

              

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              OPERATING
AGREEMENT

              
                South
Marsh Island Block 152 (OCS-G 27091)

              THIS AGREEMENT is made effective the
18th day of September , 2006, by and between Ridgelake Energy, Inc., GulfX, LLC,
South Marsh LLC and Lion Limited LLC, herein referred to collectively as
"Parties" and individually as "Party".

              

              W I T N E
S S E T H:

               

              WHEREAS, the Parties own an interest in
the oil and gas Lease identified in Exhibit "A" attached hereto;
and,

              

              WHEREAS,
the Parties desire to enter into this Agreement in order to efficiently explore,
develop, produce, and operate the said Lease.

              

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

              

              ARTICLE
1

              APPLICATION

              

              1.1           Application.  This
Agreement applies to and is applicable to all operations on the Oil and Gas
Lease described on Exhibit “A” attached hereto.

              

              ARTICLE
2

              DEFINITIONS

              

              2.1           Affiliate.  Any
person, corporation, partnership, limited partnership, or legal entity, whether
of a similar or dissimilar nature, which (a) controls, either directly or
indirectly, a Party, or (b) is controlled, either directly or indirectly, by
such Party, or (c) is controlled, either directly or indirectly, by a person or
entity which directly or indirectly controls such Party.  "Control"
means the ownership (or the right to exercise or direct) fifty percent (50%) or
more of the voting rights in the appointment of directors of such company, or
fifty percent (50%) or more of the interests in the partnership or other
entity.

               

              2.2           Contract
Area.  The acreage subject to this Operating Agreement includes
all acreage covered by the Oil and Gas Lease identified in Exhibit "A" attached
to this Agreement.

               

              2.3           Development
Operations.  Operations on the Contract Area other than
Exploratory Operations as defined in Section 2.6 below, including operations
conducted off the Contract Area for the purpose of development or production of
hydrocarbons under the Contract Area.

              

              
                
                   

                

                
                  1

                  
                    

                  

                

                
                   

                

              

              2.4           Development
Well.  Any well proposed as a Development
Operation.

              

              2.5           Exploratory
Operations.  Operations within the Contract Area:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        to
      a proposed objective zone, horizon, or formation which does not have a
      Producible Well and all activities necessary for the accomplishment of
      such drilling up to, but not including, the election following the
      Operator's recommendation in Section 10.6
below.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        to
      a proposed objective zone, horizon, or formation which does have one (1)
      or more Producible Well(s), but such objective will be penetrated at a
      location which all of the Participating Parties in the preexisting
      Producible Well(s) agree, at the time that the proposed Exploratory Well
      is approved, will be in a totally separate reservoir or will not drain or
      produce reserves that would be recovered by the preexisting Producible
      Well(s), and all activities necessary for the accomplishment of such
      drilling up to, but not including, the election following the Operator's
      recommendation in Section 10.6 below;
or

                      

              

               

                     
2.6            Exploratory
Well.  Any well drilled as an Exploratory
Operation.

               

              2.7            Facility(ies).  All
equipment and piping beyond the wellhead connections (including pipeline(s)
and/or flowline(s) to separate processing facilities) acquired pursuant to this
Agreement necessary to establish initial production on any Exploratory or
Development Well operation, excluding Platforms and excluding pipelines used to
transport production from the Contract Area or processing site to
shore.

               

              2.8            Joint
Account.  The combined interests of the Parties in the Contract
Area now or hereafter subject to this Agreement.

               

              2.9            Lease.  Individually,
each of the offshore oil and gas leases which are described in Exhibit "A"
attached hereto, to the extent that such leases authorize exploration,
development, and production activities on lands contained within the Contract
Area.

               

              2.10          Non-Consent
Operations.  Exploratory or Development Operations conducted by
fewer than all Parties.

               

              2.11          Non-Consent
Well.  An Exploratory or Development Well which is drilled by
fewer than all Parties and with respect to which no reversion of interest has
taken place pursuant to Article 12.

               

              2.12          Non-Operator.  Any
Party to this Agreement other than the Operator.

               

              2.13          Non-Participating
Party.  Any Party other than a Participating
Party.

               

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

              

              
                
                   

                

                
                  2

                  
                    

                  

                

                
                   

                

              

              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, or in a Platform, well, or Facility owned, pursuant
to this Agreement.

               

              2.17          Participating
Party.  A Party who joins in an operation, pays its portion of
the cost and expense of the operation, and is entitled to its proportionate part
of the benefits of the operation pursuant to the terms of this
Agreement.

               

              2.18          Platform.  A
drilling or production platform, caisson or well protector, or similar
structure.

               

              2.19          Producible
Well.  A well producing oil or gas, or, if not producing oil or
gas, a well determined to be capable of producing oil or gas in paying
quantities pursuant to any applicable order or regulation issued by appropriate
governmental authority; however, any well shall be considered a Producible Well
if so determined by two (2) or more participating Parties with a combined
working interest of 50% of said well, whether or not said well is plugged and
abandoned.  Each separate completion in a Producible Reservoir shall
be considered a Producible Well.

               

              2.20          Producible
Reservoir.  Based on electric log data, core analysis data, a
drill stem test, a wire line formation test, or any combination of these, an
accumulation of oil or gas, or both, separated from and not in oil or gas
communication with any other accumulation and having rock properties indicating
it to be capable of hydrocarbon production in quantities sufficient to yield a
return in excess of the costs of equipping, completing, and operating it,
including allocated costs for a Platform, Facilities, and their operations, as
determined by the affirmative vote of two (2) or more Parties having a combined
Participating interest of fifty percent (50%) or more.  In addition,
any accumulation of oil or gas, or both, within the Contract Area shall be
designated a Producible Reservoir upon the approval of a Platform to produce
such oil or gas.

               

              2.21          Sidetrack(ing).  Directionally
drilling by intentionally deviating a well bore to a target bottomhole location
other than that target bottomhole location to which such well bore would have
penetrated absent such deviation.  Operations undertaken to straighten
the hole or to drill around junk in the hole resulting from other mechanical
difficulties shall not be considered as a sidetrack or
sidetracking.

               

              2.22          Subsequent
Facility(ies).  Those Facilities, excluding Platforms, which
are proposed subsequent, or in addition, to the Facilities.

               

              2.23          Working
Interest.  The ownership of each Party in and to the Lease and
Contract Area as set forth in Exhibit "A".

              
                
                   

                

                
                  3

                  
                    

                  

                

                
                   

                

              

              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, Contract Area, Interests of the Parties and Designated
      Representatives.

                        
	
                          3.1.2

                        	
                          Exhibit
      "B".

                        	
                          Insurance
      Requirements.

                        
	
                          3.1.3

                        	
                          Exhibit
      "C".

                        	
                          Accounting
      Procedure.

                        
	
                          3.1.4

                        	
                          Exhibit
      "D".

                        	
                          Gas
      Balancing Agreement.

                        
	
                          3.1.5

                        	
                          Exhibit
      “E”

                        	
                          Memorandum
      of Operating Agreement and Financing Agreement.

                        
	
                          3.1.6

                        	
                          Exhibit
      “F”

                        	
                          Tax
      Partnership.

                        

                

                 

              

              3.2           Conflicts.  If
a provision contained in an Exhibit is inconsistent with a provision contained
in the body of this Agreement, then the provision contained in the body of this
Agreement shall prevail.

              

              ARTICLE
4

              OPERATOR

              

              4.1           Operator. RIDGELAKE
ENERGY, INC. is hereby designated as Operator for the purposes of this
Agreement, and for all operations conducted on or related to the Contract
Area.

               

              4.2           Resignation or Removal of
Operator.  Operator may resign at any time by giving written
notice thereof to Non-Operators.  In addition, Operator may be removed
by the affirmative vote of the Parties owning a combined Working Interest of
fifty-one percent (51%) or more after excluding Operator’s Working Interest
if:

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        a
      receiver is appointed for Operator or for substantially all of its
      property or affairs.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Operator
      sells, trades, transfers or assigns all or a portion of its Working
      Interest, thereby reducing its Working Interest to less than ten percent
      (10%); or

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Operator
      commits a substantial breach of a material provision of this Agreement and
      fails to cure such breach within sixty (60) days after receipt of a
      Non-operator’s notice to Operator of such breach.

                         

                      

              

              The resignation or removal of the
Operator shall become effective as soon as practical, but not later than 7:00
o'clock a.m. on the first day of the calendar month following a period of ninety
(90) days after i) the date of notice of resignation by Operator or ii) the date
of receipt of written notice by Operator from Non-Operator detailing the alleged
grounds for removal and Operator has failed to cure same within sixty (60) days
from its
receipt of the notice, unless a longer period is required for the Parties to
obtain approval of the designation of the successor Operator by the MMS;
however, in no event shall the resignation or removal of Operator become
effective until a successor Operator has assumed the duties of
Operator.  Upon approval of the designation of the successor Operator
by the MMS, the resigning or removed Operator shall be bound by the terms of
this Joint Operating Agreement as a Non-Operator.  A change of a
corporate name or structure of Operator or transfer of Operator’s interest to
any single subsidiary, parent or successor corporation shall not be the basis
for removal of Operator.

              
                
                   

                

                
                  4

                  
                    

                  

                

                
                   

                

              

              4.3           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 majority Working Interest.  However, if the removed
or resigned Operator fails to vote or votes only to succeed itself, the
successor Operator shall be selected by an affirmative vote of the Parties
having a combined Working Interest of fifty-one percent (51%) or more of the
remaining Working Interest 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 elected and assumed its duties.

               

              4.4          
Delivery of
Property.  Prior to the effective date of resignation or
removal, the former Operator shall deliver to the successor Operator all records
and data relating to the operations conducted by the former Operator that the
successor Operator is entitled to have and that are not already in the
possession of the successor Operator, as well as all other property in the
possession of the former Operator that was acquired for the Joint
Account.

               

              4.5           Liability of
Operator.  If Operator resigns, or if Operator is removed as
Operator, such resignation, or removal shall not relieve Operator of any
liabilities it may have to Non-Operator(s) or third parties for damages arising
out of Operator's breach of this Agreement.

               

              4.6           Removal and Selection of a
Successor Operator in a Two-party Agreement.  If this Agreement
involves only two parties, the following provisions shall apply:

               

              
                	
                         
      

                      	
                        4.6.1  On
      the occurrence of an event specified in Section 4.2 that allows removal of
      Operator, Non-Operator shall have the option of either becoming Operator
      or allowing Operator to continue in that position.

                         

                      

              

              
                	
                         
      

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

                         

                      

              

              4.7           Designation of
Operator.  The Parties hereto agree to execute such Designation
of Operator forms as are required to have the Operator or its successor properly
designated as operator with the Minerals Management Service or any other
governmental authority having jurisdiction over the Lease and the operations
conducted thereunder.

              

              ARTICLE
5

              AUTHORITY AND DUTIES OF
OPERATOR

              

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

               

              
                
                  
                  

                

                
                  5

                  
                    

                  

                

                
                  
                  

                

              

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

               

              5.3           Liens and
Encumbrances.  Operator shall endeavor to keep the Lease within
the Contract Area and equipment free from all liens and encumbrances occasioned
by operations hereunder, except those provided for in Section 8.5 (Security
Rights).

               

              5.4           Employees.  The
number of employees and their selection, and the hours of labor and compensation
for services performed shall be determined by Operator.  Except as
provided in Exhibit “C”, such employees shall be the employees of
Operator.

               

              5.5           Records.  Operator
shall keep accurate books, accounts, and records of operations under this
Agreement, which, unless otherwise provided for in this Agreement, shall be
available to Non-Operator as provided 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 authorities
having jurisdiction.

               

              5.7           Contractors.  Operator
may enter into contracts with independent contractors for the design,
construction, installation, or operation of Platforms and
Facilities.  Insofar as possible, Operator shall use competitive
bidding to procure goods and services for the benefit of the
Parties.  All drilling operations conducted under this Agreement shall
be conducted by qualified and responsible drilling contractors under current
competitive contracts.  A drilling contract will be deemed to be a
current competitive contract if it (a) was made within one hundred (180) days
before the commencement of the well and (b) contains terms, rates, and
provisions that, when the contract was made, did not exceed those generally
prevailing in the area for operations involving substantially equivalent rigs
that are capable of drilling the proposed well.  At its
election, Operator may use its own or an Affiliate’s drilling equipment, derrick
barge, tools, or machinery to conduct drilling operations, but the work shall be
(a) performed by Operator acting as an independent contractor, (b) approved by
written agreement with the Participating Parties before commencement of
operations, and (c) conducted under the same terms and conditions and at the
same rates as are customary and prevailing in competitive
contracts  of third parties doing work of a similar
nature.  Before awarding a drilling contract or performing work with
its own or an Affiliate’s drilling equipment, derrick barge, tools, or
machinery, Operator shall attempt to obtain competitive bids for the work from
independent contractors.

              
                
                   

                

                
                  6

                  
                    

                  

                

                
                   

                

              

              5.8           Governmental
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 Participating Parties.

               

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

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Daily
      drilling reports.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        A
      complete report of all core analyses, if
any.

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        A
      copy of any logs or surveys as run.

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        A
      copy of any well test results, bottom-hole pressure surveys, gas and
      condensate analyses, or similar
information.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        A
      copy of reports made to regulatory
agencies.

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        To
      the extent possible, twenty-four (24) hour advance notice by telephone to
      the designated representative listed in Exhibit "A" (or the designated
      alternate), of logging, coring and testing
  operations.

                      

              

              
                	
                         
      

                      	
                        (h)

                      	
                        If
      available, upon written request, samples of cuttings and cores marked as
      to depth, to be packaged and shipped at the expense of the requesting
      Party.

                         

                      

              

              5.10           Information to
Non-Participating Parties.  Operator shall furnish to each
Non-Participating Party a copy of Operator’s governmental reports that are
available to the public and associated with the applicable Non-consent
operation.  A Non-Participating Party shall be entitled to receive the
information specified in Section 5.9 after the recoupment provisions in Section
10.4 and/or Section 12.2.1 have been satisfied.

              

              ARTICLE
6.

              VOTING AND VOTING
PROCEDURES

              

              6.1           Designation of
Representatives.  The names and addresses of the representative
and alternate, who are authorized to represent each Party with respect to
operations hereunder, are set forth in Exhibit "A".  The designated
representative or alternate may be changed by written notice to the other
Parties.

              6.2              Voting
Procedures.  Unless otherwise provided, any matter requiring
approval of the Parties, except an amendment to this Agreement, shall be
determined as follows:

               

              
                	
                         
      

                      	
                        6.2.1

                      	
                        Voting
      Interest.  Subject to section 8.6, each Party shall have
      a voting interest equal to its Working Interest or its Participating
      Interest, as applicable.

                         

                      

              

              
                	
                         
      

                      	
                        6.2.2

                      	
                        Vote
      Required.  Proposals requiring approval of the Parties
      shall be decided by an affirmative vote of two (2) or more Parties having
      a combined voting interest of fifty-one percent (51%) or
      more.  If there are only two (2) Parties to this Agreement, the
      matter shall be determined by the Party having the majority voting
      interest, or, if the interests are equal, the matter shall require
      unanimous consent.

                         

                      

              

               

               

               

              
                
                  
                  

                

                
                  7

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                         
      

                      	
                        6.2.3

                      	
                        Votes.  The
      Parties may vote personally at meetings, or by telephone, promptly
      confirmed in writing to Operator, or by letter, telegram, telex, telecopy,
      or other form of facsimile transmission.

                         

                      

              

              
                	
                         
      

                      	
                        6.2.4

                      	
                        Meetings.  Meetings
      of the Parties may be called by Operator upon its own motion or at the
      request of any Party(ies) having a combined voting interest of not less
      than twenty percent (20%).  Except in the case of emergency, or
      except when agreed by unanimous consent, no meeting shall be called on
      less than seven (7) 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,
      that by unanimous agreement of the Parties present at such meeting, the
      agenda and items included therein may be amended.  If a meeting
      is called, it shall take place at Operator’s offices, unless it is
      unanimously agreed to be held at some other
  location.

                      

              

              

              
                	
                         
      

                      	
                        ARTICLE
      7

                      

              

              
                	
                         
      

                      	
                        ACCESS

                      

              

              

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

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

               

              
                
                  
                  

                

                
                  8

                  
                    

                  

                

                
                  
                  

                

              

              7.3           Confidentiality.  For
the purposes of this Agreement, the term "Confidential Information" shall mean
any geological, geophysical, engineering, technical, production test,
exploratory, or reservoir information, or any logs or other information
pertaining to any well drilled pursuant to this Agreement or any operation
conducted under the terms of this Agreement to the extent that such information
was acquired at joint expense.  Except as provided in Section 7.5 and
except for necessary disclosures to governmental authorities having
jurisdiction, no Party shall during the term of this Agreement and for a period
of three (3) years thereafter, trade, sell, publish or release any such
Confidential Information without the agreement of all Participating
Parties.  Otherwise, the Parties shall jointly own all such
Confidential Information without duty to account.  Each Party's
obligation to protect Confidential Information shall be considered met by each
Party using at least the same degree of care as it uses in protecting its own
proprietary materials of like kind.

               

              7.4           Exceptions.  No
Party shall have any obligation to limit disclosure or use any portion of
Confidential Information which:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        is
      already in that Party's possession prior to receipt as a result of this
      Agreement;

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        is
      now in or hereafter becomes publicly available through no fault of that
      Party;

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        is
      disclosed to that Party without obligation of confidence by a third party
      which has the right to make such disclosure;
or;

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        is
      independently developed by or for such Party without reference to
      information received under this Agreement.

                         

                      

              

              7.5           Limited
Disclosure.  Notwithstanding any other provision of this
Agreement, the Parties may make Confidential Information available to third
parties as follows:

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        gas
      transmission companies for hydrocarbon reserve or technical
      evaluations;

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        reputable
      financial institutions for study before commitment of
    funds;

                      

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

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

                      

              

              
                	
                         
      

                      	
                        (f)

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

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        an
      Affiliate of a Party; and

                      

              

              
                	
                         
      

                      	
                        (h)

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

                      

              

               

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

               

              
                
                  
                  

                

                
                  9

                  
                    

                  

                

                
                  
                  

                

              

              7.6           Proceeds.  During
the term of this Agreement, the Parties agree that any proceeds obtained from
the sale of Confidential Information (excluding, however, transfers of
Confidential Information incidental to a Party’s sale of all or any portion of
its interest in the Contract Area) shall be shared by the Parties in proportion
to their share of the total costs and expenses to acquire same.

               

              7.7           Media
Releases.  Except as agreed by all parties or otherwise
permitted by this Section, no Party shall issue a news or media release about
operations on the Lease.  In an emergency involving extensive property
damage, operations failure, loss of human life, or other clear emergency, and
for which there is insufficient time to obtain the prior approval of the
Parties, Operator may furnish the minimum, strictly factual, information
necessary to satisfy the legitimate public interest of the media and
governmental authorities having jurisdiction.  Operator shall then
promptly advise the other Parties of the information furnished in response to
the emergency.  Notwithstanding anything to the contrary in this
Agreement, upon prior written notice to the other Parties, a Party shall be
allowed to make any press release or announcement required by a recognized stock
exchange on which the Party’s (or its Affiliate’s) stock is listed; provided,
however, that the press release shall contain the following statement: “The
information, opinions or projections
contained in this press release are (the disclosing Party’s) and do not
necessarily reflect the opinions of its co-owners.”

              

              ARTICLE
8

              EXPENDITURES

              

              8.1           Basis of Charge to the
Parties.  Except as otherwise provided in this Agreement,
Operator shall pay all costs incurred 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".

               

              8.2           Authorization.  Prior
to undertaking any project or making any single expenditure related to the
Contract Area in excess of One Hundred Thousand Dollars ($100,000.00), Operator
shall submit for the approval of the Parties an Authorization for Expenditure
("AFE") for such project or expenditure.  Operator shall furnish
written information to all the Parties on any project or single expenditure
costing less than One Hundred Thousand Dollars ($100,000.00) but in excess of
Fifty Thousand Dollars ($50,000.00) if Operator prepares same for its own
use.  Notwithstanding the One Hundred Thousand Dollar ($100,000.00)
limitation, where such project or expenditure involves changing zones in a well
or a workover operation, an AFE shall be submitted to the Parties for
approval.  Approval of a Development Well or 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.  In the event of an actual or imminently threatened
blowout, explosion, accident, fire, flood, storm, or other emergency, Operator
may immediately conduct such operations and make such expenditures as in its
opinion are required to overcome the emergency, including, but not limited to,
any and all measures to protect life, health, safety, property, natural
resources or the environment.  Operator shall report to the Parties,
as promptly as possible, the nature of the emergency and action
taken.  The Operator shall provide supplemental AFE’s to Participating
Parties, for informational purposes only, if it reasonably determines that the
expected actual costs of an operation will exceed the amount of the approved AFE
by 15% or more, but only if the dollar amount of such expected excess is greater
than Two Hundred Fifty Thousand Dollars ($250,000.00).

               

              
                
                  
                  

                

                
                  10

                  
                    

                  

                

                
                  
                  

                

              

              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           Security Rights
(Louisiana).  In addition to any other security rights and
remedies provided by law with respect to services rendered or materials and
equipment furnished under this Agreement, for and in consideration of the
covenants and mutual undertakings of the Operator and the Non-operators herein,
the Parties shall have the following security rights:

              (a)           Mortgage in Favor of the
Operator.  Each Non-operator hereby grants to the Operator a
mortgage, hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease within the Contract Area, (b) the oil, gas and
other minerals in, on, under, and that may be produced from the lands within the
Contract Area, and (c) all other immovable property susceptible of mortgage
situated within the Contract Area.

               

              This
mortgage is given to secure the complete and timely performance of and payment
by each Non-operator of all obligations and indebtedness of every kind and
nature, whether now owed by such Non-operator or hereafter arising, pursuant to
this Agreement.  To the extent susceptible under applicable law, this
mortgage and the security interests granted in favor of the Operator herein
shall secure the payment of all costs and other expenses properly charged to
such Party, together with (A) interest on such indebtedness, costs, and other
expenses at the rate set forth in Exhibit "C" attached hereto (the "Accounting
Procedure") or the maximum rate allowed by law, whichever is the lesser, (B)
reasonable attorneys' fees, (C) court costs, and (D) other directly related
collection costs.  If any Non-operator does not pay such costs and
other expenses or perform its obligations under this Agreement when due, the
Operator shall have the additional right to notify the purchaser or purchasers
of the defaulting Non-operator's production of oil, gas and other minerals and
collect such costs and other expenses out of the proceeds from the sale of the
defaulting Non-operator's share of production of oil, gas and other minerals
until the amount owed has been paid.  The Operator shall have the
right to offset the amount owed against the proceeds from the sale of such
defaulting Non-operator's share of production of oil, gas and other
minerals.  Any purchaser of such production shall be entitled to rely
on the Operator's statement concerning the amount of costs and other expenses
owed by the defaulting Non-operator and payment made to the Operator by any
purchaser shall be binding and conclusive as between such purchaser and such
defaulting Non-operator.

               

              The
maximum amount for which the mortgage herein granted by each Non-operator shall
be deemed to secure the obligations and indebtedness of such Non-operator to the
Operator as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 (the "Limit of the Mortgage of each
Non-operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of each Non-operator to the Operator is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of each Non-operator, the liability of each Non-operator under this
Agreement and the mortgage and security interest granted hereby shall be limited
to (and the Operator shall not be entitled to enforce the same against such
Non-operator for, an amount exceeding) the actual obligations and indebtedness
[including all interest charges, costs, attorneys' fees, and other
charges provided for in this Agreement or in the Memorandum of Operating
Agreement and Financing Statement (Louisiana), as such term is defined in
Article 8.5.(e) (Recordation) hereof] outstanding and unpaid and that are
attributable to or charged against the interest of such Non-operator pursuant to
this Agreement.

              
                
                   

                

                
                  11

                  
                    

                  

                

                
                   

                

              

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

              
                
                   

                

                
                  12

                  
                    

                  

                

                
                   

                

              

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

               

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

               

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

               

              (c)           Mortgage in Favor of the
Non-operators.  The Operator hereby grants to each Non-operator
a mortgage, hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease within the Contract Area; (b) the oil, gas and
other minerals in, on, under, and that my be produced from the lands within the
Lease within the Contract Area; and (c) all other immovable property or other
property susceptible of mortgage situated within the Lease within the Contract
Area.

               

              This
mortgage is given to secure the complete and timely performance of and payment
by the Operator of all obligations and indebtedness of every kind and nature,
whether now owed by the Operator or hereafter arising, pursuant to this Agreement.  To
the extent susceptible under applicable law, this mortgage and the security
interests granted in favor of each Non-operator herein shall secure the payment
of all costs and other expenses properly charged to the Operator, together with
(A) interest on such indebtedness, costs, and other expenses at the rate set
forth in Exhibit “C” or the maximum rate allowed by law, whichever is the
lesser, (B) reasonable attorneys' fees, (C) court costs, and (D) other directly
related collection costs.  If the Operator does not pay such costs and
other expenses or perform its obligations under this Agreement when due, the
Non-operators shall have the additional right to notify the purchaser or
purchasers of the Operator’s production of oil, gas and other minerals and
collect such costs and other expenses out of the proceeds from the sale of the
Operator’s share of production of oil, gas and other minerals until the amount
owed has been paid.  The Non-operators shall have the right to offset
the amount owed against the proceeds from the sale of the Operator’s share of
production of oil, gas and other minerals.  Any purchaser of such
production shall be entitled to rely on the Non-operators’ statement concerning
the amount of costs and other expenses owed by the Operator and payment made to
the Non-operators by any purchaser shall be binding and conclusive as between
such purchaser and the Operator.

              
                
                   

                

                
                  13

                  
                    

                  

                

                
                   

                

              

              The
maximum amount for which the mortgage herein granted by the Operator shall be
deemed to secure the obligations and indebtedness of the Operator to all
Non-operators as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 in the aggregate (the "Limit of the Mortgage of the
Operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of the Operator to the Non-operators is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of the Operator, the liability of the Operator under this Agreement and
the mortgage and security interest granted hereby shall be limited to (and the
Non-operators shall not be entitled to enforce the same against the Operator
for, an amount exceeding) the actual obligations and indebtedness [including all
interest charges, costs, attorneys' fees, and other charges provided for in this
Agreement or in the Memorandum of Operating Agreement and Financing Statement
(Louisiana), as such term is defined in Article 8.5.(e) hereof] outstanding and
unpaid and that are attributable to or charged against the interest of the
Operator pursuant to this Agreement.

               

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

               

              
                
                   

                

                
                  14

                  
                    

                  

                

                
                   

                

              

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

               

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

               

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

               

              
                
                  
                  

                

                
                  15

                  
                    

                  

                

                
                  
                  

                

              

              (e)           Recordation.  To
provide evidence of, and to further perfect the Parties' security rights created
hereunder, upon request, each Party shall execute and acknowledge the Memorandum
of Operating Agreement and Financing Statement (Louisiana) attached as Exhibit
"E" (the "Memorandum of Operating Agreement and Financing Statement
(Louisiana)") in multiple counterparts as appropriate.  The Party
requesting execution of the aforesaid document shall file the Memorandum of
Operating Agreement and Financing Statement (Louisiana) in the public records
set forth below at its sole cost and expense to serve as notice of the existence
of this Agreement as a burden on the title of the Operator and the Non-operators
to their interests in the Leases within the Contract Area and for purposes of
satisfying otherwise relevant recording and filing requirements of applicable
law and to attach an original of the Memorandum of Operating Agreement and
Financing Statement (Louisiana) to a standard UCC-1 in mutually agreeable forms
for filing in the UCC records set forth below to perfect the security interests
created by the Parties in this Agreement.  Upon the acquisition of a
leasehold interest in a Lease within the Contract Area, the Parties shall,
within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation such a Memorandum of
Operating Agreement and Financing Statement (Louisiana) describing such
leasehold interest.  Such Memorandum of Operating Agreement and
Financing Statement
(Louisiana) shall be amended from time to time upon acquisition of additional
leasehold interests in the Leases within the Contract Area, and the Parties
shall, within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation any such
amendment.

               

              The Memorandum of Operating Agreement and Financing Statement
(Louisiana) is to be filed or recorded, as the case may be, in (a) the
conveyance records of the parish or parishes adjacent to the lands or offshore
blocks covered by the Leases within the Contract Area or contained within the
Leases within the Contract Area pursuant to La. R.S. 9:2731 et seq., (b) the
mortgage records of such parish or parishes, and (c) the appropriate Uniform
Commercial Code records.

              
                
                   

                

                
                  16

                  
                    

                  

                

                
                   

                

              

               

               

              8.6           Default.  If
any Party does not pay its share of the charges authorized under this Agreement
when due, the Operator may give the defaulting Party notice that unless payment
is made within thirty (30) days from delivery of the notice, the non-paying
Party shall be in default.  A Party in default shall have no further
access to the rig, Platform or Facilities, any Confidential Information or other
maps, records, data, interpretations, or other information obtained in
connection with activities or operations hereunder or be allowed to participate
in meetings.  A Party in default shall not be entitled to vote or to
make an election until such time as the defaulting Party is no longer in
default.  The voting interest of each non-defaulting Party shall be
counted in the proportion its Participating Interest share bears to the total
non-defaulting Participating Interest shares.  As to any operation
approved during the time a Party is in default, such defaulting Party shall be
deemed to be a Non-participating Party, except where such approval is binding on
all Parties or Participating Parties, as applicable. In the event a Party
believes that such statement of charges is incorrect, the Party shall
nevertheless pay the amounts due as provided herein, and the Operator shall
attempt to resolve the issue as soon as practicable, but said attempt shall be
made no later than sixty (60) days after receiving notice from the Party of such
disputed charges.

               

              
                
                  
                  

                

                
                  17

                  
                    

                  

                

                
                  
                  

                

              

              8.7           Unpaid
Charges.  If any Participating Party fails to pay its share of
the costs and other expenses authorized under this Agreement in accordance with
Exhibit “C” or to otherwise perform any of its obligations under this Agreement
when due, the Party to whom such payment is due, in order to take advantage of
the provisions of Article 8.5, shall notify the other Party by certified or
registered U.S. Mail that it is in default and has thirty (30) days from the
receipt of such notice to pay.  If such payment is not made timely by
the non-paying Party after the issuance of such notice to pay, the Party
requesting such payment may take immediate steps to diligently pursue collection
of the unpaid costs and other expenses owed by such Participating Party and to
exercise the mortgage and security rights granted by this
Agreement.  The bringing of a suit and the obtaining of a judgment by
any Party for the secured indebtedness shall not be deemed an election of
remedies or otherwise affect the security rights granted herein.  In
addition to any other
remedy afforded by law, each Party shall have, and is hereby given and vested
with, the power and authority to foreclose the lien, mortgage, pledge, and
security interest established hereby in its favor in the manner provided by law,
to exercise all rights of a secured party under the Uniform Commercial Code as
adopted by the state in which the Leases within the Contract Area are located or
such other states as such Party may deem appropriate.  The Operator
shall keep an accurate account of amounts owed by the nonperforming Party (plus
interest and collection costs) and any amounts collected with respect to amounts
owed by the nonperforming Party.  In the event there become three or
more Parties to this Agreement, then if any nonperforming Party's share of costs
remains delinquent for a period of sixty (60) days, each other Participating
Party shall, upon the Operator's request, pay the unpaid amount of costs in the
proportion that its Working Interest bears to the total non-defaulting Working
Interests.  Each Participating Party paying its share of the unpaid
amounts of a nonperforming Party shall be subrogated to the Operator's mortgage
and security rights to the extent of the payment made by such Participating
Party.

               

              8.8           Carved-out
Interests.  Except for the “Permitted Encumbrance” identified
on Exhibit “A”, any agreements creating any overriding royalty, production
payment, net proceeds interest, net profits interest, carried interest or any
other interest carved out of a Working Interest in the Leases within the
Contract Area shall specifically make such interests inferior to the rights of
the Parties to this Agreement. If any Party whose Working Interest is so
encumbered does not pay its share of costs and other expenses authorized under
this Agreement, and the proceeds from the sale of its production of oil, gas and
other minerals pursuant to Article 8.5 are insufficient to pay such costs and
expenses, the security rights provided for in this Article 8.5 may be applied
against the carved-out interests with which the defaulting or non-performing
Party’s interest in the Leases within the Contract Area is burdened. In such
event, the rights of the owner of such carved-out interest shall be subordinated
to the security rights granted by Article 8.5.

              

              
                
                  
                  

                

                
                  18

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
9

              NOTICES

              

              9.1           Giving and Responding to
Notices.  All notices and responses thereto shall be in writing
and delivered in person or by telephone followed by United States mail, telex,
telegraph, telecopier (facsimile) or cable; however, if a drilling rig is on
location and standby charges are accumulating, such notices and responses shall
be given by telephone and immediately confirmed in writing.  Notices
and responses shall be deemed given only when received by the Party to whom such
notice or response is directed, except that any notice or response by certified
United States mail or equivalent, telegraph, or cable properly addressed,
pursuant to Section 6.1, and with all postage and charges prepaid shall be
deemed given seventy-two (72) hours after such notice is deposited in the mail
exclusive of Saturdays, Sundays, and federal holidays, or twenty-four (24) hours
after
such notice or response is sent by telecopier (facsimile), receipt confirmed, or
filed with an operating telegraph or cable company for immediate transmission
exclusive of Saturdays, Sundays, and federal holidays.

               

              9.2           Content of
Notice.  Any notice which requires a response shall indicate
the response time specified in Section 9.3.  If a proposal involves a
Platform, Facility or Subsequent Facility, the notice shall contain a
description of same, including location and the estimated costs of design
fabrication, transportation and installation.  If a proposal involves
an Exploratory Operation or a Development Operation, the notice shall include
the proposed depth, the objective zone or zones to be tested, the surface and
bottom-hole locations, applicable details regarding directional drilling, the
equipment to be used, and the estimated costs of the operation including all
necessary expenditures through installation of the wellhead or abandonment of
the well.

               

              9.3           Response to
Notices.  Each Party's response to a proposal shall be in
writing to all other Parties.  Unless otherwise specified herein,
response times shall be as follows:

               

              
                	
                      	
                        9.3.1

                      	
                        Platform
      Construction.  When any proposal for well operations
      involves the construction of a Platform, each Party shall respond within
      sixty (60) days after receipt of notice.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  19

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                      	
                        9.3.2

                      	
                        Proposal Without
      Platform.  When any proposal for well operations does not
      require construction of a Platform, each Party shall respond within thirty
      (30) days after receipt of notice.  However, if a drilling rig
      is on location as a result of a joint Exploratory or Development Operation
      previously conducted thereon and standby charges are accumulating, the
      response shall be made within twenty-four (24) hours, inclusive of
      Saturdays, Sundays, and federal holidays, after receipt of
      notice.

                         

                      

              

              
                	
                      	
                        9.3.3

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

                         

                      

              

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

               

              9.5           Restrictions on Multiple
Well Proposals.  Notwithstanding any provision herein to the
contrary, it is specifically provided that no notice shall be given under this
Article 9 hereof which simultaneously proposes the drilling of more than two (2)
wells, or proposes the drilling of more than one (1) more well while there is an
outstanding proposal.  Further, these provisions of this Article 9,
insofar as they pertain to notification by a Party of its desire to drill a
well, shall be suspended for so long as: (1) a prior notice has been given which
is still in force and effect and the period of time during which the well
regarding same may be commenced has not expired; or (2) a well is presently
drilling hereunder.  This section shall not apply under those
circumstances where the well to which notice is directed is a well which is
required under the terms of a Lease or one required to maintain a portion
thereof in force.  In the event drilling operations are necessary
to perpetuate a Lease, any Party may propose and commence the drilling of such
additional well(s) pursuant to the terms and conditions hereof no earlier than
one hundred eighty (180) days prior to the date operations must be commenced,
regardless of other proposals then under consideration or drilling operations
then in progress.

              

              ARTICLE
10

              EXPLORATORY
OPERATIONS

              

              10.1           Operations by All
Parties.  Any Party may propose an Exploratory Well by
notifying the other Parties.  If all the Parties agree to participate
in drilling the proposed well, Operator shall drill same at their cost and
risk.  If a mobile drilling rig is not already on location as a result
of a prior Exploratory or Development Operation and the proposal ("Original
Proposal") has not already been approved, then any Party may submit an alternate
well proposal for consideration within ten (10) days after receiving the
Original Proposal to drill a well.  If one or more alternate proposals
have been submitted in accordance with the foregoing, then the Operator shall
call a meeting of the Parties to be held within seven (7) days following receipt
of the alternate proposal(s), at which the Parties shall determine by majority
vote in interest which proposal shall be considered by the Joint
Account.  In the event that no proposal receives support of a majority
in interest, then the proposal receiving the greatest support shall
prevail.  In the event of a tie between two or more proposals, then
the proposal (including the Original Proposal) supported by the largest number
of Parties shall prevail.  Each Party having the right to participate
in the proposal so selected shall make its election whether to join in the
drilling of such well within fifteen (15) days after the meeting was
held.  If drilling of 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; however, the one hundred twenty
(120) day period shall automatically be extended for an additional period, not
to exceed sixty (60) days, as may be necessary, in order to obtain all
applicable required regulatory permits, so long as applications for such
required permits were properly filed within thirty (30) days after the last
applicable election date.  Drilling operations shall be deemed to have
commenced on the date rig charges begin according to the terms of the drilling
contract.

               

              
                
                  
                  

                

                
                  20

                  
                    

                  

                

                
                  
                  

                

              

              10.2           Second Opportunity to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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
information.  This provision shall apply only in the event that there
are three (3) or more Parties to this Agreement.

               

              10.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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 working 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 Section 9.4.  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'
interests 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 any response under this Article 10 shall not exceed a total of
twenty-four (24) hours, inclusive of Saturdays, Sundays, and federal
holidays.  This provision shall apply only in the event that there are
three (3) or more Parties to this Agreement.

              10.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all of the cost and risk of drilling the proposed well,
Operator shall drill such well under this Agreement and the applicable
provisions of Article 12 and the following special provisions shall
apply:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        If
      the well will be the first Exploratory Well drilled under this Agreement,
      then as of the last applicable election date, each Non-Participating Party
      shall be deemed to have relinquished to the Participating Parties, in
      proportion to their Participating Interests or in the proportions
      otherwise agreed by the Participating Parties, all of its interest in the
      Contract Area.  If such well is commenced within the time
      provided in Section 10.1 and is drilled as proposed in accordance with
      this Agreement, each Non-Participating Party shall execute an assignment
      of all of its interest in the Contract Area to the Participating Parties,
      in proportion to their Participating Interests or in the proportions
      otherwise agreed by the Participating
Parties.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        If
      the well will not be the first Exploratory Well drilled under this
      Agreement and if such well is commenced within the time provided in
      Section 10.1 and is drilled as proposed in accordance with this Agreement,
      then, all of the Non-Participating Party's(ies') operating rights and
      interests in production from such well shall be vested in the
      Participating Parties in proportion to their Participating Interest,
      whether or not any instrument evidencing a transfer of rights and
      interests has been delivered by the Non-Participating
      Party(ies).  The Participating Party(ies) shall have the right
      to recoup the costs applicable to such well as determined by Section
      12.2 and/or Section 12.5 and the drilling of such well shall be governed
      by Article 12, except that the percentage of recoupment as provided in
      Section 12.2.1 (a) shall be eight hundred percent (800%) of the
      Non-Participating Party's Share of the cost of drilling the
      well.

                         

                      

              

              
              

              If the
well is not commenced within the time period provided in Section 10.1, the
effect shall be as if the proposal had not been made.

               

              
                
                  
                  

                

                
                  21

                  
                    

                  

                

                
                  
                  

                

              

              10.5           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Initial Exploratory Well or Exploratory Well
as originally proposed, the Participating Party or Parties encounter mechanical
difficulties, inpenetrable formation, and/or Gulf Coast conditions which render
drilling impractical, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced as
if it were the original proposed Initial Exploratory Well or Exploratory Well
for which it is the substitute; and the relationship, rights and obligations as
between the Participating Party and Non-Participating Party or Parties shall be
the same as if the Substitute Well were, in fact, the proposed Initial
Exploratory Well or Exploratory Well, as applicable.

               

              
                
                  
                  

                

                
                  22

                  
                    

                  

                

                
                  
                  

                

              

              10.6           Course of Action After
Drilling to Initial Objective Depth.  At such time as an
Exploratory Well has been drilled to the initial objective depth as proposed, or
a mutually agreed upon lesser depth, and all approved logs, cores, and other
tests have been completed, and the results thereof furnished to the
Participating Parties, Operator shall notify the Participating Parties setting
forth Operator's recommendation to either:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in
      zones all of which are deeper than the zone approved for the single
      completion.)

                      

              

              
              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Sidetrack
      the well to another bottom hole location not deeper than the stratigrephic
      equivalent of the initial objective
depth.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        Perform
      other operations on the well. (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        Plug
      and abandon the well.

                         

                      

              

              The
Participating Parties, within twenty-four (24) hours, inclusive of Saturdays,
Sundays, and federal Holidays, 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, inclusive of Saturdays, Sundays, and federal holidays,
to respond thereto.  If conflicting proposals are made, the priority
of operations 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.

               

              
                
                  
                  

                

                
                  23

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                      	
                        10.6.1

                      	
                        Operation by All
      Parties.  Subject to Section 10.6.4, if all Participating
      Parties approve a proposal, Operator shall conduct the operation at the
      Participating Parties’ cost and risk.

                         

                      

              

              
                	
                      	
                        10.6.2

                      	
                        Operations by Fewer
      than All Parties.  If one (1) or more Parties having a
      combined Participating Interest in the well of twenty percent (20%) or
      more approve a proposal and agree to bear the cost, risk and liabilities
      (including loss of the hole due to deepening of any well) thereof, except
      a proposal to plug and abandon, Operator shall conduct the same as a
      Non-Consent Operation for such Parties pursuant to the provisions of
      Article 12, except that the percentage of recoupment as provided in
      Section 12.2.1(a) shall be the same as provided for in Section
      10.4(b).  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, inclusive of Saturdays, Sundays, and federal
      holidays, 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)
      Participating Party, each of which is willing to assume all costs, risks
      and liabilities of further operations, but each desires to perform a
      different operation, then the order of priority as listed above herein
      shall prevail and govern.

                      

              

              
                	
                      	
                        10.6.3

                      	
                        Obligations and
      Liabilities of Participating Parties.  If the decision is
      to complete at initial objective depth, to plug back and complete at a
      lesser depth, to deepen or to Sidetrack to another bottomhole location, 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 that portion of the well in which
      it was a Participating Party.

                         

                      

              

              
                	
                      	
                        10.6.4

                      	
                        Deepening or
      Sidetracking of Non-Consent Exploratory Well.  Subject to
      the terms of Section 10.6 above, 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 or Sidetrack, 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 or Sidetracking operation by notifying the
      Operator, within forty-eight (48) hours, inclusive of Saturdays, Sundays,
      and federal holidays, after receiving notice of the
      decision.  In such event any Non-Participating Party which
      elects to participate in deepening or Sidetracking 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 or that point the Sidetracking
      operation is commenced if lesser than the initial objective
      depth.  Thereafter such Non-Participating Party shall be deemed
      for all purposes to be a Participating Party as to such deepening or
      Sidetracking operations, and the provisions of Section 10.4 shall not be
      applicable to such Party as to the deepened or Sidetracked 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 portion of the Non-Consent Well any
      balance remaining pursuant to 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 Section 10.6.4.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  24

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                      	
                        10.6.5

                      	
                        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.

                      

              

              

              ARTICLE
11

              DEVELOPMENT
OPERATIONS

              

              11.1           Operations by All
Parties.  Any Party may propose Development Operations,
including any wells (whether drilling, completing, recompleting, deepening,
deviating or Sidetracking, plugging back or working over),
Platform,  Facilities and/or Subsequent
Facilities required by such operations, by submitting a Development Operation
AFE to the other Parties for approval pursuant to the response to notice
procedures set forth in Article 9.  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 one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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.  This provision shall
apply only in the event that there are three (3) or more Parties to this
Agreement.

               

              11.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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 Section 9.4.  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 any response under this Article 11 shall not exceed a total of
twenty-four (24) hours, inclusive of Saturdays, Sundays, and federal
holidays.  This provision shall apply only in the event that there are
three (3) or more Parties to this Agreement.

               

              
                
                  
                  

                

                
                  25

                  
                    

                  

                

                
                  
                  

                

              

              11.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all 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; however, the one hundred twenty (120) day period shall
automatically be extended for an additional period, not to exceed sixty (60)
days, as may be necessary, in order to obtain all applicable required regulatory
permits so long as applications for such required permits were properly filed
within thirty (30) days after the last applicable election date.  If
no operations are commenced within such time period, the effect shall be as if
the proposal had not been made.  Operations shall be deemed to have
commenced: (a) on the date the contract for a new Platform is let, if the notice
indicated a need for such Platform, or (b) on the date the rig charges begin
according to the terms of the drilling
contract.  For all other Development Operations, Development
Operations shall be deemed to have commenced on the day charges are incurred
pursuant to an approved AFE.

              11.6           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Development Operation as originally proposed,
the Participating Party or Parties encounter mechanical difficulties,
inpenetrable formation, and/or Gulf Coast conditions which render further
drilling impossible, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced
were the original proposed Development Operation for which it is the substitute,
and the relationship, rights and obligations as between the Participating Party
and Non-Participating Party or Parties shall be the same as if the Substitute
Well were, in fact, the proposed Development Operation, as
applicable.

               

              
                
                  
                  

                

                
                  26

                  
                    

                  

                

                
                  
                  

                

              

              11.7           Course of Action After
Drilling to Initial Objective Depth.  At such time as a
Development Well has been drilled to the initial objective depth as proposed and
all approved logs, cores and other tests have been completed and the results
thereof furnished to the Participating Parties, Operator shall notify the
Participating Parties setting forth Operator's recommendation to
either:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in zones all of which are deeper than the zone
      approved for the single
completion.)

                      

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Sidetrack
      the well to another bottom hole location not deeper than the stratigraphic
      equivalent of the initial objective
depth;

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        Perform
      other operations on the well.  (If conflicting proposals are
      approved, the proposal receiving the largest percentage of Working
      Interest approval shall take precedence.  In the event of a tie
      between two or more approved proposals, the approved proposal first
      received by the Parties shall take
precedence.)

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        Plug
      and abandon the well.

                         

                      

              

              The Participating Parties, within
forty-eight (48) hours, inclusive of Saturdays, Sundays, and federal holidays,
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, the priority of
operations 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.

               

              
                
                  
                  

                

                
                  27

                  
                    

                  

                

                
                  
                  

                

              

              11.7.1          Operations by All
Parties.  If all Participating Parties approve a proposal,
Operator shall conduct the operation at the Participating Parties' cost and
risk.

               

              11.7.2          Operations by Fewer than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Participating Interest in the well of twenty percent (20%) or more
approve a proposal and agree to bear the cost, risk, and liabilities (including
loss of the hole due to deepening of any well) thereof, except a proposal to
plug and abandon, Operator shall conduct the same as a Non-Consent Operation for
such Parties pursuant to the provisions of Article 12.  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, risks and liabilities of further
operations, but each desires to perform a different operation, then the order of
priority as listed above herein shall prevail and govern.

               

              11.7.3          Obligations and Liabilities
of Participating Parties.  If the decision is to complete at
initial objective depth, to plug back and complete at a lesser depth, to deepen
or to Sidetrack to another bottomhole location, 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 that portion of the well in which it was a Participating
Party.

              11.8           Deeper
Drilling.  If a well is proposed to be drilled below the
deepest Producible Reservoir 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 Reservoir.  A Party electing to participate in such
well to the base of said Producible Reservoir shall bear its proportionate part
of the cost and risk of drilling to said Producible Reservoir including
completion or abandonment. All operations below the depth to which such Party
agreed to participate shall be governed by Article 12.  However, if
the proposal to drill below the deepest Producible Reservoir penetrated by a
Producible Well meets the requirements of an Exploratory Operation, the
percentage of recoupment shall be that specified in Section 10.4(b) and shall be
subject to the provisions of Article 10 with respect to such
operations.

               

                             
11.9           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.

               

              
                
                  
                  

                

                
                  28

                  
                    

                  

                

                
                  
                  

                

              

                             
11.10         Subsequent
Facilities.  The affirmative vote of one (1) or more Parties
having a combined Participating Interest of fifty-one percent (51%) or more in
the wells to be served by the proposed Subsequent Facilities shall constitute
approval for the construction of such Subsequent Facilities and all Parties
having an interest in the wells to be served shall be bound by such approval and
be required to participate in the costs therefor.  Nothing hereunder
shall limit a Party's rights under Section 21.1 to incur additional costs for
separate facilities.

               

                             
11.11         Contracts.  Operator
may enter into contracts with independent contractors for Development Operations
and shall utilize competitive bidding.

              

              ARTICLE
12

              NON-CONSENT
OPERATIONS

              

                              12.1           Non-Consent
Operations.  Operator shall conduct Non-Consent Operations at
the sole risk, expense, and liability of the Participating Parties, in
accordance with the following provisions:

               

              
                	
                      	
                        12.1.1

                      	
                        Non-Interference.  Non-Consent
      Operations shall not interfere unreasonably with any other operations
      being conducted within the Contract Area.

                         

                      

              

              
                	
                      	
                        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 participating in the Non-Consent
      Operations and 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
      subject to approval by appropriate governmental authority, may be
      determined on the basis of well tests.

                         

                      

              

              
                	
                      	
                        12.1.4

                      	
                        Non-Consent
      Well.  Operations on a Non-Consent Well shall not be
      conducted in any Producible Reservoir penetrated by a Producible Well
      without written approval of each Non-Participating Party unless these four
      (4) conditions are satisfied: (a) such Producible Reservoir shall have
      been designated in the notice as an objective zone; (b) completion of such
      well in said Producible Reservoir will not increase the well density
      governmentally prescribed or approved for such Producible Reservoir; (c)
      the horizontal distance between the vertical projections of the midpoint
      of the Producible Reservoir in such well and any existing well in the same
      Producible Reservoir will be at least one thousand (1,000) feet if an
      oil-well completion or two thousand (2,000) feet if a gas-well completion;
      and (d) completion of such well as a producer will not cause or result in
      a decreased "MER" or "MPR" for any existing Producible Reservoir or
      Producible Well.  The terms "MER" and "MPR" are defined under 30
      Code of Federal Regulations, Subpart K-Production rates, Parts 250.170
      through 250.177.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  29

                  
                    

                  

                

                
                  
                  

                

              

               

               

              
                	
                      	
                        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 either a joint interest billing or an itemized statement of
      the cost of such well and equipment pertaining
      thereto.  Operator shall furnish to the Parties a quarterly
      statement showing operating expenses and the proceeds from the sale of
      production from the well for the preceding three (3) month
      period.  When Operator’s payout calculation indicates that
      payout has occurred, Operator shall promptly notify all
      Parties.

                         

                      

              

              
                	
                      	
                        12.1.6

                      	
                        Completion.  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 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.  Such leasehold operating rights and title to
      production shall revert to each Non-Participating Party at 7:00 a.m. on
      the day following the date 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 12.3, equals the sum of the
      following:

                      

              

              
              

              
                	 	(a)	
                        Six
      hundred percent (600%) of the Non-Participating Party's Share of the cost
      of drilling, testing, completing, recompleting, working over, deepening,
      deviating or Sidetracking, plugging back, or temporarily plugging and
      abandoning each Non-Consent Well (or any Non-Consent Operation(s) in a
      joint well), and equipping it through the wellhead connections, reduced by
      any contribution received under Article 20; plus

                         

                      
	
                         
      

                      	
                        (b)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Non-Consent Facilities necessary to establish the production
      resulting from the operations defined in Section 12.2.1.(a) above;
      plus

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Platform in which it does not participate and which must be
      installed to establish the production resulting from the operations
      defined in Section 12.2.1.(a) above;
plus,

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Platform, whether or not owned by the Joint Account;
      plus,

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Facilities not owned by the Joint Account, including
      leased facilities; plus

                      

              

              
                	
                         
      

                      	
                        (f)

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

                         

                      

              

              At 7:00
a.m. upon the day following the date of recoupment of such costs, a
Non-Participating Party shall become a Participating Party in such
operations.

               

              
                
                  
                  

                

                
                  30

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                      	
                        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 wells (or portions thereof associated with any Non-Consent
      Operation(s) in a joint well), Platforms and Facilities of the Non-Consent
      Operations, as well as all liabilities and benefits related thereto, shall
      remain vested in the Participating Parties; however, any salvage in excess
      of the sum remaining under Section 12.2.1 shall be credited to all
      Parties.

                         

                      

              

               

              12.3             Deepening or Sidetracking of
Non-Consent Development Well.  If any Participating Party
proposes to deepen or Sidetrack a Non-Consent Development Well, a
Non-Participating Party may participate by notifying the Operator within thirty
(30) days after receiving the proposal (forty-eight (48) hours, inclusive of
Saturdays, Sundays, and federal holidays, if a rig is on location) that it will
join in the deepening or Sidetracking operation and by paying to the
Participating Parties; 1) if it is a deepening an amount equal to the costs of
the well as if such Non-Participating Party had originally participated to the
objective depth or; 2) if it is a sidetrack operation an amount equal to the
Non-Participating Parties share of drilling the non-consent well to that point
the Sidetracking operation is commenced.  The Participating Parties
shall continue to be entitled to recoup the full sum specified in Section 12.2.1
applicable to the non-consent portion of the well out of the proceeds received
from production from the non-consent portion of the well, less any amount
received under this Section 12.3.

              12.4           Operations from Non-Consent
Platforms and Facilities.  Subject to the following, a Party
which did not originally participate in a Platform or Facilities shall be a
Non-Participating Party as to ownership therein and all operations thereon until
the Participating Parties as to such Platform or Facilities have recouped the
full sum specified in Section 12.2.1 applicable to such non-consent Platform or
Facilities and the Non-Consent Operations which resulted in the setting of such
Platform or Facilities and other Non-Consent Operations thereon or
therefrom.  However, any original Non-Participating Party may
participate in additional operations from such Platform or Facilities by
notifying the Operator within thirty (30) days after receiving a proposal for
operations from such Platform or Facilities that it will join in such proposed
operations by paying to the Participating Parties in such Platform or Facilities
an amount equal to the non-consent penalty provided for in Section 12.2.1
applicable to such Non-Participating Party’s Share of the actual cost of such
Platform or Facilities, less any recoupment therefor previously
obtained.  Thereafter, such original Non-Participating Party in such
non-consent Platform or Facilities shall own its proportionate share
thereof.  The Participating Parties in such non-consent Platform or
Facilities shall continue to be entitled to recoup the full sum specified in
Section 12.2.1 applicable to any other Non-Consent Operations thereon or
therefrom.

               

              
                
                  
                  

                

                
                  31

                  
                    

                  

                

                
                  
                  

                

              

              12.5           Discovery or Extension from
Mobile Drilling Operations.  If a Non-Consent Well is drilled
from a mobile drilling rig or floating drilling vessel and results in the
discovery of oil or gas or extension of a Producible Reservoir and, if within
one (1) year from the date the drilling equipment is released, a Platform or
other fixed structure is ordered and if its location is within three thousand
(3,000) feet from the vertical projection of the bottom-hole location of any
such well (unless limited by surface restrictions or seabed conditions), 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 subsequently completed wells on the Contract 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 Contract 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           Non-Consent Operations to
Maintain Lease.  Notwithstanding any other provision hereof, if
a Lease has no wells thereon capable of commercial production in the final six
(6) months of the primary term of such Lease and such Lease is not held by a
unit or a Suspension of Production pursuant to other operations on the Lease or
in the unit, any Party electing not to participate in the drilling of a well or
other operation in the final six (6) months of the primary term or at any time
during the secondary term, shall assign its full interest in such Lease pro-rata
to the Parties hereto undertaking the drilling of such well or participating in
such operation.  Such assignment shall be executed and delivered
within thirty (30) days after commencement of the well or
operation.  If at any time after the expiration of the primary term of
a Lease, a well must be drilled or an operation conducted because of cessation
of production or to fulfill an obligation to develop such Lease, such well or
operation being required to extend the term of such Lease or a portion thereof,
any Party electing not to participate in the operation or the drilling of such a
well shall assign its full interest in that Lease, or portion thereof, pro-rata
to the Parties hereto undertaking the drilling of such a well.  Such
assignment shall be executed and delivered within thirty (30) days after
commencement of the well or operation, but shall be limited to the portion of
the Lease the term of which was extended by the operation or drilling the well,
and provided any Non-Participating Party shall retain its rights and liabilities
with respect to any previously completed wells on that Lease and the production
therefrom.  Thereafter, that Lease shall no longer be a part of the
Contract Area, and the Non-Participating Party or Parties shall no longer own an
interest in any wells drilled on such Lease, other than those wells drilled
prior to the occurrence set out herein.  Should the Parties electing
to undertake the drilling of a well or conduct operations under this Section
12.6 fail to perform, as Participating Parties, the drilling of the well or
operations substantially as proposed, the Parties receiving the aforementioned
assignment shall assign back to the Party or Parties originally electing not to
participate, that interest which was caused to be assigned pursuant to this
Section 12.6.  A Party hereunder executing an assignment of its
interest in a Lease pursuant to the foregoing shall not be relieved of any
obligation hereunder accruing prior to such assignment.  If more than
one (1) well is drilled or more than one (1) operation conducted, any of which
would maintain or extend such Lease or such portions thereof, an assignment
shall not be required from any Party participating in any such well(s) or
operation(s) as to that portion of the Lease or unit which would have been
maintained by such well(s) or operation(s).

              
                
                   

                

                
                  32

                  
                    

                  

                

                
                   

                

              

               

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

               

              
                	
                      	
                        12.7.1

                      	
                        Charges.  If
      a Non-Consent Well is drilled from a Platform, the Participating Parties
      in such well shall be liable to the Joint Account owners of the Platform
      for the use of 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.  Notwithstanding the foregoing, if the Non-Consent
      Well is abandoned as an unsuccessful well, and no substitute well is
      drilled by the Participating Parties, then, if the slot is abandoned in a
      condition such that it could be used for the drilling of a future well,
      the Participating Parties shall not be required to pay the sum set out in
      this Section 12.7.1.

                      

              

              
                	
                         
      

                      	
                        (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, less accumulated depreciation, which one (1) well
      completion bears to the total number of Producible Well completions
      utilizing the Facilities.

                         

                      

              

               

               

               

              
                
                  
                  

                

                
                  33

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                      	
                        12.7.2

                      	
                        Operating and
      Maintenance Charges.  The Participating Parties shall pay
      on a monthly basis all costs necessary to connect a Non-Consent Well to
      the Facilities and that proportionate part of the expense of operating and
      maintaining the Platform and Facilities applicable to the Non-Consent
      Well.  Platform and Facilities operating and maintenance
      expenses shall be allocated in proportion to the producing well count
      during a calendar month as it relates to the total number of wells
      producing from such Platform during such calendar month.  For
      the purpose of this provision, a producing zone or each completion in a
      multi-completed well shall be considered as a separate well.

                         

                      

              

              
                	
                      	
                        12.7.3

                      	
                        Payments.  Payment
      of sums pursuant to Section 12.7.1 is not a purchase of an additional
      interest in the Platform or Facilities.  Such payments, if the
      recoupment provisions of Section 12.2 are applicable, shall be included in
      the total amount which the Participating Parties are entitled to recoup
      out of production from the Non-Consent Well.

                         

                      

12.8        Allocation of Costs Between
Depths (Single Completion).  For the purpose of allocating
costs on any well with a single completion in which the Participating Interests
of the Parties are not the same for the entire depth or the completion thereof,
the cost of drilling, completing, equipping, and plugging and abandoning such
well shall be allocated on the following basis:

                     

              
                	 	(a)   	 Intangible
      drilling, completion, casing string, and material costs from the surface
      to a depth one hundred feet (100') below the base of the Producible
      Reservoir in which the well is completed shall be charged to the
      Participating Parties in such completion in accordance with their
      respective Participating Interest.
	
                         
      

                      	
                        (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
      Producible Reservoir in which the well is completed to total depth shall
      be charged to the Participating Parties in the well to total depth in
      accordance with their respective Participating
  Interest.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        All
      plugging and abandonment costs directly associated with the Producible
      Reservoir in which the well is completed will be allocated to the
      Participating Parties in that completion in accordance with their
      respective Participating Interests.  All final plugging and
      abandonment costs associated with the wellbore will be allocated
      proportionately among all Participating Parties in the well.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  34

                  
                    

                  

                

                
                  
                  

                

              

               

               

              12.9        Allocation of Costs Between
Depths (Multiple Completions).  For the purpose of allocating
costs on any well completed in dual or multiple Producible Reservoirs in which
the Participating Interests of the Parties are not the same for the entire depth
or the completion thereof, the cost of drilling, completing, equipping, and
plugging and abandoning 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 Producible Reservoir shall be divided equally
      between the completed Producible Reservoirs and charged to the
      Participating Parties in each Producible Reservoir in accordance with
      their respective Participating
Interest.

                      

              

              
                	
                         
      

                      	
                        (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 Producible Reservoir to a depth one hundred feet (100') below
      the base of the second completed Producible Reservoir shall be divided
      equally between the second and any other Producible Reservoir completed
      below such depth and charged to the Participating Parties in each such
      Producible Reservoir in accordance with their respective Participating
      Interest.  If the well is completed in additional Producible
      Reservoirs, the costs applicable to each such Producible Reservoir shall
      be determined and charged to the Participating Parties in the same manner
      as prescribed for wells completed in dual Producible
      Reservoirs.

                      

              

              
              

              
                	
                         
      

                      	
                        (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 lowest
      completed Producible Reservoir to total depth shall be charged to the
      Participating Parties in the well to total depth in accordance with their
      respective Participating Interest.

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Costs
      of tubing strings serving each separate Producible Reservoir shall be
      charged to the Participating Parties in each Producible Reservoir in
      accordance with their respective Participating
  Interest.

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        For
      the purposes of allocating tangible and intangible costs between
      Producible Reservoirs that occur at less than one hundred feet (100')
      intervals, the distance between the base of the upper reservoir to the top
      of the next lower reservoir shall be allocated equally between
      reservoirs.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        All
      plugging and abandonment costs directly associated with a Producible
      Reservoir will be allocated to the Participating Parties in that reservoir
      in accordance with their respective Participating
      Interests.  All final plugging and abandonment costs associated
      with the wellbore will be allocated proportionately among all
      Participating Parties in the well.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  35

                  
                    

                  

                

                
                  
                  

                

              

              12.10       Allocation of Costs Between
Depths (Dry Hole).  For the purpose of this Section, a dry hole
shall mean a well drilled to an objective depth in which the Participating
Parties elected not to complete, or if completed, the well was not a Producible
Well and did not establish a Producible Reservoir.  In allocating
costs on any well containing a dry hole, and in which the Participating
Interests of the Parties are not the same for the entire depth or the completion
thereof, the cost of drilling and plugging and abandoning such well shall be
allocated on the following basis:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Costs
      to drill and plug and abandon a well proposed for completion in single,
      dual, or multiple objective depths shall be charged to the Participating
      Parties in the same manner as if the well had established a Producible
      Reservoir at each objective depth.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Additional
      plugging and abandoning costs related to any deepening, completion
      attempt, or other operation shall be at the sole risk and expense of the
      Participating Parties in such operation.

                         

                      

              

              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
Producible Reservoirs, including dry holes as defined in Section 12.10, and
including the interval from one hundred feet (100') below the deepest Producible
Reservoir to total depth on a drilling day ratio basis where the factor for each
reservoir is determined by a fraction for which the
numerator is the number of drilling and completion days applicable to that
reservoir 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.

               

              12.12       Subsequent Operations in
Non-Consent Well.  Except as provided in Section 10.6.4 or
12.3, as applicable, an election not to participate in the drilling,
Sidetracking, or deepening of a well shall be deemed to be an election not to
participate in any subsequent operations in the well before full recovery by the
Participating Parties of the Non-Participating Party's recoupment
amount.  A subsequent operation conducted during the recoupment period
by the Parties entitled to participate shall be subject to the recoupment
provided in Section 12.2.1.

              

              
                
                  
                  

                

                
                  36

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
13

              ABANDONMENT AND
SALVAGE

              

              13.1           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.

               

              13.2           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 unanimous approval 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, plugging and abandoning, the abandoning Party
shall pay the Operator, for the benefit of the non-abandoning Parties, a sum
equal to the deficiency.

               

              13.3           Assignment of
Interest.  Each Participating Party desiring to abandon a well
pursuant to Section 13.2 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, after delivering the assignment, from any further
liability with respect to said well, and each non-abandoning Party shall assume
and bear all such liabilities in proportion to the share of interest that it
receives from the abandoning Parties.  Notwithstanding Section 13.2,
no Party shall be required to accept an assignment of an interest of a Party
desiring to abandon a well.  If no Party is willing to accept
the assignment, the Party seeking to abandon the well shall remain an owner in
the well. 

               

              13.4           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
14

              WITHDRAWAL

              

              14.1           Withdrawal.  A
Party may withdraw from this Agreement by assigning to the other Parties who do
not desire to withdraw, all of its interest in the Contract Area and the wells,
Platforms and Facilities used in operations thereon; 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.  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 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 ninety (90) 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 the withdrawing Party
shall thereafter be relieved from all further obligations and liabilities with
respect to the Contract Area; provided, however, that such withdrawing Party
shall remain liable for any costs, expenses, or damages theretofore accrued or
arising out of any event accruing prior to such Party's withdrawal.

               

              
                
                  
                  

                

                
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              14.2           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.  Notwithstanding Section 14.1, no Party shall be required
to accept an assignment of a withdrawing Party's interest.  If no
Party is willing to accept the assignment, the Party seeking to withdraw shall
remain subject to this Agreement.

              ARTICLE
15

              RENTALS, ROYALTIES, AND
OTHER PAYMENTS

              

              15.1           Creation of Overriding
Royalty.  If the Working Interest or Participating Interest of
a Party is subject to an overriding royalty, production payment, net profits
interest, mortgage, lien, security interest, or other burden or encumbrance,
other than lessor’s royalty, the Party so burdened shall pay and bear all
liabilities and obligations created or secured by the burden or encumbrance and
shall indemnify and hold the other Parties harmless from all claims and demands
for payment asserted by the owners of the burdens or encumbrances. If any
Non-Participating Party's interest is subject to an overriding royalty,
production payment, or other charge or burden other than the “Permitted
Encumbrance” shown on Exhibit “A”, then the Participating Parties shall, during
recoupment of costs to be recovered under Section 12.2 above, receive the
Working Interest production of such Non-Participating Party free from such
charge or burden, which shall be paid and discharged by the Non-Participating
Party out of his own separate funds.  Such Non-Participating Party
shall hold the Participating Parties harmless with regard to such
payment.

               

              
                
                  
                  

                

                
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              15.2           Payment of Rentals and
Minimum Royalties.  Operator shall 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 Lease(s) and submit evidence of each
such payment to the Parties.  Operator 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, or
is erroneously paid.  The loss of any Lease or interest therein which
results from a failure to pay or an erroneous payment of rental or minimum
royalty shall be a joint loss and there shall be no readjustment of
interest.

               

              15.3           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 such Lease as would be maintained by such
payment.  Unless otherwise agreed, such assigned interest shall be
owned by each Participating Party in proportion to its Participating
Interest.

               

              15.4           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 Contract Area for its
account and on its share of any production used, consumed, or lost on the
Contract Area.  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
16

              TAXES

              

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

               

              
                
                  
                  

                

                
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              16.2           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.

               

              16.3           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.

               

              16.4           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, provided that should a Party's
unilateral action cause a change in status of the entire Lease, Platform or
Facilities thereon for tax purposes, that Party shall bear the entire increased
portion of taxes caused by that Party's action.

               

              16.5           Gas
Balancing.  Each Party agrees that with respect to gas
production, each Party taking gas under the Gas Balancing Agreement attached
hereto as Exhibit "D" shall account for such gas for federal income tax purposes
in accordance with proposed Treasury Regulation Section 1.761-2(d)(3), or in
accordance with binding laws, rules, regulations, and orders affecting
production from the Contract Area which hereafter may be adopted, promulgated,
or issued by an agency or other governmental authority having jurisdiction over
the Contract Area.

              

              ARTICLE
17

              INSURANCE

              

              17.1           Insurance.  Operator
shall at times when operations are conducted herein during the term of this
Agreement, carry, pay for and charge each Party its proportionate share of
the cost of (i) Worker’s Compensation and Employer’s Liability Insurance
covering the employees of Operator engaged in operations hereunder in compliance
with all applicable State and Federal laws and (ii) Contingent Maritime
Employer’s Liability Insurance.  The Worker’s Compensation policy
shall have attached the “Longshoreman’s Harbor Worker’s Compensation Act
(Federal) Endorsement” and “Outer Continental Shelf Land’s
Endorsement”.  The Contingent Maritime Employer’s Liability Insurance
shall provide for a limit of liability of not less than $1,000,000 per
accident.  Such policies shall contain waivers of subrogation in favor
of Non-Operators.  Each Party to this Agreement shall be responsible
for insuring its own interest in property and equipment, well control and
redrill expense, or loss of income and any other loss not covered by the
insurance referred to herein.  Each Party for its account shall carry,
pay for and maintain throughout the term of this Agreement policies of insurance
specified in Exhibit “B” of this Agreement.

              

              
                
                  
                  

                

                
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              ARTICLE
18

              LIABILITY, CLAIMS AND
LAWSUITS

              

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

               

              18.2           Notice of Claim or
Lawsuit.  If a claim is made against any Party or if any Party
is sued on an alleged cause of action arising out of operations hereunder or an
alleged cause of action involving title to any interest subject hereto, such
Party shall give prompt written notice to the other Parties.

               

              18.3           Settlements.  Operator
may settle any single damage claim or suit involving operations or title to any
interest hereunder if the expenditure does not exceed Fifty Thousand Dollars
($50,000.00) and if the payment is in complete settlement of such claim or
suit.  If the amount required for settlement exceeds such amount, the
Participating Parties shall determine the further handling of the claim or
suit.  Operator will keep the Participating Parties appropriately
advised of all material events in each lawsuit and claim arising from operations
hereunder.

               

              18.4           Legal
Expense.  Legal expenses shall be handled pursuant to Exhibit
"C"; however, such legal expenses shall be approved and borne in accordance with
Exhibit "C" by only the Participating Parties in the operations out of which
such liability giving rise to same occurs.

               

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

               

              18.6           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.

               

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

              

              
                
                  
                  

                

                
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              ARTICLE
19

              INTERNAL REVENUE
PROVISION

              

              19.1           Internal Revenue
Provision.  Notwithstanding any provisions herein that the
rights and liabilities are several and not joint or collective, or that this
Agreement and the operations hereunder shall not constitute a partnership, each
Party elects not to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A, Internal Revenue Code of 1986, as amended, and similar provisions of
applicable state laws.  The tax partnership shall be governed by
Exhibit
“F”                                           .

              

              ARTICLE
20

              CONTRIBUTIONS

              

              20.1           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, in support of the drilling of any well on the Contract
Area.  Payments received as consideration for entering into a contract
for sale of production from the Contract Area, loans, and other financing
arrangements shall not be considered contributions for the purposes of this
Article.

               

              20.2           Cash
Contributions.  In the event a Party contracts for a cash
contribution toward the drilling of a well, said cash contribution shall be paid
to Operator and Operator shall apply the amount thereof against the cost of such
drilling.  If such well is a Non-Consent Well, the amount of the
contribution shall be deducted from the cost specified in Section
12.2.1.(a).

               

              
                
                  
                  

                

                
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              20.3           Acreage
Contributions.  In the event a Party contracts for 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 the cost of drilling the
well.  Such acreage shall become a separate contract area and,
to the extent possible, be subject to provisions identical to those contained in
this Agreement.  For purposes of this Agreement, the word "acreage"
shall mean lands or leases or interests therein.

              

              ARTICLE
21

              DISPOSITION OF
PRODUCTION

              

              21.1           Facilities to Take in
Kind.  Any Party shall have the right, at its sole risk and
expense, to construct Facilities for taking its share of production in kind,
provided that such Facilities, at the time of installation, do not interfere
with continuing operations on the Contract Area.

               

              21.2           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
Contract Area.

               

              21.3           Failure to Take in
Kind.  If any Party fails to take in kind and dispose of its
share of the oil and/or condensate, Operator shall have the option, but not the
obligation, to either (a) purchase oil and/or condensate at Operator's posted
price for liquids of the same kind, gravity, and quality in the field where the
Leases are located or, in the absence of such posted price, at the price
prevailing in the field or area for oil and/or condensate of the same kind,
gravity, and quality, or (b) sell such oil and/or condensate to others under
commercially reasonable terms negotiated by Operator in good faith , 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 be only for such
reasonable periods of time as are consistent with the minimum needs of the
industry under the circumstances, but in no event shall any contract be for a
period in excess of one hundred and eighty (180) days.  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 or dispose of
its share of gas, such gas shall be accounted for in accordance with the
provisions of Exhibit "D", Gas Balancing Agreement, attached hereto and made a
part hereof.

               

              21.4           Expenses of Delivery in
Kind.  Any cost incurred in making delivery of any Party's
share of oil and/or condensate or disposing of same pursuant to Section 21.3,
shall be borne by such Party.

               

              21.5           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
the attached Exhibit "D".

              
                
                   

                

                
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              ARTICLE
22

              APPLICABLE
LAW

              

              22.1           Applicable
Law.  THIS AGREEMENT AND ALL OPERATIONS CONDUCTED HEREUNDER BY
THE PARTIES SHALL BE SUBJECT TO ALL VALID AND APPLICABLE FEDERAL LAWS, RULES,
REGULATIONS AND ORDERS ("FEDERAL LAW").  TO THE EXTENT REQUIRED BY
FEDERAL LAW, THE LAWS OF THE STATE ADJACENT TO THE CONTRACT AREA SHALL
APPLY.  THIS AGREEMENT SHALL OTHERWISE BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF LOUISIANA, EXCLUDING CHOICE
OF LAW RULES THAT WOULD REFER THE MATTER TO THE LAW OF ANY OTHER
JURISDICTION.

              

              ARTICLE
23

              LAWS AND
REGULATIONS

              

              23.1           Laws and
Regulations.  This Agreement and all operations and activities
conducted under it shall be subject to all applicable laws, rules, regulations
and orders (federal, state, and local).  A provision of this Agreement
found to be contrary to or inconsistent with any such law, rule, regulation or
order shall be deemed to have been modified accordingly.

              

              ARTICLE
24

              FORCE
MAJEURE

              

              24.1           Force
Majeure.  The obligations imposed by this Agreement on a Party,
except for indemnity obligations and the payment of money, shall be suspended
with respect to such Party to the extent that compliance is prevented, in whole
or in part, by a labor dispute, fire, storm, 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
removed; and provided further that no Party shall be required against its will
to settle any labor dispute.

               

              24.2           Notice.  Whenever
a Party's obligations are suspended under Section 24.1, such Party shall
immediately notify the other Parties and give full particulars of the reason for
such suspension.

               

               

              
                
                  
                  

                

                
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              ARTICLE
25

              SUCCESSORS, ASSIGNS AND
PREFERENTIAL RIGHTS

              

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

              25.2           Transfer of Interest.
No transfer, assignment, or other disposition of interest by a Party shall
relieve the Party of liabilities and obligations it has incurred or that are
attributable to the interest transferred before the date of the transfer, and
the obligation to pay and bear all costs and risks attributable to an operation
in which the Party was a Participating Party before making the transfer, and the
lien and security rights granted by Section 8.5 (Security Rights) shall continue
to burden the interest transferred to secure payment of the obligations. The
transferor shall be liable for all costs, expenses, and liabilities for well
plugging and abandonment, Platform and Facilities removal and disposal, and site
clearance for property and equipment attributable to the assigned interest
before the date of the transfer, net of salvage proceeds.

               

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

               

              
                	
                         
      

                      	
                        (a)

                      	
                        the
      transferee is financially capable of assuming the obligations hereunder
      and, in accordance with Subsection 25.3(c), the transferor furnishes the
      Parties with proof of such financial capability that, in the case of Outer
      Continental Shelf leases, shall be proof that the transferee is currently
      qualified by the Minerals Management Service, an agency of the United
      States Department of the Interior, or a successor agency having
      jurisdiction (hereinafter “MMS”), to own Outer Continental Shelf leases
      and that the transferee has on file with the MMS the appropriate lessee
      and Operator bonds;

                      

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              
                	
                         
      

                      	
                        (c)

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

                         

                      

              

              The
requirements of this Section 25.3 shall not apply to a merger, consolidation,
reorganization, sale or transfer to an Affiliate, a mortgage by a Party of its
interest in the Leases within the Contract 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.

               

              
                
                  
                  

                

                
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              25.4           Transfers Between
Parties. A transfer, relinquishment, or other disposition of interests in
the Leases between Parties under Section 12.6 (Non-Consent Operations to
Maintain Lease); Article 14 (Withdrawal); or Section 15.3 (Non-participation in
Payments) shall be made without warranty of title. Any such transfer between the
Parties, if applicable, shall be free and clear of all overriding royalty,
production payment, net profits
interest, mortgage, lien, security interest, or other burden or encumbrance,
other than lessor’s royalty burdens and the Permitted Encumbrance shown on
Exhibit “A”.

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

               

              25.6           Preferential Rights.
If a Party desires to transfer, sell, farmout, assign, or otherwise dispose of
all or part of its Working Interest (“Disposing Party”), it shall promptly give
written notice to the other Parties with full information about the proposed
transaction, including, but not limited to, the name and address of the
prospective transferee (who must be ready, willing, and able to acquire the
interest and deliver the stated consideration therefor), the consideration for
the transfer, farmout terms, and all other terms of the offer. In the case of a
package sale of oil and gas interests that includes all or part of the Disposing
Party’s Working Interest, or if the proposed transaction is structured as a
non-simultaneous, like-kind exchange under Section 1031 of the Internal Revenue
Code of 1986, as amended (“Code”), the Working Interest that is subject to this
preferential right shall be separately valued and the notice shall state the
value attributed to the interest by the prospective transferee. The other
Parties shall then have an optional prior right, for a period of thirty (30)
days after receipt of the notice, to elect to purchase or acquire on the same
terms and conditions, or on equivalent terms for a non-cash transaction, all of
the Working Interest that the Disposing Party is proposing to transfer. If this
preferential right is exercised by a Party, the purchasing or acquiring Parties
shall share the purchased or acquired interest in the proportions that the
Working Interest of each bears to the total Working Interest of all acquiring
Parties, or in such proportions as the acquiring Parties otherwise agree. This
preferential right shall apply separately to each Working Interest or part
thereof covered by this Agreement, regardless of whether it is included in the
proposed transaction along with other oil and gas interests, whether as a sale,
farmout, or non-simultaneous, like-kind exchange, and no provision in this
Agreement shall be interpreted to defeat this preferential right. Upon exercise
of this preferential right, the acquiring Parties shall agree to perform all
obligations of the prospective transferee under the proposed transaction only
for the Working Interest subject to the proposed transaction. This preferential
right, however, shall not exist or apply when a Party proposes (a) to mortgage
its interest; (b) to dispose of or transfer its interest to an Affiliate by (i)
merger, (ii) reorganization, or (iii) consolidation; (c) to sell all, or
substantially all, of its exploration and production properties located in the
United States of
America; or (d) to transfer the interest under a property exchange transaction
other than a non-simultaneous, like-kind exchange under Section 1031 of the
Code. If the proposed transaction is not consummated within six (6) months after
receipt of the notice by the other Parties, the Working Interest shall again be
governed by this Section 25.6 and the preferential right shall again arise for
the offered interest as herein described.

              
                
                   

                

                
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              ARTICLE
26

              TERM

              

              26.1           Term.  This
Agreement shall remain in effect so long any Lease or part thereof within the
Contract Area remains in force and effect and thereafter until: (a) all wells
within the Contract Area have been abandoned and plugged or turned over to a
single Working Interest owner in accordance with Article 14; (b) all 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
"D".  Termination of this Agreement shall not relieve a Party of any
liability or obligation which accrued or was incurred before such
termination.

              

              ARTICLE
27

              MISCELLANEOUS
PROVISIONS

              

              27.1           
Headings.  Except
for the headings contained in Article 2 (Definitions), the headings and table of
contents used herein are inserted for convenience only and shall be disregarded
in construing this Agreement.

               

              27.2           
Waiver.  Failure
to act upon a breach of any provision of this Agreement does not waive a Party's
right to enforce a subsequent breach of the same or any other
provision.

              

              ARTICLE
28

              EXECUTION

              

              28.1           Counterpart
Execution.  This Agreement may be executed by signing the
original or a counterpart thereof.  If this Agreement is executed in
counterparts, all counterparts taken together shall have the same effect as if
all the Parties had signed the same instrument.

               

              28.2           Amendments.  No
amendments hereof shall be effective unless they are in writing and executed by
the relevant Parties.

              

              
                
                   

                

                
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              IN
WITNESS WHEREOF, this Agreement has been executed by the Parties on the date
shown below, but effective as of the day and year first above
written.

              

              WITNESSES:

              

              OPERATOR:

              

              Ridgelake Energy, Inc.

              _______________________________

              

              By:_________________________________

              _______________________________                        William
M. Hines

                                                                                                             
Vice President

              Date: September 26, 2006

              

              

              

              WITNESSES:

              NON-OPERATORS:

              

              GulfX, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Paul Garner

              Title: Vice
President

              Date: Oct 6,
2006

              

              

              South Marsh, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Paul Garner

              Title: Vice
President

              Date: Oct 6,
2006

              

              
 

              Lion Energy Limited, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Russell
Brimage

              Title: President

              Date: Oct 6,
2006

              

              

              

              

              

              
                
                   

                

                
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              EXHIBIT
"A"

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day
of  September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited, LLC.

              

              

              
                	
                        I.

                      	
                        Description of
      Lease(s):

                      

              

              

              
                
                  That
certain Lease dated effective July 1, 2005, by and between the United States of
America (“Lessor”) and Ridgelake Energy, Inc. (“Lessee”), designated by the
Minerals Management Service as OCS-G 27091, and covering 2,500 acres of
submerged lands within the Outer Continental Shelf, described as
follows:

                  

                  “All of Block 152, South Marsh Island
Area, South Addition, OCS Leasing Map, Louisiana Map No. 3C”

                

              

              

              
                	
                        II.

                      	
                        Contract
      Area:

                      

              

              

              The
Contract Area shall cover all of the acreage covered by OCS-G
27091.

              

              
                	
                        III.

                      	
                        Interest of
      Parties:

                      

              

               

              
                
                  	
                          Party:

                        	 	
                          Interest:

                        	 
	 
      	 	 	 
	
                          RIDGELAKE
      ENERGY, INC. (“OPERATOR”)

                        	 	 	*50.00	%
	
                          GULFX,
      LLC

                        	 	 	**12.50	%
	
                          SOUTH
      MARSH LLC

                        	 	 	** 7.50	%
	
                          LION
      ENERGY LIMITED LLC

                        	 	 	**30.00	%
	 
      	 	 	100.00	%

                

              

               

               

              
                
                  * (NOTE:
It is recognized that, pursuant to the terms of that certain Seismic Acquisition
and Exploration Agreement dated effective September 7, 2004, by and between
Ridgelake Energy, Inc. and Beacon Exploration and Production Company, L.L.C.,
Beacon has the right to participate for up to a 10% working interest in OCS-G
27091. Should Beacon or its designee be determined to have properly elected to
acquire a working interest in OCS-G 27091, then it is understood that such
interest will be conveyed by Ridgelake to Beacon or its designee. Furthermore,
it is agreed that the conveyance by Ridgelake to Beacon or its designee under
the terms of the aforesaid Seismic Acquisition and Exploration Agreement shall
not be subject to the terms of this agreement until such time as Beacon or it
designee has ratified and/or otherwise accepted the terms of this Operating
Agreement. In particular, the Parties herein specifically understand and agree
that the aforesaid conveyance by Ridgelake to Beacon ir its designee is not
subject to the terms of Article 25.3 and 25.6 of this Operating
Agreement.)

                  

                  ** (NOTE:
It is recognized and understood that the respective interests credited to GulfX,
LLC, South Marsh LLC and Lion Energy Limited LLC are subject to the terms and
conditions of the following Participation Agreements: 1) that certain Agreement
dated January 18, 2006, by and between Ridgelake and GulfX, LLC,
(2)  that certain Agreement dated September 18, 2006, by and between
Ridgelake and South Marsh LLC, and (3) that certain Agreement dated September
18,2006, by and between Ridgelake and Lion Energy Limited LLC. As such, the
interest, which is conditioned upon the performance by GulfX, South Marsh and
Lion of all of the terms and conditions contained in the aforesaid Participation
Agreements. Should the said parties fail to earn an interest in OCS-G 27091
under the terms of the Participation Agreement that is applicable to that
party’s conditional interest, then it is recognized that the interest credited
to that party shall revert to Ridgelake. Furthermore, it is understood and
agreed that if there is a conflict between the terms and conditions of the
Participation Agreements referenced herein and this Operating Agreement, then
the terms of the applicable Participation Agreement shall apply and take
precedence over the terms and conditions contained in this Operating
Agreement.)

                

              

              

              
                
                  
                  

                

                
                  A-1

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        IV.

                      	
                        Designated
      Representatives:

                      

              

              

              RIDGELAKE ENERGY,
INC.                                                                                   GULFX,
LLC

              3636 N. Causeway Boulevard, Suite
300                                                               45
Ventnor Avenue

              Metairie, Louisiana
70002-7216                                                                              West
Perth 6005

              Attention:  Mr. John
Rubin                                                                                    
Western Australia, Australia

                                                  
Attention: ______________

              

              SOUTH MARSH
LLC                                                                                             
LION ENERGY LIMITED LLC

              P.O. Box
512                                                                                                              
P.O. Box 512

              West Perth Business Center
6872                                                                         
West Perth Business Center 6872

              Western Australia,
Australia                                                                                 
Western Australia, Australia

              Attention:
_________________                                                                         
Attention: _________________

              

              

              
                	
                        V.

                      	
                        Permitted
      Encumbrance:

                      

              

              

              
                
                  In
addition to Lessor’s royalty, OCS-G 27091 is burdened with a 3.33333% of 8/8ths
Overriding Royalty Interest, which has been granted by Ridgelake Energy, Inc. to
Beacon Exploration and Production Company, L.L.C., pursuant the terms of that
certain letter agreement dated September 7, 2004, by and between Ridgelake and
Beacon Exploration and Production Company L.L.C. The aforesaid burdens are
Permitted Encumbrances under the terms of this Operating
Agreement.

                

              

              
                
                   

                

                
                  A-2

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“B”

              INSURANCE

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              INSURANCE
PROVISIONS

              

              1           Operator shall carry the
following insurance for the joint account:

              

              
                	
                         
      

                      	
                        a.

                      	
                        Workmen's
      Compensation and Employer's Liability Insurance covering employees of
      Operator engaged in operations hereunder in compliance with all applicable
      State and Federal Laws. The Workmen's Compensation policy shall have
      attached the "Longshoreman's Harbor Worker's Compensation Act (Federal)
      Endorsement" and "Outer Continental Shelf Lands
    Endorsement".

                      
	 	 	 
	 	
                        b.

                      	
                        Contingent
      Maritime Employer's Liability Insurance shall provide for a limit of
      liability of not less than $1,000,000 per
  accident.

                      

              

              

              
              

              

              
                 
2.           
Each
Party shall carry the insurance noted below with the minimum limits as set
out:

              

              

              
                	
                         
      

                      	
                        a.

                      	
                        General
      Liability and Property Damage Insurance endorsed to include offshore
      operations and non-owned watercraft liability, covering operations
      conducted hereunder with a combined single limit each occurrence of
      $1,000,000 for bodily injury and property damage.

                      
	 	 	 
	 	
                        b.

                      	
                        Commercial
      Automobile Liability Insurance covering owned, non-owned and hired
      automobiles with a combined single limit of $1,000,000 per occurrence and
      Property Damage Insurance covering operations conducted hereunder with a
      combined single limit each occurrence of $500,000 for bodily injury and
      property damage.

                      
	 	 	 
	 	
                        c.

                      	
                        Excess
      Liability Insurance, including sudden and accidental pollution liability,
      with a limit of $35,000,000.00.

                      
	 	 	 
	 	d. 	
                        Non-Owned
      Aircraft Liability Insurance with a limit of $5,000,000 each
      occurrence.

                      
	 	 	 
	 	
                        e.

                      	
                        Insurance
      for Control of Well, Redrilling and Restoration due to blowout and/or
      cratering above or below surface, and Seepage and Pollution Liability
      coverage including cleanup and containment with a minimum limit of
      $25,000,000 per occurrence. Coverage shall also include Care Custody and
      Control Insurance with a minimum limit of $500,000 per
      occurrence.

                      

              

              
 

              
                	
                        3.

                      	
                        Any
      Party hereto may acquire such additional insurance as it deems proper to
      protect itself against any claims, losses, damages or destruction arising
      out of operations hereunder.

                      

              

              

              
                	
                        4.

                      	
                        Operator
      shall use reasonable efforts to require all contractors and subcontractors
      working or performing services hereunder to comply with the Workmen's
      Compensation and Employer's Liability Laws, both State and Federal, and to
      carry Comprehensive General Liability and such other insurance as Operator
      deems necessary.

                      

              

              

              In the
event that construction operations are performed, Operator shall determine the
amount(s) of Builder’s Risks Insurance appropriate for the project and shall:
(i) cause the pertinent contractor(s) and, as applicable, subcontractor(s) to
carry, in the aggregate and as Operator deems appropriate, such coverage and/or
(ii) carry for the joint account (and charge it accordingly) for such portion
of, of all, the coverage as operator deems appropriate.  In any such
event, Operator shall cause certificates of insurance reflective of such
coverage to be forwarded to the Non-Operator(s).

              
                
                   

                

                
                  B-1 

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“C”

              

              Attached
to and made a part of that certain Operating Agreement,

              dated the
18th
day of September, 2006,

              by and between Ridgelake Energy, Inc.,
GulfX, LLC, South Marsh LLC and Lion Energy Limited LLC.

              

              ACCOUNTING
PROCEDURE

              OFFSHORE
JOINT OPERATIONS

              

              

              I.
GENERAL PROVISIONS

              

              
                	
                         
      

                      	
                        1.

                      	
                        Definitions

                      

              

              

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

              

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

              

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

              

              “Operator”
shall mean the party designated to conduct the Joint Operations.

              

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

              

              “Parties"
shall mean Operator and Non-Operators.

              

              “First
Level Supervisors” shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or contract labor
directly employed on the Joint Property in a field operating
capacity.  The First Level Supervisor shall not be required to be
located on the Joint Property, but shall be located at a field location near the
Joint Property.

              

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

              

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

              

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

              

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

              

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

              

              “Offshore
Facilities” shall mean platforms and support systems such as oil and gas
handling facilities, living quarters, offices, shops, cranes, electrical supply
equipment and systems, fuel and water storage and piping, heliport, marine
docking installations, communication facilities, navigation aids, and
other

              similar
facilities necessary in the conduct of offshore operations.

              

              
                
                  
                  

                

                
                  C-1

                  
                    

                  

                

                
                  
                  

                

              

              2.         Statements and
Billings

              

              
                	
                         
      

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

                      

              

              
 

              

              3.         Advances and Payments by
Non-Operators

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                	
                        4.

                      	
                        Adjustments

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        5.

                      	
                        Audits

                      

              

              

              
                	
                         
      

                      	
                        A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                
                  
                  

                

                
                  C-2

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        6.

                      	
                        Approval
      by Non-Operators

                      

              

              

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

              

              II.
DIRECT CHARGES

              

              Operator
shall charge the Joint Account with the following items:

              

              
                	
                        1.

                      	
                        Rentals
      and Royalties

                      

              

              

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

              

              
                	
                        2.

                      	
                        Labor

                      

              

               

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

               

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

              

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

              

              

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

              

               

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

               

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

               

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

               

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

              

              
                	
                        3.

                      	
                        Employee
      Benefits

                      

              

              

              Operator's
current costs of established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus, and other
benefit plans of a like nature, applicable to Operator's labor cost chargeable
to the Joint Account under Paragraphs 2A and 2B of this Section II shall be
Operator's actual cost not to exceed the percent most recently recommended by
the Council of Petroleum Accountants Societies.

              

              
                
                  
                  

                

                
                  C-3

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        4.

                      	
                        Material

                      

              

              

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

              

              
                 
5.      Transportation

              

              

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

              

              
                	
                         
      

                      	
                        A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                	
                         
      

                      	
                        C.

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

                      

              

              

              
                	
                        6.

                      	
                        Services

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        7.

                      	
                        Equipment
      and Facilities Furnished by
Operator

                      

              

              

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

              

              

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

              

              

              
                
                  
                  

                

                
                  C-4

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        8.

                      	
                        Damages
      and Losses to Joint Property

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        9.

                      	
                        Legal
      Expense

                      

              

              

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

              

              
                	
                        10.

                      	
                        Taxes

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        11.

                      	
                        Insurance

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        12.

                      	
                        Communications

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                
                  
                  

                

                
                  C-5

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        13.

                      	
                        Ecological
      and Environmental

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        14.

                      	
                        Abandonment
      and Reclamation

                      

              

              

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

              

              
                	
                        15.

                      	
                        Other
      Expenditures

                      

              

              

              
                	
                         
      

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

                      

              

              

              III.  OVERHEAD

              

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

              

              Unless
otherwise agreed to by the Parties, such charge shall be in lieu of costs and
expenses of all offices and salaries or wages plus applicable burdens and
expenses of all personnel, except those directly chargeable under Section
II.  The cost and expense of services from outside sources in
connection with matters of taxation, traffic, accounting or matters before or
involving governmental agencies, except as herein described, shall be considered
as included in the overhead rates provided for in this Section III unless such
cost and expense are agreed to by the Parties as a direct charge to the Joint
Account. Notwithstanding anything
herein contained to the contrary, it is agreed that such costs and services when
directly employed on the Joint Property shall not be covered by the overhead
rates. Furthermore, the reasonable and customary fees and expenses incurred by
contract personnel and professional consultants as such fees relate to matters
before or involving governmental agencies (including but not limited to the
Minerals Management Service and other regulatory agencies) , even if such
contract or professional consultants are working in Operator’s office, shall be
directly chargeable to the Joint Account, to the extent that such fees and
expenses are associated with the operation of the Joint
Property.

              

              
                	
                         
      

                      	
                        i.

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

                      

              

              

              
                	
                         
      

                      	
                        (    
       ) shall be covered by the overhead
rates.

                      

              

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

                      

              

              

              
                	
                         
      

                      	
                        ii.

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

                      

              

              

              
                	
                         
      

                      	
                        (  x  )
      shall be covered by the overhead
rates.

                      

              

              
                	
                         
      

                      	 	 	
                        (      )
      shall not be covered by the overhead
rates.

                      

              

              

              
                
                  
                  

                

                
                  C-6

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        1.

                      	
                        Overhead
      - Drilling and Producing Operations

                      

              

              

              
                	
                         
      

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

                      

              

               

               

              

               

              
                	
                        (  x  )
    

                      	
                        Fixed
      Rate Basis, Paragraph 1A, or

                      
	
                        (      )

                      	
                        Percentage
      Basis, Paragraph 1B

                      

              

               

              

              

              
                	
                        A.

                      	
                        Overhead
      - Fixed Rate Basis

                      

              

              

              
                	
                         
      

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

                      

              

              
                	
                         
      

                      	
                                    
      Drilling Well Rate $30,000.  (Prorated for
      less than a full month)

                      

              

              
                	
                         
      

                      	
                                    
      Producing Well Rate $3,000.

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              

              
                	
                         
      

                      	
                        (3)

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      
	 	 	 
	 	
                        (b)

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

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

              

              

              
              

              

              
              

              

              
                
                  
                  

                

                
                  C-7

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        (d)

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

                      
	 	 	 
	 	
                        (e)

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

                      

              

              

              
              

              

              
                	
                         
      

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

                      

              

              

              
                 
B.     
Overhead - Percentage Basis

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)
      Development

                      

              

              
                	 	
                        __________________ Percent
      (___%) of cost of Development of the Joint Property exclusive of
      costs provided under Paragraph 9 of Section II and all salvage
      credits.

                      

              

              

              

              
                	
                         
      

                      	
                        (b)
      Operating

                      

              

              
                	 	
                             ______________________
      Percent (___%) of the cost of Operating the
  Joint

                      

              

              

              
                	
                         
      

                      	
                        Property
      exclusive of costs provided under Paragraphs 1 and 9 of Section II, all
      salvage credits, the value of injected substances purchased for secondary
      recovery and all taxes and assessments which are levied, assessed and paid
      upon the mineral interest in and to the Joint
  Property.

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                         Application
      of Overhead - Percentage Basis shall be as
      follows:

                      

              

              

              For the
purpose of determining charges on a percentage basis under Paragraph 1B of this
Section III, development shall include all costs in connection with drilling,
redrilling, deepening, or any project with a primary purpose to extend or expand
a wellbore in order to recover new reserves not previously recoverable by the
wellbore; also,
preliminary expenditures necessary in preparation for drilling and expenditures
incurred in abandoning when the well is not completed as a producer, and
original cost of construction or installation of fixed assets, the expansion of
fixed assets and any other project clearly discernible as a fixed asset, except
Major Construction as defined in Paragraph 2 of this Section III.  All
other costs shall be considered as Operating except that catastrophe costs shall
be assessed overhead as provided in Section III, Paragraph 3.

              

              
                
                  
                  

                

                
                  C-8

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        2.

                      	
                        Overhead
      - Major Construction

                      

              

              

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

              

              (1) 6%  of
total costs if such costs are more than $25,000
but less than $100,000; plus

               

              (2)  4
%  of
total costs in excess of $100,000 but less than $1,000,000; plus

               

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

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              (1) 
4%  of
total costs if such costs are more than $
25,000 but less than $100,000; plus

              

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

              

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

              

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

              

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

              

              
                	
                         
      

                      	
                        3.

                      	
                        Overhead
      - Catastrophe

                      

              

              

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

               

              (1) 4%  of
total costs through $100,000; plus

               

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

               

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

              

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

              

              
                
                  
                  

                

                
                  C-9

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        4.

                      	
                        Amendment
      of Rates

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        *IV.

                      	
                        PRICING
      OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
      DISPOSITIONS

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        * Operator shall account
      for material purchase and transfers in accordance with
      COPAS    Interpretation 23, attached hereto, or the
      pricing procedur5e most recently recommended by
  COPAS.

                      

              

              
                	
                        1.

                      	
                        Purchases

                      

              

              

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

              

              
                	
                        2.

                      	
                        Transfers
      and Dispositions

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                
                  
                  

                

                
                  C-10

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        A.

                      	
                        New
      Material (Condition A)

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Tubular
      Goods Other than Line Pipe

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

                      	
                        For
      grades which are special to one mill only, prices shall be computed at the
      mill base of that mill plus transportation cost from that mill to the
      railway receiving point nearest the Joint Property as provided above in
      Paragraph 2.A.(1)(a).  For transportation cost from points other
      than Eastern mills, the 30,000 pound Oil Field Haulers Association
      interstate truck rate shall be
used.

                      

              

              

              
                	
                         
      

                      	
                        (c)

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

                      

              

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                        Line
      Pipe

                      

              

              

              
                	
                         
      

                      	
                        (a)

                      	
                        Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      Over) 30,000 pounds or more shall be priced under provisions of tubular
      goods pricing in Paragraph A.(1 )(a) as provided above. Freight charges
      shall be calculated from Lorain,
Ohio.

                      

              

              

              
                	 	
                        (b)

                      	
                        Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      over) less than 30,000 pounds shall be priced at Eastern mill published
      carload base prices effective as of date of shipment, plus 20 percent,
      plus transportation costs based on freight rates as set forth under
      provisions of tubular goods pricing in Paragraph A.(1)(a) as provided
      above. Freight charges shall be calculated from Lorain,
    Ohio.

                      

              

              

              
                	
                         
      

                      	
                        (c)

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

                      

              

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              

              
                	
                         
      

                      	
                         (3)

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

                      

              

              

              
                	
                         
      

                      	
                         (4)

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

                      

              

              

              
                
                  
                  

                

                
                  C-11

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        B.

                      	
                        Good
      Used Material (Condition B)

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Material
      moved to the Joint Property

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

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

              

               

              
                	 	
                        (a)

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

                      
	 	 	 
	 	
                        (b)

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

                      

              

               

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

                      

              

              
              

              
 

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

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

              

              

              

              
                	
                         
      

                      	
                        C.

                      	
                        Other
      Used Material

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Condition
      C

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                        Condition
      D

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              

              
                
                  
                  

                

                
                  C-12

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        (3)     
      Condition E

                      

              

              

              
                	
                         
      

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

                      

              

              

                   
D.     Obsolete Material

              

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

              

                  E.      Pricing
Conditions

              

              
                	
                         
      

                      	
                            (1)

                      	
                        Loading
      or unloading costs may be charged to the Joint Account at the rate
      of  twenty-five cents ($0.25) per hundred weight on all tubular
      goods movements, in lieu of actual loading or unloading costs sustained at
      the stocking point.  The above rate shall be adjusted as of the
      first day of April each year following January 1, 1985 by the same
      percentage increase or decrease used to adjust overhead rates in Section
      III, Paragraph 1.A(4). Each year, the rate calculated shall be rounded to
      the nearest cent and shall be the rate in effect until the first day of
      April next year.  Such rate shall be published each year by the
      Council of Petroleum Accountants
Societies.

                      

              

              

              
                	
                         
      

                      	
                            (2)

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

                      

              

              

              
                	
                        3.

                      	
                        Premium
      Prices

                      

              

              

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

              

              
                	
                        4.

                      	
                        Warranty
      of Material Furnished By Operator

                      

              

              

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

              

              
                
                  
                  

                

                
                  C-13

                  
                    

                  

                

                
                  
                  

                

              

              V.
INVENTORIES

              

              The Operator shall maintain detailed
records of Controllable Material.

              

              
                	
                        1.

                      	
                        Periodic
      Inventories, Notice and
Representation

                      

              

              

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

              

              2.         Reconciliation
and Adjustment of Inventories

              

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

              

              
                	
                        3.

                      	
                        Special
      Inventories

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        4.

                      	
                        Expense
      of Conducting Inventories

                      

              

              

              
                	
                                   
      A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              

              

              
                
                   

                

                
                  C-14

                  
                    

                  

                

                
                   

                

              

              

              EXHIBIT
"D"

              GAS
BALANCING AGREEMENT (“Agreement”)

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              
                
                   

                

                
                  D-1 

                  
                    

                  

                

                
                   

                

              

              

              EXHIBIT
“E”

              

              

              Attached
to and made part of that certain Operating Agreement,

              Dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              MEMORANDUM
OF OPERATING AGREEMENT

              AND

              FINANCING
STATEMENT

              

              This
Memorandum of Operating Agreement and Financing Statement is executed to be
effective concurrently with that certain Operating Agreement (the “Operating
Agreement”) by and between Ridgelake Energy Inc., as Operator,
and                                                                ,
as Non-Operator(s), covering, among other things, the development and production
of crude oil, natural gas and associated substances from the lands and leases
(hereinafter called the “Contract Area”) described on Exhibit A attached
hereto and owned by Operator and Non-Operator(s) in the respective percentages
of shares indicated on
Exhibit A. The attached Exhibit A consists of
one or more of the Exhibits A to the
Operating Agreement and refers severally to all Exhibits A attached
hereto.

              

              The
Operating Agreement contains an Accounting Procedure, along with provisions
giving the parties hereto mutual liens and security interests where one or more
parties hereto are or may become Debtors to one or more other parties hereto.
This Memorandum of Operating Agreement and Financing Statement incorporates by
reference all of the terms and conditions of the Operating Agreement, including
but not limited to the lien and security interest provisions.

              

              The
purpose of this Memorandum of Operating Agreement and Financial Statement is to
place third parties on notice of the Operating Agreement and to secure and
perfect the mutual liens and security interests of the parties
hereto.

              

              The
Operating Agreement specifically provides and the parties do hereby confirm and
agree that:

              

              
                	
                         
      

                      	
                        1.

                      	
                        The
      Operator shall conduct and direct and have full control of all operations
      on the Contract Area as permitted and required by, and within the limits
      of, the Operating Agreement.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        The
      Liability of the parties under the Operating Agreement shall be several,
      not joint or collective. Each party shall be responsible only for its
      obligations and shall be liable only for its proportionate share of
      costs.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        Each
      Non-Operator grants the Operator a lien upon its oil and gas rights, oil
      and gas leases and mineral interests in the Contract Area, and a security
      interest in its share of oil and/or gas when extracted and its interest in
      all fixtures, inventory, personal property and equipment located on or
      used on the Contract Area and in all its contract rights and receivables
      related thereto and arising therefrom to secure payment of its present and
      future share of costs and expenses, together with interest thereon at the
      rate provided in the Accounting Procedure referred to above, To the extent
      that Operator has security interest under the Uniform Commercial Code (the
      “Code”) of the state or the states in which the Contract Area is located,
      Operator without prejudice and in addition to all other legal, equitable
      and contractual remedies which are expressly reserved, shall be entitled
      to exercise the rights and remedies of a secured party under the Code. The
      bringing of a suit and the obtaining of judgment by Operator for the
      secured indebtedness shall not be deemed an election of remedies or
      otherwise affect the rights or security interests fir the payment
      thereof.

                      

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        If
      any Non-Operator fails to pay its share of costs and expenses when due,
      Operator may require other Non-Operators to pay their proportionate part
      of the unpaid share whereupon the other Non-Operators shall be subrogated
      to Operator’s Lien and Security Interest described
  herein.

                      

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        The
      Operator grants the Non-Operator(s) a lien and security interest
      equivalent to that granted to Operator as described in paragraph 3 above,
      to secure payment by the Operator of its won share of costs and expenses
      when due.

                      

              

              

              
                
                  
                  

                

                
                  E-1

                  
                    

                  

                

                
                  
                  

                

              

              As
reflected above, either or both Operator and Non-Operator(s) may become Debtors
if they default in their payment obligations under the terms of the Operating
Agreement. On default, the non-defaulting party(ies) will be considered secured
party(ies).

              

              The
Operating Agreement contains other provisions which do not conflict but
supplement the above-described provisions, including non-consent provisions
which provide that parties who elect not to participate in certain operations
shall be deemed to have relinquished their interest until the consenting parties
are able to recover their costs of such operations plus a specified amount.
Should any person or firm desire additional information regarding the Operating
Agreement or wish to inspect a copy of the Operating Agreement, said person or
firm should contact the Operator.

              

              For
purposes of protecting said liens and security interest, the undersigned parties
agree that this Memorandum of Operating Agreement and Financing Statement covers
all right, title and interest of the Debtor(s) in:

              

              Property Subject to Security
Interests:

              

              
                	
                         
      

                      	
                        1.

                      	
                        All
      personal property located upon or used in connection with the Contract
      Area.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        All
      fixtures on the Contract Area.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        All
      oil, gas and associated substances of value in, on or under the Contract
      Area, or which may be extracted
therefrom.

                      

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        All
      accounts and receivables resulting from the sale of the items described in
      subparagraph 3 at the wellhead of every well located on the Contract Area
      or on lands pooled therewith.

                      

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        All
      items used, useful, or purchased for the production, treatment, handling,
      storage, transportation, processing, manufacture, or sale of the items
      described in subparagraph 3.

                      

              

              

              
                	
                         
      

                      	
                        6.

                      	
                        All
      accounts, contract rights, rights under any gas balancing agreement,
      general intangibles, equipment, inventory, farmout rights, option farmout
      rights, acreage and/or cash contributions, and conversion rights, whether
      now owned or existing or hereafter acquired or arising, including but not
      limited to all interest in any enterprise that holds, owns, or controls
      any interest in the Contract Area or in any property encumbered by the
      Memorandum.

                      

              

              

              
                	
                         
      

                      	
                        7.

                      	
                        All
      severed and extracted oil, gas and associated substances now or hereafter
      produced from or attributable to the Contract Area, including without
      limitation, oil, gas and associated substances in tanks or pipelines or
      otherwise held by any person or entity fro treatment, storage,
      transportation, manufacture, processing or
sale.

                      

              

              

              
                	
                         
      

                      	
                        8.

                      	
                        All
      the proceeds and products of the items described in the foregoing
      paragraphs now existing or hereafter arising, and all substitutions
      therefore, improvements and enhancements thereto, replacements thereof, or
      accessions thereto.

                      

              

              

              
                	
                         
      

                      	
                        9.

                      	
                        All
      personal property and fixtures now and hereafter acquired in furtherance
      of the purposes of this Operating Agreement. Certain of the
      above-described items are, or are to become, fixtures on the Contract
      Area.

                      
	 	 	 
	 	
                        10.

                      	
                        The
      proceeds and products of collateral are also specifically
      covered.

                      

              

              

              
              

              

              
                
                  
                  

                

                
                  E-2

                  
                    

                  

                

                
                  
                  

                

              

              Property Subject to
Liens:

              

              
                	
                         
      

                      	
                        1.

                      	
                        All
      real property, oil, gas and mineral leases, severed and unsevered surface
      fees, mineral fees and interest, royalty interests, overriding royalty
      interests, production payments, net profit interests, and other oil and
      gas interests of any nature, including reversionary interests, all as may
      be located within the Contract Area, including all oil, gas and associated
      substances of value in, on or under the Contract Area, or which may be
      extracted therefrom.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        All
      fixtures within the Contact Area.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        All
      real property and fixtures now and hereafter acquired in furtherance of
      the purposes of this Operating
Agreement.

                      

              

              

              The above
items will be financed at the wellhead of the well or the wells located in the
Contract Area, and this Memorandum is to be filed for record in the real estate
records of the county(ies) or parish(es) and in the Uniform Commercial Code
records in which the Contract Area is located.

              

              On
default of any covenant or condition of the Operating Agreement, in addition to
any other remedy affected by law, each party to the Operating Agreement and any
successor to such part by assignment, operation of law, or otherwise, shall
have, and is hereby given and vested with, the power and authority to take
possession of and sell any interest which the defaulting party has in the
property identified above securing the obligations provided in the Operating
Agreement and to foreclose this lien and security interest in the manner
provided by law.

              

              Upon
expiration of the Operating Agreement and the satisfaction of all the debts and
the outstanding interest, the Operator shall file of record a release and
termination on behalf of all parties concerned. Upon the filing of such release
and termination, all benefits and obligations under this Memorandum shall
terminate as to all parties who have executed or ratified this Memorandum. In
addition, the Operator shall have the right to file a continuation statement on
behalf of all the parties that have executed or ratified this Memorandum when
Operator in its sole discretion deems such action appropriate.

              

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

              

              This
Memorandum shall be binding upon and shall inure to the benefit of the parties
hereto and to their respective heirs, devisees, legal representatives,
successors and assigns.

              

              A party
having an interest in the Contract Area can ratify this Memorandum by execution
hereof or a separate counterpart hereof or by execution and delivery of an
instrument of ratification adopting the provisions of this Memorandum or
agreeing to be bound by the terms thereof. Any such ratification shall have the
same effect as if the ratifying party had executed this Memorandum or a
counterpart thereof. By execution or ratification of this Memorandum, such party
hereby consents to its ratification and adoption by any party who may have or
may acquire any interest in the Contract Area.

              

              
                
                  
                  

                

                
                  E-3

                  
                    

                  

                

                
                  
                  

                

              

              This
Memorandum may be executed or ratified in one or more counterparts and all of
the executed or ratified counterparts shall together constitute one instrument.
For purpose of recording, only one copy of this Memorandum with individual
signature pages attached thereto needs to be filed of record.

              

              Executed
this ___________ day of ____________________, ____.

              

              

              OPERATOR:                         Ridgelake
Energy, Inc.

              

              

              

              

              By:
_______________________________________

              

              Printed Name:
_______________________

              

              Title:
_______________________________

              

              

              

              

              NON_OPERATOR:             ___________________________________________

              

              

              By:
_______________________________________

              

              Printed Name:
_______________________

              

              Title:
_______________________________

              

               

              
                
                   

                

                
                  E-4

                  
                    

                  

                

                
                   

                

              

              Exhibit A
attached to and made part of the Memorandum of Operating Agreement and Financing
Statement dated ___________________, _____ between Ridgelake Energy, Inc., as
Operator, and ___________________________, as Non-Operator, covering lands in
______________________.

              

              

              

              
                	
                         
      

                      	
                        1.

                      	
                        Contract
      Area:

                      

              

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        Depth
      Limitations:

                      

              

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        Substances
      Covered:

                      

              

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        Interest
      of Parties:

                      

              

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        Oil
      and Gas leases Subject to this
Agreement:

                      

              

              

              

              
                	
                         
      

                      	
                        6.

                      	
                        Addresses
      of Parties for Notice:

                      

              

              

              

              

              

              

              

              

              

               

              
                
                   

                

                
                  E-5

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“F”

              

              

              Attached
to and made part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              TAX
PARTNERSHIP PROVISIONS

              

              OF
THE _______________________________________________

              PARTNERSHIP

              (For Name
of Tax Reporting Partner and Special Elections, See Secs. 8 and 9)

               

              
                Table of
Contents

                
                  	
                          1.1

                        	
                          Designation
      Of Documents

                        	
                          1

                        
	
                          1.2

                        	
                          Relationship
      of the Parties

                        	
                          1

                        
	
                          1.3

                        	
                          Priority
      Of Provisions Of This Exhibit

                        	
                          1

                        
	
                          1.4

                        	
                          Survivorship

                        	
                          1

                        
	
                          2.2

                        	
                          IF
      SMALL PARTNERSHIP EXEPTION FOM TEFRA NOT APPLICABLE

                        	
                          2

                        
	
                          3.1

                        	
                          Tax
      Returns

                        	
                          2

                        
	
                          3.2

                        	
                          Fair
      Market Value Capital Accounts

                        	
                          2

                        
	
                          3.3

                        	
                          Information
      Requests

                        	
                          2

                        
	
                          3.4

                        	
                          Best
      Efforts without Liability

                        	
                          2

                        
	
                          4.1

                        	
                          General
      Elections

                        	
                          2

                        
	
                          4.2

                        	
                          Depletion

                        	
                          2

                        
	
                          4.3

                        	
                          Election
      Out Under Code §761(a)

                        	
                          3

                        
	
                          4.4

                        	
                          Consent
      Requirements For Subsequent Tax Or FMV Capital Account
      Elections

                        	
                          3

                        
	
                          5.1

                        	
                          Capital
      Contributions

                        	
                          3

                        
	
                          5.2

                        	
                          FMV
      Capital Accounts

                        	
                          3

                        
	
                          6.1

                        	
                          FMV
      Capital Accounts Allocations

                        	
                          3

                        
	
                          6.2

                        	
                          Tax
      Return and Tax Basis Capital Account Allocation

                        	
                          4

                        
	
                          7.1

                        	
                          Termination
      of the Partnership

                        	
                          4

                        
	
                          7.2

                        	
                          Balancing
      of FMV Capital Accounts

                        	
                          4

                        
	
                          7.3

                        	
                          Deemed
      Sale Gain/Loss Charge Back

                        	
                          4

                        
	
                          7.4

                        	
                          Deficit
      make-up Obligation and Balancing Cash Contributions

                        	
                          4

                        
	
                          7.5

                        	
                          Distribution
      to balance capital accounts

                        	
                          4

                        
	
                          7.6

                        	
                          FMV
      determination

                        	
                          4

                        
	
                          7.7

                        	
                          Final
      Distribution

                        	
                          4

                        
	
                          8.1

                        	
                          Transfer
      of Partnership Interests

                        	
                          5

                        
	
                          8.2

                        	
                          Correspondence

                        	
                          5

                        
	
                          9.1

                        	
                          Operator
      not the TRP

                        	
                          5

                        
	
                          9.2

                        	
                          Special
      Tax Elections

                        	
                          5

                        
	
                          9.3

                        	
                          Change
      of Majority for Other Tax Elections

                        	
                          5

                        

                

              

              

              
                
                  
                  

                

                
                  F-1

                  
                    

                  

                

                
                  
                  

                

              

              1.           General
Provisions

              1.1           Designation
Of Documents.

               

              This
exhibit is referred to in, and is part of, that Agreement identified above and,
if so provided, a part of any agreement to which the Agreement is an exhibit.
Such agreement(s) (including all exhibits thereto, other than this exhibit)
shall be hereafter referred to as the “Agreement” and this exhibit is
hereinafter referred to as the “Exhibit” or the “Tax Partnership Provisions”
(the “TPPs”). Except as may be otherwise provided in this Exhibit, terms defined
and used in the Agreement shall have the same meaning when used
herein.

              

              

              1.2           Relationship
of the Parties.

               

              The
parties to the Agreement shall be hereinafter referred to as “Party” or
“Parties”. The Parties understand and agree that the arrangement and
undertakings evidenced by the Agreement result in a partnership for purposes of
Federal income taxation and certain State income tax laws which incorporate or
follow Federal income tax principals as to tax partnerships. Such partnership
for tax purposes is hereinafter referred to as the “Partnership”. For every
other purpose of the Agreement the Parties understand and agree that their legal
relationship to each other under applicable State law with respect to all
property subject to the Agreement is one of tenants in common, or undivided
interest owners, or lessee(s) sublessee(s) and not a partnership; that the
liability of the Parties shall be several and not joint or collective; and that
each Party shall be responsible solely for its own obligations.

              

              1.3           Priority
Of Provisions Of This Exhibit.

               

              If there
is a conflict or inconsistency, whether direct or indirect, actual or apparent,
between the terms and the conditions of this Exhibit and the terms and
conditions of the Agreement, or any other exhibit or any part thereof, the terms
and conditions of this Exhibit shall govern and control.

              

              1.4
Survivorship.

               

              
                	
                        1.4.1

                      	
                        Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the termination and liquidation.

                         

                      

              

              
                	
                        1.4.2

                      	
                        Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the resolution of all matters regarding Federal and State
      income reporting.

                         

                      

              

              
                	
                        1.4.3

                      	
                        These
      TPPs shall inure to the benefit of, and be binding upon, the Parties
      hereto and their successors and assigns.

                         

                      

              

              
                	
                        1.4.4

                      	
                        The
      effective date of the Agreement shall be the effective date of these TPPs.
      The Partnership shall continue in full force and effect from, and after
      such date, until termination and
liquidation.

                      

              

              

              
                
                  
                  

                

                
                  F-2

                  
                    

                  

                

                
                  
                  

                

              

              2.           Tax
Reporting Partner and Tax Matters Partner

              

              2.1           Tax
Reporting Partner.

               

              The
Operator (or the Party listed in Sec. 9.1) as the Tax Reporting Partner (“TRP”)
is responsible for compliance with all tax reporting obligations of the
Partnership, see Sec. 3.1. below. In the event of any change in the TRP, the
Party serving as the TRP at the beginning of a given taxable year shall continue
as TRP with respect to all matters concerning such year.

              

              2.2           IF SMALL PARTNERSHIP EXCEPTION FROM
TEFRA NOT APPLICABLE

               

              If the
Partnership does not qualify for the “small partnership exception” from, or if
the Partnership elects (see infra Elections at
Sec. 4.1 and 9.2) to be subject to, §§6221 et seq., Subchapter C of Chapter 63
of Subtitle F (the “TEFRA rules”) of the Internal Revenue Code (the “Code”) the
TRP shall also be the Tax Matters Partner as defined in Code §6231(a) (the
“TMP”) and references to the TRP shall then include references to TMP and vice
versa.

               

              
                	
                        2.2.1

                      	
                        The
      TMP shall not be required to incur any expenses for the preparation for,
      or pursuance of, administrative or judicial proceedings, unless the
      Parties agree on a method for sharing such expenses.

                         

                      

              

              
                	
                        2.2.2

                      	
                        The
      Parties shall furnish the TMP, within two weeks from the receipt of the
      request, the information the TMP may reasonably request to comply with the
      requirements on furnishing information to the Internal Revenue
      Service.

                         

                      

              

              
                	
                        2.2.3

                      	
                        The
      TMP shall not agree to any extension of the statute of limitations for
      making assessments on behalf of the Partnership without first obtaining
      the written consent of all Parties. The TMP shall not bind any other Party
      to a settlement agreement in tax audits without obtaining the written
      concurrence of any such Party.

                         

                      

              

              
                	
                        2.2.4

                      	
                        Any
      other Party who enters in a settlement agreement with the Secretary of the
      Treasury with respect to any partnership items, as defined in Code
      §6231(a)(3), shall notify the other Parties of the terms within ninety
      (90) days from the date of such settlement.

                         

                      

              

              
                	
                        2.2.5

                      	
                        If
      any Party intends to file a notice of inconsistent treatment under Code
      §6222(b), such Party shall, prior to filing of such notice, notify the TMP
      of the (actual or potential) inconsistency of the Party’s intended
      treatment of a partnership item with the treatment of that item by the
      Partnership. Within one week of receipt the TMP shall remit copies of such
      notification to the other Parties. If an inconsistency notice is filed
      solely because a Party has not received a Schedule K-1 in time for filing
      of its income tax return, the TMP need not be notified.

                         

                      

              

              
                	
                        2.2.6

                      	
                        No
      Party shall file pursuant to Code §6227 a request for an administrative
      adjustment of partnership items (the “RFAA”) without first notifying all
      other Parties. If all other Parties agree with the requested adjustment,
      the TMP shall file the RFAA on behalf of the Partnership. If unanimous
      consent is not obtained within thirty (30) days from such notice, or
      within the period required to timely file the RFAA, if shorter, any Party,
      including the TMP, may file a RFAA on its own behalf.

                         

                      

              

              
                	
                        2.2.7

                      	
                        Any
      Party intending to file with respect to any partnership item, or any other
      tax matter involving the Partnership, a petition under Code §§6226, 6228,
      or any other provision, shall notify the other Parties prior to such
      filing of the nature of the contemplated proceeding. In the case where the
      TMP is the Party intending to file such petition, such notice shall be
      given within reasonable time to allow the other Parties to participate in
      the choice of the form of such petition. If the Parties do not agree on
      the appropriate forum, then the forum shall be chosen by majority vote.
      Each Party shall have a vote in accordance with its percentage interest in
      the Partnership for the year under audit. If a majority cannot agree, the
      TMP shall choose the forum. If a Party intends to seek review of any court
      decision rendered as a result of such proceeding, the Party shall notify
      the other Parties prior to seeking such
review.

                      

              

              

              
                
                  
                  

                

                
                  F-3

                  
                    

                  

                

                
                  
                  

                

              

              3.           Income
Tax Compliance and Capital Accounts

              

              3.1           Tax
Returns.

               

              The TRP
shall prepare and file all required Federal and State partnership income tax
returns. Not less than thirty (30) days prior to the return due date (including
extensions), the TRP shall submit to each Party for review a copy of the return
as proposed.

              

              3.2           Fair
Market Value Capital Accounts.

               

              The TRP
shall establish and maintain for each Party fair market value (“FMV”) capital
accounts and tax basis capital accounts. Upon request, the TRP shall submit to
each Party along with a copy of any proposed partnership income tax return an
accounting of such Party’s FMV capital accounts as of the end of the return
period.

              

              
                3.3.       
Information
requests.

                 

              

              In
addition to any obligation under Sec. 2.2.2, each Party agrees to furnish to the
TRP not later than sixty (60) days before the return due date (including
extensions) such information relating to the operations conducted under the
Agreement as may be required for the proper preparation of such returns.
Similarly, each Party agrees to furnish timely to the TRP, as requested, any the
information and data necessary for the preparation and/or filing of other
required reports and notifications, and for the computation of the capital
accounts. As provided in Code  §6050K(c), a Party transferring its
interest must notify the TRP to allow compliance with Code §6050K(a) (see also
Sec.8.1).

              

              
                3.4       
Best
Efforts without Liability.

                 

              

              The TRP
and the other Party(ies) shall use its/their best effort to comply with
responsibilities outlined in this Section, and with respect to the services as
TMP as outlined Sec.2.2 and in doing so shall incur no liability to any other
Party.

              

              
                	
                        4.

                      	
                        Tax
      and FMV Capital Account Elections

                      

              

              

              
                4.1       
General
Elections.

                 

              

              For both
income tax and capital account purposes, the Partnership shall
elect:

               

              
                	
                        a)

                      	
                        to
      deduct when incurred intangible drilling and development costs
      (“IDC”);

                      

              

              
                	
                        b)

                      	
                        to
      use the maximum allowable accelerated tax method and the shortest
      permissible tax life for
depreciation;

                      

              

              
                	
                        c)

                      	
                        the
      accrual method of accounting;

                      

              

              
                	
                        d)

                      	
                        to
      report income on a calendar year basis; and
      the Partnership shall also make any elections as specially noted in
      Sec.9.2, below.

                      

              

              

              
                
                  
                  

                

                
                  F-4

                  
                    

                  

                

                
                  
                  

                

              

              
                4.2       
Depletion.

                 

              

              Solely
for FMV capital account purposes, depletion shall be calculated by using
simulated cost depletion within the meaning of Treas. Reg.
§1.704-1(b)(2)(iv)(k)(2), unless the use of simulated percentage depletion is
elected in Sec.9.2, below. The simulated cost depletion allowance shall be
determined under the principles of Code  §612 and be based on the FMV
capital account basis of each Lease. Solely for purposes of this calculation,
remaining shall be determined consistently by the TRP.

              

              
                4.3       
Election
Out Under Code §761(a).

                 

              

              
                	
                        4.3.1

                      	
                        The
      TRP shall notify all Parties of an intended election to be excluded from
      the application of Subchapter K of Chapter 1 of the Code not later than
      sixty (60) days prior to the filling date or due date (including
      extensions) for the Federal partnership income tax return, whichever comes
      earlier. Any Party that does not consent must provide the TRP with written
      objection within thirty (30) days of such notice. Even after an effective
      election-out the TRP’s right and obligations, other than the relief from
      tax return filing obligations of the partnership, continue.

                         

                      

              

              
                	
                        4.3.2

                      	
                        After
      an election-out, to avoid an unintended impairment of the election-out:
      The Parties will avoid, without prior coordination, any operational
      changes which could terminate the qualification for the election-out
      status; all Parties will monitor the continuing qualification of the
      Partnership for the election-out status and will notify the other Parties
      if, in their opinion, a change in operations will jeopardize the
      election-out; and, all Parties will use, unless agreed to by them
      otherwise, the cumulative gas balancing method as described in Treas. Reg.
      §1.761-2(d)(2).

                         

                      

              

              

              
                4.4       
Consent
Requirements For Subsequent Tax Or FMV Capital Account Elections.

                 

              

              Unless
stipulated differently in Sec. 9.3, future elections, in addition to or in
amendment of those in this agreement, must be approved by the affirmative vote
of two (2) or more Parties owning a majority of the working interest based upon
post-Payout ownership.

              

              
                	
                        5.

                      	
                        Capital
      Contributions and FMV Capital
Accounts

                      

              

               

              The
provisions of this Sec. 5 and any other provisions of the TPPs relating to the
maintenance of the capital accounts are intended to comply with Treas. Reg.
§1.704-1(b) and shall be interpreted and applied in a manner consistent with
such regulations.

              

              
                5.1       
Capital
Contributions.

                 

              

              The
respective capital contributions of each Party to the Partnership shall be (a)
each Party’s interest in the oil and gas lease(s), including all associated
lease and well equipment, committed to the Partnership, and (b) all accounts of
money paid by each Party in connection with the acquisition, exploration,
development, and operation of the lease(s), and all other costs characterized as
contributions or expenses borne by such Party under the Agreement. The
contribution of the leases and any other properties committed to the Partnership
shall be made by each Party’s agreement to hold legal title to its interest in
such leases or other property as nominee of the Partnership.

              

              
                
                  
                  

                

                
                  F-5

                  
                    

                  

                

                
                  
                  

                

              

              
                5.2       
FMV
Capital Accounts.

                 

              

              The FMV
capital accounts shall be increased and decreased as follows:

               

              
                	
                        5.2.1

                      	
                        The
      FMV capital account of a Party shall be increased by:

                         

                      

              

              
                	
                      	
                        (i)

                      	
                        the
      amount of money and the FMV (as of the date of contribution) of any
      property contributed by such Party to the Partnership (net of liabilities
      assumed by the Partnership or to which the contributed property is
      subject);

                      

              

              
                	
                      	
                        (ii)

                      	
                        that
      Party’s share of Partnership items of income or gain, allocated in
      accordance with Sec. 6.1; and

                      

              

              
                	
                      	
                        (iii)

                      	
                        that
      Party’s share of any Code §705(a)(1)(B)item.

                         

                      

              

              
                	
                        5.2.2

                      	
                        The
      FMV capital account of a Party shall be decreased by:

                         

                      

              

              
                	
                      	
                        (i)

                      	
                        the
      amount of money and the FMV of property distributed to a Party (net of
      liabilities assumed by such Party or to which the property is
      subject):

                      

              

              
                	
                      	
                        (ii)

                      	
                        that
      Party’s Sec. 6.1 allocated share of Partnership loss and deductions, or
      items thereof; and,

                      

              

              
                	
                      	
                        (iii)

                      	
                        that
      Party’s share of any Code §705(a)(2)(B) item.

                         

                      

              

              
                	
                        5.2.3

                      	
                        The
      “FMV” when it applies to property contributed by a Party to the
      Partnership shall be assumed, for purposes of Sec.5.2.1, to equal the
      adjusted tax basis, as defined in Code § 1011, of that property unless the
      Parties agree otherwise as indicated in Sec. 9.2.

                         

                      

              

              
                	
                        5.2.4

                      	
                        As
      provided in Treas. Reg. §1.704-1(b)(2)(iv)(e), upon distribution of
      Partnership property to a Party the capital accounts will be adjusted to
      reflect the manner in which the unrealized income, gain, loss and
      deduction inherent in distributed property (not previously reflected in
      the capital accounts) would be allocated among the Parties if there were a
      disposition of such property at its FMV as of the time of distribution.
      Furthermore, if so agreed to in Sec. 9.2, under the rules of Treas. Reg.
      §1.704-1(b)(2)(iv)(f), the FMV capital accounts shall be revalued at
      certain times to reflect value changes of the Partnership
      property.

                         

                      

              

              
                	
                        5.2.5

                      	
                        The
      provisions of section 5 is intended to satisfy the requirements of section
      704(b) of the Code and section 1.704-1(b)(2)(iv) of the Treasury
      Regulations and shall be so construed and, if necessary, modified, to
      cause the allocation of profits, losses, income, gain and credit under
      section 6, to have substantial economic effect under such sections of the
      Code and Regulations, and in the event of any conflict between the
      provisions of this section 5.2 and such Regulations, the Regulations shall
      control.

                      

              

              

              

              
                
                  
                  

                

                
                  F-6

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        6.

                      	
                        Partnership
      Allocations.

                      

              

              

              
                6.1          
FMV
Capital Account Allocations.

                 

              

              Each item
of income, gain, loss or deduction shall be allocated to each Party as
follows:

               

              
                	
                        6.1.1

                      	
                        Actual
      or deemed income from the sale, exchange, distribution or other
      disposition of production shall be allocated to the Party entitled to such
      production or the proceeds from the sale of such production. The amount
      received from the sale of production and the amount of the FMV of
      production taken in kind by the Parties are deemed to be identical;
      accordingly, such items may be omitted from the adjustments made to the
      Parties’ FMV capital accounts.

                         

                      

              

              
                	
                        6.1.2

                      	
                        Exploration
      cost, IDC, operating and maintenance cost shall be allocated to each Party
      in accordance with its respective contribution, or obligation to
      contribute, to such cost.

                         

                      

              

              
                	
                        6.1.3

                      	
                        Depreciation
      shall be allocated to each Party in accordance with its contributions, or
      obligations to contribute, to the cost of the underlying
      asset.

                         

                      

              

              
                	
                        6.1.4

                      	
                        Simulated
      depletion shall be allocated to each Party in accordance with its FMV
      capital account adjusted basis in each oil and gas property of the
      Partnership.

                         

                      

              

              
                	
                        6.1.5

                      	
                        Loss
      (or simulated loss) upon the sale, exchange, distribution, abandonment or
      other disposition of depreciable or depletable property shall be allocated
      to the Parties in the ratio of their respective FMV capital account
      adjusted bases n the depreciable or depletable property.

                         

                      

              

              
                	
                        6.1.6

                      	
                        Gain
      (or simulated gain) upon the sale, exchange, distribution, or other
      disposition of depreciable or depletable property shall be allocated to
      the Parties so that the FMV capital account balances of the Parties will
      most closely reflect their respective percentage of fractional interests
      under the Agreement.

                         

                      

              

              
                	
                        6.1.7

                      	
                        Costs
      or expenses of any other kind shall be allocated to each Party in
      accordance with its respective contribution, or obligation to contribute,
      to such cost or expense.

                         

                      

              

              
                	
                        6.1.8

                      	
                        Any
      other income item shall be allocated to the Parties in accordance with the
      manner in which such income is realized by each Party.

                         

                      

              

              6.2           Tax
return and Tax Basis Capital Account allocations.

               

              
                	
                        6.2.1

                      	
                        Unless
      otherwise expressly provided in the Sec. 6.2, the allocations of the
      Partnership’s items of income, gain, loss, or deduction for tax return and
      tax basis capital account purposes shall follow the principles of the
      allocation under Sec. 6.1. However, the Partnership’s gain or loss on the
      taxable disposition of a Partnership property in excess of the gain or
      loss under Sec 6.1, if any, is allocated to the contributing Party to the
      extent of such Party’s pre-contribution gain or loss.

                         

                      

              

              
                	
                        6.2.2

                      	
                        The
      Parties recognize that under Code §613A(c)(7)(D) the depletion allowance
      is to be computed separately by each Party. For this purpose, each Party’s
      share of the adjusted tax basis in each oil and gas property shall be
      equal to its contribution to the adjusted tax basis of such
      property.

                         

                      

              

              
                	
                        6.2.3

                      	
                        Under
      Code §613A(c)(7)(D) gain or loss on the disposition of an oil and gas
      property is to be computed separately by each Party. According to Treas.
      Reg. §1.704-1(b)(4)(v), the amount realized shall be allocated as follows:
      (i) An amount that represents recovery of the adjusted simulated depletion
      basis is allocated (without being credited t the capital accounts) to the
      Parties in the same proportion as the aggregate simulated depletion basis
      was allocated to such Parties under Sec. 5.2; and (ii) any remaining
      realization is allocated in accordance with Sec. 6.1.6.

                         

                      

              

              
                	
                        6.2.4

                      	
                        Depreciation
      shall be allocated to each Party in accordance with its contribution to
      the adjusted tax basis of the depreciable asset.

                         

                      

              

              
                	
                        6.2.5

                      	
                        In
      accordance with Treas. Reg. §1.1245-I(c),
      depreciation  recapture shall be allocated, to the extent
      possible, among the Parties to reflect their prior sharing of the
      depreciation.

                         

                      

              

              
                	
                        6.2.6

                      	
                        In
      accordance with the principles of Treas. Reg. §1.1254-5, any recapture of
      IDC is determined and reported by each Party separately. Similarly, any
      recapture of depletion shall be computed separately by each Party, in
      accordance with its depletion allowance computed pursuant to Sec.
      6.2.2.

                         

                      

              

              
                	
                        6.2.7

                      	
                        For
      Partnership properties with FMV capital account values different from
      their adjusted tax bases the Parties intend that the allocations described
      in the Section 6.2 constitute a “reasonable method” of allocating gain or
      loss under Treas. Reg. §1.704-3(a)(1).

                         

                      

              

              
                	
                        6.2.8

                      	
                        Take-in-kind.

                         

                      

              

              If
checked “Yes” in Sec. 9.2, below, each Party has the right to determine the
market for its proportionate share of production. All items of income,
deductions, and credits arising from such marketing of production shall be
recognized by the Partnership and shall be allocated to the Party whose
production is so marketed.

              

              

              
                
                  
                  

                

                
                  F-7

                  
                    

                  

                

                
                  
                  

                

              

              
                7.       
Termination
and Liquidating Distribution

              

              

              7.1           Termination
of the Partnership.

               

              
                	
                        7.1.1

                      	
                        Upon
      termination, as provided in Code §708(b)(I)(A), the business shall be
      wound-up and concluded, and the assets shall be distributed to the Parties
      as described below by the end of such calendar year (or, if later, within
      ninety (90) days after the date of such termination). The assets shall be
      valued and distributed to the Parties in the order provided in Secs.
      7.1.2, 7.5. and 7.7.

                         

                      

              

              
                	
                        7.1.2

                      	
                        First,
      all cash representing unexpended contributions by any Party and any
      property in which no interest has been earned by any other Party under the
      Agreement shall be returned to the contributor.

                         

                      

              

              7.2           Balancing
of FMV Capital Accounts.

               

              Second,
the FMV capital accounts of the Parties shall be determined as described
hereafter. The TRP shall take the actions specified under Secs. 7.2 through 7.5
in order to cause the ratios of the Parties’ FMV capital accounts to reflect as
closely as possible their interests under the Agreement. The ratio of a Party’s
FMV capital account is represented by a fraction, the numerator of which the
Party’s FMV capital account balance and the denominator of which is the sum of
all Parties’ FMV capital account balances. This is thereafter referred to as the
“balancing of the FMV capital accounts” and, when completed, the FMV capital
accounts of the Parties shall be referred to as “balanced”.

               

              

              7.3           Deemed
Sale Gain/Loss Charge Back.

               

              The FMV
of all Partnership properties shall be determined and the gain or loss for each
property, which would have resulted if sold at such FMV, shall be allocated in
accordance with Secs. 6.1.5 and 6.1.6.

              

              
                7.4       
Deficit
make-up Obligation and Balancing Cash Contributions.

                 

              

              If
hereafter a Party has a negative FMV capital account balance, that is a balance
of less than zero, in accordance with Treas. Reg. §1.1704-I(b)(2)(ii)(b)(3) such
Party is obligated to contribute, by the end of the taxable year, or if later,
within ninety (90) days form the Partnership’s liquidation, an amount of money
to the Partnership sufficient to achieve a zero balance FMV capital account (the
“Deficit Make-Up Obligation”). Moreover, any Party may contribute an amount of
cash to the Partnership to facilitate the balancing of the FMV capital accounts.
If after these adjustments the FMV capital accounts are not balanced, Sec. 7.5
shall apply.

              

              7.5           Distribution
to balance capital accounts.

               

              
                	
                        7.5.1

                      	
                        If
      all Parties agree, any cash or an undivided interest in certain selected
      properties shall be distributed to one or more Parties as necessary for
      the purpose of balancing the FMV capital accounts.

                         

                      

              

              
                	
                        7.5.2

                      	
                        Distribution
      of undivided interests.

                         

                      

              

              Unless
Sec. 7 applies, an undivided interest in each and every property shall be
distributed to one or more Parties in accordance with the ratios of their FMV
capital accounts.

              

              7.6           FMV
determinations.

               

              If a
property is to be valued for purposes of balancing the capital accounts and
making distributions under this Sec. 7, the Parties must first attempt to agree
on the FMV of the property; failing such an agreement, the TRP shall cause a
nationally recognized independent engineering firm to prepare an appraisal of
the FMV of such property.

              

              7.7           Final
Distribution.

               

              After the
FMV capital accounts of the Parties have been adjusted pursuant to Secs. 7.2 to
7.5, all remaining property and interests then held by the Partnership shall be
distributed to the Parties in accordance with their positive FMV capital account
balances.

              

              
                
                  
                  

                

                
                  F-8

                  
                    

                  

                

                
                  
                  

                

              

              8.           Transfers
and Correspondence

              

              8.1           Transfer
of Partnership Interests.

               

              Transfers
of Partnership interests shall be governed by the Agreement. A Party
transferring its interest, or any part thereof, shall notify the TRP in writing
within two weeks after such transfer.

              

              8.2           Correspondence.

               

              All
correspondence relating to the preparation and filing of the Partnership’s
income tax returns and capital accounts shall be sent to:

              

              

              (Attach
separate list, if necessary)

              
                	
                        TRP

                         

                      	
                        “Att
      to:” reference

                      
	
                        Operator

                         

                      	 
      

              

              Other
Parties:

              
                	
                        Non-Operators

                         

                         

                      	 
      

              

              

              

              9.              Elections
and Changes to above Provisions.

               

              9.1             Operator
not the TRP.

               

              With
respect to Sec. 2.1, (insert name of Party to be TRP instead of Operator, or
indicate “N/A”)______________________is
designated as TRP.

               

              9.2             Special
Tax Elections.

               

              With
respect to Sec. 4.1, the Parties agree (if not applicable insert “N/A” or
strike):

              

              

              
                
                  
                  

                

                
                  F-9

                  
                    

                  

                

                
                  
                  

                

              

              

              

              
                	
                        e)
      that the Partnership shall elect to account for dispositions of
      depreciable assets under the general asset method to the extent permitted
      by Code §168(i)(4);

                      	
                        No

                      
	
                        f)
      that the Partnership shall elect under Code §754 to adjust the basis of
      Partnership property, with the adjustments provided in Code§734 for a
      distribution of property and in Code §743 for a transfer of a partnership
      interest. In case of distribution of property the TRP shall adjust all tax
      basis capital accounts. In the case of a transfer of a partnership
      interest the acquiring party(ies) shall establish and maintain its(their)
      tax basis capital account(s);

                      	
                        Elect-at-time-of-sale

                      
	
                        g)that
      the Partnership shall elect under Code §6231 to be subject to the TEFRA
      rules

                      	
                        Yes

                      

              

              

              

              

              
                	
                        With
      respect to  Sec. 4.2, Depletion the Parties agree that the
      Partnership shall use simulated percentage depletion instead of simulated
      cost depletion.

                      	
                        Yes

                      
	
                        With
      respect to Sec.5.2.4, under the rules of Treas. Reg. §
      1.704-1(b)(2)(iv)(f) the Parties agree that the FMV capital accounts shall
      be revalued to reflect value changes of the Partnership property upon the
      occurrence of the events specified in (5)(i) through (iii) of said –
      1.704-1(b)(2)(iv)(f) regulations.

                      	
                        Yes

                      
	
                        With
      respect to Sec. 6.2.8, the income attributable to take-in-kind production
      will be reflected on the tax return.

                      	
                        No

                      

              

              

              With
respect to Sec. 5.2.3 the FMV for the listed properties are determined as
follows (mark as “N/A” if not applicable; use separate sheet if
necessary)

              

              
                	
                        Property
      Description

                      	
                        FMV

                      
	 
      	 
      
	 
      	 
      
	 
      	 
      

              

              

              
                9.3             
Change of
Majority for Other Tax Elections.

                 

              

              INSTEAD
OF THE Sec. 4.4 majority for other tax elections, a majority shall be considered
if consisting of (specify or line out blanks)
_____________________________________________________.

              

              

              

              

              THE
END

              

              

              
                
                   

                

                
                  F-10

                  
                    

                  

                

                
                   

                

              

              

              

              

              
                OFFSHORE

                OPERATING
AGREEMENT

                

                Vermilion
Area, South Addition, Block 317

                (OCS-G
27078)

                

                DATED
EFFECTIVE:   September
18,2006

                

                

                BETWEEN

                

                

                RIDGELAKE
ENERGY, INC.,

                GULFX,
LLC,

                SOUTH
MARSH LLC and

                LION
ENERGY LIMITED LLC

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              

              OPERATING
AGREEMENT

              

              TABLE OF
CONTENTS

              

              

              ARTICLE
1

               

              
                	 	 	APPLICATION   	 
      1
	
                         
      

                      	
                        1.1

                      	
                        Application 

                      	
                          1

                      

              

              

              ARTICLE
2

               

              
                	 	 	DEFINITIONS    	 
      1
	
                         
      

                      	
                        2.1

                      	
                        Affiliate 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.2

                      	
                        Contract
      Area 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.3

                      	
                        Development
      Operations 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.4

                      	
                        Development
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.5

                      	
                        Exploratory
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.6

                      	
                        Exploratory
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.7

                      	
                        Facility(ies) 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.8

                      	
                        Joint
      Account 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.9

                      	
                        Lease 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.10

                      	
                        Non-Consent
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.11

                      	
                        Non-Consent
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.12

                      	
                        Non-Operator 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.13

                      	
                        Non-Participating
      Party 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.14

                      	
                        Non-Participating Party's
      Share 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.15

                      	
                        Operator 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.16

                      	
                        Participating
      Interest 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.17

                      	
                        Participating
      Party 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.18

                      	
                        Platform 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.19

                      	
                        Producible
      Well 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.20

                      	
                        Producible
      Reservoir 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.21

                      	
                        Sidetrack(ing) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.22

                      	
                        Subsequent
      Facility(ies) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.23

                      	
                        Working
      Interest 

                      	
                          3

                      

              

               

              ARTICLE
3

               

              
                	 	 	EXHIBITS    	 
      4
	
                         
      

                      	
                        3.1

                      	
                        Exhibits 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.1

                      	
                        Exhibit
      "A" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.2

                      	
                        Exhibit
      "B" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.3

                      	
                        Exhibit
      "C" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "D" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "E" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.2

                      	
                        Conflicts 

                      	
                          4

                      

              

               

              
                ARTICLE
4

                 

                
                  	 	 	OPERATOR  	 
      4
	
                           
      

                        	
                          4.1

                        	
                          Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.2

                        	
                          Resignation or Removal of
      Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.3

                        	
                          Selection of
      Successor 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.4

                        	
                          Delivery of
      Property 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.5

                        	
                          Liability of
      Operator 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.6

                        	
                          Removal and selection of
      Operator in a two Party Agreement 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.7

                        	
                          Designation of
      Operator 

                        	
                            5

                        

                

                 

              

              
 

              
                
                  
                  

                

                
                  
                  

                  
                    

                  

                

                
                  
                  

                

              

              

              

              ARTICLE
5

               

              
                	 	 	AUTHORITY AND DUTIES OF
      OPERATOR    	 
      5
	
                         
      

                      	
                        5.1

                      	
                        Exclusive Right to
      Operate 

                      	
                          5

                      

              

              
                	
                         
      

                      	
                        5.2

                      	
                        Workmanlike
      Conduct 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.3

                      	
                        Liens and
      Encumbrances 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.4

                      	
                        Employees 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.5

                      	
                        Records 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.6

                      	
                        Compliance 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.7

                      	
                        Contractors 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.8

                      	
                        Governmental
      Reports 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.9

                      	
                        Information to Participating
      Parties 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.10

                      	
                        Information to
      Non-Participating Parties 

                      	
                          7

                      

              

              

              ARTICLE
6

               

              
                	 	 	VOTING AND VOTING
      PROCEDURES    	 
      7
	
                         
      

                      	
                        6.1

                      	
                        Designation of
      Representatives 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2

                      	
                        Voting
      Procedures 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.1

                      	
                        Voting
      Interest 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.2

                      	
                        Vote
      Required 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.3

                      	
                        Votes

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        6.2.4

                      	
                        Meetings 

                      	
                          8

                      

              

              

              ARTICLE
7

               

              
                	 	 	ACCESS    	 
      8
	
                         
      

                      	
                        7.1

                      	
                        Access to Contract
      Area 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.2

                      	
                        Reports 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.3

                      	
                        Confidentiality 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.4

                      	
                        Exceptions 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.5

                      	
                        Limited
      Disclosure 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.6

                      	
                        Proceeds 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        7.7

                      	
                        Media
      Releases 

                      	
                          10

                      

              

              

              ARTICLE
8

              

              
                	 	 	EXPENDITURES   	 
      10
	
                         
      

                      	
                        8.1

                      	
                        Basis of Charge to the
      Parties 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        8.2

                      	
                        Authorization 

                      	
                         
      10

                      

              

              
                	
                         
      

                      	
                        8.3

                      	
                        Advance
      Billings 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.4

                      	
                        Commingling of
      Funds 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.5

                      	
                        Security
      Rights 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.6

                      	
                        Default 

                      	
                         
      17

                      
	 	8.7 	Unpaid
      Charges 	  18

              

              
                	
                         
      

                      	
                        8.8

                      	
                        Carved-out
      Interest 

                      	
                         
      18

                      

              

              

              ARTICLE
9

               

              
                	 	 	NOTICES  	 
      19
	
                         
      

                      	
                        9.1

                      	
                        Giving and Responding to
      Notices 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.2

                      	
                        Content of
      Notice 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.3

                      	
                        Response to
      Notices 

                      	
                         
      19

                      
	 	 	9.3.1  
         Platform
      Construction	 
      19 
	 	 	9.3.2     
      Proposal Without
      Platform 	 
      20 
	 	 	9.3.3     
      Other
      Matters 	 
      20 

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        9.4

                      	
                        Failure to
      Respond 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        9.5

                      	
                        Restriction on Multiple Well
      Proposals 

                      	
                         
      20

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              
                 
ARTICLE
10

              

               

              
                	 	 	EXPLORATORY
      OPERATIONS 	 
      20
	
                         
      

                      	
                        10.1

                      	
                        Operations by All
      Parties 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        10.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.3

                      	
                        Final Election to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.5

                      	
                        Substitute
      Well 

                      	
                         
      22

                      

              

              
                	
                         
      

                      	
                        10.6

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      23

                      
	 	 	
                        10.6.1      
      Operation by All
      Parties 

                      	 
      24
	 	 	
                        10.6.2      
      Operations by Fewer than
      All Parties 

                      	 
      24
	 	 	
                        10.6.3      
      Obligations and
      Liabilities of Participating Parties 

                      	 
      24
	 	 	
                        10.6.4      
      Deepening or Sidetracking
      of Non-Consent Exploratory Well 

                      	 
      24
	 	 	
                        10.6.5      
      Plugging and Abandoning
      Cost 

                      	 
      25

              

              
              

              
              

              
              

              
              

              
              

              

              ARTICLE
11

               

              
                	 	 	DEVELOPMENT
      OPERATIONS  	 
      25
	
                         
      

                      	
                        11.1

                      	
                        Operations by All
      Parties 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.3

                      	
                        Final Election to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.5

                      	
                        Timely
      Operations 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.6

                      	
                        Substitute
      Well 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.7

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      27

                      

              

              
              

              
              

              
              

              
                	 	 	
                        11.7.1     
      Operations by All
      Parties

                      	 
      28
	 	 	
                        11.7.2     
      Operations by Fewer than
      All Parties

                      	 
      28
	 	 	
                        11.7.3     
      Obligations and
      Liabilities of Participating Parties 

                      	 
      28
	
                         
      

                      	
                        11.8

                      	
                        Deeper
      Drilling 

                      	
                         
      28

                      

              

              
                	
                         
      

                      	
                        11.9

                      	
                        Plugging and Abandoning
      Cost 

                      	
                         
      28

                      
	 	11.10	
                        Subsequent Facilities
      

                      	 
      29
	 	11.11 	
                        Contracts
    

                      	 
      29

              

              
              

              
              

              

              ARTICLE
12

               

              
                	 	 	NON-CONSENT
      OPERATIONS   	  29
	
                         
      

                      	
                        12.1

                      	
                        Non-Consent
      Operations 

                      	
                          29

                      
	 	 	12.1.1     
      Non-Interference	 
      29
	 	 	12.1.2     
      Multiple Completion
      Limitation  	 
      29
	 	 	12.1.3     
      Metering 	 
      29
	 	 	12.1.4     
      Non-Consent
      Well	 
      29
	 	 	12.1.5     
      Cost Information
      	 
      29
	 	 	12.1.6     
      Completion	 
      30

              

              
              

              
              

              
              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.2

                      	
                        Forfeiture of
      Interest 

                      	
                         
      30

                      
	 	 	12.2.1     
      Production
      Reversion	 
      30
	 	 	12.2.2     
      Non-Production
      Reversion	 
      31

              

              
              

              
              

              
                	
                         
      

                      	
                        12.3

                      	
                        Deepening or Sidetracking of
      Non-Consent Development Well 

                      	
                         
      31

                      
	 	12.4 	Operations from Non-Consent
      Platforms and Facilities  	 
      31

              

              
              

              
                	
                         
      

                      	
                        12.5

                      	
                        Discovery or Extension from
      Mobile Drilling Operations 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.6

                      	
                        Non-Consent Operations to
      Maintain Lease 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.7

                      	
                        Allocation of Platform Costs to
      Non-Consent Operations 

                      	
                         
      33

                      
	 	 	12.7.1     
      Charges 	 
      33
	 	 	12.7.2     
      Operating and Maintenance
      Charges 	 
      34
	 	 	12.7.3     
      Payments 	 
      34

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.8

                      	
                        Allocation of Costs Between
      Depths (Single Completion) 

                      	
                         
      34

                      

              

              
                	
                         
      

                      	
                        12.9

                      	
                        Allocation of Costs Between
      Depths (Multiple Completions) 

                      	
                         
      35

                      

              

              
              

              
                	 	12.10	Allocation of Costs Between
      Depths (Dry Hole) 	 
      36
	
                         
      

                      	
                        12.11

                      	
                        Intangible Drilling and
      Completion Cost Allocations 

                      	
                         
      36

                      

              

              
                	
                         
      

                      	
                        12.12

                      	
                        Subsequent Operations in
      Non-Consent Well 

                      	
                         
      36

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              
                 
ARTICLE
13

              

               

              
                	 	 	ABANDONMENT AND
      SALVAGE 	 
      37
	
                         
      

                      	
                        13.1

                      	
                        Platform Salvage and Removal
      Costs 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.2

                      	
                        Abandonment of Producing
      Well 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.3

                      	
                        Assignment of
      Interest 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.4

                      	
                        Abandonment Operations Required
      By Governmental Authority 

                      	
                         
      37

                      

              

              

              ARTICLE
14

               

              
                	 	 	WITHDRAWAL 	 
      37
	
                         
      

                      	
                        14.1

                      	
                        Withdrawal 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        14.2

                      	
                        Limitations on
      Withdrawal 

                      	
                         
      38

                      

              

              

              ARTICLE
15

               

              
                	 	 	RENTALS, ROYALTIES AND OTHER
      PAYMENTS  	 
      38
	
                         
      

                      	
                        15.1

                      	
                        Creation of Overriding
      Royalty 

                      	
                         
      38

                      

              

              
                	
                         
      

                      	
                        15.2

                      	
                        Payment of Rentals and Minimum
      Royalties 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.3

                      	
                        Non-Participation in
      Payments 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.4

                      	
                        Royalty
      Payments 

                      	
                         
      39

                      

              

              

              ARTICLE
16

               

              
                	 	 	TAXES 	 
      39
	
                         
      

                      	
                        16.1

                      	
                        Property
      Taxes 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        16.2

                      	
                        Contest of Property Tax
      Valuation 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.3

                      	
                        Production and Severance
      Taxes 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.4

                      	
                        Other Taxes and
      Assessments 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.5

                      	
                        Gas
      Balancing 

                      	
                         
      40

                      

              

              

              ARTICLE
17

               

              
                	 	 	INSURANCE  	 
      40
	
                         
      

                      	
                        17.1

                      	
                        Insurance 

                      	
                         
      40

                      

              

              

              ARTICLE
18

               

              
                	 	 	LIABILITY, CLAIMS AND
      LAWSUITS  	 
      41
	
                         
      

                      	
                        18.1

                      	
                        Individual
      Obligations 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.2

                      	
                        Notice of Claim or
      Lawsuit 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.3

                      	
                        Settlements 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.4

                      	
                        Legal
      Expense 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.5

                      	
                        Liability for Losses, Damages,
      Injury or Death 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.6

                      	
                        Indemnification 

                      	
                         
      41

                      
	 	18.7 	Damage to Reservoir, Loss of
      Reserves and Profits 	 
      41 

              

              
              

              

              ARTICLE
19

               

              
                	 	 	INTERNAL REVENUE
      PROVISION	 
      42
	
                         
      

                      	
                        19.1

                      	
                        Internal Revenue
      Provision 

                      	
                         
      42

                      

              

              

              ARTICLE
20

               

              
                	 	 	CONTRIBUTIONS 	 
      42
	
                         
      

                      	
                        20.1

                      	
                        Notice of Contributions Other
      than Advances for Sale of Production 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.2

                      	
                        Cash
      Contributions 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.3

                      	
                        Acreage
      Contributions 

                      	
                         
      43

                      

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              ARTICLE
21

               

              
                	 	 	DISPOSITION OF
      PRODUCTION  	 
      43
	
                         
      

                      	
                        21.1

                      	
                        Facilities to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.2

                      	
                        Taking Production In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.3

                      	
                        Failure to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.4

                      	
                        Expenses of Delivery In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.5

                      	
                        Gas Balancing
      Provisions 

                      	
                         
      43

                      

              

              

              ARTICLE
22

               

              
                	 	 	APPLICABLE
      LAW 	 
      44 
	
                         
      

                      	
                        22.1

                      	
                        Applicable
      Law 

                      	
                         
      44

                      

              

              

              

              ARTICLE
23

               

              
                	 	 	LAWS AND
      REGULATIONS 	  44
	
                         
      

                      	
                        23.1

                      	
                        Laws and
      Regulations 

                      	
                         
      44

                      

              

              

              

              ARTICLE
24

               

              
                	 	 	FORCE
      MAJEURE 	 
      44
	
                         
      

                      	
                        24.1

                      	
                        Force
      Majeure 

                      	
                         
      44

                      

              

              
                	
                         
      

                      	
                        24.2

                      	
                        Notice 

                      	
                         
      44

                      

              

              

              ARTICLE
25

              

              
                	 	 	SUCCESSORS, ASSIGNS AND
      PREFERENTIAL RIGHTS 	 
      45
	
                         
      

                      	
                        25.1

                      	
                        Successors and
      Assigns 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.2

                      	
                        Transfer of
      Interest 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.3

                      	
                        Consent to
      Assign 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.4

                      	
                        Transfers Between
      Parties 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.5

                      	
                        Division of
      Interest 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.6

                      	
                        Preferential
      Rights 

                      	
                         
      46

                      

              

               

              ARTICLE
26

               

              
                	 	 	TERM  	 
      47
	
                         
      

                      	
                        26.1

                      	
                        Term 

                      	
                         
      47

                      

              

              

              ARTICLE
27

               

              
                	 	 	MISCELLANEOUS
      PROVISIONS 	 
      47
	
                         
      

                      	
                        27.1

                      	
                        Headings 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        27.2

                      	
                        Waiver 

                      	
                         
      47

                      

              

              

               ARTICLE
28

               

              
                	 	 	EXECUTION   	 
      47
	
                         
      

                      	
                        28.1

                      	
                        Counterpart
      Execution 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        28.2

                      	
                        Amendments 

                      	
                         
      47

                      

              

              

              

              
                
                   

                

                
                   

                  
                    

                  

                

                
                   

                

              

              

              OPERATING
AGREEMENT

              Vermilion Block
317 (OCS-G 27078)

              

              THIS AGREEMENT is made effective the
18th day of September , 2006, by and between Ridgelake Energy, Inc., GulfX, LLC,
South Marsh LLC and Lion Limited LLC, herein referred to collectively as
"Parties" and individually as "Party".

              

              W I T N E
S S E T H:

               

              WHEREAS, the Parties own an interest in
the oil and gas Lease identified in Exhibit "A" attached hereto;
and,

              

              WHEREAS,
the Parties desire to enter into this Agreement in order to efficiently explore,
develop, produce, and operate the said Lease.

              

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

              

              ARTICLE
1

              APPLICATION

              

              1.1           Application.  This
Agreement applies to and is applicable to all operations on the Oil and Gas
Lease described on Exhibit “A” attached hereto.

              

              ARTICLE
2

              DEFINITIONS

              

              2.1           Affiliate.  Any
person, corporation, partnership, limited partnership, or legal entity, whether
of a similar or dissimilar nature, which (a) controls, either directly or
indirectly, a Party, or (b) is controlled, either directly or indirectly, by
such Party, or (c) is controlled, either directly or indirectly, by a person or
entity which directly or indirectly controls such Party.  "Control"
means the ownership (or the right to exercise or direct) fifty percent (50%) or
more of the voting rights in the appointment of directors of such company, or
fifty percent (50%) or more of the interests in the partnership or other
entity.

               

              2.2           Contract
Area.  The acreage subject to this Operating Agreement includes
all acreage covered by the Oil and Gas Lease identified in Exhibit "A" attached
to this Agreement.

               

              2.3           Development
Operations.  Operations on the Contract Area other than
Exploratory Operations as defined in Section 2.6 below, including operations
conducted off the Contract Area for the purpose of development or production of
hydrocarbons under the Contract Area.

              

              
                
                   

                

                
                  1

                  
                    

                  

                

                
                   

                

              

              2.4           Development
Well.  Any well proposed as a Development
Operation.

              

              2.5           Exploratory
Operations.  Operations within the Contract Area:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        to
      a proposed objective zone, horizon, or formation which does not have a
      Producible Well and all activities necessary for the accomplishment of
      such drilling up to, but not including, the election following the
      Operator's recommendation in Section 10.6
below.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        to
      a proposed objective zone, horizon, or formation which does have one (1)
      or more Producible Well(s), but such objective will be penetrated at a
      location which all of the Participating Parties in the preexisting
      Producible Well(s) agree, at the time that the proposed Exploratory Well
      is approved, will be in a totally separate reservoir or will not drain or
      produce reserves that would be recovered by the preexisting Producible
      Well(s), and all activities necessary for the accomplishment of such
      drilling up to, but not including, the election following the Operator's
      recommendation in Section 10.6 below;
or

                      

              

               

                     
2.6            Exploratory
Well.  Any well drilled as an Exploratory
Operation.

               

              2.7            Facility(ies).  All
equipment and piping beyond the wellhead connections (including pipeline(s)
and/or flowline(s) to separate processing facilities) acquired pursuant to this
Agreement necessary to establish initial production on any Exploratory or
Development Well operation, excluding Platforms and excluding pipelines used to
transport production from the Contract Area or processing site to
shore.

               

              2.8            Joint
Account.  The combined interests of the Parties in the Contract
Area now or hereafter subject to this Agreement.

               

              2.9            Lease.  Individually,
each of the offshore oil and gas leases which are described in Exhibit "A"
attached hereto, to the extent that such leases authorize exploration,
development, and production activities on lands contained within the Contract
Area.

               

              2.10          Non-Consent
Operations.  Exploratory or Development Operations conducted by
fewer than all Parties.

               

              2.11          Non-Consent
Well.  An Exploratory or Development Well which is drilled by
fewer than all Parties and with respect to which no reversion of interest has
taken place pursuant to Article 12.

               

              2.12          Non-Operator.  Any
Party to this Agreement other than the Operator.

               

              2.13          Non-Participating
Party.  Any Party other than a Participating
Party.

               

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

              

              
                
                   

                

                
                  2

                  
                    

                  

                

                
                   

                

              

              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, or in a Platform, well, or Facility owned, pursuant
to this Agreement.

               

              2.17          Participating
Party.  A Party who joins in an operation, pays its portion of
the cost and expense of the operation, and is entitled to its proportionate part
of the benefits of the operation pursuant to the terms of this
Agreement.

               

              2.18          Platform.  A
drilling or production platform, caisson or well protector, or similar
structure.

               

              2.19          Producible
Well.  A well producing oil or gas, or, if not producing oil or
gas, a well determined to be capable of producing oil or gas in paying
quantities pursuant to any applicable order or regulation issued by appropriate
governmental authority; however, any well shall be considered a Producible Well
if so determined by two (2) or more participating Parties with a combined
working interest of 50% of said well, whether or not said well is plugged and
abandoned.  Each separate completion in a Producible Reservoir shall
be considered a Producible Well.

               

              2.20          Producible
Reservoir.  Based on electric log data, core analysis data, a
drill stem test, a wire line formation test, or any combination of these, an
accumulation of oil or gas, or both, separated from and not in oil or gas
communication with any other accumulation and having rock properties indicating
it to be capable of hydrocarbon production in quantities sufficient to yield a
return in excess of the costs of equipping, completing, and operating it,
including allocated costs for a Platform, Facilities, and their operations, as
determined by the affirmative vote of two (2) or more Parties having a combined
Participating interest of fifty percent (50%) or more.  In addition,
any accumulation of oil or gas, or both, within the Contract Area shall be
designated a Producible Reservoir upon the approval of a Platform to produce
such oil or gas.

               

              2.21          Sidetrack(ing).  Directionally
drilling by intentionally deviating a well bore to a target bottomhole location
other than that target bottomhole location to which such well bore would have
penetrated absent such deviation.  Operations undertaken to straighten
the hole or to drill around junk in the hole resulting from other mechanical
difficulties shall not be considered as a sidetrack or
sidetracking.

               

              2.22          Subsequent
Facility(ies).  Those Facilities, excluding Platforms, which
are proposed subsequent, or in addition, to the Facilities.

               

              2.23          Working
Interest.  The ownership of each Party in and to the Lease and
Contract Area as set forth in Exhibit "A".

              
                
                   

                

                
                  3

                  
                    

                  

                

                
                   

                

              

              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, Contract Area, Interests of the Parties and Designated
      Representatives.

                      
	3.1.2 	Exhibit
      "B".   	Insurance
      Requirements.
	3.1.3  	Exhibit
      "C".  	
                        Accounting
      Procedure.

                      
	3.1.4    	Exhibit
      "D".   	Gas
      Balancing Agreement.
	3.1.5   	Exhibit
      “E”     	Memorandum of
      Operating Agreement and Financing
      Agreement.
	3.1.6 	Exhibit
      “F”   	Tax
      Partnership.

              

               

                                                                       

                                                                          

               

              3.2           Conflicts.  If
a provision contained in an Exhibit is inconsistent with a provision contained
in the body of this Agreement, then the provision contained in the body of this
Agreement shall prevail.

              

              ARTICLE
4

              OPERATOR

              

              4.1           Operator. RIDGELAKE
ENERGY, INC. is hereby designated as Operator for the purposes of this
Agreement, and for all operations conducted on or related to the Contract
Area.

               

              4.2           Resignation or Removal of
Operator.  Operator may resign at any time by giving written
notice thereof to Non-Operators.  In addition, Operator may be removed
by the affirmative vote of the Parties owning a combined Working Interest of
fifty-one percent (51%) or more after excluding Operator’s Working Interest
if:

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        a
      receiver is appointed for Operator or for substantially all of its
      property or affairs.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Operator
      sells, trades, transfers or assigns all or a portion of its Working
      Interest, thereby reducing its Working Interest to less than ten percent
      (10%); or

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Operator
      commits a substantial breach of a material provision of this Agreement and
      fails to cure such breach within sixty (60) days after receipt of a
      Non-operator’s notice to Operator of such breach.

                         

                      

              

              The resignation or removal of the
Operator shall become effective as soon as practical, but not later than 7:00
o'clock a.m. on the first day of the calendar month following a period of ninety
(90) days after i) the date of notice of resignation by Operator or ii) the date
of receipt of written notice by Operator from Non-Operator detailing the alleged
grounds for removal and Operator has failed to cure same within sixty (60) days
from its
receipt of the notice, unless a longer period is required for the Parties to
obtain approval of the designation of the successor Operator by the MMS;
however, in no event shall the resignation or removal of Operator become
effective until a successor Operator has assumed the duties of
Operator.  Upon approval of the designation of the successor Operator
by the MMS, the resigning or removed Operator shall be bound by the terms of
this Joint Operating Agreement as a Non-Operator.  A change of a
corporate name or structure of Operator or transfer of Operator’s interest to
any single subsidiary, parent or successor corporation shall not be the basis
for removal of Operator.

              
                
                   

                

                
                  4

                  
                    

                  

                

                
                   

                

              

              4.3           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 majority Working Interest.  However, if the removed
or resigned Operator fails to vote or votes only to succeed itself, the
successor Operator shall be selected by an affirmative vote of the Parties
having a combined Working Interest of fifty-one percent (51%) or more of the
remaining Working Interest 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 elected and assumed its duties.

               

              4.4          
Delivery of
Property.  Prior to the effective date of resignation or
removal, the former Operator shall deliver to the successor Operator all records
and data relating to the operations conducted by the former Operator that the
successor Operator is entitled to have and that are not already in the
possession of the successor Operator, as well as all other property in the
possession of the former Operator that was acquired for the Joint
Account.

               

              4.5           Liability of
Operator.  If Operator resigns, or if Operator is removed as
Operator, such resignation, or removal shall not relieve Operator of any
liabilities it may have to Non-Operator(s) or third parties for damages arising
out of Operator's breach of this Agreement.

               

              4.6           Removal and Selection of a
Successor Operator in a Two-party Agreement.  If this Agreement
involves only two parties, the following provisions shall apply:

               

              
                	
                         
      

                      	
                        4.6.1  On
      the occurrence of an event specified in Section 4.2 that allows removal of
      Operator, Non-Operator shall have the option of either becoming Operator
      or allowing Operator to continue in that position.

                         

                      

              

              
                	
                         
      

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

                         

                      

              

              4.7           Designation of
Operator.  The Parties hereto agree to execute such Designation
of Operator forms as are required to have the Operator or its successor properly
designated as operator with the Minerals Management Service or any other
governmental authority having jurisdiction over the Lease and the operations
conducted thereunder.

              

              ARTICLE
5

              AUTHORITY AND DUTIES OF
OPERATOR

              

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

               

              
                
                  
                  

                

                
                  5

                  
                    

                  

                

                
                  
                  

                

              

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

               

              5.3           Liens and
Encumbrances.  Operator shall endeavor to keep the Lease within
the Contract Area and equipment free from all liens and encumbrances occasioned
by operations hereunder, except those provided for in Section 8.5 (Security
Rights).

               

              5.4           Employees.  The
number of employees and their selection, and the hours of labor and compensation
for services performed shall be determined by Operator.  Except as
provided in Exhibit “C”, such employees shall be the employees of
Operator.

               

              5.5           Records.  Operator
shall keep accurate books, accounts, and records of operations under this
Agreement, which, unless otherwise provided for in this Agreement, shall be
available to Non-Operator as provided 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 authorities
having jurisdiction.

               

              5.7           Contractors.  Operator
may enter into contracts with independent contractors for the design,
construction, installation, or operation of Platforms and
Facilities.  Insofar as possible, Operator shall use competitive
bidding to procure goods and services for the benefit of the
Parties.  All drilling operations conducted under this Agreement shall
be conducted by qualified and responsible drilling contractors under current
competitive contracts.  A drilling contract will be deemed to be a
current competitive contract if it (a) was made within one hundred (180) days
before the commencement of the well and (b) contains terms, rates, and
provisions that, when the contract was made, did not exceed those generally
prevailing in the area for operations involving substantially equivalent rigs
that are capable of drilling the proposed well.  At its
election, Operator may use its own or an Affiliate’s drilling equipment, derrick
barge, tools, or machinery to conduct drilling operations, but the work shall be
(a) performed by Operator acting as an independent contractor, (b) approved by
written agreement with the Participating Parties before commencement of
operations, and (c) conducted under the same terms and conditions and at the
same rates as are customary and prevailing in competitive
contracts  of third parties doing work of a similar
nature.  Before awarding a drilling contract or performing work with
its own or an Affiliate’s drilling equipment, derrick barge, tools, or
machinery, Operator shall attempt to obtain competitive bids for the work from
independent contractors.

              
                
                   

                

                
                  6

                  
                    

                  

                

                
                   

                

              

              5.8           Governmental
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 Participating Parties.

               

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

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Daily
      drilling reports.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        A
      complete report of all core analyses, if
any.

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        A
      copy of any logs or surveys as run.

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        A
      copy of any well test results, bottom-hole pressure surveys, gas and
      condensate analyses, or similar
information.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        A
      copy of reports made to regulatory
agencies.

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        To
      the extent possible, twenty-four (24) hour advance notice by telephone to
      the designated representative listed in Exhibit "A" (or the designated
      alternate), of logging, coring and testing
  operations.

                      

              

              
                	
                         
      

                      	
                        (h)

                      	
                        If
      available, upon written request, samples of cuttings and cores marked as
      to depth, to be packaged and shipped at the expense of the requesting
      Party.

                         

                      

              

              5.10           Information to
Non-Participating Parties.  Operator shall furnish to each
Non-Participating Party a copy of Operator’s governmental reports that are
available to the public and associated with the applicable Non-consent
operation.  A Non-Participating Party shall be entitled to receive the
information specified in Section 5.9 after the recoupment provisions in Section
10.4 and/or Section 12.2.1 have been satisfied.

              

              ARTICLE
6.

              VOTING AND VOTING
PROCEDURES

              

              6.1           Designation of
Representatives.  The names and addresses of the representative
and alternate, who are authorized to represent each Party with respect to
operations hereunder, are set forth in Exhibit "A".  The designated
representative or alternate may be changed by written notice to the other
Parties.

              6.2              Voting
Procedures.  Unless otherwise provided, any matter requiring
approval of the Parties, except an amendment to this Agreement, shall be
determined as follows:

               

              
                	
                         
      

                      	
                        6.2.1

                      	
                        Voting
      Interest.  Subject to section 8.6, each Party shall have
      a voting interest equal to its Working Interest or its Participating
      Interest, as applicable.

                         

                      

              

              
                	
                         
      

                      	
                        6.2.2

                      	
                        Vote
      Required.  Proposals requiring approval of the Parties
      shall be decided by an affirmative vote of two (2) or more Parties having
      a combined voting interest of fifty-one percent (51%) or
      more.  If there are only two (2) Parties to this Agreement, the
      matter shall be determined by the Party having the majority voting
      interest, or, if the interests are equal, the matter shall require
      unanimous consent.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  7

                  
                    

                  

                

                
                  
                  

                

              

               

               

               

              
                	
                         
      

                      	
                        6.2.3

                      	
                        Votes.  The
      Parties may vote personally at meetings, or by telephone, promptly
      confirmed in writing to Operator, or by letter, telegram, telex, telecopy,
      or other form of facsimile transmission.

                         

                      

              

              
                	
                         
      

                      	
                        6.2.4

                      	
                        Meetings.  Meetings
      of the Parties may be called by Operator upon its own motion or at the
      request of any Party(ies) having a combined voting interest of not less
      than twenty percent (20%).  Except in the case of emergency, or
      except when agreed by unanimous consent, no meeting shall be called on
      less than seven (7) 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,
      that by unanimous agreement of the Parties present at such meeting, the
      agenda and items included therein may be amended.  If a meeting
      is called, it shall take place at Operator’s offices, unless it is
      unanimously agreed to be held at some other
  location.

                      

              

              

              
                	
                         
      

                      	
                        ARTICLE
      7

                      

              

              
                	
                         
      

                      	
                        ACCESS

                      

              

              

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

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

               

              
                
                  
                  

                

                
                  8

                  
                    

                  

                

                
                  
                  

                

              

              7.3           Confidentiality.  For
the purposes of this Agreement, the term "Confidential Information" shall mean
any geological, geophysical, engineering, technical, production test,
exploratory, or reservoir information, or any logs or other information
pertaining to any well drilled pursuant to this Agreement or any operation
conducted under the terms of this Agreement to the extent that such information
was acquired at joint expense.  Except as provided in Section 7.5 and
except for necessary disclosures to governmental authorities having
jurisdiction, no Party shall during the term of this Agreement and for a period
of three (3) years thereafter, trade, sell, publish or release any such
Confidential Information without the agreement of all Participating
Parties.  Otherwise, the Parties shall jointly own all such
Confidential Information without duty to account.  Each Party's
obligation to protect Confidential Information shall be considered met by each
Party using at least the same degree of care as it uses in protecting its own
proprietary materials of like kind.

               

              7.4           Exceptions.  No
Party shall have any obligation to limit disclosure or use any portion of
Confidential Information which:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        is
      already in that Party's possession prior to receipt as a result of this
      Agreement;

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        is
      now in or hereafter becomes publicly available through no fault of that
      Party;

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        is
      disclosed to that Party without obligation of confidence by a third party
      which has the right to make such disclosure;
or;

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        is
      independently developed by or for such Party without reference to
      information received under this Agreement.

                         

                      

              

              7.5           Limited
Disclosure.  Notwithstanding any other provision of this
Agreement, the Parties may make Confidential Information available to third
parties as follows:

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                
                   

                

                
                  9

                  
                    

                  

                

                
                   

                

              

              
                	
                         
      

                      	
                        (b)

                      	
                        gas
      transmission companies for hydrocarbon reserve or technical
      evaluations;

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        reputable
      financial institutions for study before commitment of
    funds;

                      

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

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

                      

              

              
                	
                         
      

                      	
                        (f)

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

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        an
      Affiliate of a Party; and

                      

              

              
                	
                         
      

                      	
                        (h)

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

                      

              

               

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

               

              7.6           Proceeds.  During
the term of this Agreement, the Parties agree that any proceeds obtained from
the sale of Confidential Information (excluding, however, transfers of
Confidential Information incidental to a Party’s sale of all or any portion of
its interest in the Contract Area) shall be shared by the Parties in proportion
to their share of the total costs and expenses to acquire same.

               

              7.7           Media
Releases.  Except as agreed by all parties or otherwise
permitted by this Section, no Party shall issue a news or media release about
operations on the Lease.  In an emergency involving extensive property
damage, operations failure, loss of human life, or other clear emergency, and
for which there is insufficient time to obtain the prior approval of the
Parties, Operator may furnish the minimum, strictly factual, information
necessary to satisfy the legitimate public interest of the media and
governmental authorities having jurisdiction.  Operator shall then
promptly advise the other Parties of the information furnished in response to
the emergency.  Notwithstanding anything to the contrary in this
Agreement, upon prior written notice to the other Parties, a Party shall be
allowed to make any press release or announcement required by a recognized stock
exchange on which the Party’s (or its Affiliate’s) stock is listed; provided,
however, that the press release shall contain the following statement: “The
information, opinions or projections
contained in this press release are (the disclosing Party’s) and do not
necessarily reflect the opinions of its co-owners.”

              

              ARTICLE
8

              EXPENDITURES

              

              8.1           Basis of Charge to the
Parties.  Except as otherwise provided in this Agreement,
Operator shall pay all costs incurred 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".

               

              8.2           Authorization.  Prior
to undertaking any project or making any single expenditure related to the
Contract Area in excess of One Hundred Thousand Dollars ($100,000.00), Operator
shall submit for the approval of the Parties an Authorization for Expenditure
("AFE") for such project or expenditure.  Operator shall furnish
written information to all the Parties on any project or single expenditure
costing less than One Hundred Thousand Dollars ($100,000.00) but in excess of
Fifty Thousand Dollars ($50,000.00) if Operator prepares same for its own
use.  Notwithstanding the One Hundred Thousand Dollar ($100,000.00)
limitation, where such project or expenditure involves changing zones in a well
or a workover operation, an AFE shall be submitted to the Parties for
approval.  Approval of a Development Well or 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.  In the event of an actual or imminently threatened
blowout, explosion, accident, fire, flood, storm, or other emergency, Operator
may immediately conduct such operations and make such expenditures as in its
opinion are required to overcome the emergency, including, but not limited to,
any and all measures to protect life, health, safety, property, natural
resources or the environment.  Operator shall report to the Parties,
as promptly as possible, the nature of the emergency and action
taken.  The Operator shall provide supplemental AFE’s to Participating
Parties, for informational purposes only, if it reasonably determines that the
expected actual costs of an operation will exceed the amount of the approved AFE
by 15% or more, but only if the dollar amount of such expected excess is greater
than Two Hundred Fifty Thousand Dollars ($250,000.00).

               

              
                
                  
                  

                

                
                  10

                  
                    

                  

                

                
                  
                  

                

              

              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           Security Rights
(Louisiana).  In addition to any other security rights and
remedies provided by law with respect to services rendered or materials and
equipment furnished under this Agreement, for and in consideration of the
covenants and mutual undertakings of the Operator and the Non-operators herein,
the Parties shall have the following security rights:

              
                
                   

                

                
                  11

                  
                    

                  

                

                
                   

                

              

              (a)           Mortgage in Favor of the
Operator.  Each Non-operator hereby grants to the Operator a
mortgage, hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease within the Contract Area, (b) the oil, gas and
other minerals in, on, under, and that may be produced from the lands within the
Contract Area, and (c) all other immovable property susceptible of mortgage
situated within the Contract Area.

               

              This
mortgage is given to secure the complete and timely performance of and payment
by each Non-operator of all obligations and indebtedness of every kind and
nature, whether now owed by such Non-operator or hereafter arising, pursuant to
this Agreement.  To the extent susceptible under applicable law, this
mortgage and the security interests granted in favor of the Operator herein
shall secure the payment of all costs and other expenses properly charged to
such Party, together with (A) interest on such indebtedness, costs, and other
expenses at the rate set forth in Exhibit "C" attached hereto (the "Accounting
Procedure") or the maximum rate allowed by law, whichever is the lesser, (B)
reasonable attorneys' fees, (C) court costs, and (D) other directly related
collection costs.  If any Non-operator does not pay such costs and
other expenses or perform its obligations under this Agreement when due, the
Operator shall have the additional right to notify the purchaser or purchasers
of the defaulting Non-operator's production of oil, gas and other minerals and
collect such costs and other expenses out of the proceeds from the sale of the
defaulting Non-operator's share of production of oil, gas and other minerals
until the amount owed has been paid.  The Operator shall have the
right to offset the amount owed against the proceeds from the sale of such
defaulting Non-operator's share of production of oil, gas and other
minerals.  Any purchaser of such production shall be entitled to rely
on the Operator's statement concerning the amount of costs and other expenses
owed by the defaulting Non-operator and payment made to the Operator by any
purchaser shall be binding and conclusive as between such purchaser and such
defaulting Non-operator.

               

              The
maximum amount for which the mortgage herein granted by each Non-operator shall
be deemed to secure the obligations and indebtedness of such Non-operator to the
Operator as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 (the "Limit of the Mortgage of each
Non-operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of each Non-operator to the Operator is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of each Non-operator, the liability of each Non-operator under this
Agreement and the mortgage and security interest granted hereby shall be limited
to (and the Operator shall not be entitled to enforce the same against such
Non-operator for, an amount exceeding) the actual obligations and indebtedness
[including all interest charges, costs, attorneys' fees, and other
charges provided for in this Agreement or in the Memorandum of Operating
Agreement and Financing Statement (Louisiana), as such term is defined in
Article 8.5.(e) (Recordation) hereof] outstanding and unpaid and that are
attributable to or charged against the interest of such Non-operator pursuant to
this Agreement.

              
                
                   

                

                
                  12

                  
                    

                  

                

                
                   

                

              

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

              
                
                   

                

                
                  13

                  
                    

                  

                

                
                   

                

              

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

               

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

               

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

               

              (c)           Mortgage in Favor of the
Non-operators.  The Operator hereby grants to each Non-operator
a mortgage, hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease within the Contract Area; (b) the oil, gas and
other minerals in, on, under, and that my be produced from the lands within the
Lease within the Contract Area; and (c) all other immovable property or other
property susceptible of mortgage situated within the Lease within the Contract
Area.

               

              This
mortgage is given to secure the complete and timely performance of and payment
by the Operator of all obligations and indebtedness of every kind and nature,
whether now owed by the Operator or hereafter arising, pursuant to this Agreement.  To
the extent susceptible under applicable law, this mortgage and the security
interests granted in favor of each Non-operator herein shall secure the payment
of all costs and other expenses properly charged to the Operator, together with
(A) interest on such indebtedness, costs, and other expenses at the rate set
forth in Exhibit “C” or the maximum rate allowed by law, whichever is the
lesser, (B) reasonable attorneys' fees, (C) court costs, and (D) other directly
related collection costs.  If the Operator does not pay such costs and
other expenses or perform its obligations under this Agreement when due, the
Non-operators shall have the additional right to notify the purchaser or
purchasers of the Operator’s production of oil, gas and other minerals and
collect such costs and other expenses out of the proceeds from the sale of the
Operator’s share of production of oil, gas and other minerals until the amount
owed has been paid.  The Non-operators shall have the right to offset
the amount owed against the proceeds from the sale of the Operator’s share of
production of oil, gas and other minerals.  Any purchaser of such
production shall be entitled to rely on the Non-operators’ statement concerning
the amount of costs and other expenses owed by the Operator and payment made to
the Non-operators by any purchaser shall be binding and conclusive as between
such purchaser and the Operator.

              
                
                   

                

                
                  14

                  
                    

                  

                

                
                   

                

              

              The
maximum amount for which the mortgage herein granted by the Operator shall be
deemed to secure the obligations and indebtedness of the Operator to all
Non-operators as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 in the aggregate (the "Limit of the Mortgage of the
Operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of the Operator to the Non-operators is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of the Operator, the liability of the Operator under this Agreement and
the mortgage and security interest granted hereby shall be limited to (and the
Non-operators shall not be entitled to enforce the same against the Operator
for, an amount exceeding) the actual obligations and indebtedness [including all
interest charges, costs, attorneys' fees, and other charges provided for in this
Agreement or in the Memorandum of Operating Agreement and Financing Statement
(Louisiana), as such term is defined in Article 8.5.(e) hereof] outstanding and
unpaid and that are attributable to or charged against the interest of the
Operator pursuant to this Agreement.

               

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

               

              
                
                   

                

                
                  15

                  
                    

                  

                

                
                   

                

              

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

               

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

               

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

               

              (e)           Recordation.  To
provide evidence of, and to further perfect the Parties' security rights created
hereunder, upon request, each Party shall execute and acknowledge the Memorandum
of Operating Agreement and Financing Statement (Louisiana) attached as Exhibit
"E" (the "Memorandum of Operating Agreement and Financing Statement
(Louisiana)") in multiple counterparts as appropriate.  The Party
requesting execution of the aforesaid document shall file the Memorandum of
Operating Agreement and Financing Statement (Louisiana) in the public records
set forth below at its sole cost and expense to serve as notice of the existence
of this Agreement as a burden on the title of the Operator and the Non-operators
to their interests in the Leases within the Contract Area and for purposes of
satisfying otherwise relevant recording and filing requirements of applicable
law and to attach an original of the Memorandum of Operating Agreement and
Financing Statement (Louisiana) to a standard UCC-1 in mutually agreeable forms
for filing in the UCC records set forth below to perfect the security interests
created by the Parties in this Agreement.  Upon the acquisition of a
leasehold interest in a Lease within the Contract Area, the Parties shall,
within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation such a Memorandum of
Operating Agreement and Financing Statement (Louisiana) describing such
leasehold interest.  Such Memorandum of Operating Agreement and
Financing Statement
(Louisiana) shall be amended from time to time upon acquisition of additional
leasehold interests in the Leases within the Contract Area, and the Parties
shall, within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation any such
amendment.

              
                
                   

                

                
                  16

                  
                    

                  

                

                
                   

                

              

              The
Memorandum of Operating Agreement and Financing Statement (Louisiana) is to be
filed or recorded, as the case may be, in (a) the conveyance records of the
parish or parishes adjacent to the lands or offshore blocks covered by the
Leases within the Contract Area or contained within the Leases within the
Contract Area pursuant to La. R.S. 9:2731 et seq., (b) the mortgage records of
such parish or parishes, and (c) the appropriate Uniform Commercial Code
records.

               

              8.6           Default.  If
any Party does not pay its share of the charges authorized under this Agreement
when due, the Operator may give the defaulting Party notice that unless payment
is made within thirty (30) days from delivery of the notice, the non-paying
Party shall be in default.  A Party in default shall have no further
access to the rig, Platform or Facilities, any Confidential Information or other
maps, records, data, interpretations, or other information obtained in
connection with activities or operations hereunder or be allowed to participate
in meetings.  A Party in default shall not be entitled to vote or to
make an election until such time as the defaulting Party is no longer in
default.  The voting interest of each non-defaulting Party shall be
counted in the proportion its Participating Interest share bears to the total
non-defaulting Participating Interest shares.  As to any operation
approved during the time a Party is in default, such defaulting Party shall be
deemed to be a Non-participating Party, except where such approval is binding on
all Parties or Participating Parties, as applicable. In the event a Party
believes that such statement of charges is incorrect, the Party shall
nevertheless pay the amounts due as provided herein, and the Operator shall
attempt to resolve the issue as soon as practicable, but said attempt shall be
made no later than sixty (60) days after receiving notice from the Party of such
disputed charges.

               

              
                
                  
                  

                

                
                  17

                  
                    

                  

                

                
                  
                  

                

              

              8.7           Unpaid
Charges.  If any Participating Party fails to pay its share of
the costs and other expenses authorized under this Agreement in accordance with
Exhibit “C” or to otherwise perform any of its obligations under this Agreement
when due, the Party to whom such payment is due, in order to take advantage of
the provisions of Article 8.5, shall notify the other Party by certified or
registered U.S. Mail that it is in default and has thirty (30) days from the
receipt of such notice to pay.  If such payment is not made timely by
the non-paying Party after the issuance of such notice to pay, the Party
requesting such payment may take immediate steps to diligently pursue collection
of the unpaid costs and other expenses owed by such Participating Party and to
exercise the mortgage and security rights granted by this
Agreement.  The bringing of a suit and the obtaining of a judgment by
any Party for the secured indebtedness shall not be deemed an election of
remedies or otherwise affect the security rights granted herein.  In
addition to any other
remedy afforded by law, each Party shall have, and is hereby given and vested
with, the power and authority to foreclose the lien, mortgage, pledge, and
security interest established hereby in its favor in the manner provided by law,
to exercise all rights of a secured party under the Uniform Commercial Code as
adopted by the state in which the Leases within the Contract Area are located or
such other states as such Party may deem appropriate.  The Operator
shall keep an accurate account of amounts owed by the nonperforming Party (plus
interest and collection costs) and any amounts collected with respect to amounts
owed by the nonperforming Party.  In the event there become three or
more Parties to this Agreement, then if any nonperforming Party's share of costs
remains delinquent for a period of sixty (60) days, each other Participating
Party shall, upon the Operator's request, pay the unpaid amount of costs in the
proportion that its Working Interest bears to the total non-defaulting Working
Interests.  Each Participating Party paying its share of the unpaid
amounts of a nonperforming Party shall be subrogated to the Operator's mortgage
and security rights to the extent of the payment made by such Participating
Party.

               

              8.8           Carved-out
Interests.  Except for the “Permitted Encumbrance” identified
on Exhibit “A”, any agreements creating any overriding royalty, production
payment, net proceeds interest, net profits interest, carried interest or any
other interest carved out of a Working Interest in the Leases within the
Contract Area shall specifically make such interests inferior to the rights of
the Parties to this Agreement. If any Party whose Working Interest is so
encumbered does not pay its share of costs and other expenses authorized under
this Agreement, and the proceeds from the sale of its production of oil, gas and
other minerals pursuant to Article 8.5 are insufficient to pay such costs and
expenses, the security rights provided for in this Article 8.5 may be applied
against the carved-out interests with which the defaulting or non-performing
Party’s interest in the Leases within the Contract Area is burdened. In such
event, the rights of the owner of such carved-out interest shall be subordinated
to the security rights granted by Article 8.5.

              

              
                
                  
                  

                

                
                  18

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
9

              NOTICES

              

              9.1           Giving and Responding to
Notices.  All notices and responses thereto shall be in writing
and delivered in person or by telephone followed by United States mail, telex,
telegraph, telecopier (facsimile) or cable; however, if a drilling rig is on
location and standby charges are accumulating, such notices and responses shall
be given by telephone and immediately confirmed in writing.  Notices
and responses shall be deemed given only when received by the Party to whom such
notice or response is directed, except that any notice or response by certified
United States mail or equivalent, telegraph, or cable properly addressed,
pursuant to Section 6.1, and with all postage and charges prepaid shall be
deemed given seventy-two (72) hours after such notice is deposited in the mail
exclusive of Saturdays, Sundays, and federal holidays, or twenty-four (24) hours
after
such notice or response is sent by telecopier (facsimile), receipt confirmed, or
filed with an operating telegraph or cable company for immediate transmission
exclusive of Saturdays, Sundays, and federal holidays.

               

              9.2           Content of
Notice.  Any notice which requires a response shall indicate
the response time specified in Section 9.3.  If a proposal involves a
Platform, Facility or Subsequent Facility, the notice shall contain a
description of same, including location and the estimated costs of design
fabrication, transportation and installation.  If a proposal involves
an Exploratory Operation or a Development Operation, the notice shall include
the proposed depth, the objective zone or zones to be tested, the surface and
bottom-hole locations, applicable details regarding directional drilling, the
equipment to be used, and the estimated costs of the operation including all
necessary expenditures through installation of the wellhead or abandonment of
the well.

               

              9.3           Response to
Notices.  Each Party's response to a proposal shall be in
writing to all other Parties.  Unless otherwise specified herein,
response times shall be as follows:

               

              
                	
                      	
                        9.3.1

                      	
                        Platform
      Construction.  When any proposal for well operations
      involves the construction of a Platform, each Party shall respond within
      sixty (60) days after receipt of notice.

                         

                      

              

               

               

               

              
                
                  
                  

                

                
                  19

                  
                    

                  

                

                
                  
                  

                

              

               

               

              
                	
                      	
                        9.3.2

                      	
                        Proposal Without
      Platform.  When any proposal for well operations does not
      require construction of a Platform, each Party shall respond within thirty
      (30) days after receipt of notice.  However, if a drilling rig
      is on location as a result of a joint Exploratory or Development Operation
      previously conducted thereon and standby charges are accumulating, the
      response shall be made within twenty-four (24) hours, inclusive of
      Saturdays, Sundays, and federal holidays, after receipt of
      notice.

                         

                      

              

              
                	
                      	
                        9.3.3

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

                         

                      

              

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

               

              9.5           Restrictions on Multiple
Well Proposals.  Notwithstanding any provision herein to the
contrary, it is specifically provided that no notice shall be given under this
Article 9 hereof which simultaneously proposes the drilling of more than two (2)
wells, or proposes the drilling of more than one (1) more well while there is an
outstanding proposal.  Further, these provisions of this Article 9,
insofar as they pertain to notification by a Party of its desire to drill a
well, shall be suspended for so long as: (1) a prior notice has been given which
is still in force and effect and the period of time during which the well
regarding same may be commenced has not expired; or (2) a well is presently
drilling hereunder.  This section shall not apply under those
circumstances where the well to which notice is directed is a well which is
required under the terms of a Lease or one required to maintain a portion
thereof in force.  In the event drilling operations are necessary
to perpetuate a Lease, any Party may propose and commence the drilling of such
additional well(s) pursuant to the terms and conditions hereof no earlier than
one hundred eighty (180) days prior to the date operations must be commenced,
regardless of other proposals then under consideration or drilling operations
then in progress.

              

              ARTICLE
10

              EXPLORATORY
OPERATIONS

              

              10.1           Operations by All
Parties.  Any Party may propose an Exploratory Well by
notifying the other Parties.  If all the Parties agree to participate
in drilling the proposed well, Operator shall drill same at their cost and
risk.  If a mobile drilling rig is not already on location as a result
of a prior Exploratory or Development Operation and the proposal ("Original
Proposal") has not already been approved, then any Party may submit an alternate
well proposal for consideration within ten (10) days after receiving the
Original Proposal to drill a well.  If one or more alternate proposals
have been submitted in accordance with the foregoing, then the Operator shall
call a meeting of the Parties to be held within seven (7) days following receipt
of the alternate proposal(s), at which the Parties shall determine by majority
vote in interest which proposal shall be considered by the Joint
Account.  In the event that no proposal receives support of a majority
in interest, then the proposal receiving the greatest support shall
prevail.  In the event of a tie between two or more proposals, then
the proposal (including the Original Proposal) supported by the largest number
of Parties shall prevail.  Each Party having the right to participate
in the proposal so selected shall make its election whether to join in the
drilling of such well within fifteen (15) days after the meeting was
held.  If drilling of 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; however, the one hundred twenty
(120) day period shall automatically be extended for an additional period, not
to exceed sixty (60) days, as may be necessary, in order to obtain all
applicable required regulatory permits, so long as applications for such
required permits were properly filed within thirty (30) days after the last
applicable election date.  Drilling operations shall be deemed to have
commenced on the date rig charges begin according to the terms of the drilling
contract.

               

              
                
                  
                  

                

                
                  20

                  
                    

                  

                

                
                  
                  

                

              

              10.2           Second Opportunity to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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
information.  This provision shall apply only in the event that there
are three (3) or more Parties to this Agreement.

               

              10.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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 working 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 Section 9.4.  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'
interests 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 any response under this Article 10 shall not exceed a total of
twenty-four (24) hours, inclusive of Saturdays, Sundays, and federal
holidays.  This provision shall apply only in the event that there are
three (3) or more Parties to this Agreement.

              10.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all of the cost and risk of drilling the proposed well,
Operator shall drill such well under this Agreement and the applicable
provisions of Article 12 and the following special provisions shall
apply:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        If
      the well will be the first Exploratory Well drilled under this Agreement,
      then as of the last applicable election date, each Non-Participating Party
      shall be deemed to have relinquished to the Participating Parties, in
      proportion to their Participating Interests or in the proportions
      otherwise agreed by the Participating Parties, all of its interest in the
      Contract Area.  If such well is commenced within the time
      provided in Section 10.1 and is drilled as proposed in accordance with
      this Agreement, each Non-Participating Party shall execute an assignment
      of all of its interest in the Contract Area to the Participating Parties,
      in proportion to their Participating Interests or in the proportions
      otherwise agreed by the Participating
Parties.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        If
      the well will not be the first Exploratory Well drilled under this
      Agreement and if such well is commenced within the time provided in
      Section 10.1 and is drilled as proposed in accordance with this Agreement,
      then, all of the Non-Participating Party's(ies') operating rights and
      interests in production from such well shall be vested in the
      Participating Parties in proportion to their Participating Interest,
      whether or not any instrument evidencing a transfer of rights and
      interests has been delivered by the Non-Participating
      Party(ies).  The Participating Party(ies) shall have the right
      to recoup the costs applicable to such well as determined by Section
      12.2 and/or Section 12.5 and the drilling of such well shall be governed
      by Article 12, except that the percentage of recoupment as provided in
      Section 12.2.1 (a) shall be eight hundred percent (800%) of the
      Non-Participating Party's Share of the cost of drilling the
      well.

                         

                      

              

              
              

              If the
well is not commenced within the time period provided in Section 10.1, the
effect shall be as if the proposal had not been made.

               

              
                
                  
                  

                

                
                  21

                  
                    

                  

                

                
                  
                  

                

              

              10.5           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Initial Exploratory Well or Exploratory Well
as originally proposed, the Participating Party or Parties encounter mechanical
difficulties, inpenetrable formation, and/or Gulf Coast conditions which render
drilling impractical, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced as
if it were the original proposed Initial Exploratory Well or Exploratory Well
for which it is the substitute; and the relationship, rights and obligations as
between the Participating Party and Non-Participating Party or Parties shall be
the same as if the Substitute Well were, in fact, the proposed Initial
Exploratory Well or Exploratory Well, as applicable.

               

              
                
                  
                  

                

                
                  22

                  
                    

                  

                

                
                  
                  

                

              

              10.6           Course of Action After
Drilling to Initial Objective Depth.  At such time as an
Exploratory Well has been drilled to the initial objective depth as proposed, or
a mutually agreed upon lesser depth, and all approved logs, cores, and other
tests have been completed, and the results thereof furnished to the
Participating Parties, Operator shall notify the Participating Parties setting
forth Operator's recommendation to either:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in
      zones all of which are deeper than the zone approved for the single
      completion.)

                      

              

              
              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Sidetrack
      the well to another bottom hole location not deeper than the stratigrephic
      equivalent of the initial objective
depth.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        Perform
      other operations on the well. (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        Plug
      and abandon the well.

                         

                      

              

              The
Participating Parties, within twenty-four (24) hours, inclusive of Saturdays,
Sundays, and federal Holidays, 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, inclusive of Saturdays, Sundays, and federal holidays,
to respond thereto.  If conflicting proposals are made, the priority
of operations 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.

               

              
                
                  
                  

                

                
                  23

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                      	
                        10.6.1

                      	
                        Operation by All
      Parties.  Subject to Section 10.6.4, if all Participating
      Parties approve a proposal, Operator shall conduct the operation at the
      Participating Parties’ cost and risk.

                         

                      

              

              
                	
                      	
                        10.6.2

                      	
                        Operations by Fewer
      than All Parties.  If one (1) or more Parties having a
      combined Participating Interest in the well of twenty percent (20%) or
      more approve a proposal and agree to bear the cost, risk and liabilities
      (including loss of the hole due to deepening of any well) thereof, except
      a proposal to plug and abandon, Operator shall conduct the same as a
      Non-Consent Operation for such Parties pursuant to the provisions of
      Article 12, except that the percentage of recoupment as provided in
      Section 12.2.1(a) shall be the same as provided for in Section
      10.4(b).  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, inclusive of Saturdays, Sundays, and federal
      holidays, 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)
      Participating Party, each of which is willing to assume all costs, risks
      and liabilities of further operations, but each desires to perform a
      different operation, then the order of priority as listed above herein
      shall prevail and govern.

                      

              

              
                	
                      	
                        10.6.3

                      	
                        Obligations and
      Liabilities of Participating Parties.  If the decision is
      to complete at initial objective depth, to plug back and complete at a
      lesser depth, to deepen or to Sidetrack to another bottomhole location, 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 that portion of the well in which
      it was a Participating Party.

                         

                      

              

              
                	
                      	
                        10.6.4

                      	
                        Deepening or
      Sidetracking of Non-Consent Exploratory Well.  Subject to
      the terms of Section 10.6 above, 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 or Sidetrack, 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 or Sidetracking operation by notifying the
      Operator, within forty-eight (48) hours, inclusive of Saturdays, Sundays,
      and federal holidays, after receiving notice of the
      decision.  In such event any Non-Participating Party which
      elects to participate in deepening or Sidetracking 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 or that point the Sidetracking
      operation is commenced if lesser than the initial objective
      depth.  Thereafter such Non-Participating Party shall be deemed
      for all purposes to be a Participating Party as to such deepening or
      Sidetracking operations, and the provisions of Section 10.4 shall not be
      applicable to such Party as to the deepened or Sidetracked 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 portion of the Non-Consent Well any
      balance remaining pursuant to 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 Section 10.6.4.

                         

                      

              

               

               

               

               

              
                
                  
                  

                

                
                  24

                  
                    

                  

                

                
                  
                  

                

              

               

               

              
                	
                      	
                        10.6.5

                      	
                        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.

                      

              

              

              ARTICLE
11

              DEVELOPMENT
OPERATIONS

              

              11.1           Operations by All
Parties.  Any Party may propose Development Operations,
including any wells (whether drilling, completing, recompleting, deepening,
deviating or Sidetracking, plugging back or working over),
Platform,  Facilities and/or Subsequent
Facilities required by such operations, by submitting a Development Operation
AFE to the other Parties for approval pursuant to the response to notice
procedures set forth in Article 9.  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 one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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.  This provision shall
apply only in the event that there are three (3) or more Parties to this
Agreement.

               

              11.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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 Section 9.4.  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 any response under this Article 11 shall not exceed a total of
twenty-four (24) hours, inclusive of Saturdays, Sundays, and federal
holidays.  This provision shall apply only in the event that there are
three (3) or more Parties to this Agreement.

               

              
                
                  
                  

                

                
                  25

                  
                    

                  

                

                
                  
                  

                

              

              11.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all 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; however, the one hundred twenty (120) day period shall
automatically be extended for an additional period, not to exceed sixty (60)
days, as may be necessary, in order to obtain all applicable required regulatory
permits so long as applications for such required permits were properly filed
within thirty (30) days after the last applicable election date.  If
no operations are commenced within such time period, the effect shall be as if
the proposal had not been made.  Operations shall be deemed to have
commenced: (a) on the date the contract for a new Platform is let, if the notice
indicated a need for such Platform, or (b) on the date the rig charges begin
according to the terms of the drilling
contract.  For all other Development Operations, Development
Operations shall be deemed to have commenced on the day charges are incurred
pursuant to an approved AFE.

              11.6           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Development Operation as originally proposed,
the Participating Party or Parties encounter mechanical difficulties,
inpenetrable formation, and/or Gulf Coast conditions which render further
drilling impossible, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced
were the original proposed Development Operation for which it is the substitute,
and the relationship, rights and obligations as between the Participating Party
and Non-Participating Party or Parties shall be the same as if the Substitute
Well were, in fact, the proposed Development Operation, as
applicable.

               

              
                
                  
                  

                

                
                  26

                  
                    

                  

                

                
                  
                  

                

              

              11.7           Course of Action After
Drilling to Initial Objective Depth.  At such time as a
Development Well has been drilled to the initial objective depth as proposed and
all approved logs, cores and other tests have been completed and the results
thereof furnished to the Participating Parties, Operator shall notify the
Participating Parties setting forth Operator's recommendation to
either:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in zones all of which are deeper than the zone
      approved for the single
completion.)

                      

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Sidetrack
      the well to another bottom hole location not deeper than the stratigraphic
      equivalent of the initial objective
depth;

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        Perform
      other operations on the well.  (If conflicting proposals are
      approved, the proposal receiving the largest percentage of Working
      Interest approval shall take precedence.  In the event of a tie
      between two or more approved proposals, the approved proposal first
      received by the Parties shall take
precedence.)

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        Plug
      and abandon the well.

                         

                      

              

              The Participating Parties, within
forty-eight (48) hours, inclusive of Saturdays, Sundays, and federal holidays,
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, the priority of
operations 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.

               

              
                
                  
                  

                

                
                  27

                  
                    

                  

                

                
                  
                  

                

              

              11.7.1          Operations by All
Parties.  If all Participating Parties approve a proposal,
Operator shall conduct the operation at the Participating Parties' cost and
risk.

               

              11.7.2          Operations by Fewer than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Participating Interest in the well of twenty percent (20%) or more
approve a proposal and agree to bear the cost, risk, and liabilities (including
loss of the hole due to deepening of any well) thereof, except a proposal to
plug and abandon, Operator shall conduct the same as a Non-Consent Operation for
such Parties pursuant to the provisions of Article 12.  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, risks and liabilities of further
operations, but each desires to perform a different operation, then the order of
priority as listed above herein shall prevail and govern.

               

              11.7.3          Obligations and Liabilities
of Participating Parties.  If the decision is to complete at
initial objective depth, to plug back and complete at a lesser depth, to deepen
or to Sidetrack to another bottomhole location, 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 that portion of the well in which it was a Participating
Party.

              11.8           Deeper
Drilling.  If a well is proposed to be drilled below the
deepest Producible Reservoir 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 Reservoir.  A Party electing to participate in such
well to the base of said Producible Reservoir shall bear its proportionate part
of the cost and risk of drilling to said Producible Reservoir including
completion or abandonment. All operations below the depth to which such Party
agreed to participate shall be governed by Article 12.  However, if
the proposal to drill below the deepest Producible Reservoir penetrated by a
Producible Well meets the requirements of an Exploratory Operation, the
percentage of recoupment shall be that specified in Section 10.4(b) and shall be
subject to the provisions of Article 10 with respect to such
operations.

               

                             
11.9           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.

               

              
                
                  
                  

                

                
                  28

                  
                    

                  

                

                
                  
                  

                

              

                             
11.10         Subsequent
Facilities.  The affirmative vote of one (1) or more Parties
having a combined Participating Interest of fifty-one percent (51%) or more in
the wells to be served by the proposed Subsequent Facilities shall constitute
approval for the construction of such Subsequent Facilities and all Parties
having an interest in the wells to be served shall be bound by such approval and
be required to participate in the costs therefor.  Nothing hereunder
shall limit a Party's rights under Section 21.1 to incur additional costs for
separate facilities.

               

                             
11.11         Contracts.  Operator
may enter into contracts with independent contractors for Development Operations
and shall utilize competitive bidding.

              

              ARTICLE
12

              NON-CONSENT
OPERATIONS

              

                              12.1           Non-Consent
Operations.  Operator shall conduct Non-Consent Operations at
the sole risk, expense, and liability of the Participating Parties, in
accordance with the following provisions:

               

              
                	
                      	
                        12.1.1

                      	
                        Non-Interference.  Non-Consent
      Operations shall not interfere unreasonably with any other operations
      being conducted within the Contract Area.

                         

                      

              

              
                	
                      	
                        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 participating in the Non-Consent
      Operations and 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
      subject to approval by appropriate governmental authority, may be
      determined on the basis of well tests.

                         

                      

              

              
                	
                      	
                        12.1.4

                      	
                        Non-Consent
      Well.  Operations on a Non-Consent Well shall not be
      conducted in any Producible Reservoir penetrated by a Producible Well
      without written approval of each Non-Participating Party unless these four
      (4) conditions are satisfied: (a) such Producible Reservoir shall have
      been designated in the notice as an objective zone; (b) completion of such
      well in said Producible Reservoir will not increase the well density
      governmentally prescribed or approved for such Producible Reservoir; (c)
      the horizontal distance between the vertical projections of the midpoint
      of the Producible Reservoir in such well and any existing well in the same
      Producible Reservoir will be at least one thousand (1,000) feet if an
      oil-well completion or two thousand (2,000) feet if a gas-well completion;
      and (d) completion of such well as a producer will not cause or result in
      a decreased "MER" or "MPR" for any existing Producible Reservoir or
      Producible Well.  The terms "MER" and "MPR" are defined under 30
      Code of Federal Regulations, Subpart K-Production rates, Parts 250.170
      through 250.177.

                         

                      

              

               

               

               

               

              
                
                  
                  

                

                
                  29

                  
                    

                  

                

                
                  
                  

                

              

               

               

              
                	
                      	
                        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 either a joint interest billing or an itemized statement of
      the cost of such well and equipment pertaining
      thereto.  Operator shall furnish to the Parties a quarterly
      statement showing operating expenses and the proceeds from the sale of
      production from the well for the preceding three (3) month
      period.  When Operator’s payout calculation indicates that
      payout has occurred, Operator shall promptly notify all
      Parties.

                         

                      

              

              
                	
                      	
                        12.1.6

                      	
                        Completion.  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 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.  Such leasehold operating rights and title to
      production shall revert to each Non-Participating Party at 7:00 a.m. on
      the day following the date 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 12.3, equals the sum of the
      following:

                      

              

              
                
                   

                

                
                  30

                  
                    

                  

                

                
                   

                

              

              
              

              
                	 	(a)	
                        Six
      hundred percent (600%) of the Non-Participating Party's Share of the cost
      of drilling, testing, completing, recompleting, working over, deepening,
      deviating or Sidetracking, plugging back, or temporarily plugging and
      abandoning each Non-Consent Well (or any Non-Consent Operation(s) in a
      joint well), and equipping it through the wellhead connections, reduced by
      any contribution received under Article 20; plus

                         

                      
	
                         
      

                      	
                        (b)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Non-Consent Facilities necessary to establish the production
      resulting from the operations defined in Section 12.2.1.(a) above;
      plus

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Platform in which it does not participate and which must be
      installed to establish the production resulting from the operations
      defined in Section 12.2.1.(a) above;
plus,

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Platform, whether or not owned by the Joint Account;
      plus,

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Facilities not owned by the Joint Account, including
      leased facilities; plus

                      

              

              
                	
                         
      

                      	
                        (f)

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

                         

                      

              

              At 7:00
a.m. upon the day following the date of 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 wells (or portions thereof associated with any Non-Consent
      Operation(s) in a joint well), Platforms and Facilities of the Non-Consent
      Operations, as well as all liabilities and benefits related thereto, shall
      remain vested in the Participating Parties; however, any salvage in excess
      of the sum remaining under Section 12.2.1 shall be credited to all
      Parties.

                         

                      

              

               

              12.3            Deepening or Sidetracking of
Non-Consent Development Well.  If any Participating Party
proposes to deepen or Sidetrack a Non-Consent Development Well, a
Non-Participating Party may participate by notifying the Operator within thirty
(30) days after receiving the proposal (forty-eight (48) hours, inclusive of
Saturdays, Sundays, and federal holidays, if a rig is on location) that it will
join in the deepening or Sidetracking operation and by paying to the
Participating Parties; 1) if it is a deepening an amount equal to the costs of
the well as if such Non-Participating Party had originally participated to the
objective depth or; 2) if it is a sidetrack operation an amount equal to the
Non-Participating Parties share of drilling the non-consent well to that point
the Sidetracking operation is commenced.  The Participating Parties
shall continue to be entitled to recoup the full sum specified in Section 12.2.1
applicable to the non-consent portion of the well out of the proceeds received
from production from the non-consent portion of the well, less any amount
received under this Section 12.3.

              12.4           Operations from Non-Consent
Platforms and Facilities.  Subject to the following, a Party
which did not originally participate in a Platform or Facilities shall be a
Non-Participating Party as to ownership therein and all operations thereon until
the Participating Parties as to such Platform or Facilities have recouped the
full sum specified in Section 12.2.1 applicable to such non-consent Platform or
Facilities and the Non-Consent Operations which resulted in the setting of such
Platform or Facilities and other Non-Consent Operations thereon or
therefrom.  However, any original Non-Participating Party may
participate in additional operations from such Platform or Facilities by
notifying the Operator within thirty (30) days after receiving a proposal for
operations from such Platform or Facilities that it will join in such proposed
operations by paying to the Participating Parties in such Platform or Facilities
an amount equal to the non-consent penalty provided for in Section 12.2.1
applicable to such Non-Participating Party’s Share of the actual cost of such
Platform or Facilities, less any recoupment therefor previously
obtained.  Thereafter, such original Non-Participating Party in such
non-consent Platform or Facilities shall own its proportionate share
thereof.  The Participating Parties in such non-consent Platform or
Facilities shall continue to be entitled to recoup the full sum specified in
Section 12.2.1 applicable to any other Non-Consent Operations thereon or
therefrom.

               

              
                
                  
                  

                

                
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              12.5           Discovery or Extension from
Mobile Drilling Operations.  If a Non-Consent Well is drilled
from a mobile drilling rig or floating drilling vessel and results in the
discovery of oil or gas or extension of a Producible Reservoir and, if within
one (1) year from the date the drilling equipment is released, a Platform or
other fixed structure is ordered and if its location is within three thousand
(3,000) feet from the vertical projection of the bottom-hole location of any
such well (unless limited by surface restrictions or seabed conditions), 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 subsequently completed wells on the Contract 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 Contract 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           Non-Consent Operations to
Maintain Lease.  Notwithstanding any other provision hereof, if
a Lease has no wells thereon capable of commercial production in the final six
(6) months of the primary term of such Lease and such Lease is not held by a
unit or a Suspension of Production pursuant to other operations on the Lease or
in the unit, any Party electing not to participate in the drilling of a well or
other operation in the final six (6) months of the primary term or at any time
during the secondary term, shall assign its full interest in such Lease pro-rata
to the Parties hereto undertaking the drilling of such well or participating in
such operation.  Such assignment shall be executed and delivered
within thirty (30) days after commencement of the well or
operation.  If at any time after the expiration of the primary term of
a Lease, a well must be drilled or an operation conducted because of cessation
of production or to fulfill an obligation to develop such Lease, such well or
operation being required to extend the term of such Lease or a portion thereof,
any Party electing not to participate in the operation or the drilling of such a
well shall assign its full interest in that Lease, or portion thereof, pro-rata
to the Parties hereto undertaking the drilling of such a well.  Such
assignment shall be executed and delivered within thirty (30) days after
commencement of the well or operation, but shall be limited to the portion of
the Lease the term of which was extended by the operation or drilling the well,
and provided any Non-Participating Party shall retain its rights and liabilities
with respect to any previously completed wells on that Lease and the production
therefrom.  Thereafter, that Lease shall no longer be a part of the
Contract Area, and the Non-Participating Party or Parties shall no longer own an
interest in any wells drilled on such Lease, other than those wells drilled
prior to the occurrence set out herein.  Should the Parties electing
to undertake the drilling of a well or conduct operations under this Section
12.6 fail to perform, as Participating Parties, the drilling of the well or
operations substantially as proposed, the Parties receiving the aforementioned
assignment shall assign back to the Party or Parties originally electing not to
participate, that interest which was caused to be assigned pursuant to this
Section 12.6.  A Party hereunder executing an assignment of its
interest in a Lease pursuant to the foregoing shall not be relieved of any
obligation hereunder accruing prior to such assignment.  If more than
one (1) well is drilled or more than one (1) operation conducted, any of which
would maintain or extend such Lease or such portions thereof, an assignment
shall not be required from any Party participating in any such well(s) or
operation(s) as to that portion of the Lease or unit which would have been
maintained by such well(s) or operation(s).

              
                
                   

                

                
                  32

                  
                    

                  

                

                
                   

                

              

               

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

               

              
                	
                      	
                        12.7.1

                      	
                        Charges.  If
      a Non-Consent Well is drilled from a Platform, the Participating Parties
      in such well shall be liable to the Joint Account owners of the Platform
      for the use of 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.  Notwithstanding the foregoing, if the Non-Consent
      Well is abandoned as an unsuccessful well, and no substitute well is
      drilled by the Participating Parties, then, if the slot is abandoned in a
      condition such that it could be used for the drilling of a future well,
      the Participating Parties shall not be required to pay the sum set out in
      this Section 12.7.1.

                      

              

              
                	
                         
      

                      	
                        (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, less accumulated depreciation, which one (1) well
      completion bears to the total number of Producible Well completions
      utilizing the Facilities.

                         

                      

              

               

               

               

               

               

              
                
                  
                  

                

                
                  33

                  
                    

                  

                

                
                  
                  

                

              

               

               

              
                	
                      	
                        12.7.2

                      	
                        Operating and
      Maintenance Charges.  The Participating Parties shall pay
      on a monthly basis all costs necessary to connect a Non-Consent Well to
      the Facilities and that proportionate part of the expense of operating and
      maintaining the Platform and Facilities applicable to the Non-Consent
      Well.  Platform and Facilities operating and maintenance
      expenses shall be allocated in proportion to the producing well count
      during a calendar month as it relates to the total number of wells
      producing from such Platform during such calendar month.  For
      the purpose of this provision, a producing zone or each completion in a
      multi-completed well shall be considered as a separate well.

                         

                      

              

              
                	
                      	
                        12.7.3

                      	
                        Payments.  Payment
      of sums pursuant to Section 12.7.1 is not a purchase of an additional
      interest in the Platform or Facilities.  Such payments, if the
      recoupment provisions of Section 12.2 are applicable, shall be included in
      the total amount which the Participating Parties are entitled to recoup
      out of production from the Non-Consent Well.

                         

                      

12.8        Allocation of Costs Between
Depths (Single Completion).  For the purpose of allocating
costs on any well with a single completion in which the Participating Interests
of the Parties are not the same for the entire depth or the completion thereof,
the cost of drilling, completing, equipping, and plugging and abandoning such
well shall be allocated on the following basis:

                     

              
                	 	(a)   	 Intangible
      drilling, completion, casing string, and material costs from the surface
      to a depth one hundred feet (100') below the base of the Producible
      Reservoir in which the well is completed shall be charged to the
      Participating Parties in such completion in accordance with their
      respective Participating Interest.
	
                         
      

                      	
                        (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
      Producible Reservoir in which the well is completed to total depth shall
      be charged to the Participating Parties in the well to total depth in
      accordance with their respective Participating
  Interest.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        All
      plugging and abandonment costs directly associated with the Producible
      Reservoir in which the well is completed will be allocated to the
      Participating Parties in that completion in accordance with their
      respective Participating Interests.  All final plugging and
      abandonment costs associated with the wellbore will be allocated
      proportionately among all Participating Parties in the well.

                         

                      

              

               

               

               

               

               

              
                
                  
                  

                

                
                  34

                  
                    

                  

                

                
                  
                  

                

              

              12.9        Allocation of Costs Between
Depths (Multiple Completions).  For the purpose of allocating
costs on any well completed in dual or multiple Producible Reservoirs in which
the Participating Interests of the Parties are not the same for the entire depth
or the completion thereof, the cost of drilling, completing, equipping, and
plugging and abandoning 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 Producible Reservoir shall be divided equally
      between the completed Producible Reservoirs and charged to the
      Participating Parties in each Producible Reservoir in accordance with
      their respective Participating
Interest.

                      

              

              
                	
                         
      

                      	
                        (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 Producible Reservoir to a depth one hundred feet (100') below
      the base of the second completed Producible Reservoir shall be divided
      equally between the second and any other Producible Reservoir completed
      below such depth and charged to the Participating Parties in each such
      Producible Reservoir in accordance with their respective Participating
      Interest.  If the well is completed in additional Producible
      Reservoirs, the costs applicable to each such Producible Reservoir shall
      be determined and charged to the Participating Parties in the same manner
      as prescribed for wells completed in dual Producible
      Reservoirs.

                      

              

              
              

              
                	
                         
      

                      	
                        (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 lowest
      completed Producible Reservoir to total depth shall be charged to the
      Participating Parties in the well to total depth in accordance with their
      respective Participating Interest.

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Costs
      of tubing strings serving each separate Producible Reservoir shall be
      charged to the Participating Parties in each Producible Reservoir in
      accordance with their respective Participating
  Interest.

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        For
      the purposes of allocating tangible and intangible costs between
      Producible Reservoirs that occur at less than one hundred feet (100')
      intervals, the distance between the base of the upper reservoir to the top
      of the next lower reservoir shall be allocated equally between
      reservoirs.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        All
      plugging and abandonment costs directly associated with a Producible
      Reservoir will be allocated to the Participating Parties in that reservoir
      in accordance with their respective Participating
      Interests.  All final plugging and abandonment costs associated
      with the wellbore will be allocated proportionately among all
      Participating Parties in the well.

                         

                      

              

               

               

               

               

              
                
                  
                  

                

                
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              12.10       Allocation of Costs Between
Depths (Dry Hole).  For the purpose of this Section, a dry hole
shall mean a well drilled to an objective depth in which the Participating
Parties elected not to complete, or if completed, the well was not a Producible
Well and did not establish a Producible Reservoir.  In allocating
costs on any well containing a dry hole, and in which the Participating
Interests of the Parties are not the same for the entire depth or the completion
thereof, the cost of drilling and plugging and abandoning such well shall be
allocated on the following basis:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Costs
      to drill and plug and abandon a well proposed for completion in single,
      dual, or multiple objective depths shall be charged to the Participating
      Parties in the same manner as if the well had established a Producible
      Reservoir at each objective depth.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Additional
      plugging and abandoning costs related to any deepening, completion
      attempt, or other operation shall be at the sole risk and expense of the
      Participating Parties in such operation.

                         

                      

              

              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
Producible Reservoirs, including dry holes as defined in Section 12.10, and
including the interval from one hundred feet (100') below the deepest Producible
Reservoir to total depth on a drilling day ratio basis where the factor for each
reservoir is determined by a fraction for which the
numerator is the number of drilling and completion days applicable to that
reservoir 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.

               

              12.12       Subsequent Operations in
Non-Consent Well.  Except as provided in Section 10.6.4 or
12.3, as applicable, an election not to participate in the drilling,
Sidetracking, or deepening of a well shall be deemed to be an election not to
participate in any subsequent operations in the well before full recovery by the
Participating Parties of the Non-Participating Party's recoupment
amount.  A subsequent operation conducted during the recoupment period
by the Parties entitled to participate shall be subject to the recoupment
provided in Section 12.2.1.

              

              
                
                  
                  

                

                
                  36

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
13

              ABANDONMENT AND
SALVAGE

              

              13.1           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.

               

              13.2           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 unanimous approval 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, plugging and abandoning, the abandoning Party
shall pay the Operator, for the benefit of the non-abandoning Parties, a sum
equal to the deficiency.

               

              13.3           Assignment of
Interest.  Each Participating Party desiring to abandon a well
pursuant to Section 13.2 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, after delivering the assignment, from any further
liability with respect to said well, and each non-abandoning Party shall assume
and bear all such liabilities in proportion to the share of interest that it
receives from the abandoning Parties.  Notwithstanding Section 13.2,
no Party shall be required to accept an assignment of an interest of a Party
desiring to abandon a well.  If no Party is willing to accept
the assignment, the Party seeking to abandon the well shall remain an owner in
the well. 

               

              13.4           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
14

              WITHDRAWAL

              

              14.1           Withdrawal.  A
Party may withdraw from this Agreement by assigning to the other Parties who do
not desire to withdraw, all of its interest in the Contract Area and the wells,
Platforms and Facilities used in operations thereon; 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.  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 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 ninety (90) 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 the withdrawing Party
shall thereafter be relieved from all further obligations and liabilities with
respect to the Contract Area; provided, however, that such withdrawing Party
shall remain liable for any costs, expenses, or damages theretofore accrued or
arising out of any event accruing prior to such Party's withdrawal.

               

              
                
                  
                  

                

                
                  37

                  
                    

                  

                

                
                  
                  

                

              

              14.2           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.  Notwithstanding Section 14.1, no Party shall be required
to accept an assignment of a withdrawing Party's interest.  If no
Party is willing to accept the assignment, the Party seeking to withdraw shall
remain subject to this Agreement.

              ARTICLE
15

              RENTALS, ROYALTIES, AND
OTHER PAYMENTS

              

              15.1           Creation of Overriding
Royalty.  If the Working Interest or Participating Interest of
a Party is subject to an overriding royalty, production payment, net profits
interest, mortgage, lien, security interest, or other burden or encumbrance,
other than lessor’s royalty, the Party so burdened shall pay and bear all
liabilities and obligations created or secured by the burden or encumbrance and
shall indemnify and hold the other Parties harmless from all claims and demands
for payment asserted by the owners of the burdens or encumbrances. If any
Non-Participating Party's interest is subject to an overriding royalty,
production payment, or other charge or burden other than the “Permitted
Encumbrance” shown on Exhibit “A”, then the Participating Parties shall, during
recoupment of costs to be recovered under Section 12.2 above, receive the
Working Interest production of such Non-Participating Party free from such
charge or burden, which shall be paid and discharged by the Non-Participating
Party out of his own separate funds.  Such Non-Participating Party
shall hold the Participating Parties harmless with regard to such
payment.

               

              
                
                  
                  

                

                
                  38

                  
                    

                  

                

                
                  
                  

                

              

              15.2           Payment of Rentals and
Minimum Royalties.  Operator shall 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 Lease(s) and submit evidence of each
such payment to the Parties.  Operator 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, or
is erroneously paid.  The loss of any Lease or interest therein which
results from a failure to pay or an erroneous payment of rental or minimum
royalty shall be a joint loss and there shall be no readjustment of
interest.

               

              15.3           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 such Lease as would be maintained by such
payment.  Unless otherwise agreed, such assigned interest shall be
owned by each Participating Party in proportion to its Participating
Interest.

               

              15.4           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 Contract Area for its
account and on its share of any production used, consumed, or lost on the
Contract Area.  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
16

              TAXES

              

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

               

              
                
                  
                  

                

                
                  39

                  
                    

                  

                

                
                  
                  

                

              

              16.2           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.

               

              16.3           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.

               

              16.4           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, provided that should a Party's
unilateral action cause a change in status of the entire Lease, Platform or
Facilities thereon for tax purposes, that Party shall bear the entire increased
portion of taxes caused by that Party's action.

               

              16.5           Gas
Balancing.  Each Party agrees that with respect to gas
production, each Party taking gas under the Gas Balancing Agreement attached
hereto as Exhibit "D" shall account for such gas for federal income tax purposes
in accordance with proposed Treasury Regulation Section 1.761-2(d)(3), or in
accordance with binding laws, rules, regulations, and orders affecting
production from the Contract Area which hereafter may be adopted, promulgated,
or issued by an agency or other governmental authority having jurisdiction over
the Contract Area.

              

              ARTICLE
17

              INSURANCE

              

              17.1           Insurance.  Operator
shall at times when operations are conducted herein during the term of this
Agreement, carry, pay for and charge each Party its proportionate share of
the cost of (i) Worker’s Compensation and Employer’s Liability Insurance
covering the employees of Operator engaged in operations hereunder in compliance
with all applicable State and Federal laws and (ii) Contingent Maritime
Employer’s Liability Insurance.  The Worker’s Compensation policy
shall have attached the “Longshoreman’s Harbor Worker’s Compensation Act
(Federal) Endorsement” and “Outer Continental Shelf Land’s
Endorsement”.  The Contingent Maritime Employer’s Liability Insurance
shall provide for a limit of liability of not less than $1,000,000 per
accident.  Such policies shall contain waivers of subrogation in favor
of Non-Operators.  Each Party to this Agreement shall be responsible
for insuring its own interest in property and equipment, well control and
redrill expense, or loss of income and any other loss not covered by the
insurance referred to herein.  Each Party for its account shall carry,
pay for and maintain throughout the term of this Agreement policies of insurance
specified in Exhibit “B” of this Agreement.

              

              
                
                  
                  

                

                
                  40

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
18

              LIABILITY, CLAIMS AND
LAWSUITS

              

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

               

              18.2           Notice of Claim or
Lawsuit.  If a claim is made against any Party or if any Party
is sued on an alleged cause of action arising out of operations hereunder or an
alleged cause of action involving title to any interest subject hereto, such
Party shall give prompt written notice to the other Parties.

               

              18.3           Settlements.  Operator
may settle any single damage claim or suit involving operations or title to any
interest hereunder if the expenditure does not exceed Fifty Thousand Dollars
($50,000.00) and if the payment is in complete settlement of such claim or
suit.  If the amount required for settlement exceeds such amount, the
Participating Parties shall determine the further handling of the claim or
suit.  Operator will keep the Participating Parties appropriately
advised of all material events in each lawsuit and claim arising from operations
hereunder.

               

              18.4           Legal
Expense.  Legal expenses shall be handled pursuant to Exhibit
"C"; however, such legal expenses shall be approved and borne in accordance with
Exhibit "C" by only the Participating Parties in the operations out of which
such liability giving rise to same occurs.

               

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

               

              18.6           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.

               

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

              

              
                
                  
                  

                

                
                  41

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
19

              INTERNAL REVENUE
PROVISION

              

              19.1           Internal Revenue
Provision.  Notwithstanding any provisions herein that the
rights and liabilities are several and not joint or collective, or that this
Agreement and the operations hereunder shall not constitute a partnership, each
Party elects not to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A, Internal Revenue Code of 1986, as amended, and similar provisions of
applicable state laws.  The tax partnership shall be governed by
Exhibit
“F”                                           .

              

              ARTICLE
20

              CONTRIBUTIONS

              

              20.1           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, in support of the drilling of any well on the Contract
Area.  Payments received as consideration for entering into a contract
for sale of production from the Contract Area, loans, and other financing
arrangements shall not be considered contributions for the purposes of this
Article.

               

              20.2           Cash
Contributions.  In the event a Party contracts for a cash
contribution toward the drilling of a well, said cash contribution shall be paid
to Operator and Operator shall apply the amount thereof against the cost of such
drilling.  If such well is a Non-Consent Well, the amount of the
contribution shall be deducted from the cost specified in Section
12.2.1.(a).

               

              
                
                  
                  

                

                
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              20.3           Acreage
Contributions.  In the event a Party contracts for 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 the cost of drilling the
well.  Such acreage shall become a separate contract area and,
to the extent possible, be subject to provisions identical to those contained in
this Agreement.  For purposes of this Agreement, the word "acreage"
shall mean lands or leases or interests therein.

              

              ARTICLE
21

              DISPOSITION OF
PRODUCTION

              

              21.1           Facilities to Take in
Kind.  Any Party shall have the right, at its sole risk and
expense, to construct Facilities for taking its share of production in kind,
provided that such Facilities, at the time of installation, do not interfere
with continuing operations on the Contract Area.

               

              21.2           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
Contract Area.

               

              21.3           Failure to Take in
Kind.  If any Party fails to take in kind and dispose of its
share of the oil and/or condensate, Operator shall have the option, but not the
obligation, to either (a) purchase oil and/or condensate at Operator's posted
price for liquids of the same kind, gravity, and quality in the field where the
Leases are located or, in the absence of such posted price, at the price
prevailing in the field or area for oil and/or condensate of the same kind,
gravity, and quality, or (b) sell such oil and/or condensate to others under
commercially reasonable terms negotiated by Operator in good faith , 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 be only for such
reasonable periods of time as are consistent with the minimum needs of the
industry under the circumstances, but in no event shall any contract be for a
period in excess of one hundred and eighty (180) days.  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 or dispose of
its share of gas, such gas shall be accounted for in accordance with the
provisions of Exhibit "D", Gas Balancing Agreement, attached hereto and made a
part hereof.

               

              21.4           Expenses of Delivery in
Kind.  Any cost incurred in making delivery of any Party's
share of oil and/or condensate or disposing of same pursuant to Section 21.3,
shall be borne by such Party.

               

              21.5           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
the attached Exhibit "D".

              
                
                   

                

                
                  43

                  
                    

                  

                

                
                   

                

              

              ARTICLE
22

              APPLICABLE
LAW

              

              22.1           Applicable
Law.  THIS AGREEMENT AND ALL OPERATIONS CONDUCTED HEREUNDER BY
THE PARTIES SHALL BE SUBJECT TO ALL VALID AND APPLICABLE FEDERAL LAWS, RULES,
REGULATIONS AND ORDERS ("FEDERAL LAW").  TO THE EXTENT REQUIRED BY
FEDERAL LAW, THE LAWS OF THE STATE ADJACENT TO THE CONTRACT AREA SHALL
APPLY.  THIS AGREEMENT SHALL OTHERWISE BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF LOUISIANA, EXCLUDING CHOICE
OF LAW RULES THAT WOULD REFER THE MATTER TO THE LAW OF ANY OTHER
JURISDICTION.

              

              ARTICLE
23

              LAWS AND
REGULATIONS

              

              23.1           Laws and
Regulations.  This Agreement and all operations and activities
conducted under it shall be subject to all applicable laws, rules, regulations
and orders (federal, state, and local).  A provision of this Agreement
found to be contrary to or inconsistent with any such law, rule, regulation or
order shall be deemed to have been modified accordingly.

              

              ARTICLE
24

              FORCE
MAJEURE

              

              24.1           Force
Majeure.  The obligations imposed by this Agreement on a Party,
except for indemnity obligations and the payment of money, shall be suspended
with respect to such Party to the extent that compliance is prevented, in whole
or in part, by a labor dispute, fire, storm, 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
removed; and provided further that no Party shall be required against its will
to settle any labor dispute.

               

              24.2           Notice.  Whenever
a Party's obligations are suspended under Section 24.1, such Party shall
immediately notify the other Parties and give full particulars of the reason for
such suspension.

              

              
                
                  
                  

                

                
                  44

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
25

              SUCCESSORS, ASSIGNS AND
PREFERENTIAL RIGHTS

              

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

              25.2           Transfer of Interest.
No transfer, assignment, or other disposition of interest by a Party shall
relieve the Party of liabilities and obligations it has incurred or that are
attributable to the interest transferred before the date of the transfer, and
the obligation to pay and bear all costs and risks attributable to an operation
in which the Party was a Participating Party before making the transfer, and the
lien and security rights granted by Section 8.5 (Security Rights) shall continue
to burden the interest transferred to secure payment of the obligations. The
transferor shall be liable for all costs, expenses, and liabilities for well
plugging and abandonment, Platform and Facilities removal and disposal, and site
clearance for property and equipment attributable to the assigned interest
before the date of the transfer, net of salvage proceeds.

               

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

               

              
                	
                         
      

                      	
                        (a)

                      	
                        the
      transferee is financially capable of assuming the obligations hereunder
      and, in accordance with Subsection 25.3(c), the transferor furnishes the
      Parties with proof of such financial capability that, in the case of Outer
      Continental Shelf leases, shall be proof that the transferee is currently
      qualified by the Minerals Management Service, an agency of the United
      States Department of the Interior, or a successor agency having
      jurisdiction (hereinafter “MMS”), to own Outer Continental Shelf leases
      and that the transferee has on file with the MMS the appropriate lessee
      and Operator bonds;

                      

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              
                	
                         
      

                      	
                        (c)

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

                         

                      

              

              The
requirements of this Section 25.3 shall not apply to a merger, consolidation,
reorganization, sale or transfer to an Affiliate, a mortgage by a Party of its
interest in the Leases within the Contract 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.

               

              
                
                  
                  

                

                
                  45

                  
                    

                  

                

                
                  
                  

                

              

              25.4           Transfers Between
Parties. A transfer, relinquishment, or other disposition of interests in
the Leases between Parties under Section 12.6 (Non-Consent Operations to
Maintain Lease); Article 14 (Withdrawal); or Section 15.3 (Non-participation in
Payments) shall be made without warranty of title. Any such transfer between the
Parties, if applicable, shall be free and clear of all overriding royalty,
production payment, net profits
interest, mortgage, lien, security interest, or other burden or encumbrance,
other than lessor’s royalty burdens and the Permitted Encumbrance shown on
Exhibit “A”.

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

               

              25.6           Preferential Rights.
If a Party desires to transfer, sell, farmout, assign, or otherwise dispose of
all or part of its Working Interest (“Disposing Party”), it shall promptly give
written notice to the other Parties with full information about the proposed
transaction, including, but not limited to, the name and address of the
prospective transferee (who must be ready, willing, and able to acquire the
interest and deliver the stated consideration therefor), the consideration for
the transfer, farmout terms, and all other terms of the offer. In the case of a
package sale of oil and gas interests that includes all or part of the Disposing
Party’s Working Interest, or if the proposed transaction is structured as a
non-simultaneous, like-kind exchange under Section 1031 of the Internal Revenue
Code of 1986, as amended (“Code”), the Working Interest that is subject to this
preferential right shall be separately valued and the notice shall state the
value attributed to the interest by the prospective transferee. The other
Parties shall then have an optional prior right, for a period of thirty (30)
days after receipt of the notice, to elect to purchase or acquire on the same
terms and conditions, or on equivalent terms for a non-cash transaction, all of
the Working Interest that the Disposing Party is proposing to transfer. If this
preferential right is exercised by a Party, the purchasing or acquiring Parties
shall share the purchased or acquired interest in the proportions that the
Working Interest of each bears to the total Working Interest of all acquiring
Parties, or in such proportions as the acquiring Parties otherwise agree. This
preferential right shall apply separately to each Working Interest or part
thereof covered by this Agreement, regardless of whether it is included in the
proposed transaction along with other oil and gas interests, whether as a sale,
farmout, or non-simultaneous, like-kind exchange, and no provision in this
Agreement shall be interpreted to defeat this preferential right. Upon exercise
of this preferential right, the acquiring Parties shall agree to perform all
obligations of the prospective transferee under the proposed transaction only
for the Working Interest subject to the proposed transaction. This preferential
right, however, shall not exist or apply when a Party proposes (a) to mortgage
its interest; (b) to dispose of or transfer its interest to an Affiliate by (i)
merger, (ii) reorganization, or (iii) consolidation; (c) to sell all, or
substantially all, of its exploration and production properties located in the
United States of
America; or (d) to transfer the interest under a property exchange transaction
other than a non-simultaneous, like-kind exchange under Section 1031 of the
Code. If the proposed transaction is not consummated within six (6) months after
receipt of the notice by the other Parties, the Working Interest shall again be
governed by this Section 25.6 and the preferential right shall again arise for
the offered interest as herein described.

              
                
                   

                

                
                  46

                  
                    

                  

                

                
                   

                

              

              

              ARTICLE
26

              TERM

              

              26.1           Term.  This
Agreement shall remain in effect so long any Lease or part thereof within the
Contract Area remains in force and effect and thereafter until: (a) all wells
within the Contract Area have been abandoned and plugged or turned over to a
single Working Interest owner in accordance with Article 14; (b) all 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
"D".  Termination of this Agreement shall not relieve a Party of any
liability or obligation which accrued or was incurred before such
termination.

              

              ARTICLE
27

              MISCELLANEOUS
PROVISIONS

              

              27.1           
Headings.  Except
for the headings contained in Article 2 (Definitions), the headings and table of
contents used herein are inserted for convenience only and shall be disregarded
in construing this Agreement.

               

              27.2           
Waiver.  Failure
to act upon a breach of any provision of this Agreement does not waive a Party's
right to enforce a subsequent breach of the same or any other
provision.

              

              ARTICLE
28

              EXECUTION

              

              28.1           Counterpart
Execution.  This Agreement may be executed by signing the
original or a counterpart thereof.  If this Agreement is executed in
counterparts, all counterparts taken together shall have the same effect as if
all the Parties had signed the same instrument.

               

              28.2           Amendments.  No
amendments hereof shall be effective unless they are in writing and executed by
the relevant Parties.

              

              
                
                   

                

                
                  47

                  
                    

                  

                

                
                   

                

              

              IN
WITNESS WHEREOF, this Agreement has been executed by the Parties on the date
shown below, but effective as of the day and year first above
written.

              

              WITNESSES:

              

              OPERATOR:

              

              Ridgelake Energy, Inc.

              _______________________________

              

              By:_________________________________

              _______________________________                        William
M. Hines

                                                                                                             
Vice President

              Date: September 26, 2006

              

              

              

              WITNESSES:

              NON-OPERATORS:

              

              GulfX, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Paul Garner

              Title: Vice
President

              Date: Oct 6,
2006

              

              

              South Marsh, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Paul Garner

              Title: Vice
President

              Date: Oct 6,
2006

              

              
 

              Lion Energy Limited, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Russell
Brimage

              Title: President

              Date: Oct 6,
2006

              

              

              

              

              

              
                
                   

                

                
                  48

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
"A"

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day
of  September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited, LLC.

              

              

              
                	
                        I.

                      	
                        Description of
      Lease(s):

                      

              

              

              
                That
certain Lease dated effective May 1, 2005, by and between the United States of
America (“Lessor”) and Ridgelake Energy, Inc. (“Lessee”), designated by the
Minerals Management Service as OCS-G 27078, and covering 5,000 acres of
submerged lands within the Outer Continental Shelf, described as
follows:

                

                “All of Block 317, Vermilion Area,
South Addition, , OCS Leasing Map, Louisiana Map No. 3B”

              

              

              
                	
                        II.

                      	
                        Contract
      Area:

                      

              

              

              The
Contract Area shall cover all of the acreage covered by OCS-G
27078.

              

              
                	
                        III.

                      	
                        Interest of
      Parties:

                      

              

              

              Party:                                                                                                        
Interest:

              

              RIDGELAKE
ENERGY, INC. (“OPERATOR”)    40.00%

              GULFX,
LLC                                                                                                           **20.00%

              SOUTH
MARSH
LLC                                                                                           **10.00%

              LION ENERGY LIMITED
LLC                                                                             **30.00%

                                                                                                                                                          100.00%

               

               

              
                * (NOTE:
It is recognized that, pursuant to the terms of that certain Seismic Acquisition
and Exploration Agreement dated effective September 7, 2004, by and between
Ridgelake Energy, Inc. and Beacon Exploration and Production Company, L.L.C.,
Beacon has the right to participate for up to a 10% working interest in OCS-G
27078. Should Beacon or its designee be determined to have properly elected to
acquire a working interest in OCS-G 27078, then it is understood that such
interest will be conveyed by Ridgelake to Beacon or its designee. Furthermore,
it is agreed that the conveyance by Ridgelake to Beacon or its designee under
the terms of the aforesaid Seismic Acquisition and Exploration Agreement shall
not be subject to the terms of this agreement until such time as Beacon or it
designee has ratified and/or otherwise accepted the terms of this Operating
Agreement. In particular, the Parties herein specifically understand and agree
that the aforesaid conveyance by Ridgelake to Beacon ir its designee is not
subject to the terms of Article 25.3 and 25.6 of this Operating
Agreement.)

                

              

               

              ** (NOTE:
It is recognized and understood that the respective interests credited to GulfX,
LLC, South Marsh LLC and Lion Energy Limited LLC are subject to the terms and
conditions of the following Participation Agreements: 1) that certain Agreement
dated January 18, 2006, by and between Ridgelake and GulfX, LLC,
(2)  that certain Agreement dated September 18, 2006, by and between
Ridgelake and South Marsh LLC, and (3) that certain Agreement dated September
18,2006, by and between Ridgelake and Lion Energy Limited LLC. As such, the
interest, which is conditioned upon the performance by GulfX, South Marsh and
Lion of all of the terms and conditions contained in the aforesaid Participation
Agreements. Should the said parties fail to earn an interest in OCS-G 27078
under the terms of the Participation Agreement that is applicable to that
party’s conditional interest, then it is recognized that the interest credited
to that party shall revert to Ridgelake. Furthermore, it is understood and
agreed that if there is a conflict between the terms and conditions of the
Participation Agreements referenced herein and this Operating Agreement, then
the terms of the applicable Participation Agreement shall apply and take
precedence over the terms and conditions contained in this Operating
Agreement.)

              

              
                
                  
                  

                

                
                  A-1

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        IV.

                      	
                        Designated
      Representatives:

                      

              

              

              RIDGELAKE ENERGY,
INC.                                                                                   GULFX,
LLC

              3636 N. Causeway Boulevard, Suite
300                                                               45
Ventnor Avenue

              Metairie, Louisiana
70002-7216                                                                              West
Perth 6005

              Attention:  Mr. John
Rubin                                                                                    
Western Australia, Australia

                                                  
Attention: ______________

              

              SOUTH MARSH
LLC                                                                                             
LION ENERGY LIMITED LLC

              P.O. Box
512                                                                                                              
P.O. Box 512

              West Perth Business Center
6872                                                                         
West Perth Business Center 6872

              Western Australia,
Australia                                                                                 
Western Australia, Australia

              Attention:
_________________                                                                         
Attention: _________________

              

              

              
                	
                        V.

                      	
                        Permitted
      Encumbrance:

                      

              

              

              
                In
addition to Lessor’s royalty, OCS-G 27078 is burdened with a 3.33333% of 8/8ths
Overriding Royalty Interest, which has been granted by Ridgelake Energy, Inc. to
Beacon Exploration and Production Company, L.L.C., pursuant the terms of that
certain letter agreement dated September 7, 2004, by and between Ridgelake and
Beacon Exploration and Production Company L.L.C. The aforesaid burdens are
Permitted Encumbrances under the terms of this Operating
Agreement.

              

              
                
                   

                

                
                  A-2

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“B”

              INSURANCE

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              INSURANCE
PROVISIONS

              

              1           Operator shall carry the
following insurance for the joint account:

              

              
                	
                         
      

                      	
                        a.

                      	
                        Workmen's
      Compensation and Employer's Liability Insurance covering employees of
      Operator engaged in operations hereunder in compliance with all applicable
      State and Federal Laws. The Workmen's Compensation policy shall have
      attached the "Longshoreman's Harbor Worker's Compensation Act (Federal)
      Endorsement" and "Outer Continental Shelf Lands
    Endorsement".

                      
	 	 	 
	 	
                        b.

                      	
                        Contingent
      Maritime Employer's Liability Insurance shall provide for a limit of
      liability of not less than $1,000,000 per
  accident.

                      

              

              

              
              

              

              
                 
2.           
Each
Party shall carry the insurance noted below with the minimum limits as set
out:

              

              

              
                	
                         
      

                      	
                        a.

                      	
                        General
      Liability and Property Damage Insurance endorsed to include offshore
      operations and non-owned watercraft liability, covering operations
      conducted hereunder with a combined single limit each occurrence of
      $1,000,000 for bodily injury and property damage.

                      
	 	 	 
	 	
                        b.

                      	
                        Commercial
      Automobile Liability Insurance covering owned, non-owned and hired
      automobiles with a combined single limit of $1,000,000 per occurrence and
      Property Damage Insurance covering operations conducted hereunder with a
      combined single limit each occurrence of $500,000 for bodily injury and
      property damage.

                      
	 	 	 
	 	
                        c.

                      	
                        Excess
      Liability Insurance, including sudden and accidental pollution liability,
      with a limit of $35,000,000.00.

                      
	 	 	 
	 	d. 	
                        Non-Owned
      Aircraft Liability Insurance with a limit of $5,000,000 each
      occurrence.

                      
	 	 	 
	 	
                        e.

                      	
                        Insurance
      for Control of Well, Redrilling and Restoration due to blowout and/or
      cratering above or below surface, and Seepage and Pollution Liability
      coverage including cleanup and containment with a minimum limit of
      $25,000,000 per occurrence. Coverage shall also include Care Custody and
      Control Insurance with a minimum limit of $500,000 per
      occurrence.

                      

              

              
 

              
                	
                        3.

                      	
                        Any
      Party hereto may acquire such additional insurance as it deems proper to
      protect itself against any claims, losses, damages or destruction arising
      out of operations hereunder.

                      

              

              

              
                	
                        4.

                      	
                        Operator
      shall use reasonable efforts to require all contractors and subcontractors
      working or performing services hereunder to comply with the Workmen's
      Compensation and Employer's Liability Laws, both State and Federal, and to
      carry Comprehensive General Liability and such other insurance as Operator
      deems necessary.

                      

              

              

              In the
event that construction operations are performed, Operator shall determine the
amount(s) of Builder’s Risks Insurance appropriate for the project and shall:
(i) cause the pertinent contractor(s) and, as applicable, subcontractor(s) to
carry, in the aggregate and as Operator deems appropriate, such coverage and/or
(ii) carry for the joint account (and charge it accordingly) for such portion
of, of all, the coverage as operator deems appropriate.  In any such
event, Operator shall cause certificates of insurance reflective of such
coverage to be forwarded to the Non-Operator(s).

              
                
                   

                

                
                  B-1 

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“C”

              

              Attached
to and made a part of that certain Operating Agreement,

              dated the
18th
day of September, 2006,

              by and between Ridgelake Energy, Inc.,
GulfX, LLC, South Marsh LLC and Lion Energy Limited LLC.

              

              ACCOUNTING
PROCEDURE

              OFFSHORE
JOINT OPERATIONS

              

              

              I.
GENERAL PROVISIONS

              

              
                	
                         
      

                      	
                        1.

                      	
                        Definitions

                      

              

              

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

              

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

              

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

              

              “Operator”
shall mean the party designated to conduct the Joint Operations.

              

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

              

              “Parties"
shall mean Operator and Non-Operators.

              

              “First
Level Supervisors” shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or contract labor
directly employed on the Joint Property in a field operating
capacity.  The First Level Supervisor shall not be required to be
located on the Joint Property, but shall be located at a field location near the
Joint Property.

              

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

              

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

              

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

              

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

              

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

              

              “Offshore
Facilities” shall mean platforms and support systems such as oil and gas
handling facilities, living quarters, offices, shops, cranes, electrical supply
equipment and systems, fuel and water storage and piping, heliport, marine
docking installations, communication facilities, navigation aids, and
other

              similar
facilities necessary in the conduct of offshore operations.

              

              
                
                  
                  

                

                
                  C-1

                  
                    

                  

                

                
                  
                  

                

              

              2.         Statements and
Billings

              

              
                	
                         
      

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

                      

              

              
 

              

              3.         Advances and Payments by
Non-Operators

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                	
                        4.

                      	
                        Adjustments

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        5.

                      	
                        Audits

                      

              

              

              
                	
                         
      

                      	
                        A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                
                  
                  

                

                
                  C-2

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        6.

                      	
                        Approval
      by Non-Operators

                      

              

              

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

              

              II.
DIRECT CHARGES

              

              Operator
shall charge the Joint Account with the following items:

              

              
                	
                        1.

                      	
                        Rentals
      and Royalties

                      

              

              

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

              

              
                	
                        2.

                      	
                        Labor

                      

              

               

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

               

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

              

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

              

              

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

              

               

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

               

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

               

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

               

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

              

              
                	
                        3.

                      	
                        Employee
      Benefits

                      

              

              

              Operator's
current costs of established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus, and other
benefit plans of a like nature, applicable to Operator's labor cost chargeable
to the Joint Account under Paragraphs 2A and 2B of this Section II shall be
Operator's actual cost not to exceed the percent most recently recommended by
the Council of Petroleum Accountants Societies.

              

              
                
                  
                  

                

                
                  C-3

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        4.

                      	
                        Material

                      

              

              

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

              

              
                 
5.      Transportation

              

              

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

              

              
                	
                         
      

                      	
                        A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                	
                         
      

                      	
                        C.

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

                      

              

              

              
                	
                        6.

                      	
                        Services

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        7.

                      	
                        Equipment
      and Facilities Furnished by
Operator

                      

              

              

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

              

              

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

              

              

              
                
                  
                  

                

                
                  C-4

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        8.

                      	
                        Damages
      and Losses to Joint Property

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        9.

                      	
                        Legal
      Expense

                      

              

              

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

              

              
                	
                        10.

                      	
                        Taxes

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        11.

                      	
                        Insurance

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        12.

                      	
                        Communications

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                
                  
                  

                

                
                  C-5

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        13.

                      	
                        Ecological
      and Environmental

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        14.

                      	
                        Abandonment
      and Reclamation

                      

              

              

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

              

              
                	
                        15.

                      	
                        Other
      Expenditures

                      

              

              

              
                	
                         
      

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

                      

              

              

              III.  OVERHEAD

              

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

              

              Unless
otherwise agreed to by the Parties, such charge shall be in lieu of costs and
expenses of all offices and salaries or wages plus applicable burdens and
expenses of all personnel, except those directly chargeable under Section
II.  The cost and expense of services from outside sources in
connection with matters of taxation, traffic, accounting or matters before or
involving governmental agencies, except as herein described, shall be considered
as included in the overhead rates provided for in this Section III unless such
cost and expense are agreed to by the Parties as a direct charge to the Joint
Account. Notwithstanding anything
herein contained to the contrary, it is agreed that such costs and services when
directly employed on the Joint Property shall not be covered by the overhead
rates. Furthermore, the reasonable and customary fees and expenses incurred by
contract personnel and professional consultants as such fees relate to matters
before or involving governmental agencies (including but not limited to the
Minerals Management Service and other regulatory agencies) , even if such
contract or professional consultants are working in Operator’s office, shall be
directly chargeable to the Joint Account, to the extent that such fees and
expenses are associated with the operation of the Joint
Property.

              

              
                	
                         
      

                      	
                        i.

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

                      

              

              

              
                	
                         
      

                      	
                        (    
       ) shall be covered by the overhead
rates.

                      

              

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

                      

              

              

              
                	
                         
      

                      	
                        ii.

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

                      

              

              

              
                	
                         
      

                      	
                        (  x  )
      shall be covered by the overhead
rates.

                      

              

              
                	
                         
      

                      	 	 	
                        (      )
      shall not be covered by the overhead
rates.

                      

              

              

              
                
                  
                  

                

                
                  C-6

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        1.

                      	
                        Overhead
      - Drilling and Producing Operations

                      

              

              

              
                	
                         
      

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

                      

              

               

               

              

               

              
                	
                        (  x  )
    

                      	
                        Fixed
      Rate Basis, Paragraph 1A, or

                      
	
                        (      )

                      	
                        Percentage
      Basis, Paragraph 1B

                      

              

               

              

              

              
                	
                        A.

                      	
                        Overhead
      - Fixed Rate Basis

                      

              

              

              
                	
                         
      

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

                      

              

              
                	
                         
      

                      	
                                    
      Drilling Well Rate $30,000.  (Prorated for
      less than a full month)

                      

              

              
                	
                         
      

                      	
                                    
      Producing Well Rate $3,000.

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              

              
                	
                         
      

                      	
                        (3)

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      
	 	 	 
	 	
                        (b)

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

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

              

              

              
              

              

              
              

              

              
                
                  
                  

                

                
                  C-7

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        (d)

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

                      
	 	 	 
	 	
                        (e)

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

                      

              

              

              
              

              

              
                	
                         
      

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

                      

              

              

              
                 
B.     
Overhead - Percentage Basis

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)
      Development

                      

              

              
                	 	
                        __________________ Percent
      (___%) of cost of Development of the Joint Property exclusive of
      costs provided under Paragraph 9 of Section II and all salvage
      credits.

                      

              

              

              

              
                	
                         
      

                      	
                        (b)
      Operating

                      

              

              
                	 	
                             ______________________
      Percent (___%) of the cost of Operating the
  Joint

                      

              

              

              
                	
                         
      

                      	
                        Property
      exclusive of costs provided under Paragraphs 1 and 9 of Section II, all
      salvage credits, the value of injected substances purchased for secondary
      recovery and all taxes and assessments which are levied, assessed and paid
      upon the mineral interest in and to the Joint
  Property.

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                         Application
      of Overhead - Percentage Basis shall be as
      follows:

                      

              

              

              For the
purpose of determining charges on a percentage basis under Paragraph 1B of this
Section III, development shall include all costs in connection with drilling,
redrilling, deepening, or any project with a primary purpose to extend or expand
a wellbore in order to recover new reserves not previously recoverable by the
wellbore; also,
preliminary expenditures necessary in preparation for drilling and expenditures
incurred in abandoning when the well is not completed as a producer, and
original cost of construction or installation of fixed assets, the expansion of
fixed assets and any other project clearly discernible as a fixed asset, except
Major Construction as defined in Paragraph 2 of this Section III.  All
other costs shall be considered as Operating except that catastrophe costs shall
be assessed overhead as provided in Section III, Paragraph 3.

              

              
                
                  
                  

                

                
                  C-8

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        2.

                      	
                        Overhead
      - Major Construction

                      

              

              

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

              

              (1) 6%  of
total costs if such costs are more than $25,000
but less than $100,000; plus

               

              (2)  4
%  of
total costs in excess of $100,000 but less than $1,000,000; plus

               

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

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              (1) 
4%  of
total costs if such costs are more than $
25,000 but less than $100,000; plus

              

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

              

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

              

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

              

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

              

              
                	
                         
      

                      	
                        3.

                      	
                        Overhead
      - Catastrophe

                      

              

              

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

               

              (1) 4%  of
total costs through $100,000; plus

               

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

               

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

              

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

              

              
                
                  
                  

                

                
                  C-9

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        4.

                      	
                        Amendment
      of Rates

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        *IV.

                      	
                        PRICING
      OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
      DISPOSITIONS

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        * Operator shall account
      for material purchase and transfers in accordance with
      COPAS    Interpretation 23, attached hereto, or the
      pricing procedur5e most recently recommended by
  COPAS.

                      

              

              
                	
                        1.

                      	
                        Purchases

                      

              

              

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

              

              
                	
                        2.

                      	
                        Transfers
      and Dispositions

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                
                  
                  

                

                
                  C-10

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        A.

                      	
                        New
      Material (Condition A)

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Tubular
      Goods Other than Line Pipe

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

                      	
                        For
      grades which are special to one mill only, prices shall be computed at the
      mill base of that mill plus transportation cost from that mill to the
      railway receiving point nearest the Joint Property as provided above in
      Paragraph 2.A.(1)(a).  For transportation cost from points other
      than Eastern mills, the 30,000 pound Oil Field Haulers Association
      interstate truck rate shall be
used.

                      

              

              

              
                	
                         
      

                      	
                        (c)

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

                      

              

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                        Line
      Pipe

                      

              

              

              
                	
                         
      

                      	
                        (a)

                      	
                        Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      Over) 30,000 pounds or more shall be priced under provisions of tubular
      goods pricing in Paragraph A.(1 )(a) as provided above. Freight charges
      shall be calculated from Lorain,
Ohio.

                      

              

              

              
                	 	
                        (b)

                      	
                        Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      over) less than 30,000 pounds shall be priced at Eastern mill published
      carload base prices effective as of date of shipment, plus 20 percent,
      plus transportation costs based on freight rates as set forth under
      provisions of tubular goods pricing in Paragraph A.(1)(a) as provided
      above. Freight charges shall be calculated from Lorain,
    Ohio.

                      

              

              

              
                	
                         
      

                      	
                        (c)

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

                      

              

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              

              
                	
                         
      

                      	
                         (3)

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

                      

              

              

              
                	
                         
      

                      	
                         (4)

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

                      

              

              

              
                
                  
                  

                

                
                  C-11

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        B.

                      	
                        Good
      Used Material (Condition B)

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Material
      moved to the Joint Property

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

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

              

               

              
                	 	
                        (a)

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

                      
	 	 	 
	 	
                        (b)

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

                      

              

               

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

                      

              

              
              

              
 

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

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

              

              

              

              
                	
                         
      

                      	
                        C.

                      	
                        Other
      Used Material

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Condition
      C

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                        Condition
      D

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              

              
                
                  
                  

                

                
                  C-12

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        (3)     
      Condition E

                      

              

              

              
                	
                         
      

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

                      

              

              

                   
D.     Obsolete Material

              

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

              

                  E.      Pricing
Conditions

              

              
                	
                         
      

                      	
                            (1)

                      	
                        Loading
      or unloading costs may be charged to the Joint Account at the rate
      of  twenty-five cents ($0.25) per hundred weight on all tubular
      goods movements, in lieu of actual loading or unloading costs sustained at
      the stocking point.  The above rate shall be adjusted as of the
      first day of April each year following January 1, 1985 by the same
      percentage increase or decrease used to adjust overhead rates in Section
      III, Paragraph 1.A(4). Each year, the rate calculated shall be rounded to
      the nearest cent and shall be the rate in effect until the first day of
      April next year.  Such rate shall be published each year by the
      Council of Petroleum Accountants
Societies.

                      

              

              

              
                	
                         
      

                      	
                            (2)

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

                      

              

              

              
                	
                        3.

                      	
                        Premium
      Prices

                      

              

              

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

              

              
                	
                        4.

                      	
                        Warranty
      of Material Furnished By Operator

                      

              

              

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

              

              
                
                  
                  

                

                
                  C-13

                  
                    

                  

                

                
                  
                  

                

              

              V.
INVENTORIES

              

              The Operator shall maintain detailed
records of Controllable Material.

              

              
                	
                        1.

                      	
                        Periodic
      Inventories, Notice and
Representation

                      

              

              

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

              

              2.         Reconciliation
and Adjustment of Inventories

              

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

              

              
                	
                        3.

                      	
                        Special
      Inventories

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        4.

                      	
                        Expense
      of Conducting Inventories

                      

              

              

              
                	
                                   
      A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              

              

              
                
                   

                

                
                  C-14

                  
                    

                  

                

                
                   

                

              

              

              EXHIBIT
"D"

              GAS
BALANCING AGREEMENT (“Agreement”)

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              
                
                   

                

                
                  D-1 

                  
                    

                  

                

                
                   

                

              

              

              EXHIBIT
“E”

              

              

              Attached
to and made part of that certain Operating Agreement,

              Dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              MEMORANDUM
OF OPERATING AGREEMENT

              AND

              FINANCING
STATEMENT

              

              This
Memorandum of Operating Agreement and Financing Statement is executed to be
effective concurrently with that certain Operating Agreement (the “Operating
Agreement”) by and between Ridgelake Energy Inc., as Operator,
and                                                                ,
as Non-Operator(s), covering, among other things, the development and production
of crude oil, natural gas and associated substances from the lands and leases
(hereinafter called the “Contract Area”) described on Exhibit A attached
hereto and owned by Operator and Non-Operator(s) in the respective percentages
of shares indicated on
Exhibit A. The attached Exhibit A consists of
one or more of the Exhibits A to the
Operating Agreement and refers severally to all Exhibits A attached
hereto.

              

              The
Operating Agreement contains an Accounting Procedure, along with provisions
giving the parties hereto mutual liens and security interests where one or more
parties hereto are or may become Debtors to one or more other parties hereto.
This Memorandum of Operating Agreement and Financing Statement incorporates by
reference all of the terms and conditions of the Operating Agreement, including
but not limited to the lien and security interest provisions.

              

              The
purpose of this Memorandum of Operating Agreement and Financial Statement is to
place third parties on notice of the Operating Agreement and to secure and
perfect the mutual liens and security interests of the parties
hereto.

              

              The
Operating Agreement specifically provides and the parties do hereby confirm and
agree that:

              

              
                	
                         
      

                      	
                        1.

                      	
                        The
      Operator shall conduct and direct and have full control of all operations
      on the Contract Area as permitted and required by, and within the limits
      of, the Operating Agreement.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        The
      Liability of the parties under the Operating Agreement shall be several,
      not joint or collective. Each party shall be responsible only for its
      obligations and shall be liable only for its proportionate share of
      costs.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        Each
      Non-Operator grants the Operator a lien upon its oil and gas rights, oil
      and gas leases and mineral interests in the Contract Area, and a security
      interest in its share of oil and/or gas when extracted and its interest in
      all fixtures, inventory, personal property and equipment located on or
      used on the Contract Area and in all its contract rights and receivables
      related thereto and arising therefrom to secure payment of its present and
      future share of costs and expenses, together with interest thereon at the
      rate provided in the Accounting Procedure referred to above, To the extent
      that Operator has security interest under the Uniform Commercial Code (the
      “Code”) of the state or the states in which the Contract Area is located,
      Operator without prejudice and in addition to all other legal, equitable
      and contractual remedies which are expressly reserved, shall be entitled
      to exercise the rights and remedies of a secured party under the Code. The
      bringing of a suit and the obtaining of judgment by Operator for the
      secured indebtedness shall not be deemed an election of remedies or
      otherwise affect the rights or security interests fir the payment
      thereof.

                      

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        If
      any Non-Operator fails to pay its share of costs and expenses when due,
      Operator may require other Non-Operators to pay their proportionate part
      of the unpaid share whereupon the other Non-Operators shall be subrogated
      to Operator’s Lien and Security Interest described
  herein.

                      

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        The
      Operator grants the Non-Operator(s) a lien and security interest
      equivalent to that granted to Operator as described in paragraph 3 above,
      to secure payment by the Operator of its won share of costs and expenses
      when due.

                      

              

              

              
                
                  
                  

                

                
                  E-1

                  
                    

                  

                

                
                  
                  

                

              

              As
reflected above, either or both Operator and Non-Operator(s) may become Debtors
if they default in their payment obligations under the terms of the Operating
Agreement. On default, the non-defaulting party(ies) will be considered secured
party(ies).

              

              The
Operating Agreement contains other provisions which do not conflict but
supplement the above-described provisions, including non-consent provisions
which provide that parties who elect not to participate in certain operations
shall be deemed to have relinquished their interest until the consenting parties
are able to recover their costs of such operations plus a specified amount.
Should any person or firm desire additional information regarding the Operating
Agreement or wish to inspect a copy of the Operating Agreement, said person or
firm should contact the Operator.

              

              For
purposes of protecting said liens and security interest, the undersigned parties
agree that this Memorandum of Operating Agreement and Financing Statement covers
all right, title and interest of the Debtor(s) in:

              

              Property Subject to Security
Interests:

              

              
                	
                         
      

                      	
                        1.

                      	
                        All
      personal property located upon or used in connection with the Contract
      Area.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        All
      fixtures on the Contract Area.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        All
      oil, gas and associated substances of value in, on or under the Contract
      Area, or which may be extracted
therefrom.

                      

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        All
      accounts and receivables resulting from the sale of the items described in
      subparagraph 3 at the wellhead of every well located on the Contract Area
      or on lands pooled therewith.

                      

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        All
      items used, useful, or purchased for the production, treatment, handling,
      storage, transportation, processing, manufacture, or sale of the items
      described in subparagraph 3.

                      

              

              

              
                	
                         
      

                      	
                        6.

                      	
                        All
      accounts, contract rights, rights under any gas balancing agreement,
      general intangibles, equipment, inventory, farmout rights, option farmout
      rights, acreage and/or cash contributions, and conversion rights, whether
      now owned or existing or hereafter acquired or arising, including but not
      limited to all interest in any enterprise that holds, owns, or controls
      any interest in the Contract Area or in any property encumbered by the
      Memorandum.

                      

              

              

              
                	
                         
      

                      	
                        7.

                      	
                        All
      severed and extracted oil, gas and associated substances now or hereafter
      produced from or attributable to the Contract Area, including without
      limitation, oil, gas and associated substances in tanks or pipelines or
      otherwise held by any person or entity fro treatment, storage,
      transportation, manufacture, processing or
sale.

                      

              

              

              
                	
                         
      

                      	
                        8.

                      	
                        All
      the proceeds and products of the items described in the foregoing
      paragraphs now existing or hereafter arising, and all substitutions
      therefore, improvements and enhancements thereto, replacements thereof, or
      accessions thereto.

                      

              

              

              
                	
                         
      

                      	
                        9.

                      	
                        All
      personal property and fixtures now and hereafter acquired in furtherance
      of the purposes of this Operating Agreement. Certain of the
      above-described items are, or are to become, fixtures on the Contract
      Area.

                      
	 	 	 
	 	
                        10.

                      	
                        The
      proceeds and products of collateral are also specifically
      covered.

                      

              

              

              
              

              

              
                
                  
                  

                

                
                  E-2

                  
                    

                  

                

                
                  
                  

                

              

              Property Subject to
Liens:

              

              
                	
                         
      

                      	
                        1.

                      	
                        All
      real property, oil, gas and mineral leases, severed and unsevered surface
      fees, mineral fees and interest, royalty interests, overriding royalty
      interests, production payments, net profit interests, and other oil and
      gas interests of any nature, including reversionary interests, all as may
      be located within the Contract Area, including all oil, gas and associated
      substances of value in, on or under the Contract Area, or which may be
      extracted therefrom.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        All
      fixtures within the Contact Area.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        All
      real property and fixtures now and hereafter acquired in furtherance of
      the purposes of this Operating
Agreement.

                      

              

              

              The above
items will be financed at the wellhead of the well or the wells located in the
Contract Area, and this Memorandum is to be filed for record in the real estate
records of the county(ies) or parish(es) and in the Uniform Commercial Code
records in which the Contract Area is located.

              

              On
default of any covenant or condition of the Operating Agreement, in addition to
any other remedy affected by law, each party to the Operating Agreement and any
successor to such part by assignment, operation of law, or otherwise, shall
have, and is hereby given and vested with, the power and authority to take
possession of and sell any interest which the defaulting party has in the
property identified above securing the obligations provided in the Operating
Agreement and to foreclose this lien and security interest in the manner
provided by law.

              

              Upon
expiration of the Operating Agreement and the satisfaction of all the debts and
the outstanding interest, the Operator shall file of record a release and
termination on behalf of all parties concerned. Upon the filing of such release
and termination, all benefits and obligations under this Memorandum shall
terminate as to all parties who have executed or ratified this Memorandum. In
addition, the Operator shall have the right to file a continuation statement on
behalf of all the parties that have executed or ratified this Memorandum when
Operator in its sole discretion deems such action appropriate.

              

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

              

              This
Memorandum shall be binding upon and shall inure to the benefit of the parties
hereto and to their respective heirs, devisees, legal representatives,
successors and assigns.

              

              A party
having an interest in the Contract Area can ratify this Memorandum by execution
hereof or a separate counterpart hereof or by execution and delivery of an
instrument of ratification adopting the provisions of this Memorandum or
agreeing to be bound by the terms thereof. Any such ratification shall have the
same effect as if the ratifying party had executed this Memorandum or a
counterpart thereof. By execution or ratification of this Memorandum, such party
hereby consents to its ratification and adoption by any party who may have or
may acquire any interest in the Contract Area.

              

              
                
                  
                  

                

                
                  E-3

                  
                    

                  

                

                
                  
                  

                

              

              This
Memorandum may be executed or ratified in one or more counterparts and all of
the executed or ratified counterparts shall together constitute one instrument.
For purpose of recording, only one copy of this Memorandum with individual
signature pages attached thereto needs to be filed of record.

              

              Executed
this ___________ day of ____________________, ____.

              

              

              OPERATOR:                         Ridgelake
Energy, Inc.

              

              

              

              

              By:
_______________________________________

              

              Printed Name:
_______________________

              

              Title:
_______________________________

              

              

              

              

              NON_OPERATOR:             ___________________________________________

              

              

              By:
_______________________________________

              

              Printed Name:
_______________________

              

              Title:
_______________________________

              

               

              
                
                   

                

                
                  E-4

                  
                    

                  

                

                
                   

                

              

              Exhibit A
attached to and made part of the Memorandum of Operating Agreement and Financing
Statement dated ___________________, _____ between Ridgelake Energy, Inc., as
Operator, and ___________________________, as Non-Operator, covering lands in
______________________.

              

              

              

              
                	
                         
      

                      	
                        1.

                      	
                        Contract
      Area:

                      

              

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        Depth
      Limitations:

                      

              

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        Substances
      Covered:

                      

              

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        Interest
      of Parties:

                      

              

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        Oil
      and Gas leases Subject to this
Agreement:

                      

              

              

              

              
                	
                         
      

                      	
                        6.

                      	
                        Addresses
      of Parties for Notice:

                      

              

              

              

              

              

              

              

              

              

               

              
                
                   

                

                
                  E-5

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“F”

              

              

              Attached
to and made part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              TAX
PARTNERSHIP PROVISIONS

              

              OF
THE _______________________________________________

              PARTNERSHIP

              (For Name
of Tax Reporting Partner and Special Elections, See Secs. 8 and 9)

               

              
                Table of
Contents

                
                  	
                          1.1

                        	
                          Designation
      Of Documents

                        	
                          1

                        
	
                          1.2

                        	
                          Relationship
      of the Parties

                        	
                          1

                        
	
                          1.3

                        	
                          Priority
      Of Provisions Of This Exhibit

                        	
                          1

                        
	
                          1.4

                        	
                          Survivorship

                        	
                          1

                        
	
                          2.2

                        	
                          IF
      SMALL PARTNERSHIP EXEPTION FOM TEFRA NOT APPLICABLE

                        	
                          2

                        
	
                          3.1

                        	
                          Tax
      Returns

                        	
                          2

                        
	
                          3.2

                        	
                          Fair
      Market Value Capital Accounts

                        	
                          2

                        
	
                          3.3

                        	
                          Information
      Requests

                        	
                          2

                        
	
                          3.4

                        	
                          Best
      Efforts without Liability

                        	
                          2

                        
	
                          4.1

                        	
                          General
      Elections

                        	
                          2

                        
	
                          4.2

                        	
                          Depletion

                        	
                          2

                        
	
                          4.3

                        	
                          Election
      Out Under Code §761(a)

                        	
                          3

                        
	
                          4.4

                        	
                          Consent
      Requirements For Subsequent Tax Or FMV Capital Account
      Elections

                        	
                          3

                        
	
                          5.1

                        	
                          Capital
      Contributions

                        	
                          3

                        
	
                          5.2

                        	
                          FMV
      Capital Accounts

                        	
                          3

                        
	
                          6.1

                        	
                          FMV
      Capital Accounts Allocations

                        	
                          3

                        
	
                          6.2

                        	
                          Tax
      Return and Tax Basis Capital Account Allocation

                        	
                          4

                        
	
                          7.1

                        	
                          Termination
      of the Partnership

                        	
                          4

                        
	
                          7.2

                        	
                          Balancing
      of FMV Capital Accounts

                        	
                          4

                        
	
                          7.3

                        	
                          Deemed
      Sale Gain/Loss Charge Back

                        	
                          4

                        
	
                          7.4

                        	
                          Deficit
      make-up Obligation and Balancing Cash Contributions

                        	
                          4

                        
	
                          7.5

                        	
                          Distribution
      to balance capital accounts

                        	
                          4

                        
	
                          7.6

                        	
                          FMV
      determination

                        	
                          4

                        
	
                          7.7

                        	
                          Final
      Distribution

                        	
                          4

                        
	
                          8.1

                        	
                          Transfer
      of Partnership Interests

                        	
                          5

                        
	
                          8.2

                        	
                          Correspondence

                        	
                          5

                        
	
                          9.1

                        	
                          Operator
      not the TRP

                        	
                          5

                        
	
                          9.2

                        	
                          Special
      Tax Elections

                        	
                          5

                        
	
                          9.3

                        	
                          Change
      of Majority for Other Tax Elections

                        	
                          5

                        

                

              

              

              
                
                  
                  

                

                
                  F-1

                  
                    

                  

                

                
                  
                  

                

              

              1.           General
Provisions

              1.1           Designation
Of Documents.

               

              This
exhibit is referred to in, and is part of, that Agreement identified above and,
if so provided, a part of any agreement to which the Agreement is an exhibit.
Such agreement(s) (including all exhibits thereto, other than this exhibit)
shall be hereafter referred to as the “Agreement” and this exhibit is
hereinafter referred to as the “Exhibit” or the “Tax Partnership Provisions”
(the “TPPs”). Except as may be otherwise provided in this Exhibit, terms defined
and used in the Agreement shall have the same meaning when used
herein.

              

              

              1.2           Relationship
of the Parties.

               

              The
parties to the Agreement shall be hereinafter referred to as “Party” or
“Parties”. The Parties understand and agree that the arrangement and
undertakings evidenced by the Agreement result in a partnership for purposes of
Federal income taxation and certain State income tax laws which incorporate or
follow Federal income tax principals as to tax partnerships. Such partnership
for tax purposes is hereinafter referred to as the “Partnership”. For every
other purpose of the Agreement the Parties understand and agree that their legal
relationship to each other under applicable State law with respect to all
property subject to the Agreement is one of tenants in common, or undivided
interest owners, or lessee(s) sublessee(s) and not a partnership; that the
liability of the Parties shall be several and not joint or collective; and that
each Party shall be responsible solely for its own obligations.

              

              1.3           Priority
Of Provisions Of This Exhibit.

               

              If there
is a conflict or inconsistency, whether direct or indirect, actual or apparent,
between the terms and the conditions of this Exhibit and the terms and
conditions of the Agreement, or any other exhibit or any part thereof, the terms
and conditions of this Exhibit shall govern and control.

              

              1.4
Survivorship.

               

              
                	
                        1.4.1

                      	
                        Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the termination and liquidation.

                         

                      

              

              
                	
                        1.4.2

                      	
                        Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the resolution of all matters regarding Federal and State
      income reporting.

                         

                      

              

              
                	
                        1.4.3

                      	
                        These
      TPPs shall inure to the benefit of, and be binding upon, the Parties
      hereto and their successors and assigns.

                         

                      

              

              
                	
                        1.4.4

                      	
                        The
      effective date of the Agreement shall be the effective date of these TPPs.
      The Partnership shall continue in full force and effect from, and after
      such date, until termination and
liquidation.

                      

              

              

              
                
                  
                  

                

                
                  F-2

                  
                    

                  

                

                
                  
                  

                

              

              2.           Tax
Reporting Partner and Tax Matters Partner

              

              2.1           Tax
Reporting Partner.

               

              The
Operator (or the Party listed in Sec. 9.1) as the Tax Reporting Partner (“TRP”)
is responsible for compliance with all tax reporting obligations of the
Partnership, see Sec. 3.1. below. In the event of any change in the TRP, the
Party serving as the TRP at the beginning of a given taxable year shall continue
as TRP with respect to all matters concerning such year.

              

              2.2           IF SMALL PARTNERSHIP EXCEPTION FROM
TEFRA NOT APPLICABLE

               

              If the
Partnership does not qualify for the “small partnership exception” from, or if
the Partnership elects (see infra Elections at
Sec. 4.1 and 9.2) to be subject to, §§6221 et seq., Subchapter C of Chapter 63
of Subtitle F (the “TEFRA rules”) of the Internal Revenue Code (the “Code”) the
TRP shall also be the Tax Matters Partner as defined in Code §6231(a) (the
“TMP”) and references to the TRP shall then include references to TMP and vice
versa.

               

              
                	
                        2.2.1

                      	
                        The
      TMP shall not be required to incur any expenses for the preparation for,
      or pursuance of, administrative or judicial proceedings, unless the
      Parties agree on a method for sharing such expenses.

                         

                      

              

              
                	
                        2.2.2

                      	
                        The
      Parties shall furnish the TMP, within two weeks from the receipt of the
      request, the information the TMP may reasonably request to comply with the
      requirements on furnishing information to the Internal Revenue
      Service.

                         

                      

              

              
                	
                        2.2.3

                      	
                        The
      TMP shall not agree to any extension of the statute of limitations for
      making assessments on behalf of the Partnership without first obtaining
      the written consent of all Parties. The TMP shall not bind any other Party
      to a settlement agreement in tax audits without obtaining the written
      concurrence of any such Party.

                         

                      

              

              
                	
                        2.2.4

                      	
                        Any
      other Party who enters in a settlement agreement with the Secretary of the
      Treasury with respect to any partnership items, as defined in Code
      §6231(a)(3), shall notify the other Parties of the terms within ninety
      (90) days from the date of such settlement.

                         

                      

              

              
                	
                        2.2.5

                      	
                        If
      any Party intends to file a notice of inconsistent treatment under Code
      §6222(b), such Party shall, prior to filing of such notice, notify the TMP
      of the (actual or potential) inconsistency of the Party’s intended
      treatment of a partnership item with the treatment of that item by the
      Partnership. Within one week of receipt the TMP shall remit copies of such
      notification to the other Parties. If an inconsistency notice is filed
      solely because a Party has not received a Schedule K-1 in time for filing
      of its income tax return, the TMP need not be notified.

                         

                      

              

              
                	
                        2.2.6

                      	
                        No
      Party shall file pursuant to Code §6227 a request for an administrative
      adjustment of partnership items (the “RFAA”) without first notifying all
      other Parties. If all other Parties agree with the requested adjustment,
      the TMP shall file the RFAA on behalf of the Partnership. If unanimous
      consent is not obtained within thirty (30) days from such notice, or
      within the period required to timely file the RFAA, if shorter, any Party,
      including the TMP, may file a RFAA on its own behalf.

                         

                      

              

              
                	
                        2.2.7

                      	
                        Any
      Party intending to file with respect to any partnership item, or any other
      tax matter involving the Partnership, a petition under Code §§6226, 6228,
      or any other provision, shall notify the other Parties prior to such
      filing of the nature of the contemplated proceeding. In the case where the
      TMP is the Party intending to file such petition, such notice shall be
      given within reasonable time to allow the other Parties to participate in
      the choice of the form of such petition. If the Parties do not agree on
      the appropriate forum, then the forum shall be chosen by majority vote.
      Each Party shall have a vote in accordance with its percentage interest in
      the Partnership for the year under audit. If a majority cannot agree, the
      TMP shall choose the forum. If a Party intends to seek review of any court
      decision rendered as a result of such proceeding, the Party shall notify
      the other Parties prior to seeking such
review.

                      

              

              

              
                
                  
                  

                

                
                  F-3

                  
                    

                  

                

                
                  
                  

                

              

              3.           Income
Tax Compliance and Capital Accounts

              

              3.1           Tax
Returns.

               

              The TRP
shall prepare and file all required Federal and State partnership income tax
returns. Not less than thirty (30) days prior to the return due date (including
extensions), the TRP shall submit to each Party for review a copy of the return
as proposed.

              

              3.2           Fair
Market Value Capital Accounts.

               

              The TRP
shall establish and maintain for each Party fair market value (“FMV”) capital
accounts and tax basis capital accounts. Upon request, the TRP shall submit to
each Party along with a copy of any proposed partnership income tax return an
accounting of such Party’s FMV capital accounts as of the end of the return
period.

              

              
                3.3.       
Information
requests.

                 

              

              In
addition to any obligation under Sec. 2.2.2, each Party agrees to furnish to the
TRP not later than sixty (60) days before the return due date (including
extensions) such information relating to the operations conducted under the
Agreement as may be required for the proper preparation of such returns.
Similarly, each Party agrees to furnish timely to the TRP, as requested, any the
information and data necessary for the preparation and/or filing of other
required reports and notifications, and for the computation of the capital
accounts. As provided in Code  §6050K(c), a Party transferring its
interest must notify the TRP to allow compliance with Code §6050K(a) (see also
Sec.8.1).

              

              
                3.4       
Best
Efforts without Liability.

                 

              

              The TRP
and the other Party(ies) shall use its/their best effort to comply with
responsibilities outlined in this Section, and with respect to the services as
TMP as outlined Sec.2.2 and in doing so shall incur no liability to any other
Party.

              

              
                	
                        4.

                      	
                        Tax
      and FMV Capital Account Elections

                      

              

              

              
                4.1       
General
Elections.

                 

              

              For both
income tax and capital account purposes, the Partnership shall
elect:

               

              
                	
                        a)

                      	
                        to
      deduct when incurred intangible drilling and development costs
      (“IDC”);

                      

              

              
                	
                        b)

                      	
                        to
      use the maximum allowable accelerated tax method and the shortest
      permissible tax life for
depreciation;

                      

              

              
                	
                        c)

                      	
                        the
      accrual method of accounting;

                      

              

              
                	
                        d)

                      	
                        to
      report income on a calendar year basis; and
      the Partnership shall also make any elections as specially noted in
      Sec.9.2, below.

                      

              

              

              
                
                  
                  

                

                
                  F-4

                  
                    

                  

                

                
                  
                  

                

              

              
                4.2       
Depletion.

                 

              

              Solely
for FMV capital account purposes, depletion shall be calculated by using
simulated cost depletion within the meaning of Treas. Reg.
§1.704-1(b)(2)(iv)(k)(2), unless the use of simulated percentage depletion is
elected in Sec.9.2, below. The simulated cost depletion allowance shall be
determined under the principles of Code  §612 and be based on the FMV
capital account basis of each Lease. Solely for purposes of this calculation,
remaining shall be determined consistently by the TRP.

              

              
                4.3       
Election
Out Under Code §761(a).

                 

              

              
                	
                        4.3.1

                      	
                        The
      TRP shall notify all Parties of an intended election to be excluded from
      the application of Subchapter K of Chapter 1 of the Code not later than
      sixty (60) days prior to the filling date or due date (including
      extensions) for the Federal partnership income tax return, whichever comes
      earlier. Any Party that does not consent must provide the TRP with written
      objection within thirty (30) days of such notice. Even after an effective
      election-out the TRP’s right and obligations, other than the relief from
      tax return filing obligations of the partnership, continue.

                         

                      

              

              
                	
                        4.3.2

                      	
                        After
      an election-out, to avoid an unintended impairment of the election-out:
      The Parties will avoid, without prior coordination, any operational
      changes which could terminate the qualification for the election-out
      status; all Parties will monitor the continuing qualification of the
      Partnership for the election-out status and will notify the other Parties
      if, in their opinion, a change in operations will jeopardize the
      election-out; and, all Parties will use, unless agreed to by them
      otherwise, the cumulative gas balancing method as described in Treas. Reg.
      §1.761-2(d)(2).

                         

                      

              

              

              
                4.4       
Consent
Requirements For Subsequent Tax Or FMV Capital Account Elections.

                 

              

              Unless
stipulated differently in Sec. 9.3, future elections, in addition to or in
amendment of those in this agreement, must be approved by the affirmative vote
of two (2) or more Parties owning a majority of the working interest based upon
post-Payout ownership.

              

              
                	
                        5.

                      	
                        Capital
      Contributions and FMV Capital
Accounts

                      

              

               

              The
provisions of this Sec. 5 and any other provisions of the TPPs relating to the
maintenance of the capital accounts are intended to comply with Treas. Reg.
§1.704-1(b) and shall be interpreted and applied in a manner consistent with
such regulations.

              

              
                5.1       
Capital
Contributions.

                 

              

              The
respective capital contributions of each Party to the Partnership shall be (a)
each Party’s interest in the oil and gas lease(s), including all associated
lease and well equipment, committed to the Partnership, and (b) all accounts of
money paid by each Party in connection with the acquisition, exploration,
development, and operation of the lease(s), and all other costs characterized as
contributions or expenses borne by such Party under the Agreement. The
contribution of the leases and any other properties committed to the Partnership
shall be made by each Party’s agreement to hold legal title to its interest in
such leases or other property as nominee of the Partnership.

              

              
                
                  
                  

                

                
                  F-5

                  
                    

                  

                

                
                  
                  

                

              

              
                5.2       
FMV
Capital Accounts.

                 

              

              The FMV
capital accounts shall be increased and decreased as follows:

               

              
                	
                        5.2.1

                      	
                        The
      FMV capital account of a Party shall be increased by:

                         

                      

              

              
                	
                      	
                        (i)

                      	
                        the
      amount of money and the FMV (as of the date of contribution) of any
      property contributed by such Party to the Partnership (net of liabilities
      assumed by the Partnership or to which the contributed property is
      subject);

                      

              

              
                	
                      	
                        (ii)

                      	
                        that
      Party’s share of Partnership items of income or gain, allocated in
      accordance with Sec. 6.1; and

                      

              

              
                	
                      	
                        (iii)

                      	
                        that
      Party’s share of any Code §705(a)(1)(B)item.

                         

                      

              

              
                	
                        5.2.2

                      	
                        The
      FMV capital account of a Party shall be decreased by:

                         

                      

              

              
                	
                      	
                        (i)

                      	
                        the
      amount of money and the FMV of property distributed to a Party (net of
      liabilities assumed by such Party or to which the property is
      subject):

                      

              

              
                	
                      	
                        (ii)

                      	
                        that
      Party’s Sec. 6.1 allocated share of Partnership loss and deductions, or
      items thereof; and,

                      

              

              
                	
                      	
                        (iii)

                      	
                        that
      Party’s share of any Code §705(a)(2)(B) item.

                         

                      

              

              
                	
                        5.2.3

                      	
                        The
      “FMV” when it applies to property contributed by a Party to the
      Partnership shall be assumed, for purposes of Sec.5.2.1, to equal the
      adjusted tax basis, as defined in Code § 1011, of that property unless the
      Parties agree otherwise as indicated in Sec. 9.2.

                         

                      

              

              
                	
                        5.2.4

                      	
                        As
      provided in Treas. Reg. §1.704-1(b)(2)(iv)(e), upon distribution of
      Partnership property to a Party the capital accounts will be adjusted to
      reflect the manner in which the unrealized income, gain, loss and
      deduction inherent in distributed property (not previously reflected in
      the capital accounts) would be allocated among the Parties if there were a
      disposition of such property at its FMV as of the time of distribution.
      Furthermore, if so agreed to in Sec. 9.2, under the rules of Treas. Reg.
      §1.704-1(b)(2)(iv)(f), the FMV capital accounts shall be revalued at
      certain times to reflect value changes of the Partnership
      property.

                         

                      

              

              
                	
                        5.2.5

                      	
                        The
      provisions of section 5 is intended to satisfy the requirements of section
      704(b) of the Code and section 1.704-1(b)(2)(iv) of the Treasury
      Regulations and shall be so construed and, if necessary, modified, to
      cause the allocation of profits, losses, income, gain and credit under
      section 6, to have substantial economic effect under such sections of the
      Code and Regulations, and in the event of any conflict between the
      provisions of this section 5.2 and such Regulations, the Regulations shall
      control.

                      

              

              

              

              
                
                  
                  

                

                
                  F-6

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        6.

                      	
                        Partnership
      Allocations.

                      

              

              

              
                6.1          
FMV
Capital Account Allocations.

                 

              

              Each item
of income, gain, loss or deduction shall be allocated to each Party as
follows:

               

              
                	
                        6.1.1

                      	
                        Actual
      or deemed income from the sale, exchange, distribution or other
      disposition of production shall be allocated to the Party entitled to such
      production or the proceeds from the sale of such production. The amount
      received from the sale of production and the amount of the FMV of
      production taken in kind by the Parties are deemed to be identical;
      accordingly, such items may be omitted from the adjustments made to the
      Parties’ FMV capital accounts.

                         

                      

              

              
                	
                        6.1.2

                      	
                        Exploration
      cost, IDC, operating and maintenance cost shall be allocated to each Party
      in accordance with its respective contribution, or obligation to
      contribute, to such cost.

                         

                      

              

              
                	
                        6.1.3

                      	
                        Depreciation
      shall be allocated to each Party in accordance with its contributions, or
      obligations to contribute, to the cost of the underlying
      asset.

                         

                      

              

              
                	
                        6.1.4

                      	
                        Simulated
      depletion shall be allocated to each Party in accordance with its FMV
      capital account adjusted basis in each oil and gas property of the
      Partnership.

                         

                      

              

              
                	
                        6.1.5

                      	
                        Loss
      (or simulated loss) upon the sale, exchange, distribution, abandonment or
      other disposition of depreciable or depletable property shall be allocated
      to the Parties in the ratio of their respective FMV capital account
      adjusted bases n the depreciable or depletable property.

                         

                      

              

              
                	
                        6.1.6

                      	
                        Gain
      (or simulated gain) upon the sale, exchange, distribution, or other
      disposition of depreciable or depletable property shall be allocated to
      the Parties so that the FMV capital account balances of the Parties will
      most closely reflect their respective percentage of fractional interests
      under the Agreement.

                         

                      

              

              
                	
                        6.1.7

                      	
                        Costs
      or expenses of any other kind shall be allocated to each Party in
      accordance with its respective contribution, or obligation to contribute,
      to such cost or expense.

                         

                      

              

              
                	
                        6.1.8

                      	
                        Any
      other income item shall be allocated to the Parties in accordance with the
      manner in which such income is realized by each Party.

                         

                      

              

              6.2           Tax
return and Tax Basis Capital Account allocations.

               

              
                	
                        6.2.1

                      	
                        Unless
      otherwise expressly provided in the Sec. 6.2, the allocations of the
      Partnership’s items of income, gain, loss, or deduction for tax return and
      tax basis capital account purposes shall follow the principles of the
      allocation under Sec. 6.1. However, the Partnership’s gain or loss on the
      taxable disposition of a Partnership property in excess of the gain or
      loss under Sec 6.1, if any, is allocated to the contributing Party to the
      extent of such Party’s pre-contribution gain or loss.

                         

                      

              

              
                	
                        6.2.2

                      	
                        The
      Parties recognize that under Code §613A(c)(7)(D) the depletion allowance
      is to be computed separately by each Party. For this purpose, each Party’s
      share of the adjusted tax basis in each oil and gas property shall be
      equal to its contribution to the adjusted tax basis of such
      property.

                         

                      

              

              
                	
                        6.2.3

                      	
                        Under
      Code §613A(c)(7)(D) gain or loss on the disposition of an oil and gas
      property is to be computed separately by each Party. According to Treas.
      Reg. §1.704-1(b)(4)(v), the amount realized shall be allocated as follows:
      (i) An amount that represents recovery of the adjusted simulated depletion
      basis is allocated (without being credited t the capital accounts) to the
      Parties in the same proportion as the aggregate simulated depletion basis
      was allocated to such Parties under Sec. 5.2; and (ii) any remaining
      realization is allocated in accordance with Sec. 6.1.6.

                         

                      

              

              
                	
                        6.2.4

                      	
                        Depreciation
      shall be allocated to each Party in accordance with its contribution to
      the adjusted tax basis of the depreciable asset.

                         

                      

              

              
                	
                        6.2.5

                      	
                        In
      accordance with Treas. Reg. §1.1245-I(c),
      depreciation  recapture shall be allocated, to the extent
      possible, among the Parties to reflect their prior sharing of the
      depreciation.

                         

                      

              

              
                	
                        6.2.6

                      	
                        In
      accordance with the principles of Treas. Reg. §1.1254-5, any recapture of
      IDC is determined and reported by each Party separately. Similarly, any
      recapture of depletion shall be computed separately by each Party, in
      accordance with its depletion allowance computed pursuant to Sec.
      6.2.2.

                         

                      

              

              
                	
                        6.2.7

                      	
                        For
      Partnership properties with FMV capital account values different from
      their adjusted tax bases the Parties intend that the allocations described
      in the Section 6.2 constitute a “reasonable method” of allocating gain or
      loss under Treas. Reg. §1.704-3(a)(1).

                         

                      

              

              
                	
                        6.2.8

                      	
                        Take-in-kind.

                         

                      

              

              If
checked “Yes” in Sec. 9.2, below, each Party has the right to determine the
market for its proportionate share of production. All items of income,
deductions, and credits arising from such marketing of production shall be
recognized by the Partnership and shall be allocated to the Party whose
production is so marketed.

              

              

              
                
                  
                  

                

                
                  F-7

                  
                    

                  

                

                
                  
                  

                

              

              
                7.       
Termination
and Liquidating Distribution

              

              

              7.1           Termination
of the Partnership.

               

              
                	
                        7.1.1

                      	
                        Upon
      termination, as provided in Code §708(b)(I)(A), the business shall be
      wound-up and concluded, and the assets shall be distributed to the Parties
      as described below by the end of such calendar year (or, if later, within
      ninety (90) days after the date of such termination). The assets shall be
      valued and distributed to the Parties in the order provided in Secs.
      7.1.2, 7.5. and 7.7.

                         

                      

              

              
                	
                        7.1.2

                      	
                        First,
      all cash representing unexpended contributions by any Party and any
      property in which no interest has been earned by any other Party under the
      Agreement shall be returned to the contributor.

                         

                      

              

              7.2           Balancing
of FMV Capital Accounts.

               

              Second,
the FMV capital accounts of the Parties shall be determined as described
hereafter. The TRP shall take the actions specified under Secs. 7.2 through 7.5
in order to cause the ratios of the Parties’ FMV capital accounts to reflect as
closely as possible their interests under the Agreement. The ratio of a Party’s
FMV capital account is represented by a fraction, the numerator of which the
Party’s FMV capital account balance and the denominator of which is the sum of
all Parties’ FMV capital account balances. This is thereafter referred to as the
“balancing of the FMV capital accounts” and, when completed, the FMV capital
accounts of the Parties shall be referred to as “balanced”.

               

              

              7.3           Deemed
Sale Gain/Loss Charge Back.

               

              The FMV
of all Partnership properties shall be determined and the gain or loss for each
property, which would have resulted if sold at such FMV, shall be allocated in
accordance with Secs. 6.1.5 and 6.1.6.

              

              
                7.4       
Deficit
make-up Obligation and Balancing Cash Contributions.

                 

              

              If
hereafter a Party has a negative FMV capital account balance, that is a balance
of less than zero, in accordance with Treas. Reg. §1.1704-I(b)(2)(ii)(b)(3) such
Party is obligated to contribute, by the end of the taxable year, or if later,
within ninety (90) days form the Partnership’s liquidation, an amount of money
to the Partnership sufficient to achieve a zero balance FMV capital account (the
“Deficit Make-Up Obligation”). Moreover, any Party may contribute an amount of
cash to the Partnership to facilitate the balancing of the FMV capital accounts.
If after these adjustments the FMV capital accounts are not balanced, Sec. 7.5
shall apply.

              

              7.5           Distribution
to balance capital accounts.

               

              
                	
                        7.5.1

                      	
                        If
      all Parties agree, any cash or an undivided interest in certain selected
      properties shall be distributed to one or more Parties as necessary for
      the purpose of balancing the FMV capital accounts.

                         

                      

              

              
                	
                        7.5.2

                      	
                        Distribution
      of undivided interests.

                         

                      

              

              Unless
Sec. 7 applies, an undivided interest in each and every property shall be
distributed to one or more Parties in accordance with the ratios of their FMV
capital accounts.

              

              7.6           FMV
determinations.

               

              If a
property is to be valued for purposes of balancing the capital accounts and
making distributions under this Sec. 7, the Parties must first attempt to agree
on the FMV of the property; failing such an agreement, the TRP shall cause a
nationally recognized independent engineering firm to prepare an appraisal of
the FMV of such property.

              

              7.7           Final
Distribution.

               

              After the
FMV capital accounts of the Parties have been adjusted pursuant to Secs. 7.2 to
7.5, all remaining property and interests then held by the Partnership shall be
distributed to the Parties in accordance with their positive FMV capital account
balances.

              

              
                
                  
                  

                

                
                  F-8

                  
                    

                  

                

                
                  
                  

                

              

              8.           Transfers
and Correspondence

              

              8.1           Transfer
of Partnership Interests.

               

              Transfers
of Partnership interests shall be governed by the Agreement. A Party
transferring its interest, or any part thereof, shall notify the TRP in writing
within two weeks after such transfer.

              

              8.2           Correspondence.

               

              All
correspondence relating to the preparation and filing of the Partnership’s
income tax returns and capital accounts shall be sent to:

              

              

              (Attach
separate list, if necessary)

              
                	
                        TRP

                         

                      	
                        “Att
      to:” reference

                      
	
                        Operator

                         

                      	 
      

              

              Other
Parties:

              
                	
                        Non-Operators

                         

                         

                      	 
      

              

              

              

              9.              Elections
and Changes to above Provisions.

               

              9.1             Operator
not the TRP.

               

              With
respect to Sec. 2.1, (insert name of Party to be TRP instead of Operator, or
indicate “N/A”)______________________is
designated as TRP.

               

              9.2             Special
Tax Elections.

               

              With
respect to Sec. 4.1, the Parties agree (if not applicable insert “N/A” or
strike):

              

              

              
                
                  
                  

                

                
                  F-9

                  
                    

                  

                

                
                  
                  

                

              

              

              

              
                	
                        e)
      that the Partnership shall elect to account for dispositions of
      depreciable assets under the general asset method to the extent permitted
      by Code §168(i)(4);

                      	
                        No

                      
	
                        f)
      that the Partnership shall elect under Code §754 to adjust the basis of
      Partnership property, with the adjustments provided in Code§734 for a
      distribution of property and in Code §743 for a transfer of a partnership
      interest. In case of distribution of property the TRP shall adjust all tax
      basis capital accounts. In the case of a transfer of a partnership
      interest the acquiring party(ies) shall establish and maintain its(their)
      tax basis capital account(s);

                      	
                        Elect-at-time-of-sale

                      
	
                        g)that
      the Partnership shall elect under Code §6231 to be subject to the TEFRA
      rules

                      	
                        Yes

                      

              

              

              

              

              
                	
                        With
      respect to  Sec. 4.2, Depletion the Parties agree that the
      Partnership shall use simulated percentage depletion instead of simulated
      cost depletion.

                      	
                        Yes

                      
	
                        With
      respect to Sec.5.2.4, under the rules of Treas. Reg. §
      1.704-1(b)(2)(iv)(f) the Parties agree that the FMV capital accounts shall
      be revalued to reflect value changes of the Partnership property upon the
      occurrence of the events specified in (5)(i) through (iii) of said –
      1.704-1(b)(2)(iv)(f) regulations.

                      	
                        Yes

                      
	
                        With
      respect to Sec. 6.2.8, the income attributable to take-in-kind production
      will be reflected on the tax return.

                      	
                        No

                      

              

              

              With
respect to Sec. 5.2.3 the FMV for the listed properties are determined as
follows (mark as “N/A” if not applicable; use separate sheet if
necessary)

              

              
                	
                        Property
      Description

                      	
                        FMV

                      
	 
      	 
      
	 
      	 
      
	 
      	 
      

              

              

              
                9.3             
Change of
Majority for Other Tax Elections.

                 

              

              INSTEAD
OF THE Sec. 4.4 majority for other tax elections, a majority shall be considered
if consisting of (specify or line out blanks)
_____________________________________________________.

              

              

              

              

              THE
END

              

              

              
                
                   

                

                
                  F-10

                  
                    

                  

                

                
                   

                

              

              

              

              

              EXHIBIT
“D”

              JOINT
OPERATING AGREEMENT

              

              Attached
to and made a part of that certain Amended and Restated Participation
Agreement

              dated the
____ day of December, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC and South Marsh LLC

              

              

              

              

              

              OFFSHORE

              OPERATING
AGREEMENT

              

              
                Viosca
Knoll 79 (OCS-G26190)

              

              

              DATED
EFFECTIVE:   September
18,2006

              

              

              BETWEEN

              

              

              RIDGELAKE
ENERGY, INC.,

              GULFX,
LLC,

              SOUTH
MARSH LLC and

              LION
ENERGY LIMITED LLC

              

              
                
                   

                

                
                  
                  

                  
                    

                  

                

                
                   

                

              

              

              

              OPERATING
AGREEMENT

              

              TABLE OF
CONTENTS

              

              

              ARTICLE
1

               

              
                	 	 	APPLICATION   	 
      1
	
                         
      

                      	
                        1.1

                      	
                        Application 

                      	
                          1

                      

              

              

              ARTICLE
2

               

              
                	 	 	DEFINITIONS    	 
      1
	
                         
      

                      	
                        2.1

                      	
                        Affiliate 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.2

                      	
                        Contract
      Area 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.3

                      	
                        Development
      Operations 

                      	
                          1

                      

              

              
                	
                         
      

                      	
                        2.4

                      	
                        Development
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.5

                      	
                        Exploratory
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.6

                      	
                        Exploratory
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.7

                      	
                        Facility(ies) 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.8

                      	
                        Joint
      Account 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.9

                      	
                        Lease 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.10

                      	
                        Non-Consent
      Operations 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.11

                      	
                        Non-Consent
      Well 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.12

                      	
                        Non-Operator 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.13

                      	
                        Non-Participating
      Party 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.14

                      	
                        Non-Participating Party's
      Share 

                      	
                          2

                      

              

              
                	
                         
      

                      	
                        2.15

                      	
                        Operator 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.16

                      	
                        Participating
      Interest 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.17

                      	
                        Participating
      Party 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.18

                      	
                        Platform 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.19

                      	
                        Producible
      Well 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.20

                      	
                        Producible
      Reservoir 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.21

                      	
                        Sidetrack(ing) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.22

                      	
                        Subsequent
      Facility(ies) 

                      	
                          3

                      

              

              
                	
                         
      

                      	
                        2.23

                      	
                        Working
      Interest 

                      	
                          3

                      

              

               

              ARTICLE
3

               

              
                	 	 	EXHIBITS    	 
      4
	
                         
      

                      	
                        3.1

                      	
                        Exhibits 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.1

                      	
                        Exhibit
      "A" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.2

                      	
                        Exhibit
      "B" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.3

                      	
                        Exhibit
      "C" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "D" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.1.4

                      	
                        Exhibit
      "E" 

                      	
                          4

                      

              

              
                	
                         
      

                      	
                        3.2

                      	
                        Conflicts 

                      	
                          4

                      

              

               

              
                ARTICLE
4

                 

                
                  	 	 	OPERATOR  	 
      4
	
                           
      

                        	
                          4.1

                        	
                          Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.2

                        	
                          Resignation or Removal of
      Operator 

                        	
                            4

                        

                

                
                  	
                           
      

                        	
                          4.3

                        	
                          Selection of
      Successor 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.4

                        	
                          Delivery of
      Property 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.5

                        	
                          Liability of
      Operator 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.6

                        	
                          Removal and selection of
      Operator in a two Party Agreement 

                        	
                            5

                        

                

                
                  	
                           
      

                        	
                          4.7

                        	
                          Designation of
      Operator 

                        	
                            5

                        

                

                 

              

              
 

              
                
                  
                  

                

                
                  
                  

                  
                    

                  

                

                
                  
                  

                

              

              

              

              ARTICLE
5

               

              
                	 	 	AUTHORITY AND DUTIES OF
      OPERATOR    	 
      5
	
                         
      

                      	
                        5.1

                      	
                        Exclusive Right to
      Operate 

                      	
                          5

                      

              

              
                	
                         
      

                      	
                        5.2

                      	
                        Workmanlike
      Conduct 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.3

                      	
                        Liens and
      Encumbrances 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.4

                      	
                        Employees 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.5

                      	
                        Records 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.6

                      	
                        Compliance 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.7

                      	
                        Contractors 

                      	
                          6

                      

              

              
                	
                         
      

                      	
                        5.8

                      	
                        Governmental
      Reports 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.9

                      	
                        Information to Participating
      Parties 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        5.10

                      	
                        Information to
      Non-Participating Parties 

                      	
                          7

                      

              

              

              ARTICLE
6

               

              
                	 	 	VOTING AND VOTING
      PROCEDURES    	 
      7
	
                         
      

                      	
                        6.1

                      	
                        Designation of
      Representatives 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2

                      	
                        Voting
      Procedures 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.1

                      	
                        Voting
      Interest 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.2

                      	
                        Vote
      Required 

                      	
                          7

                      

              

              
                	
                         
      

                      	
                        6.2.3

                      	
                        Votes

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        6.2.4

                      	
                        Meetings 

                      	
                          8

                      

              

              

              ARTICLE
7

               

              
                	 	 	ACCESS    	 
      8
	
                         
      

                      	
                        7.1

                      	
                        Access to Contract
      Area 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.2

                      	
                        Reports 

                      	
                          8

                      

              

              
                	
                         
      

                      	
                        7.3

                      	
                        Confidentiality 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.4

                      	
                        Exceptions 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.5

                      	
                        Limited
      Disclosure 

                      	
                          9

                      

              

              
                	
                         
      

                      	
                        7.6

                      	
                        Proceeds 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        7.7

                      	
                        Media
      Releases 

                      	
                          10

                      

              

              

              ARTICLE
8

              

              
                	 	 	EXPENDITURES   	 
      10
	
                         
      

                      	
                        8.1

                      	
                        Basis of Charge to the
      Parties 

                      	
                          10

                      

              

              
                	
                         
      

                      	
                        8.2

                      	
                        Authorization 

                      	
                         
      10

                      

              

              
                	
                         
      

                      	
                        8.3

                      	
                        Advance
      Billings 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.4

                      	
                        Commingling of
      Funds 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.5

                      	
                        Security
      Rights 

                      	
                         
      11

                      

              

              
                	
                         
      

                      	
                        8.6

                      	
                        Default 

                      	
                         
      17

                      
	 	8.7 	Unpaid
      Charges 	  18

              

              
                	
                         
      

                      	
                        8.8

                      	
                        Carved-out
      Interest 

                      	
                         
      18

                      

              

              

              ARTICLE
9

               

              
                	 	 	NOTICES  	 
      19
	
                         
      

                      	
                        9.1

                      	
                        Giving and Responding to
      Notices 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.2

                      	
                        Content of
      Notice 

                      	
                         
      19

                      

              

              
                	
                         
      

                      	
                        9.3

                      	
                        Response to
      Notices 

                      	
                         
      19

                      
	 	 	9.3.1  
         Platform
      Construction	 
      19 
	 	 	9.3.2     
      Proposal Without
      Platform 	 
      20 
	 	 	9.3.3     
      Other
      Matters 	 
      20 

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        9.4

                      	
                        Failure to
      Respond 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        9.5

                      	
                        Restriction on Multiple Well
      Proposals 

                      	
                         
      20

                      

              

              
                
                   

                

                
                  
                  

                  
                    

                  

                

                
                   

                

              

              

              
                 
ARTICLE
10

              

               

              
                	 	 	EXPLORATORY
      OPERATIONS 	 
      20
	
                         
      

                      	
                        10.1

                      	
                        Operations by All
      Parties 

                      	
                         
      20

                      

              

              
                	
                         
      

                      	
                        10.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.3

                      	
                        Final Election to
      Participate 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      21

                      

              

              
                	
                         
      

                      	
                        10.5

                      	
                        Substitute
      Well 

                      	
                         
      22

                      

              

              
                	
                         
      

                      	
                        10.6

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      23

                      
	 	 	
                        10.6.1      
      Operation by All
      Parties 

                      	 
      24
	 	 	
                        10.6.2      
      Operations by Fewer than
      All Parties 

                      	 
      24
	 	 	
                        10.6.3      
      Obligations and
      Liabilities of Participating Parties 

                      	 
      24
	 	 	
                        10.6.4      
      Deepening or Sidetracking
      of Non-Consent Exploratory Well 

                      	 
      24
	 	 	
                        10.6.5      
      Plugging and Abandoning
      Cost 

                      	 
      25

              

              
              

              
              

              
              

              
              

              
              

              

              ARTICLE
11

               

              
                	 	 	DEVELOPMENT
      OPERATIONS  	 
      25
	
                         
      

                      	
                        11.1

                      	
                        Operations by All
      Parties 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.2

                      	
                        Second Opportunity to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.3

                      	
                        Final Election to
      Participate 

                      	
                         
      25

                      

              

              
                	
                         
      

                      	
                        11.4

                      	
                        Operations by Fewer than All
      Parties 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.5

                      	
                        Timely
      Operations 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.6

                      	
                        Substitute
      Well 

                      	
                         
      26

                      

              

              
                	
                         
      

                      	
                        11.7

                      	
                        Course of Action After Drilling
      to Initial Objective Depth 

                      	
                         
      27

                      

              

              
              

              
              

              
              

              
                	 	 	
                        11.7.1     
      Operations by All
      Parties

                      	 
      28
	 	 	
                        11.7.2     
      Operations by Fewer than
      All Parties

                      	 
      28
	 	 	
                        11.7.3     
      Obligations and
      Liabilities of Participating Parties 

                      	 
      28
	
                         
      

                      	
                        11.8

                      	
                        Deeper
      Drilling 

                      	
                         
      28

                      

              

              
                	
                         
      

                      	
                        11.9

                      	
                        Plugging and Abandoning
      Cost 

                      	
                         
      28

                      
	 	11.10	
                        Subsequent Facilities
      

                      	 
      29
	 	11.11 	
                        Contracts
    

                      	 
      29

              

              
              

              
              

              

              ARTICLE
12

               

              
                	 	 	NON-CONSENT
      OPERATIONS   	  29
	
                         
      

                      	
                        12.1

                      	
                        Non-Consent
      Operations 

                      	
                          29

                      
	 	 	12.1.1     
      Non-Interference	 
      29
	 	 	12.1.2     
      Multiple Completion
      Limitation  	 
      29
	 	 	12.1.3     
      Metering 	 
      29
	 	 	12.1.4     
      Non-Consent
      Well	 
      29
	 	 	12.1.5     
      Cost Information
      	 
      29
	 	 	12.1.6     
      Completion	 
      30

              

              
              

              
              

              
              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.2

                      	
                        Forfeiture of
      Interest 

                      	
                         
      30

                      
	 	 	12.2.1     
      Production
      Reversion	 
      30
	 	 	12.2.2     
      Non-Production
      Reversion	 
      31

              

              
              

              
              

              
                	
                         
      

                      	
                        12.3

                      	
                        Deepening or Sidetracking of
      Non-Consent Development Well 

                      	
                         
      31

                      
	 	12.4 	Operations from Non-Consent
      Platforms and Facilities  	 
      31

              

              
              

              
                	
                         
      

                      	
                        12.5

                      	
                        Discovery or Extension from
      Mobile Drilling Operations 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.6

                      	
                        Non-Consent Operations to
      Maintain Lease 

                      	
                         
      32

                      

              

              
                	
                         
      

                      	
                        12.7

                      	
                        Allocation of Platform Costs to
      Non-Consent Operations 

                      	
                         
      33

                      
	 	 	12.7.1     
      Charges 	 
      33
	 	 	12.7.2     
      Operating and Maintenance
      Charges 	 
      34
	 	 	12.7.3     
      Payments 	 
      34

              

              
              

              
              

              
              

              
                	
                         
      

                      	
                        12.8

                      	
                        Allocation of Costs Between
      Depths (Single Completion) 

                      	
                         
      34

                      

              

              
                	
                         
      

                      	
                        12.9

                      	
                        Allocation of Costs Between
      Depths (Multiple Completions) 

                      	
                         
      35

                      

              

              
              

              
                	 	12.10	Allocation of Costs Between
      Depths (Dry Hole) 	 
      36
	
                         
      

                      	
                        12.11

                      	
                        Intangible Drilling and
      Completion Cost Allocations 

                      	
                         
      36

                      

              

              
                	
                         
      

                      	
                        12.12

                      	
                        Subsequent Operations in
      Non-Consent Well 

                      	
                         
      36

                      

              

              
                
                   

                

                
                  
                  

                  
                    

                  

                

                
                   

                

              

              
                 
ARTICLE
13

              

               

              
                	 	 	ABANDONMENT AND
      SALVAGE 	 
      37
	
                         
      

                      	
                        13.1

                      	
                        Platform Salvage and Removal
      Costs 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.2

                      	
                        Abandonment of Producing
      Well 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.3

                      	
                        Assignment of
      Interest 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        13.4

                      	
                        Abandonment Operations Required
      By Governmental Authority 

                      	
                         
      37

                      

              

              

              ARTICLE
14

               

              
                	 	 	WITHDRAWAL 	 
      37
	
                         
      

                      	
                        14.1

                      	
                        Withdrawal 

                      	
                         
      37

                      

              

              
                	
                         
      

                      	
                        14.2

                      	
                        Limitations on
      Withdrawal 

                      	
                         
      38

                      

              

              

              ARTICLE
15

               

              
                	 	 	RENTALS, ROYALTIES AND OTHER
      PAYMENTS  	 
      38
	
                         
      

                      	
                        15.1

                      	
                        Creation of Overriding
      Royalty 

                      	
                         
      38

                      

              

              
                	
                         
      

                      	
                        15.2

                      	
                        Payment of Rentals and Minimum
      Royalties 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.3

                      	
                        Non-Participation in
      Payments 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        15.4

                      	
                        Royalty
      Payments 

                      	
                         
      39

                      

              

              

              ARTICLE
16

               

              
                	 	 	TAXES 	 
      39
	
                         
      

                      	
                        16.1

                      	
                        Property
      Taxes 

                      	
                         
      39

                      

              

              
                	
                         
      

                      	
                        16.2

                      	
                        Contest of Property Tax
      Valuation 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.3

                      	
                        Production and Severance
      Taxes 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.4

                      	
                        Other Taxes and
      Assessments 

                      	
                         
      40

                      

              

              
                	
                         
      

                      	
                        16.5

                      	
                        Gas
      Balancing 

                      	
                         
      40

                      

              

              

              ARTICLE
17

               

              
                	 	 	INSURANCE  	 
      40
	
                         
      

                      	
                        17.1

                      	
                        Insurance 

                      	
                         
      40

                      

              

              

              ARTICLE
18

               

              
                	 	 	LIABILITY, CLAIMS AND
      LAWSUITS  	 
      41
	
                         
      

                      	
                        18.1

                      	
                        Individual
      Obligations 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.2

                      	
                        Notice of Claim or
      Lawsuit 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.3

                      	
                        Settlements 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.4

                      	
                        Legal
      Expense 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.5

                      	
                        Liability for Losses, Damages,
      Injury or Death 

                      	
                         
      41

                      

              

              
                	
                         
      

                      	
                        18.6

                      	
                        Indemnification 

                      	
                         
      41

                      
	 	18.7 	Damage to Reservoir, Loss of
      Reserves and Profits 	 
      41 

              

              
              

              

              ARTICLE
19

               

              
                	 	 	INTERNAL REVENUE
      PROVISION	 
      42
	
                         
      

                      	
                        19.1

                      	
                        Internal Revenue
      Provision 

                      	
                         
      42

                      

              

              

              ARTICLE
20

               

              
                	 	 	CONTRIBUTIONS 	 
      42
	
                         
      

                      	
                        20.1

                      	
                        Notice of Contributions Other
      than Advances for Sale of Production 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.2

                      	
                        Cash
      Contributions 

                      	
                         
      42

                      

              

              
                	
                         
      

                      	
                        20.3

                      	
                        Acreage
      Contributions 

                      	
                         
      43

                      

              

              
                
                   

                

                
                  
                  

                  
                    

                  

                

                
                   

                

              

              

              ARTICLE
21

               

              
                	 	 	DISPOSITION OF
      PRODUCTION  	 
      43
	
                         
      

                      	
                        21.1

                      	
                        Facilities to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.2

                      	
                        Taking Production In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.3

                      	
                        Failure to Take In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.4

                      	
                        Expenses of Delivery In
      Kind 

                      	
                         
      43

                      

              

              
                	
                         
      

                      	
                        21.5

                      	
                        Gas Balancing
      Provisions 

                      	
                         
      43

                      

              

              

              ARTICLE
22

               

              
                	 	 	APPLICABLE
      LAW 	 
      44 
	
                         
      

                      	
                        22.1

                      	
                        Applicable
      Law 

                      	
                         
      44

                      

              

              

              

              ARTICLE
23

               

              
                	 	 	LAWS AND
      REGULATIONS 	  44
	
                         
      

                      	
                        23.1

                      	
                        Laws and
      Regulations 

                      	
                         
      44

                      

              

              

              

              ARTICLE
24

               

              
                	 	 	FORCE
      MAJEURE 	 
      44
	
                         
      

                      	
                        24.1

                      	
                        Force
      Majeure 

                      	
                         
      44

                      

              

              
                	
                         
      

                      	
                        24.2

                      	
                        Notice 

                      	
                         
      44

                      

              

              

              ARTICLE
25

              

              
                	 	 	SUCCESSORS, ASSIGNS AND
      PREFERENTIAL RIGHTS 	 
      45
	
                         
      

                      	
                        25.1

                      	
                        Successors and
      Assigns 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.2

                      	
                        Transfer of
      Interest 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.3

                      	
                        Consent to
      Assign 

                      	
                         
      45

                      

              

              
                	
                         
      

                      	
                        25.4

                      	
                        Transfers Between
      Parties 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.5

                      	
                        Division of
      Interest 

                      	
                         
      46

                      

              

              
                	
                         
      

                      	
                        25.6

                      	
                        Preferential
      Rights 

                      	
                         
      46

                      

              

               

              ARTICLE
26

               

              
                	 	 	TERM  	 
      47
	
                         
      

                      	
                        26.1

                      	
                        Term 

                      	
                         
      47

                      

              

              

              ARTICLE
27

               

              
                	 	 	MISCELLANEOUS
      PROVISIONS 	 
      47
	
                         
      

                      	
                        27.1

                      	
                        Headings 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        27.2

                      	
                        Waiver 

                      	
                         
      47

                      

              

              

               ARTICLE
28

               

              
                	 	 	EXECUTION   	 
      47
	
                         
      

                      	
                        28.1

                      	
                        Counterpart
      Execution 

                      	
                         
      47

                      

              

              
                	
                         
      

                      	
                        28.2

                      	
                        Amendments 

                      	
                         
      47

                      

              

              

              

              
                
                   

                

                
                  
                  

                  
                    

                  

                

                
                   

                

              

              

              OPERATING
AGREEMENT

              
                Viosca
Knoll Block 79 (OCS-G 26190)

              THIS AGREEMENT is made effective the
18th day of September , 2006, by and between Ridgelake Energy, Inc., GulfX, LLC,
South Marsh LLC and Lion Limited LLC, herein referred to collectively as
"Parties" and individually as "Party".

              

              W I T N E
S S E T H:

               

              WHEREAS, the Parties own an interest in
the oil and gas Lease identified in Exhibit "A" attached hereto;
and,

              

              WHEREAS,
the Parties desire to enter into this Agreement in order to efficiently explore,
develop, produce, and operate the said Lease.

              

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

              

              ARTICLE
1

              APPLICATION

              

              1.1           Application.  This
Agreement applies to and is applicable to all operations on the Oil and Gas
Lease described on Exhibit “A” attached hereto.

              

              ARTICLE
2

              DEFINITIONS

              

              2.1           Affiliate.  Any
person, corporation, partnership, limited partnership, or legal entity, whether
of a similar or dissimilar nature, which (a) controls, either directly or
indirectly, a Party, or (b) is controlled, either directly or indirectly, by
such Party, or (c) is controlled, either directly or indirectly, by a person or
entity which directly or indirectly controls such Party.  "Control"
means the ownership (or the right to exercise or direct) fifty percent (50%) or
more of the voting rights in the appointment of directors of such company, or
fifty percent (50%) or more of the interests in the partnership or other
entity.

               

              2.2           Contract
Area.  The acreage subject to this Operating Agreement includes
all acreage covered by the Oil and Gas Lease identified in Exhibit "A" attached
to this Agreement.

               

              2.3           Development
Operations.  Operations on the Contract Area other than
Exploratory Operations as defined in Section 2.6 below, including operations
conducted off the Contract Area for the purpose of development or production of
hydrocarbons under the Contract Area.

              

              
                
                   

                

                
                  1

                  
                    

                  

                

                
                   

                

              

              2.4           Development
Well.  Any well proposed as a Development
Operation.

              

              2.5           Exploratory
Operations.  Operations within the Contract Area:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        to
      a proposed objective zone, horizon, or formation which does not have a
      Producible Well and all activities necessary for the accomplishment of
      such drilling up to, but not including, the election following the
      Operator's recommendation in Section 10.6
below.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        to
      a proposed objective zone, horizon, or formation which does have one (1)
      or more Producible Well(s), but such objective will be penetrated at a
      location which all of the Participating Parties in the preexisting
      Producible Well(s) agree, at the time that the proposed Exploratory Well
      is approved, will be in a totally separate reservoir or will not drain or
      produce reserves that would be recovered by the preexisting Producible
      Well(s), and all activities necessary for the accomplishment of such
      drilling up to, but not including, the election following the Operator's
      recommendation in Section 10.6 below;
or

                      

              

               

                     
2.6            Exploratory
Well.  Any well drilled as an Exploratory
Operation.

               

              2.7            Facility(ies).  All
equipment and piping beyond the wellhead connections (including pipeline(s)
and/or flowline(s) to separate processing facilities) acquired pursuant to this
Agreement necessary to establish initial production on any Exploratory or
Development Well operation, excluding Platforms and excluding pipelines used to
transport production from the Contract Area or processing site to
shore.

               

              2.8            Joint
Account.  The combined interests of the Parties in the Contract
Area now or hereafter subject to this Agreement.

               

              2.9            Lease.  Individually,
each of the offshore oil and gas leases which are described in Exhibit "A"
attached hereto, to the extent that such leases authorize exploration,
development, and production activities on lands contained within the Contract
Area.

               

              2.10          Non-Consent
Operations.  Exploratory or Development Operations conducted by
fewer than all Parties.

               

              2.11          Non-Consent
Well.  An Exploratory or Development Well which is drilled by
fewer than all Parties and with respect to which no reversion of interest has
taken place pursuant to Article 12.

               

              2.12          Non-Operator.  Any
Party to this Agreement other than the Operator.

               

              2.13          Non-Participating
Party.  Any Party other than a Participating
Party.

               

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

              

              
                
                   

                

                
                  2

                  
                    

                  

                

                
                   

                

              

              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, or in a Platform, well, or Facility owned, pursuant
to this Agreement.

               

              2.17          Participating
Party.  A Party who joins in an operation, pays its portion of
the cost and expense of the operation, and is entitled to its proportionate part
of the benefits of the operation pursuant to the terms of this
Agreement.

               

              2.18          Platform.  A
drilling or production platform, caisson or well protector, or similar
structure.

               

              2.19          Producible
Well.  A well producing oil or gas, or, if not producing oil or
gas, a well determined to be capable of producing oil or gas in paying
quantities pursuant to any applicable order or regulation issued by appropriate
governmental authority; however, any well shall be considered a Producible Well
if so determined by two (2) or more participating Parties with a combined
working interest of 50% of said well, whether or not said well is plugged and
abandoned.  Each separate completion in a Producible Reservoir shall
be considered a Producible Well.

               

              2.20          Producible
Reservoir.  Based on electric log data, core analysis data, a
drill stem test, a wire line formation test, or any combination of these, an
accumulation of oil or gas, or both, separated from and not in oil or gas
communication with any other accumulation and having rock properties indicating
it to be capable of hydrocarbon production in quantities sufficient to yield a
return in excess of the costs of equipping, completing, and operating it,
including allocated costs for a Platform, Facilities, and their operations, as
determined by the affirmative vote of two (2) or more Parties having a combined
Participating interest of fifty percent (50%) or more.  In addition,
any accumulation of oil or gas, or both, within the Contract Area shall be
designated a Producible Reservoir upon the approval of a Platform to produce
such oil or gas.

               

              2.21          Sidetrack(ing).  Directionally
drilling by intentionally deviating a well bore to a target bottomhole location
other than that target bottomhole location to which such well bore would have
penetrated absent such deviation.  Operations undertaken to straighten
the hole or to drill around junk in the hole resulting from other mechanical
difficulties shall not be considered as a sidetrack or
sidetracking.

               

              2.22          Subsequent
Facility(ies).  Those Facilities, excluding Platforms, which
are proposed subsequent, or in addition, to the Facilities.

               

              2.23          Working
Interest.  The ownership of each Party in and to the Lease and
Contract Area as set forth in Exhibit "A".

              
                
                   

                

                
                  3

                  
                    

                  

                

                
                   

                

              

              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, Contract Area, Interests of the Parties and Designated
      Representatives.

                            
	
                              3.1.2

                            	
                              Exhibit
      "B".

                            	
                              Insurance
      Requirements.

                            
	
                              3.1.3

                            	
                              Exhibit
      "C".

                            	
                              Accounting
      Procedure.

                            
	
                              3.1.4

                            	
                              Exhibit
      "D".

                            	
                              Gas
      Balancing Agreement.

                            
	
                              3.1.5

                            	
                              Exhibit
      “E”

                            	
                              Memorandum
      of Operating Agreement and Financing Agreement.

                            
	
                              3.1.6

                            	
                              Exhibit
      “F”

                            	
                              Tax
      Partnership.

                            

                    

                  

                   

                

              

               

              3.2           Conflicts.  If
a provision contained in an Exhibit is inconsistent with a provision contained
in the body of this Agreement, then the provision contained in the body of this
Agreement shall prevail.

              

              ARTICLE
4

              OPERATOR

              

              4.1           Operator. RIDGELAKE
ENERGY, INC. is hereby designated as Operator for the purposes of this
Agreement, and for all operations conducted on or related to the Contract
Area.

               

              4.2           Resignation or Removal of
Operator.  Operator may resign at any time by giving written
notice thereof to Non-Operators.  In addition, Operator may be removed
by the affirmative vote of the Parties owning a combined Working Interest of
fifty-one percent (51%) or more after excluding Operator’s Working Interest
if:

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        a
      receiver is appointed for Operator or for substantially all of its
      property or affairs.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Operator
      sells, trades, transfers or assigns all or a portion of its Working
      Interest, thereby reducing its Working Interest to less than ten percent
      (10%); or

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Operator
      commits a substantial breach of a material provision of this Agreement and
      fails to cure such breach within sixty (60) days after receipt of a
      Non-operator’s notice to Operator of such breach.

                         

                      

              

              The resignation or removal of the
Operator shall become effective as soon as practical, but not later than 7:00
o'clock a.m. on the first day of the calendar month following a period of ninety
(90) days after i) the date of notice of resignation by Operator or ii) the date
of receipt of written notice by Operator from Non-Operator detailing the alleged
grounds for removal and Operator has failed to cure same within sixty (60) days
from its
receipt of the notice, unless a longer period is required for the Parties to
obtain approval of the designation of the successor Operator by the MMS;
however, in no event shall the resignation or removal of Operator become
effective until a successor Operator has assumed the duties of
Operator.  Upon approval of the designation of the successor Operator
by the MMS, the resigning or removed Operator shall be bound by the terms of
this Joint Operating Agreement as a Non-Operator.  A change of a
corporate name or structure of Operator or transfer of Operator’s interest to
any single subsidiary, parent or successor corporation shall not be the basis
for removal of Operator.

              
                
                   

                

                
                  4

                  
                    

                  

                

                
                   

                

              

              4.3           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 majority Working Interest.  However, if the removed
or resigned Operator fails to vote or votes only to succeed itself, the
successor Operator shall be selected by an affirmative vote of the Parties
having a combined Working Interest of fifty-one percent (51%) or more of the
remaining Working Interest 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 elected and assumed its duties.

               

              4.4          
Delivery of
Property.  Prior to the effective date of resignation or
removal, the former Operator shall deliver to the successor Operator all records
and data relating to the operations conducted by the former Operator that the
successor Operator is entitled to have and that are not already in the
possession of the successor Operator, as well as all other property in the
possession of the former Operator that was acquired for the Joint
Account.

               

              4.5           Liability of
Operator.  If Operator resigns, or if Operator is removed as
Operator, such resignation, or removal shall not relieve Operator of any
liabilities it may have to Non-Operator(s) or third parties for damages arising
out of Operator's breach of this Agreement.

               

              4.6           Removal and Selection of a
Successor Operator in a Two-party Agreement.  If this Agreement
involves only two parties, the following provisions shall apply:

               

              
                	
                         
      

                      	
                        4.6.1  On
      the occurrence of an event specified in Section 4.2 that allows removal of
      Operator, Non-Operator shall have the option of either becoming Operator
      or allowing Operator to continue in that position.

                         

                      

              

              
                	
                         
      

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

                         

                      

              

              4.7           Designation of
Operator.  The Parties hereto agree to execute such Designation
of Operator forms as are required to have the Operator or its successor properly
designated as operator with the Minerals Management Service or any other
governmental authority having jurisdiction over the Lease and the operations
conducted thereunder.

               

              
                ARTICLE
5

                AUTHORITY AND DUTIES OF
OPERATOR

                

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

                 

                
 

              

              
                
                   

                

                
                  5

                  
                    

                  

                

                
                   

                

              

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

              
              

              5.3           Liens and
Encumbrances.  Operator shall endeavor to keep the Lease within
the Contract Area and equipment free from all liens and encumbrances occasioned
by operations hereunder, except those provided for in Section 8.5 (Security
Rights).

               

              5.4           Employees.  The
number of employees and their selection, and the hours of labor and compensation
for services performed shall be determined by Operator.  Except as
provided in Exhibit “C”, such employees shall be the employees of
Operator.

               

              5.5           Records.  Operator
shall keep accurate books, accounts, and records of operations under this
Agreement, which, unless otherwise provided for in this Agreement, shall be
available to Non-Operator as provided 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 authorities
having jurisdiction.

               

              5.7           Contractors.  Operator
may enter into contracts with independent contractors for the design,
construction, installation, or operation of Platforms and
Facilities.  Insofar as possible, Operator shall use competitive
bidding to procure goods and services for the benefit of the
Parties.  All drilling operations conducted under this Agreement shall
be conducted by qualified and responsible drilling contractors under current
competitive contracts.  A drilling contract will be deemed to be a
current competitive contract if it (a) was made within one hundred (180) days
before the commencement of the well and (b) contains terms, rates, and
provisions that, when the contract was made, did not exceed those generally
prevailing in the area for operations involving substantially equivalent rigs
that are capable of drilling the proposed well.  At its
election, Operator may use its own or an Affiliate’s drilling equipment, derrick
barge, tools, or machinery to conduct drilling operations, but the work shall be
(a) performed by Operator acting as an independent contractor, (b) approved by
written agreement with the Participating Parties before commencement of
operations, and (c) conducted under the same terms and conditions and at the
same rates as are customary and prevailing in competitive
contracts  of third parties doing work of a similar
nature.  Before awarding a drilling contract or performing work with
its own or an Affiliate’s drilling equipment, derrick barge, tools, or
machinery, Operator shall attempt to obtain competitive bids for the work from
independent contractors.

              
                
                   

                

                
                  6

                  
                    

                  

                

                
                   

                

              

              5.8           Governmental
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 Participating Parties.

               

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

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Daily
      drilling reports.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        A
      complete report of all core analyses, if
any.

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        A
      copy of any logs or surveys as run.

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        A
      copy of any well test results, bottom-hole pressure surveys, gas and
      condensate analyses, or similar
information.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        A
      copy of reports made to regulatory
agencies.

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        To
      the extent possible, twenty-four (24) hour advance notice by telephone to
      the designated representative listed in Exhibit "A" (or the designated
      alternate), of logging, coring and testing
  operations.

                      

              

              
                	
                         
      

                      	
                        (h)

                      	
                        If
      available, upon written request, samples of cuttings and cores marked as
      to depth, to be packaged and shipped at the expense of the requesting
      Party.

                         

                      

              

              5.10           Information to
Non-Participating Parties.  Operator shall furnish to each
Non-Participating Party a copy of Operator’s governmental reports that are
available to the public and associated with the applicable Non-consent
operation.  A Non-Participating Party shall be entitled to receive the
information specified in Section 5.9 after the recoupment provisions in Section
10.4 and/or Section 12.2.1 have been satisfied.

              

              ARTICLE
6.

              VOTING AND VOTING
PROCEDURES

              

              6.1           Designation of
Representatives.  The names and addresses of the representative
and alternate, who are authorized to represent each Party with respect to
operations hereunder, are set forth in Exhibit "A".  The designated
representative or alternate may be changed by written notice to the other
Parties.

               

              
                6.2              Voting
Procedures.  Unless otherwise provided, any matter requiring
approval of the Parties, except an amendment to this Agreement, shall be
determined as follows:

                 

                
                  	
                           
      

                        	
                          6.2.1

                        	
                          Voting
      Interest.  Subject to section 8.6, each Party shall have
      a voting interest equal to its Working Interest or its Participating
      Interest, as applicable.

                           

                        

                

                
                  	
                           
      

                        	
                          6.2.2

                        	
                          Vote
      Required.  Proposals requiring approval of the Parties
      shall be decided by an affirmative vote of two (2) or more Parties having
      a combined voting interest of fifty-one percent (51%) or
      more.  If there are only two (2) Parties to this Agreement, the
      matter shall be determined by the Party having the majority voting
      interest, or, if the interests are equal, the matter shall require
      unanimous consent.

                           

                        

                

              

              
                
                   

                

                
                  7

                  
                    

                  

                

                
                   

                

              

               

               

              
                	
                         
      

                      	
                        6.2.3

                      	
                        Votes.  The
      Parties may vote personally at meetings, or by telephone, promptly
      confirmed in writing to Operator, or by letter, telegram, telex, telecopy,
      or other form of facsimile transmission.

                         

                      

              

              
                	
                         
      

                      	
                        6.2.4

                      	
                        Meetings.  Meetings
      of the Parties may be called by Operator upon its own motion or at the
      request of any Party(ies) having a combined voting interest of not less
      than twenty percent (20%).  Except in the case of emergency, or
      except when agreed by unanimous consent, no meeting shall be called on
      less than seven (7) 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,
      that by unanimous agreement of the Parties present at such meeting, the
      agenda and items included therein may be amended.  If a meeting
      is called, it shall take place at Operator’s offices, unless it is
      unanimously agreed to be held at some other
  location.

                      

              

              

              
                	
                         
      

                      	
                        ARTICLE
      7

                      

              

              
                	
                         
      

                      	
                        ACCESS

                      

              

              

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

               

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

              
                
                   

                

                
                  8

                  
                    

                  

                

                
                   

                

              

               

               

              7.3           Confidentiality.  For
the purposes of this Agreement, the term "Confidential Information" shall mean
any geological, geophysical, engineering, technical, production test,
exploratory, or reservoir information, or any logs or other information
pertaining to any well drilled pursuant to this Agreement or any operation
conducted under the terms of this Agreement to the extent that such information
was acquired at joint expense.  Except as provided in Section 7.5 and
except for necessary disclosures to governmental authorities having
jurisdiction, no Party shall during the term of this Agreement and for a period
of three (3) years thereafter, trade, sell, publish or release any such
Confidential Information without the agreement of all Participating
Parties.  Otherwise, the Parties shall jointly own all such
Confidential Information without duty to account.  Each Party's
obligation to protect Confidential Information shall be considered met by each
Party using at least the same degree of care as it uses in protecting its own
proprietary materials of like kind.

               

              7.4           Exceptions.  No
Party shall have any obligation to limit disclosure or use any portion of
Confidential Information which:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        is
      already in that Party's possession prior to receipt as a result of this
      Agreement;

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        is
      now in or hereafter becomes publicly available through no fault of that
      Party;

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        is
      disclosed to that Party without obligation of confidence by a third party
      which has the right to make such disclosure;
or;

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        is
      independently developed by or for such Party without reference to
      information received under this Agreement.

                         

                      

              

              7.5           Limited
Disclosure.  Notwithstanding any other provision of this
Agreement, the Parties may make Confidential Information available to third
parties as follows:

               

              
                	
                         
      

                      	
                        (a)

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

                      

              

              
                
                   

                

                
                  9

                  
                    

                  

                

                
                   

                

              

              
                	
                         
      

                      	
                        (b)

                      	
                        gas
      transmission companies for hydrocarbon reserve or technical
      evaluations;

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        reputable
      financial institutions for study before commitment of
    funds;

                      

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

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

                      

              

              
                	
                         
      

                      	
                        (f)

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

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        an
      Affiliate of a Party; and

                      

              

              
                	
                         
      

                      	
                        (h)

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

                      

              

               

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

               

              7.6           Proceeds.  During
the term of this Agreement, the Parties agree that any proceeds obtained from
the sale of Confidential Information (excluding, however, transfers of
Confidential Information incidental to a Party’s sale of all or any portion of
its interest in the Contract Area) shall be shared by the Parties in proportion
to their share of the total costs and expenses to acquire same.

               

              7.7           Media
Releases.  Except as agreed by all parties or otherwise
permitted by this Section, no Party shall issue a news or media release about
operations on the Lease.  In an emergency involving extensive property
damage, operations failure, loss of human life, or other clear emergency, and
for which there is insufficient time to obtain the prior approval of the
Parties, Operator may furnish the minimum, strictly factual, information
necessary to satisfy the legitimate public interest of the media and
governmental authorities having jurisdiction.  Operator shall then
promptly advise the other Parties of the information furnished in response to
the emergency.  Notwithstanding anything to the contrary in this
Agreement, upon prior written notice to the other Parties, a Party shall be
allowed to make any press release or announcement required by a recognized stock
exchange on which the Party’s (or its Affiliate’s) stock is listed; provided,
however, that the press release shall contain the following statement: “The
information, opinions or projections
contained in this press release are (the disclosing Party’s) and do not
necessarily reflect the opinions of its co-owners.”

               

              
                

                ARTICLE
8

                EXPENDITURES

                

                8.1           Basis of Charge to the
Parties.  Except as otherwise provided in this Agreement,
Operator shall pay all costs incurred 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".

                 

                8.2           Authorization.  Prior
to undertaking any project or making any single expenditure related to the
Contract Area in excess of One Hundred Thousand Dollars ($100,000.00), Operator
shall submit for the approval of the Parties an Authorization for Expenditure
("AFE") for such project or expenditure.  Operator shall furnish
written information to all the Parties on any project or single expenditure
costing less than One Hundred Thousand Dollars ($100,000.00) but in excess of
Fifty Thousand Dollars ($50,000.00) if Operator prepares same for its own
use.  Notwithstanding the One Hundred Thousand Dollar ($100,000.00)
limitation, where such project or expenditure involves changing zones in a well
or a workover operation, an AFE shall be submitted to the Parties for
approval.  Approval of a Development Well or 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.  In the event of an actual or imminently threatened
blowout, explosion, accident, fire, flood, storm, or other emergency, Operator
may immediately conduct such operations and make such expenditures as in its
opinion are required to overcome the emergency, including, but not limited to,
any and all measures to protect life, health, safety, property, natural
resources or the environment.  Operator shall report to the Parties,
as promptly as possible, the nature of the emergency and action
taken.  The Operator shall provide supplemental AFE’s to Participating
Parties, for informational purposes only, if it reasonably determines that the
expected actual costs of an operation will exceed the amount of the approved AFE
by 15% or more, but only if the dollar amount of such expected excess is greater
than Two Hundred Fifty Thousand Dollars ($250,000.00).

              

              
                
                   

                

                
                  10

                  
                    

                  

                

                
                   

                

              

              
              

              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           Security Rights
(Louisiana).  In addition to any other security rights and
remedies provided by law with respect to services rendered or materials and
equipment furnished under this Agreement, for and in consideration of the
covenants and mutual undertakings of the Operator and the Non-operators herein,
the Parties shall have the following security rights:

              
                
                   

                

                
                  11

                  
                    

                  

                

                
                   

                

              

              (a)           Mortgage in Favor of the
Operator.  Each Non-operator hereby grants to the Operator a
mortgage, hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease within the Contract Area, (b) the oil, gas and
other minerals in, on, under, and that may be produced from the lands within the
Contract Area, and (c) all other immovable property susceptible of mortgage
situated within the Contract Area.

               

              This
mortgage is given to secure the complete and timely performance of and payment
by each Non-operator of all obligations and indebtedness of every kind and
nature, whether now owed by such Non-operator or hereafter arising, pursuant to
this Agreement.  To the extent susceptible under applicable law, this
mortgage and the security interests granted in favor of the Operator herein
shall secure the payment of all costs and other expenses properly charged to
such Party, together with (A) interest on such indebtedness, costs, and other
expenses at the rate set forth in Exhibit "C" attached hereto (the "Accounting
Procedure") or the maximum rate allowed by law, whichever is the lesser, (B)
reasonable attorneys' fees, (C) court costs, and (D) other directly related
collection costs.  If any Non-operator does not pay such costs and
other expenses or perform its obligations under this Agreement when due, the
Operator shall have the additional right to notify the purchaser or purchasers
of the defaulting Non-operator's production of oil, gas and other minerals and
collect such costs and other expenses out of the proceeds from the sale of the
defaulting Non-operator's share of production of oil, gas and other minerals
until the amount owed has been paid.  The Operator shall have the
right to offset the amount owed against the proceeds from the sale of such
defaulting Non-operator's share of production of oil, gas and other
minerals.  Any purchaser of such production shall be entitled to rely
on the Operator's statement concerning the amount of costs and other expenses
owed by the defaulting Non-operator and payment made to the Operator by any
purchaser shall be binding and conclusive as between such purchaser and such
defaulting Non-operator.

               

              The
maximum amount for which the mortgage herein granted by each Non-operator shall
be deemed to secure the obligations and indebtedness of such Non-operator to the
Operator as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 (the "Limit of the Mortgage of each
Non-operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of each Non-operator to the Operator is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of each Non-operator, the liability of each Non-operator under this
Agreement and the mortgage and security interest granted hereby shall be limited
to (and the Operator shall not be entitled to enforce the same against such
Non-operator for, an amount exceeding) the actual obligations and indebtedness
[including all interest charges, costs, attorneys' fees, and other
charges provided for in this Agreement or in the Memorandum of Operating
Agreement and Financing Statement (Louisiana), as such term is defined in
Article 8.5.(e) (Recordation) hereof] outstanding and unpaid and that are
attributable to or charged against the interest of such Non-operator pursuant to
this Agreement.

              
                
                   

                

                
                  12

                  
                    

                  

                

                
                   

                

              

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

              
                
                   

                

                
                  13

                  
                    

                  

                

                
                   

                

              

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

               

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

               

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

               

              (c)           Mortgage in Favor of the
Non-operators.  The Operator hereby grants to each Non-operator
a mortgage, hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease within the Contract Area; (b) the oil, gas and
other minerals in, on, under, and that my be produced from the lands within the
Lease within the Contract Area; and (c) all other immovable property or other
property susceptible of mortgage situated within the Lease within the Contract
Area.

               

              This
mortgage is given to secure the complete and timely performance of and payment
by the Operator of all obligations and indebtedness of every kind and nature,
whether now owed by the Operator or hereafter arising, pursuant to this Agreement.  To
the extent susceptible under applicable law, this mortgage and the security
interests granted in favor of each Non-operator herein shall secure the payment
of all costs and other expenses properly charged to the Operator, together with
(A) interest on such indebtedness, costs, and other expenses at the rate set
forth in Exhibit “C” or the maximum rate allowed by law, whichever is the
lesser, (B) reasonable attorneys' fees, (C) court costs, and (D) other directly
related collection costs.  If the Operator does not pay such costs and
other expenses or perform its obligations under this Agreement when due, the
Non-operators shall have the additional right to notify the purchaser or
purchasers of the Operator’s production of oil, gas and other minerals and
collect such costs and other expenses out of the proceeds from the sale of the
Operator’s share of production of oil, gas and other minerals until the amount
owed has been paid.  The Non-operators shall have the right to offset
the amount owed against the proceeds from the sale of the Operator’s share of
production of oil, gas and other minerals.  Any purchaser of such
production shall be entitled to rely on the Non-operators’ statement concerning
the amount of costs and other expenses owed by the Operator and payment made to
the Non-operators by any purchaser shall be binding and conclusive as between
such purchaser and the Operator.

              
                
                   

                

                
                  14

                  
                    

                  

                

                
                   

                

              

              The
maximum amount for which the mortgage herein granted by the Operator shall be
deemed to secure the obligations and indebtedness of the Operator to all
Non-operators as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 in the aggregate (the "Limit of the Mortgage of the
Operator").  Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire amount of
obligations and indebtedness of the Operator to the Non-operators is secured
hereby without limitation.  Notwithstanding the foregoing Limit of the
Mortgage of the Operator, the liability of the Operator under this Agreement and
the mortgage and security interest granted hereby shall be limited to (and the
Non-operators shall not be entitled to enforce the same against the Operator
for, an amount exceeding) the actual obligations and indebtedness [including all
interest charges, costs, attorneys' fees, and other charges provided for in this
Agreement or in the Memorandum of Operating Agreement and Financing Statement
(Louisiana), as such term is defined in Article 8.5.(e) hereof] outstanding and
unpaid and that are attributable to or charged against the interest of the
Operator pursuant to this Agreement.

               

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

               

              
                
                   

                

                
                  15

                  
                    

                  

                

                
                   

                

              

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

               

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

               

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

               

              (e)           Recordation.  To
provide evidence of, and to further perfect the Parties' security rights created
hereunder, upon request, each Party shall execute and acknowledge the Memorandum
of Operating Agreement and Financing Statement (Louisiana) attached as Exhibit
"E" (the "Memorandum of Operating Agreement and Financing Statement
(Louisiana)") in multiple counterparts as appropriate.  The Party
requesting execution of the aforesaid document shall file the Memorandum of
Operating Agreement and Financing Statement (Louisiana) in the public records
set forth below at its sole cost and expense to serve as notice of the existence
of this Agreement as a burden on the title of the Operator and the Non-operators
to their interests in the Leases within the Contract Area and for purposes of
satisfying otherwise relevant recording and filing requirements of applicable
law and to attach an original of the Memorandum of Operating Agreement and
Financing Statement (Louisiana) to a standard UCC-1 in mutually agreeable forms
for filing in the UCC records set forth below to perfect the security interests
created by the Parties in this Agreement.  Upon the acquisition of a
leasehold interest in a Lease within the Contract Area, the Parties shall,
within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation such a Memorandum of
Operating Agreement and Financing Statement (Louisiana) describing such
leasehold interest.  Such Memorandum of Operating Agreement and
Financing Statement
(Louisiana) shall be amended from time to time upon acquisition of additional
leasehold interests in the Leases within the Contract Area, and the Parties
shall, within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation any such
amendment.

              
                
                   

                

                
                  16

                  
                    

                  

                

                
                   

                

              

              The
Memorandum of Operating Agreement and Financing Statement (Louisiana) is to be
filed or recorded, as the case may be, in (a) the conveyance records of the
parish or parishes adjacent to the lands or offshore blocks covered by the
Leases within the Contract Area or contained within the Leases within the
Contract Area pursuant to La. R.S. 9:2731 et seq., (b) the mortgage records of
such parish or parishes, and (c) the appropriate Uniform Commercial Code
records.

               

              8.6           Default.  If
any Party does not pay its share of the charges authorized under this Agreement
when due, the Operator may give the defaulting Party notice that unless payment
is made within thirty (30) days from delivery of the notice, the non-paying
Party shall be in default.  A Party in default shall have no further
access to the rig, Platform or Facilities, any Confidential Information or other
maps, records, data, interpretations, or other information obtained in
connection with activities or operations hereunder or be allowed to participate
in meetings.  A Party in default shall not be entitled to vote or to
make an election until such time as the defaulting Party is no longer in
default.  The voting interest of each non-defaulting Party shall be
counted in the proportion its Participating Interest share bears to the total
non-defaulting Participating Interest shares.  As to any operation
approved during the time a Party is in default, such defaulting Party shall be
deemed to be a Non-participating Party, except where such approval is binding on
all Parties or Participating Parties, as applicable. In the event a Party
believes that such statement of charges is incorrect, the Party shall
nevertheless pay the amounts due as provided herein, and the Operator shall
attempt to resolve the issue as soon as practicable, but said attempt shall be
made no later than sixty (60) days after receiving notice from the Party of such
disputed charges.

               

              

              
                
                  
                  

                

                
                  17

                  
                    

                  

                

                
                  
                  

                

              

               

              
                8.7           Unpaid
Charges.  If any Participating Party fails to pay its share of
the costs and other expenses authorized under this Agreement in accordance with
Exhibit “C” or to otherwise perform any of its obligations under this Agreement
when due, the Party to whom such payment is due, in order to take advantage of
the provisions of Article 8.5, shall notify the other Party by certified or
registered U.S. Mail that it is in default and has thirty (30) days from the
receipt of such notice to pay.  If such payment is not made timely by
the non-paying Party after the issuance of such notice to pay, the Party
requesting such payment may take immediate steps to diligently pursue collection
of the unpaid costs and other expenses owed by such Participating Party and to
exercise the mortgage and security rights granted by this
Agreement.  The bringing of a suit and the obtaining of a judgment by
any Party for the secured indebtedness shall not be deemed an election of
remedies or otherwise affect the security rights granted herein.  In
addition to any other
remedy afforded by law, each Party shall have, and is hereby given and vested
with, the power and authority to foreclose the lien, mortgage, pledge, and
security interest established hereby in its favor in the manner provided by law,
to exercise all rights of a secured party under the Uniform Commercial Code as
adopted by the state in which the Leases within the Contract Area are located or
such other states as such Party may deem appropriate.  The Operator
shall keep an accurate account of amounts owed by the nonperforming Party (plus
interest and collection costs) and any amounts collected with respect to amounts
owed by the nonperforming Party.  In the event there become three or
more Parties to this Agreement, then if any nonperforming Party's share of costs
remains delinquent for a period of sixty (60) days, each other Participating
Party shall, upon the Operator's request, pay the unpaid amount of costs in the
proportion that its Working Interest bears to the total non-defaulting Working
Interests.  Each Participating Party paying its share of the unpaid
amounts of a nonperforming Party shall be subrogated to the Operator's mortgage
and security rights to the extent of the payment made by such Participating
Party.

                 

                8.8           Carved-out
Interests.  Except for the “Permitted Encumbrance” identified
on Exhibit “A”, any agreements creating any overriding royalty, production
payment, net proceeds interest, net profits interest, carried interest or any
other interest carved out of a Working Interest in the Leases within the
Contract Area shall specifically make such interests inferior to the rights of
the Parties to this Agreement. If any Party whose Working Interest is so
encumbered does not pay its share of costs and other expenses authorized under
this Agreement, and the proceeds from the sale of its production of oil, gas and
other minerals pursuant to Article 8.5 are insufficient to pay such costs and
expenses, the security rights provided for in this Article 8.5 may be applied
against the carved-out interests with which the defaulting or non-performing
Party’s interest in the Leases within the Contract Area is burdened. In such
event, the rights of the owner of such carved-out interest shall be subordinated
to the security rights granted by Article 8.5.

              

               

              
                
                   

                

                
                  18

                  
                    

                  

                

                
                   

                

              

              
                ARTICLE
9

                NOTICES

                

                9.1           Giving and Responding to
Notices.  All notices and responses thereto shall be in writing
and delivered in person or by telephone followed by United States mail, telex,
telegraph, telecopier (facsimile) or cable; however, if a drilling rig is on
location and standby charges are accumulating, such notices and responses shall
be given by telephone and immediately confirmed in writing.  Notices
and responses shall be deemed given only when received by the Party to whom such
notice or response is directed, except that any notice or response by certified
United States mail or equivalent, telegraph, or cable properly addressed,
pursuant to Section 6.1, and with all postage and charges prepaid shall be
deemed given seventy-two (72) hours after such notice is deposited in the mail
exclusive of Saturdays, Sundays, and federal holidays, or twenty-four (24) hours
after
such notice or response is sent by telecopier (facsimile), receipt confirmed, or
filed with an operating telegraph or cable company for immediate transmission
exclusive of Saturdays, Sundays, and federal holidays.

                 

                9.2           Content of
Notice.  Any notice which requires a response shall indicate
the response time specified in Section 9.3.  If a proposal involves a
Platform, Facility or Subsequent Facility, the notice shall contain a
description of same, including location and the estimated costs of design
fabrication, transportation and installation.  If a proposal involves
an Exploratory Operation or a Development Operation, the notice shall include
the proposed depth, the objective zone or zones to be tested, the surface and
bottom-hole locations, applicable details regarding directional drilling, the
equipment to be used, and the estimated costs of the operation including all
necessary expenditures through installation of the wellhead or abandonment of
the well.

                 

                9.3           Response to
Notices.  Each Party's response to a proposal shall be in
writing to all other Parties.  Unless otherwise specified herein,
response times shall be as follows:

                 

                
                  	
                        	
                          9.3.1

                        	
                          Platform
      Construction.  When any proposal for well operations
      involves the construction of a Platform, each Party shall respond within
      sixty (60) days after receipt of notice.

                           

                        

                

              

              
                
                   

                

                
                  19

                  
                    

                  

                

                
                   

                

              

               

               

              
                	
                      	
                        9.3.2

                      	
                        Proposal Without
      Platform.  When any proposal for well operations does not
      require construction of a Platform, each Party shall respond within thirty
      (30) days after receipt of notice.  However, if a drilling rig
      is on location as a result of a joint Exploratory or Development Operation
      previously conducted thereon and standby charges are accumulating, the
      response shall be made within twenty-four (24) hours, inclusive of
      Saturdays, Sundays, and federal holidays, after receipt of
      notice.

                         

                      

              

              
                	
                      	
                        9.3.3

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

                         

                      

              

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

               

              9.5           Restrictions on Multiple
Well Proposals.  Notwithstanding any provision herein to the
contrary, it is specifically provided that no notice shall be given under this
Article 9 hereof which simultaneously proposes the drilling of more than two (2)
wells, or proposes the drilling of more than one (1) more well while there is an
outstanding proposal.  Further, these provisions of this Article 9,
insofar as they pertain to notification by a Party of its desire to drill a
well, shall be suspended for so long as: (1) a prior notice has been given which
is still in force and effect and the period of time during which the well
regarding same may be commenced has not expired; or (2) a well is presently
drilling hereunder.  This section shall not apply under those
circumstances where the well to which notice is directed is a well which is
required under the terms of a Lease or one required to maintain a portion
thereof in force.  In the event drilling operations are necessary
to perpetuate a Lease, any Party may propose and commence the drilling of such
additional well(s) pursuant to the terms and conditions hereof no earlier than
one hundred eighty (180) days prior to the date operations must be commenced,
regardless of other proposals then under consideration or drilling operations
then in progress.

              ARTICLE
10

              EXPLORATORY
OPERATIONS

              

              10.1           Operations by All
Parties.  Any Party may propose an Exploratory Well by
notifying the other Parties.  If all the Parties agree to participate
in drilling the proposed well, Operator shall drill same at their cost and
risk.  If a mobile drilling rig is not already on location as a result
of a prior Exploratory or Development Operation and the proposal ("Original
Proposal") has not already been approved, then any Party may submit an alternate
well proposal for consideration within ten (10) days after receiving the
Original Proposal to drill a well.  If one or more alternate proposals
have been submitted in accordance with the foregoing, then the Operator shall
call a meeting of the Parties to be held within seven (7) days following receipt
of the alternate proposal(s), at which the Parties shall determine by majority
vote in interest which proposal shall be considered by the Joint
Account.  In the event that no proposal receives support of a majority
in interest, then the proposal receiving the greatest support shall
prevail.  In the event of a tie between two or more proposals, then
the proposal (including the Original Proposal) supported by the largest number
of Parties shall prevail.  Each Party having the right to participate
in the proposal so selected shall make its election whether to join in the
drilling of such well within fifteen (15) days after the meeting was
held.  If drilling of 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; however, the one hundred twenty
(120) day period shall automatically be extended for an additional period, not
to exceed sixty (60) days, as may be necessary, in order to obtain all
applicable required regulatory permits, so long as applications for such
required permits were properly filed within thirty (30) days after the last
applicable election date.  Drilling operations shall be deemed to have
commenced on the date rig charges begin according to the terms of the drilling
contract.

               

              
                
                   

                

                
                  20

                  
                    

                  

                

                
                   

                

              

              10.2           Second Opportunity to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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
information.  This provision shall apply only in the event that there
are three (3) or more Parties to this Agreement.

               

              10.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty (20%) 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 working 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 Section 9.4.  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'
interests 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 any response under this Article 10 shall not exceed a total of
twenty-four (24) hours, inclusive of Saturdays, Sundays, and federal
holidays.  This provision shall apply only in the event that there are
three (3) or more Parties to this Agreement.

              10.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all of the cost and risk of drilling the proposed well,
Operator shall drill such well under this Agreement and the applicable
provisions of Article 12 and the following special provisions shall
apply:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        If
      the well will be the first Exploratory Well drilled under this Agreement,
      then as of the last applicable election date, each Non-Participating Party
      shall be deemed to have relinquished to the Participating Parties, in
      proportion to their Participating Interests or in the proportions
      otherwise agreed by the Participating Parties, all of its interest in the
      Contract Area.  If such well is commenced within the time
      provided in Section 10.1 and is drilled as proposed in accordance with
      this Agreement, each Non-Participating Party shall execute an assignment
      of all of its interest in the Contract Area to the Participating Parties,
      in proportion to their Participating Interests or in the proportions
      otherwise agreed by the Participating
Parties.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        If
      the well will not be the first Exploratory Well drilled under this
      Agreement and if such well is commenced within the time provided in
      Section 10.1 and is drilled as proposed in accordance with this Agreement,
      then, all of the Non-Participating Party's(ies') operating rights and
      interests in production from such well shall be vested in the
      Participating Parties in proportion to their Participating Interest,
      whether or not any instrument evidencing a transfer of rights and
      interests has been delivered by the Non-Participating
      Party(ies).  The Participating Party(ies) shall have the right
      to recoup the costs applicable to such well as determined by Section
      12.2 and/or Section 12.5 and the drilling of such well shall be governed
      by Article 12, except that the percentage of recoupment as provided in
      Section 12.2.1 (a) shall be eight hundred percent (800%) of the
      Non-Participating Party's Share of the cost of drilling the
      well.

                         

                      

              

              
              

              If the
well is not commenced within the time period provided in Section 10.1, the
effect shall be as if the proposal had not been made.

               

              
                
                   

                

                
                  21

                  
                    

                  

                

                
                   

                

              

              10.5           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Initial Exploratory Well or Exploratory Well
as originally proposed, the Participating Party or Parties encounter mechanical
difficulties, inpenetrable formation, and/or Gulf Coast conditions which render
drilling impractical, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced as
if it were the original proposed Initial Exploratory Well or Exploratory Well
for which it is the substitute; and the relationship, rights and obligations as
between the Participating Party and Non-Participating Party or Parties shall be
the same as if the Substitute Well were, in fact, the proposed Initial
Exploratory Well or Exploratory Well, as applicable.

               

              .

              
                
                   

                

                
                  22

                  
                    

                  

                

                
                   

                

              

              10.6           Course of Action After
Drilling to Initial Objective Depth.  At such time as an
Exploratory Well has been drilled to the initial objective depth as proposed, or
a mutually agreed upon lesser depth, and all approved logs, cores, and other
tests have been completed, and the results thereof furnished to the
Participating Parties, Operator shall notify the Participating Parties setting
forth Operator's recommendation to either:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in
      zones all of which are deeper than the zone approved for the single
      completion.)

                      

              

              
              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Sidetrack
      the well to another bottom hole location not deeper than the stratigrephic
      equivalent of the initial objective
depth.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        Perform
      other operations on the well. (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        Plug
      and abandon the well.

                         

                      

              

              The
Participating Parties, within twenty-four (24) hours, inclusive of Saturdays,
Sundays, and federal Holidays, 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, inclusive of Saturdays, Sundays, and federal holidays,
to respond thereto.  If conflicting proposals are made, the priority
of operations 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.

              
                
                   

                

                
                  23

                  
                    

                  

                

                
                   

                

              

               

              
                	
                      	
                        10.6.1

                      	
                        Operation by All
      Parties.  Subject to Section 10.6.4, if all Participating
      Parties approve a proposal, Operator shall conduct the operation at the
      Participating Parties’ cost and risk.

                         

                      

              

              
                	
                      	
                        10.6.2

                      	
                        Operations by Fewer
      than All Parties.  If one (1) or more Parties having a
      combined Participating Interest in the well of twenty percent (20%) or
      more approve a proposal and agree to bear the cost, risk and liabilities
      (including loss of the hole due to deepening of any well) thereof, except
      a proposal to plug and abandon, Operator shall conduct the same as a
      Non-Consent Operation for such Parties pursuant to the provisions of
      Article 12, except that the percentage of recoupment as provided in
      Section 12.2.1(a) shall be the same as provided for in Section
      10.4(b).  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, inclusive of Saturdays, Sundays, and federal
      holidays, 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)
      Participating Party, each of which is willing to assume all costs, risks
      and liabilities of further operations, but each desires to perform a
      different operation, then the order of priority as listed above herein
      shall prevail and govern.

                      

              

              
                	
                      	
                        10.6.3

                      	
                        Obligations and
      Liabilities of Participating Parties.  If the decision is
      to complete at initial objective depth, to plug back and complete at a
      lesser depth, to deepen or to Sidetrack to another bottomhole location, 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 that portion of the well in which
      it was a Participating Party.

                         

                      

              

              
                	
                      	
                        10.6.4

                      	
                        Deepening or
      Sidetracking of Non-Consent Exploratory Well.  Subject to
      the terms of Section 10.6 above, 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 or Sidetrack, 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 or Sidetracking operation by notifying the
      Operator, within forty-eight (48) hours, inclusive of Saturdays, Sundays,
      and federal holidays, after receiving notice of the
      decision.  In such event any Non-Participating Party which
      elects to participate in deepening or Sidetracking 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 or that point the Sidetracking
      operation is commenced if lesser than the initial objective
      depth.  Thereafter such Non-Participating Party shall be deemed
      for all purposes to be a Participating Party as to such deepening or
      Sidetracking operations, and the provisions of Section 10.4 shall not be
      applicable to such Party as to the deepened or Sidetracked 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 portion of the Non-Consent Well any
      balance remaining pursuant to 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 Section 10.6.4.

                         

                      

              

              
                
                   

                

                
                  24

                  
                    

                  

                

                
                   

                

              

               

               

              
                	
                      	
                        10.6.5

                      	
                        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.

                      

              

              

              ARTICLE
11

              DEVELOPMENT
OPERATIONS

              

              11.1           Operations by All
Parties.  Any Party may propose Development Operations,
including any wells (whether drilling, completing, recompleting, deepening,
deviating or Sidetracking, plugging back or working over),
Platform,  Facilities and/or Subsequent
Facilities required by such operations, by submitting a Development Operation
AFE to the other Parties for approval pursuant to the response to notice
procedures set forth in Article 9.  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 one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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.  This provision shall
apply only in the event that there are three (3) or more Parties to this
Agreement.

               

              11.3           Final Election to
Participate.  If fewer than all but one (1) or more Parties
having a combined Working Interest of twenty percent (20%) 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 Section 9.4.  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 any response under this Article 11 shall not exceed a total of
twenty-four (24) hours, inclusive of Saturdays, Sundays, and federal
holidays.  This provision shall apply only in the event that there are
three (3) or more Parties to this Agreement.

               

              
                
                   

                

                
                  25

                  
                    

                  

                

                
                   

                

              

              
                11.4           Operations by Fewer Than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Working Interest of twenty percent (20%) or more elect to participate
in and agree to bear all 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; however, the one hundred twenty (120) day period shall
automatically be extended for an additional period, not to exceed sixty (60)
days, as may be necessary, in order to obtain all applicable required regulatory
permits so long as applications for such required permits were properly filed
within thirty (30) days after the last applicable election date.  If
no operations are commenced within such time period, the effect shall be as if
the proposal had not been made.  Operations shall be deemed to have
commenced: (a) on the date the contract for a new Platform is let, if the notice
indicated a need for such Platform, or (b) on the date the rig charges begin
according to the terms of the drilling
contract.  For all other Development Operations, Development
Operations shall be deemed to have commenced on the day charges are incurred
pursuant to an approved AFE.

                11.6           Substitute
Well.  If, prior to reaching the proposed depth or objective
zone or zones to be tested for the Development Operation as originally proposed,
the Participating Party or Parties encounter mechanical difficulties,
inpenetrable formation, and/or Gulf Coast conditions which render further
drilling impossible, then the Participating Party of Parties, or any of them,
shall have the right, but not the obligation, to carry out the original proposed
operation by drilling a Substitute Well.  Operations for the
Substitute Well shall be commenced within sixty (60) days after the date the
drilling operations cease on the well for which the Substitute Well is a
substitute.  Operations for the Substitute Well shall be commenced
were the original proposed Development Operation for which it is the substitute,
and the relationship, rights and obligations as between the Participating Party
and Non-Participating Party or Parties shall be the same as if the Substitute
Well were, in fact, the proposed Development Operation, as
applicable.

              

              
                
                   

                

                
                  26

                  
                    

                  

                

                
                   

                

              

               

              11.7           Course of Action After
Drilling to Initial Objective Depth.  At such time as a
Development Well has been drilled to the initial objective depth as proposed and
all approved logs, cores and other tests have been completed and the results
thereof furnished to the Participating Parties, Operator shall notify the
Participating Parties setting forth Operator's recommendation to
either:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Conduct
      additional coring, testing, or logging of the formations
      encountered.  (If conflicting proposals are approved, the
      proposal receiving the largest percentage of Working Interest approval
      shall take precedence.  In the event of a tie between two or
      more approved proposals, the approved proposal first received by the
      Parties shall take precedence.)

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Run
      casing and temporarily abandon the well for future
      completion.  (This election is not applicable for a well drilled
      from a Platform.)

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        Attempt
      completion, with a deeper completion having priority over a shallower
      completion attempt.  (If conflicting proposals for a single
      completion and a dual completion are approved, the proposal receiving the
      largest Working Interest shall take precedence.  Provided
      however, if the proposal taking precedence is a dual completion, then the
      dual must either include the zone approved for the single completion or
      provide for the completion in zones all of which are deeper than the zone
      approved for the single
completion.)

                      

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        Sidetrack
      the well to another bottom hole location not deeper than the stratigraphic
      equivalent of the initial objective
depth;

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        Perform
      other operations on the well.  (If conflicting proposals are
      approved, the proposal receiving the largest percentage of Working
      Interest approval shall take precedence.  In the event of a tie
      between two or more approved proposals, the approved proposal first
      received by the Parties shall take
precedence.)

                      

              

              
                	
                         
      

                      	
                        (g)

                      	
                        Plug
      and abandon the well.

                         

                      

              

              The Participating Parties, within
forty-eight (48) hours, inclusive of Saturdays, Sundays, and federal holidays,
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, the priority of
operations 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.

              
                
                   

                

                
                  27

                  
                    

                  

                

                
                   

                

              

               

              11.7.1          Operations by All
Parties.  If all Participating Parties approve a proposal,
Operator shall conduct the operation at the Participating Parties' cost and
risk.

               

              11.7.2          Operations by Fewer than All
Parties.  If fewer than all but one (1) or more Parties having
a combined Participating Interest in the well of twenty percent (20%) or more
approve a proposal and agree to bear the cost, risk, and liabilities (including
loss of the hole due to deepening of any well) thereof, except a proposal to
plug and abandon, Operator shall conduct the same as a Non-Consent Operation for
such Parties pursuant to the provisions of Article 12.  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, risks and liabilities of further
operations, but each desires to perform a different operation, then the order of
priority as listed above herein shall prevail and govern.

               

              11.7.3          Obligations and Liabilities
of Participating Parties.  If the decision is to complete at
initial objective depth, to plug back and complete at a lesser depth, to deepen
or to Sidetrack to another bottomhole location, 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 that portion of the well in which it was a Participating
Party.

               

              11.8           Deeper
Drilling.  If a well is proposed to be drilled below the
deepest Producible Reservoir 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 Reservoir.  A Party electing to participate in such
well to the base of said Producible Reservoir shall bear its proportionate part
of the cost and risk of drilling to said Producible Reservoir including
completion or abandonment. All operations below the depth to which such Party
agreed to participate shall be governed by Article 12.  However, if
the proposal to drill below the deepest Producible Reservoir penetrated by a
Producible Well meets the requirements of an Exploratory Operation, the
percentage of recoupment shall be that specified in Section 10.4(b) and shall be
subject to the provisions of Article 10 with respect to such
operations.

               

                             
11.9           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.

              
                
                   

                

                
                  28

                  
                    

                  

                

                
                   

                

              

               

                             
11.10         Subsequent
Facilities.  The affirmative vote of one (1) or more Parties
having a combined Participating Interest of fifty-one percent (51%) or more in
the wells to be served by the proposed Subsequent Facilities shall constitute
approval for the construction of such Subsequent Facilities and all Parties
having an interest in the wells to be served shall be bound by such approval and
be required to participate in the costs therefor.  Nothing hereunder
shall limit a Party's rights under Section 21.1 to incur additional costs for
separate facilities.

               

                             
11.11         Contracts.  Operator
may enter into contracts with independent contractors for Development Operations
and shall utilize competitive bidding.

              

              ARTICLE
12

              NON-CONSENT
OPERATIONS

              

                              12.1           Non-Consent
Operations.  Operator shall conduct Non-Consent Operations at
the sole risk, expense, and liability of the Participating Parties, in
accordance with the following provisions:

               

              
                	
                      	
                        12.1.1

                      	
                        Non-Interference.  Non-Consent
      Operations shall not interfere unreasonably with any other operations
      being conducted within the Contract Area.

                         

                      

              

              
                	
                      	
                        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 participating in the Non-Consent
      Operations and 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
      subject to approval by appropriate governmental authority, may be
      determined on the basis of well tests.

                         

                      

              

              
                	
                      	
                        12.1.4

                      	
                        Non-Consent
      Well.  Operations on a Non-Consent Well shall not be
      conducted in any Producible Reservoir penetrated by a Producible Well
      without written approval of each Non-Participating Party unless these four
      (4) conditions are satisfied: (a) such Producible Reservoir shall have
      been designated in the notice as an objective zone; (b) completion of such
      well in said Producible Reservoir will not increase the well density
      governmentally prescribed or approved for such Producible Reservoir; (c)
      the horizontal distance between the vertical projections of the midpoint
      of the Producible Reservoir in such well and any existing well in the same
      Producible Reservoir will be at least one thousand (1,000) feet if an
      oil-well completion or two thousand (2,000) feet if a gas-well completion;
      and (d) completion of such well as a producer will not cause or result in
      a decreased "MER" or "MPR" for any existing Producible Reservoir or
      Producible Well.  The terms "MER" and "MPR" are defined under 30
      Code of Federal Regulations, Subpart K-Production rates, Parts 250.170
      through 250.177.

                         

                      

              

               

              
                
                  
                  

                

                
                  29

                  
                    

                  

                

                
                  
                  

                

              

                     

              
                 

                
                  	
                        	
                          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 either a joint interest billing or an itemized statement of
      the cost of such well and equipment pertaining
      thereto.  Operator shall furnish to the Parties a quarterly
      statement showing operating expenses and the proceeds from the sale of
      production from the well for the preceding three (3) month
      period.  When Operator’s payout calculation indicates that
      payout has occurred, Operator shall promptly notify all
      Parties.

                           

                        

                

                
                  	
                        	
                          12.1.6

                        	
                          Completion.  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 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.  Such leasehold operating rights and title to
      production shall revert to each Non-Participating Party at 7:00 a.m. on
      the day following the date 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 12.3, equals the sum of the
      following:

                        

                

                
                

                
                  	 	(a)	
                          Six
      hundred percent (600%) of the Non-Participating Party's Share of the cost
      of drilling, testing, completing, recompleting, working over, deepening,
      deviating or Sidetracking, plugging back, or temporarily plugging and
      abandoning each Non-Consent Well (or any Non-Consent Operation(s) in a
      joint well), and equipping it through the wellhead connections, reduced by
      any contribution received under Article 20; plus

                           

                        
	
                           
      

                        	
                          (b)

                        	
                          Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Non-Consent Facilities necessary to establish the production
      resulting from the operations defined in Section 12.2.1.(a) above;
      plus

                        

                

                
                  	
                           
      

                        	
                          (c)

                        	
                          Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of any Platform in which it does not participate and which must be
      installed to establish the production resulting from the operations
      defined in Section 12.2.1.(a) above;
plus,

                        

                

                
                  	
                           
      

                        	
                          (d)

                        	
                          Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Platform, whether or not owned by the Joint Account;
      plus,

                        

                

                
                  	
                           
      

                        	
                          (e)

                        	
                          Three
      hundred percent (300%) of the Non-Participating Party's Share of the cost
      of using any existing Facilities not owned by the Joint Account, including
      leased facilities; plus

                        

                

                
                  	
                           
      

                        	
                          (f)

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

                           

                        

                

                At 7:00
a.m. upon the day following the date of recoupment of such costs, a
Non-Participating Party shall become a Participating Party in such
operations.

              

              
                
                   

                

                
                  30

                  
                    

                  

                

                
                   

                

              

              
                 

                
                  	
                        	
                          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 wells (or portions thereof associated with any Non-Consent
      Operation(s) in a joint well), Platforms and Facilities of the Non-Consent
      Operations, as well as all liabilities and benefits related thereto, shall
      remain vested in the Participating Parties; however, any salvage in excess
      of the sum remaining under Section 12.2.1 shall be credited to all
      Parties.

                           

                        

                

                 

                12.3            Deepening or Sidetracking of
Non-Consent Development Well.  If any Participating Party
proposes to deepen or Sidetrack a Non-Consent Development Well, a
Non-Participating Party may participate by notifying the Operator within thirty
(30) days after receiving the proposal (forty-eight (48) hours, inclusive of
Saturdays, Sundays, and federal holidays, if a rig is on location) that it will
join in the deepening or Sidetracking operation and by paying to the
Participating Parties; 1) if it is a deepening an amount equal to the costs of
the well as if such Non-Participating Party had originally participated to the
objective depth or; 2) if it is a sidetrack operation an amount equal to the
Non-Participating Parties share of drilling the non-consent well to that point
the Sidetracking operation is commenced.  The Participating Parties
shall continue to be entitled to recoup the full sum specified in Section 12.2.1
applicable to the non-consent portion of the well out of the proceeds received
from production from the non-consent portion of the well, less any amount
received under this Section 12.3.

                12.4           Operations from Non-Consent
Platforms and Facilities.  Subject to the following, a Party
which did not originally participate in a Platform or Facilities shall be a
Non-Participating Party as to ownership therein and all operations thereon until
the Participating Parties as to such Platform or Facilities have recouped the
full sum specified in Section 12.2.1 applicable to such non-consent Platform or
Facilities and the Non-Consent Operations which resulted in the setting of such
Platform or Facilities and other Non-Consent Operations thereon or
therefrom.  However, any original Non-Participating Party may
participate in additional operations from such Platform or Facilities by
notifying the Operator within thirty (30) days after receiving a proposal for
operations from such Platform or Facilities that it will join in such proposed
operations by paying to the Participating Parties in such Platform or Facilities
an amount equal to the non-consent penalty provided for in Section 12.2.1
applicable to such Non-Participating Party’s Share of the actual cost of such
Platform or Facilities, less any recoupment therefor previously
obtained.  Thereafter, such original Non-Participating Party in such
non-consent Platform or Facilities shall own its proportionate share
thereof.  The Participating Parties in such non-consent Platform or
Facilities shall continue to be entitled to recoup the full sum specified in
Section 12.2.1 applicable to any other Non-Consent Operations thereon or
therefrom.

                 

                
                  
                    
                    

                  

                  
                    31

                    
                      

                    

                  

                  
                    
                    

                  

                

                12.5           Discovery or Extension from
Mobile Drilling Operations.  If a Non-Consent Well is drilled
from a mobile drilling rig or floating drilling vessel and results in the
discovery of oil or gas or extension of a Producible Reservoir and, if within
one (1) year from the date the drilling equipment is released, a Platform or
other fixed structure is ordered and if its location is within three thousand
(3,000) feet from the vertical projection of the bottom-hole location of any
such well (unless limited by surface restrictions or seabed conditions), 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 subsequently completed wells on the Contract 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 Contract 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           Non-Consent Operations to
Maintain Lease.  Notwithstanding any other provision hereof, if
a Lease has no wells thereon capable of commercial production in the final six
(6) months of the primary term of such Lease and such Lease is not held by a
unit or a Suspension of Production pursuant to other operations on the Lease or
in the unit, any Party electing not to participate in the drilling of a well or
other operation in the final six (6) months of the primary term or at any time
during the secondary term, shall assign its full interest in such Lease pro-rata
to the Parties hereto undertaking the drilling of such well or participating in
such operation.  Such assignment shall be executed and delivered
within thirty (30) days after commencement of the well or
operation.  If at any time after the expiration of the primary term of
a Lease, a well must be drilled or an operation conducted because of cessation
of production or to fulfill an obligation to develop such Lease, such well or
operation being required to extend the term of such Lease or a portion thereof,
any Party electing not to participate in the operation or the drilling of such a
well shall assign its full interest in that Lease, or portion thereof, pro-rata
to the Parties hereto undertaking the drilling of such a well.  Such
assignment shall be executed and delivered within thirty (30) days after
commencement of the well or operation, but shall be limited to the portion of
the Lease the term of which was extended by the operation or drilling the well,
and provided any Non-Participating Party shall retain its rights and liabilities
with respect to any previously completed wells on that Lease and the production
therefrom.  Thereafter, that Lease shall no longer be a part of the
Contract Area, and the Non-Participating Party or Parties shall no longer own an
interest in any wells drilled on such Lease, other than those wells drilled
prior to the occurrence set out herein.  Should the Parties electing
to undertake the drilling of a well or conduct operations under this Section
12.6 fail to perform, as Participating Parties, the drilling of the well or
operations substantially as proposed, the Parties receiving the aforementioned
assignment shall assign back to the Party or Parties originally electing not to
participate, that interest which was caused to be assigned pursuant to this
Section 12.6.  A Party hereunder executing an assignment of its
interest in a Lease pursuant to the foregoing shall not be relieved of any
obligation hereunder accruing prior to such assignment.  If more than
one (1) well is drilled or more than one (1) operation conducted, any of which
would maintain or extend such Lease or such portions thereof, an assignment
shall not be required from any Party participating in any such well(s) or
operation(s) as to that portion of the Lease or unit which would have been
maintained by such well(s) or operation(s).

              
                
                  
                  

                

                
                  32

                  
                    

                  

                

                
                  
                  

                

              

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

               

              
                	
                      	
                        12.7.1

                      	
                        Charges.  If
      a Non-Consent Well is drilled from a Platform, the Participating Parties
      in such well shall be liable to the Joint Account owners of the Platform
      for the use of 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.  Notwithstanding the foregoing, if the Non-Consent
      Well is abandoned as an unsuccessful well, and no substitute well is
      drilled by the Participating Parties, then, if the slot is abandoned in a
      condition such that it could be used for the drilling of a future well,
      the Participating Parties shall not be required to pay the sum set out in
      this Section 12.7.1.

                      

              

              
                	
                         
      

                      	
                        (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, less accumulated depreciation, which one (1) well
      completion bears to the total number of Producible Well completions
      utilizing the Facilities.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  33

                  
                    

                  

                

                
                  
                  

                

              

               

              
                	
                      	
                        12.7.2

                      	
                        Operating and
      Maintenance Charges.  The Participating Parties shall pay
      on a monthly basis all costs necessary to connect a Non-Consent Well to
      the Facilities and that proportionate part of the expense of operating and
      maintaining the Platform and Facilities applicable to the Non-Consent
      Well.  Platform and Facilities operating and maintenance
      expenses shall be allocated in proportion to the producing well count
      during a calendar month as it relates to the total number of wells
      producing from such Platform during such calendar month.  For
      the purpose of this provision, a producing zone or each completion in a
      multi-completed well shall be considered as a separate well.

                         

                      

              

              
                	
                      	
                        12.7.3

                      	
                        Payments.  Payment
      of sums pursuant to Section 12.7.1 is not a purchase of an additional
      interest in the Platform or Facilities.  Such payments, if the
      recoupment provisions of Section 12.2 are applicable, shall be included in
      the total amount which the Participating Parties are entitled to recoup
      out of production from the Non-Consent Well.

                         

                      

12.8        Allocation of Costs Between
Depths (Single Completion).  For the purpose of allocating
costs on any well with a single completion in which the Participating Interests
of the Parties are not the same for the entire depth or the completion thereof,
the cost of drilling, completing, equipping, and plugging and abandoning such
well shall be allocated on the following basis:

               

              
                	 	(a)   	 Intangible
      drilling, completion, casing string, and material costs from the surface
      to a depth one hundred feet (100') below the base of the Producible
      Reservoir in which the well is completed shall be charged to the
      Participating Parties in such completion in accordance with their
      respective Participating Interest.
	
                         
      

                      	
                        (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
      Producible Reservoir in which the well is completed to total depth shall
      be charged to the Participating Parties in the well to total depth in
      accordance with their respective Participating
  Interest.

                      

              

              
                	
                         
      

                      	
                        (c)

                      	
                        All
      plugging and abandonment costs directly associated with the Producible
      Reservoir in which the well is completed will be allocated to the
      Participating Parties in that completion in accordance with their
      respective Participating Interests.  All final plugging and
      abandonment costs associated with the wellbore will be allocated
      proportionately among all Participating Parties in the well.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  34

                  
                    

                  

                

                
                  
                  

                

              

               

               

              12.9        Allocation of Costs Between
Depths (Multiple Completions).  For the purpose of allocating
costs on any well completed in dual or multiple Producible Reservoirs in which
the Participating Interests of the Parties are not the same for the entire depth
or the completion thereof, the cost of drilling, completing, equipping, and
plugging and abandoning 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 Producible Reservoir shall be divided equally
      between the completed Producible Reservoirs and charged to the
      Participating Parties in each Producible Reservoir in accordance with
      their respective Participating
Interest.

                      

              

              
                	
                         
      

                      	
                        (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 Producible Reservoir to a depth one hundred feet (100') below
      the base of the second completed Producible Reservoir shall be divided
      equally between the second and any other Producible Reservoir completed
      below such depth and charged to the Participating Parties in each such
      Producible Reservoir in accordance with their respective Participating
      Interest.  If the well is completed in additional Producible
      Reservoirs, the costs applicable to each such Producible Reservoir shall
      be determined and charged to the Participating Parties in the same manner
      as prescribed for wells completed in dual Producible
      Reservoirs.

                      

              

              
              

              
                	
                         
      

                      	
                        (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 lowest
      completed Producible Reservoir to total depth shall be charged to the
      Participating Parties in the well to total depth in accordance with their
      respective Participating Interest.

                      

              

              
                	
                         
      

                      	
                        (d)

                      	
                        Costs
      of tubing strings serving each separate Producible Reservoir shall be
      charged to the Participating Parties in each Producible Reservoir in
      accordance with their respective Participating
  Interest.

                      

              

              
                	
                         
      

                      	
                        (e)

                      	
                        For
      the purposes of allocating tangible and intangible costs between
      Producible Reservoirs that occur at less than one hundred feet (100')
      intervals, the distance between the base of the upper reservoir to the top
      of the next lower reservoir shall be allocated equally between
      reservoirs.

                      

              

              
                	
                         
      

                      	
                        (f)

                      	
                        All
      plugging and abandonment costs directly associated with a Producible
      Reservoir will be allocated to the Participating Parties in that reservoir
      in accordance with their respective Participating
      Interests.  All final plugging and abandonment costs associated
      with the wellbore will be allocated proportionately among all
      Participating Parties in the well.

                         

                      

              

               

               

              
                
                  
                  

                

                
                  35

                  
                    

                  

                

                
                  
                  

                

              

               

              12.10       Allocation of Costs Between
Depths (Dry Hole).  For the purpose of this Section, a dry hole
shall mean a well drilled to an objective depth in which the Participating
Parties elected not to complete, or if completed, the well was not a Producible
Well and did not establish a Producible Reservoir.  In allocating
costs on any well containing a dry hole, and in which the Participating
Interests of the Parties are not the same for the entire depth or the completion
thereof, the cost of drilling and plugging and abandoning such well shall be
allocated on the following basis:

               

              
                	
                         
      

                      	
                        (a)

                      	
                        Costs
      to drill and plug and abandon a well proposed for completion in single,
      dual, or multiple objective depths shall be charged to the Participating
      Parties in the same manner as if the well had established a Producible
      Reservoir at each objective depth.

                      

              

              
                	
                         
      

                      	
                        (b)

                      	
                        Additional
      plugging and abandoning costs related to any deepening, completion
      attempt, or other operation shall be at the sole risk and expense of the
      Participating Parties in such operation.

                         

                      

              

              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
Producible Reservoirs, including dry holes as defined in Section 12.10, and
including the interval from one hundred feet (100') below the deepest Producible
Reservoir to total depth on a drilling day ratio basis where the factor for each
reservoir is determined by a fraction for which the
numerator is the number of drilling and completion days applicable to that
reservoir 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.

               

              12.12       Subsequent Operations in
Non-Consent Well.  Except as provided in Section 10.6.4 or
12.3, as applicable, an election not to participate in the drilling,
Sidetracking, or deepening of a well shall be deemed to be an election not to
participate in any subsequent operations in the well before full recovery by the
Participating Parties of the Non-Participating Party's recoupment
amount.  A subsequent operation conducted during the recoupment period
by the Parties entitled to participate shall be subject to the recoupment
provided in Section 12.2.1.

              

              
                
                  
                  

                

                
                  36

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
13

              ABANDONMENT AND
SALVAGE

              

              13.1           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.

               

              13.2           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 unanimous approval 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, plugging and abandoning, the abandoning Party
shall pay the Operator, for the benefit of the non-abandoning Parties, a sum
equal to the deficiency.

               

              13.3           Assignment of
Interest.  Each Participating Party desiring to abandon a well
pursuant to Section 13.2 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, after delivering the assignment, from any further
liability with respect to said well, and each non-abandoning Party shall assume
and bear all such liabilities in proportion to the share of interest that it
receives from the abandoning Parties.  Notwithstanding Section 13.2,
no Party shall be required to accept an assignment of an interest of a Party
desiring to abandon a well.  If no Party is willing to accept
the assignment, the Party seeking to abandon the well shall remain an owner in
the well. 

               

              13.4           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
14

              WITHDRAWAL

              

              14.1           Withdrawal.  A
Party may withdraw from this Agreement by assigning to the other Parties who do
not desire to withdraw, all of its interest in the Contract Area and the wells,
Platforms and Facilities used in operations thereon; 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.  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 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 ninety (90) 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 the withdrawing Party
shall thereafter be relieved from all further obligations and liabilities with
respect to the Contract Area; provided, however, that such withdrawing Party
shall remain liable for any costs, expenses, or damages theretofore accrued or
arising out of any event accruing prior to such Party's withdrawal.

               

              
                
                  
                  

                

                
                  37

                  
                    

                  

                

                
                  
                  

                

              

              14.2           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.  Notwithstanding Section 14.1, no Party shall be required
to accept an assignment of a withdrawing Party's interest.  If no
Party is willing to accept the assignment, the Party seeking to withdraw shall
remain subject to this Agreement.

              ARTICLE
15

              RENTALS, ROYALTIES, AND
OTHER PAYMENTS

              

              15.1           Creation of Overriding
Royalty.  If the Working Interest or Participating Interest of
a Party is subject to an overriding royalty, production payment, net profits
interest, mortgage, lien, security interest, or other burden or encumbrance,
other than lessor’s royalty, the Party so burdened shall pay and bear all
liabilities and obligations created or secured by the burden or encumbrance and
shall indemnify and hold the other Parties harmless from all claims and demands
for payment asserted by the owners of the burdens or encumbrances. If any
Non-Participating Party's interest is subject to an overriding royalty,
production payment, or other charge or burden other than the “Permitted
Encumbrance” shown on Exhibit “A”, then the Participating Parties shall, during
recoupment of costs to be recovered under Section 12.2 above, receive the
Working Interest production of such Non-Participating Party free from such
charge or burden, which shall be paid and discharged by the Non-Participating
Party out of his own separate funds.  Such Non-Participating Party
shall hold the Participating Parties harmless with regard to such
payment.

               

              
                
                  
                  

                

                
                  38

                  
                    

                  

                

                
                  
                  

                

              

              15.2           Payment of Rentals and
Minimum Royalties.  Operator shall 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 Lease(s) and submit evidence of each
such payment to the Parties.  Operator 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, or
is erroneously paid.  The loss of any Lease or interest therein which
results from a failure to pay or an erroneous payment of rental or minimum
royalty shall be a joint loss and there shall be no readjustment of
interest.

               

              15.3           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 such Lease as would be maintained by such
payment.  Unless otherwise agreed, such assigned interest shall be
owned by each Participating Party in proportion to its Participating
Interest.

               

              15.4           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 Contract Area for its
account and on its share of any production used, consumed, or lost on the
Contract Area.  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
16

              TAXES

              

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

               

              16.2           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.

               

              
                
                  
                  

                

                
                  39

                  
                    

                  

                

                
                  
                  

                

              

              16.3           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.

               

              16.4           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, provided that should a Party's
unilateral action cause a change in status of the entire Lease, Platform or
Facilities thereon for tax purposes, that Party shall bear the entire increased
portion of taxes caused by that Party's action.

               

              16.5           Gas
Balancing.  Each Party agrees that with respect to gas
production, each Party taking gas under the Gas Balancing Agreement attached
hereto as Exhibit "D" shall account for such gas for federal income tax purposes
in accordance with proposed Treasury Regulation Section 1.761-2(d)(3), or in
accordance with binding laws, rules, regulations, and orders affecting
production from the Contract Area which hereafter may be adopted, promulgated,
or issued by an agency or other governmental authority having jurisdiction over
the Contract Area.

              

              ARTICLE
17

              INSURANCE

              

              17.1           Insurance.  Operator
shall at times when operations are conducted herein during the term of this
Agreement, carry, pay for and charge each Party its proportionate share of
the cost of (i) Worker’s Compensation and Employer’s Liability Insurance
covering the employees of Operator engaged in operations hereunder in compliance
with all applicable State and Federal laws and (ii) Contingent Maritime
Employer’s Liability Insurance.  The Worker’s Compensation policy
shall have attached the “Longshoreman’s Harbor Worker’s Compensation Act
(Federal) Endorsement” and “Outer Continental Shelf Land’s
Endorsement”.  The Contingent Maritime Employer’s Liability Insurance
shall provide for a limit of liability of not less than $1,000,000 per
accident.  Such policies shall contain waivers of subrogation in favor
of Non-Operators.  Each Party to this Agreement shall be responsible
for insuring its own interest in property and equipment, well control and
redrill expense, or loss of income and any other loss not covered by the
insurance referred to herein.  Each Party for its account shall carry,
pay for and maintain throughout the term of this Agreement policies of insurance
specified in Exhibit “B” of this Agreement.

              

              
                
                  
                  

                

                
                  40

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
18

              LIABILITY, CLAIMS AND
LAWSUITS

              

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

               

              18.2           Notice of Claim or
Lawsuit.  If a claim is made against any Party or if any Party
is sued on an alleged cause of action arising out of operations hereunder or an
alleged cause of action involving title to any interest subject hereto, such
Party shall give prompt written notice to the other Parties.

               

              18.3           Settlements.  Operator
may settle any single damage claim or suit involving operations or title to any
interest hereunder if the expenditure does not exceed Fifty Thousand Dollars
($50,000.00) and if the payment is in complete settlement of such claim or
suit.  If the amount required for settlement exceeds such amount, the
Participating Parties shall determine the further handling of the claim or
suit.  Operator will keep the Participating Parties appropriately
advised of all material events in each lawsuit and claim arising from operations
hereunder.

               

              18.4           Legal
Expense.  Legal expenses shall be handled pursuant to Exhibit
"C"; however, such legal expenses shall be approved and borne in accordance with
Exhibit "C" by only the Participating Parties in the operations out of which
such liability giving rise to same occurs.

               

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

               

              18.6           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.

               

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

              

              
                
                  
                  

                

                
                  41

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
19

              INTERNAL REVENUE
PROVISION

              

              19.1           Internal Revenue
Provision.  Notwithstanding any provisions herein that the
rights and liabilities are several and not joint or collective, or that this
Agreement and the operations hereunder shall not constitute a partnership, each
Party elects not to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A, Internal Revenue Code of 1986, as amended, and similar provisions of
applicable state laws.  The tax partnership shall be governed by
Exhibit
“F”                                           .

              

              ARTICLE
20

              CONTRIBUTIONS

              

              20.1           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, in support of the drilling of any well on the Contract
Area.  Payments received as consideration for entering into a contract
for sale of production from the Contract Area, loans, and other financing
arrangements shall not be considered contributions for the purposes of this
Article.

               

              20.2           Cash
Contributions.  In the event a Party contracts for a cash
contribution toward the drilling of a well, said cash contribution shall be paid
to Operator and Operator shall apply the amount thereof against the cost of such
drilling.  If such well is a Non-Consent Well, the amount of the
contribution shall be deducted from the cost specified in Section
12.2.1.(a).

               

              
                
                  
                  

                

                
                  42

                  
                    

                  

                

                
                  
                  

                

              

              20.3           Acreage
Contributions.  In the event a Party contracts for 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 the cost of drilling the
well.  Such acreage shall become a separate contract area and,
to the extent possible, be subject to provisions identical to those contained in
this Agreement.  For purposes of this Agreement, the word "acreage"
shall mean lands or leases or interests therein.

              

              ARTICLE
21

              DISPOSITION OF
PRODUCTION

              

              21.1           Facilities to Take in
Kind.  Any Party shall have the right, at its sole risk and
expense, to construct Facilities for taking its share of production in kind,
provided that such Facilities, at the time of installation, do not interfere
with continuing operations on the Contract Area.

               

              21.2           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
Contract Area.

               

              21.3           Failure to Take in
Kind.  If any Party fails to take in kind and dispose of its
share of the oil and/or condensate, Operator shall have the option, but not the
obligation, to either (a) purchase oil and/or condensate at Operator's posted
price for liquids of the same kind, gravity, and quality in the field where the
Leases are located or, in the absence of such posted price, at the price
prevailing in the field or area for oil and/or condensate of the same kind,
gravity, and quality, or (b) sell such oil and/or condensate to others under
commercially reasonable terms negotiated by Operator in good faith , 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 be only for such
reasonable periods of time as are consistent with the minimum needs of the
industry under the circumstances, but in no event shall any contract be for a
period in excess of one hundred and eighty (180) days.  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 or dispose of
its share of gas, such gas shall be accounted for in accordance with the
provisions of Exhibit "D", Gas Balancing Agreement, attached hereto and made a
part hereof.

               

              21.4           Expenses of Delivery in
Kind.  Any cost incurred in making delivery of any Party's
share of oil and/or condensate or disposing of same pursuant to Section 21.3,
shall be borne by such Party.

               

              21.5           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
the attached Exhibit "D".

              
                
                   

                

                
                  43

                  
                    

                  

                

                
                   

                

              

              ARTICLE
22

              APPLICABLE
LAW

              

              22.1           Applicable
Law.  THIS AGREEMENT AND ALL OPERATIONS CONDUCTED HEREUNDER BY
THE PARTIES SHALL BE SUBJECT TO ALL VALID AND APPLICABLE FEDERAL LAWS, RULES,
REGULATIONS AND ORDERS ("FEDERAL LAW").  TO THE EXTENT REQUIRED BY
FEDERAL LAW, THE LAWS OF THE STATE ADJACENT TO THE CONTRACT AREA SHALL
APPLY.  THIS AGREEMENT SHALL OTHERWISE BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF LOUISIANA, EXCLUDING CHOICE
OF LAW RULES THAT WOULD REFER THE MATTER TO THE LAW OF ANY OTHER
JURISDICTION.

              

              ARTICLE
23

              LAWS AND
REGULATIONS

              

              23.1           Laws and
Regulations.  This Agreement and all operations and activities
conducted under it shall be subject to all applicable laws, rules, regulations
and orders (federal, state, and local).  A provision of this Agreement
found to be contrary to or inconsistent with any such law, rule, regulation or
order shall be deemed to have been modified accordingly.

              

              ARTICLE
24

              FORCE
MAJEURE

              

              24.1           Force
Majeure.  The obligations imposed by this Agreement on a Party,
except for indemnity obligations and the payment of money, shall be suspended
with respect to such Party to the extent that compliance is prevented, in whole
or in part, by a labor dispute, fire, storm, 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
removed; and provided further that no Party shall be required against its will
to settle any labor dispute.

               

              24.2           Notice.  Whenever
a Party's obligations are suspended under Section 24.1, such Party shall
immediately notify the other Parties and give full particulars of the reason for
such suspension.

              

              
                
                  
                  

                

                
                  44

                  
                    

                  

                

                
                  
                  

                

              

              ARTICLE
25

              SUCCESSORS, ASSIGNS AND
PREFERENTIAL RIGHTS

              

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

              25.2           Transfer of Interest.
No transfer, assignment, or other disposition of interest by a Party shall
relieve the Party of liabilities and obligations it has incurred or that are
attributable to the interest transferred before the date of the transfer, and
the obligation to pay and bear all costs and risks attributable to an operation
in which the Party was a Participating Party before making the transfer, and the
lien and security rights granted by Section 8.5 (Security Rights) shall continue
to burden the interest transferred to secure payment of the obligations. The
transferor shall be liable for all costs, expenses, and liabilities for well
plugging and abandonment, Platform and Facilities removal and disposal, and site
clearance for property and equipment attributable to the assigned interest
before the date of the transfer, net of salvage proceeds.

               

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

               

              
                	
                         
      

                      	
                        (a)

                      	
                        the
      transferee is financially capable of assuming the obligations hereunder
      and, in accordance with Subsection 25.3(c), the transferor furnishes the
      Parties with proof of such financial capability that, in the case of Outer
      Continental Shelf leases, shall be proof that the transferee is currently
      qualified by the Minerals Management Service, an agency of the United
      States Department of the Interior, or a successor agency having
      jurisdiction (hereinafter “MMS”), to own Outer Continental Shelf leases
      and that the transferee has on file with the MMS the appropriate lessee
      and Operator bonds;

                      

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              
                	
                         
      

                      	
                        (c)

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

                         

                      

              

              The
requirements of this Section 25.3 shall not apply to a merger, consolidation,
reorganization, sale or transfer to an Affiliate, a mortgage by a Party of its
interest in the Leases within the Contract 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.

               

              
                
                  
                  

                

                
                  45

                  
                    

                  

                

                
                  
                  

                

              

              25.4           Transfers Between
Parties. A transfer, relinquishment, or other disposition of interests in
the Leases between Parties under Section 12.6 (Non-Consent Operations to
Maintain Lease); Article 14 (Withdrawal); or Section 15.3 (Non-participation in
Payments) shall be made without warranty of title. Any such transfer between the
Parties, if applicable, shall be free and clear of all overriding royalty,
production payment, net profits
interest, mortgage, lien, security interest, or other burden or encumbrance,
other than lessor’s royalty burdens and the Permitted Encumbrance shown on
Exhibit “A”.

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

               

              25.6           Preferential Rights.
If a Party desires to transfer, sell, farmout, assign, or otherwise dispose of
all or part of its Working Interest (“Disposing Party”), it shall promptly give
written notice to the other Parties with full information about the proposed
transaction, including, but not limited to, the name and address of the
prospective transferee (who must be ready, willing, and able to acquire the
interest and deliver the stated consideration therefor), the consideration for
the transfer, farmout terms, and all other terms of the offer. In the case of a
package sale of oil and gas interests that includes all or part of the Disposing
Party’s Working Interest, or if the proposed transaction is structured as a
non-simultaneous, like-kind exchange under Section 1031 of the Internal Revenue
Code of 1986, as amended (“Code”), the Working Interest that is subject to this
preferential right shall be separately valued and the notice shall state the
value attributed to the interest by the prospective transferee. The other
Parties shall then have an optional prior right, for a period of thirty (30)
days after receipt of the notice, to elect to purchase or acquire on the same
terms and conditions, or on equivalent terms for a non-cash transaction, all of
the Working Interest that the Disposing Party is proposing to transfer. If this
preferential right is exercised by a Party, the purchasing or acquiring Parties
shall share the purchased or acquired interest in the proportions that the
Working Interest of each bears to the total Working Interest of all acquiring
Parties, or in such proportions as the acquiring Parties otherwise agree. This
preferential right shall apply separately to each Working Interest or part
thereof covered by this Agreement, regardless of whether it is included in the
proposed transaction along with other oil and gas interests, whether as a sale,
farmout, or non-simultaneous, like-kind exchange, and no provision in this
Agreement shall be interpreted to defeat this preferential right. Upon exercise
of this preferential right, the acquiring Parties shall agree to perform all
obligations of the prospective transferee under the proposed transaction only
for the Working Interest subject to the proposed transaction. This preferential
right, however, shall not exist or apply when a Party proposes (a) to mortgage
its interest; (b) to dispose of or transfer its interest to an Affiliate by (i)
merger, (ii) reorganization, or (iii) consolidation; (c) to sell all, or
substantially all, of its exploration and production properties located in the
United States of
America; or (d) to transfer the interest under a property exchange transaction
other than a non-simultaneous, like-kind exchange under Section 1031 of the
Code. If the proposed transaction is not consummated within six (6) months after
receipt of the notice by the other Parties, the Working Interest shall again be
governed by this Section 25.6 and the preferential right shall again arise for
the offered interest as herein described.

              
                
                   

                

                
                  46

                  
                    

                  

                

                
                   

                

              

              

              ARTICLE
26

              TERM

              

              26.1           Term.  This
Agreement shall remain in effect so long any Lease or part thereof within the
Contract Area remains in force and effect and thereafter until: (a) all wells
within the Contract Area have been abandoned and plugged or turned over to a
single Working Interest owner in accordance with Article 14; (b) all 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
"D".  Termination of this Agreement shall not relieve a Party of any
liability or obligation which accrued or was incurred before such
termination.

              

              ARTICLE
27

              MISCELLANEOUS
PROVISIONS

              

              27.1           
Headings.  Except
for the headings contained in Article 2 (Definitions), the headings and table of
contents used herein are inserted for convenience only and shall be disregarded
in construing this Agreement.

               

              27.2           
Waiver.  Failure
to act upon a breach of any provision of this Agreement does not waive a Party's
right to enforce a subsequent breach of the same or any other
provision.

              

              ARTICLE
28

              EXECUTION

              

              28.1           Counterpart
Execution.  This Agreement may be executed by signing the
original or a counterpart thereof.  If this Agreement is executed in
counterparts, all counterparts taken together shall have the same effect as if
all the Parties had signed the same instrument.

               

              28.2           Amendments.  No
amendments hereof shall be effective unless they are in writing and executed by
the relevant Parties.

              

              
                
                   

                

                
                  47

                  
                    

                  

                

                
                   

                

              

              IN
WITNESS WHEREOF, this Agreement has been executed by the Parties on the date
shown below, but effective as of the day and year first above
written.

              

              WITNESSES:

              

              OPERATOR:

              

              Ridgelake Energy, Inc.

              _______________________________

              

              By:_________________________________

              _______________________________                        William
M. Hines

                                                                                                             
Vice President

              Date: September 26, 2006

              

              

              

              WITNESSES:

              NON-OPERATORS:

              

              GulfX, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Paul Garner

              Title: Vice
President

              Date: Oct 6,
2006

              

              

              South Marsh, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Paul Garner

              Title: Vice
President

              Date: Oct 6,
2006

              

              
 

              Lion Energy Limited, LLC

              _______________________________

              

              By:_________________________________

              _______________________________                        Name: Russell
Brimage

              Title: President

              Date: Oct 6,
2006

              

              

              

              

              

              
                
                   

                

                
                  48

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
"A"

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day
of  September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited, LLC.

              

              

              
                	
                        I.

                      	
                        Description of
      Lease(s):

                      

              

              

              
                That
certain Lease dated effective May 1, 2005, by and between the United States of
America (“Lessor”) and Ridgelake Energy, Inc. (“Lessee”), designated by the
Minerals Management Service as OCS-G 27078, and covering 5,000 acres of
submerged lands within the Outer Continental Shelf, described as
follows:

                

                “All of Block 317, Vermilion Area,
South Addition, , OCS Leasing Map, Louisiana Map No. 3B”

              

              

              
                	
                        II.

                      	
                        Contract
      Area:

                      

              

              

              The
Contract Area shall cover all of the acreage covered by OCS-G
27078.

              

              
                	
                        III.

                      	
                        Interest of
      Parties:

                      

              

              

              Party:                                                                                                        
Interest:

              

              RIDGELAKE
ENERGY, INC. (“OPERATOR”)    40.00%

              GULFX,
LLC                                                                                                           **20.00%

              SOUTH
MARSH
LLC                                                                                           **10.00%

              LION ENERGY LIMITED
LLC                                                                             **30.00%

                                                                                                                                                          100.00%

               

               

              
                * (NOTE:
It is recognized that, pursuant to the terms of that certain Seismic Acquisition
and Exploration Agreement dated effective September 7, 2004, by and between
Ridgelake Energy, Inc. and Beacon Exploration and Production Company, L.L.C.,
Beacon has the right to participate for up to a 10% working interest in OCS-G
27078. Should Beacon or its designee be determined to have properly elected to
acquire a working interest in OCS-G 27078, then it is understood that such
interest will be conveyed by Ridgelake to Beacon or its designee. Furthermore,
it is agreed that the conveyance by Ridgelake to Beacon or its designee under
the terms of the aforesaid Seismic Acquisition and Exploration Agreement shall
not be subject to the terms of this agreement until such time as Beacon or it
designee has ratified and/or otherwise accepted the terms of this Operating
Agreement. In particular, the Parties herein specifically understand and agree
that the aforesaid conveyance by Ridgelake to Beacon ir its designee is not
subject to the terms of Article 25.3 and 25.6 of this Operating
Agreement.)

                

              

               

              ** (NOTE:
It is recognized and understood that the respective interests credited to GulfX,
LLC, South Marsh LLC and Lion Energy Limited LLC are subject to the terms and
conditions of the following Participation Agreements: 1) that certain Agreement
dated January 18, 2006, by and between Ridgelake and GulfX, LLC,
(2)  that certain Agreement dated September 18, 2006, by and between
Ridgelake and South Marsh LLC, and (3) that certain Agreement dated September
18,2006, by and between Ridgelake and Lion Energy Limited LLC. As such, the
interest, which is conditioned upon the performance by GulfX, South Marsh and
Lion of all of the terms and conditions contained in the aforesaid Participation
Agreements. Should the said parties fail to earn an interest in OCS-G 27078
under the terms of the Participation Agreement that is applicable to that
party’s conditional interest, then it is recognized that the interest credited
to that party shall revert to Ridgelake. Furthermore, it is understood and
agreed that if there is a conflict between the terms and conditions of the
Participation Agreements referenced herein and this Operating Agreement, then
the terms of the applicable Participation Agreement shall apply and take
precedence over the terms and conditions contained in this Operating
Agreement.)

              

              
                
                  
                  

                

                
                  A-1

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        IV.

                      	
                        Designated
      Representatives:

                      

              

              

              RIDGELAKE ENERGY,
INC.                                                                                   GULFX,
LLC

              3636 N. Causeway Boulevard, Suite
300                                                               45
Ventnor Avenue

              Metairie, Louisiana
70002-7216                                                                              West
Perth 6005

              Attention:  Mr. John
Rubin                                                                                    
Western Australia, Australia

                                                  
Attention: ______________

              

              SOUTH MARSH
LLC                                                                                             
LION ENERGY LIMITED LLC

              P.O. Box
512                                                                                                              
P.O. Box 512

              West Perth Business Center
6872                                                                         
West Perth Business Center 6872

              Western Australia,
Australia                                                                                 
Western Australia, Australia

              Attention:
_________________                                                                         
Attention: _________________

              

              

              
                	
                        V.

                      	
                        Permitted
      Encumbrance:

                      

              

              

              
                In
addition to Lessor’s royalty, OCS-G 27078 is burdened with a 3.33333% of 8/8ths
Overriding Royalty Interest, which has been granted by Ridgelake Energy, Inc. to
Beacon Exploration and Production Company, L.L.C., pursuant the terms of that
certain letter agreement dated September 7, 2004, by and between Ridgelake and
Beacon Exploration and Production Company L.L.C. The aforesaid burdens are
Permitted Encumbrances under the terms of this Operating
Agreement.

              

              
                
                   

                

                
                  A-2

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“B”

              INSURANCE

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              INSURANCE
PROVISIONS

              

              1           Operator shall carry the
following insurance for the joint account:

              

              
                	
                         
      

                      	
                        a.

                      	
                        Workmen's
      Compensation and Employer's Liability Insurance covering employees of
      Operator engaged in operations hereunder in compliance with all applicable
      State and Federal Laws. The Workmen's Compensation policy shall have
      attached the "Longshoreman's Harbor Worker's Compensation Act (Federal)
      Endorsement" and "Outer Continental Shelf Lands
    Endorsement".

                      
	 	 	 
	 	
                        b.

                      	
                        Contingent
      Maritime Employer's Liability Insurance shall provide for a limit of
      liability of not less than $1,000,000 per
  accident.

                      

              

              

              
              

              

              
                 
2.           
Each
Party shall carry the insurance noted below with the minimum limits as set
out:

              

              

              
                	
                         
      

                      	
                        a.

                      	
                        General
      Liability and Property Damage Insurance endorsed to include offshore
      operations and non-owned watercraft liability, covering operations
      conducted hereunder with a combined single limit each occurrence of
      $1,000,000 for bodily injury and property damage.

                      
	 	 	 
	 	
                        b.

                      	
                        Commercial
      Automobile Liability Insurance covering owned, non-owned and hired
      automobiles with a combined single limit of $1,000,000 per occurrence and
      Property Damage Insurance covering operations conducted hereunder with a
      combined single limit each occurrence of $500,000 for bodily injury and
      property damage.

                      
	 	 	 
	 	
                        c.

                      	
                        Excess
      Liability Insurance, including sudden and accidental pollution liability,
      with a limit of $35,000,000.00.

                      
	 	 	 
	 	d. 	
                        Non-Owned
      Aircraft Liability Insurance with a limit of $5,000,000 each
      occurrence.

                      
	 	 	 
	 	
                        e.

                      	
                        Insurance
      for Control of Well, Redrilling and Restoration due to blowout and/or
      cratering above or below surface, and Seepage and Pollution Liability
      coverage including cleanup and containment with a minimum limit of
      $25,000,000 per occurrence. Coverage shall also include Care Custody and
      Control Insurance with a minimum limit of $500,000 per
      occurrence.

                      

              

              
 

              
                	
                        3.

                      	
                        Any
      Party hereto may acquire such additional insurance as it deems proper to
      protect itself against any claims, losses, damages or destruction arising
      out of operations hereunder.

                      

              

              

              
                	
                        4.

                      	
                        Operator
      shall use reasonable efforts to require all contractors and subcontractors
      working or performing services hereunder to comply with the Workmen's
      Compensation and Employer's Liability Laws, both State and Federal, and to
      carry Comprehensive General Liability and such other insurance as Operator
      deems necessary.

                      

              

              

              In the
event that construction operations are performed, Operator shall determine the
amount(s) of Builder’s Risks Insurance appropriate for the project and shall:
(i) cause the pertinent contractor(s) and, as applicable, subcontractor(s) to
carry, in the aggregate and as Operator deems appropriate, such coverage and/or
(ii) carry for the joint account (and charge it accordingly) for such portion
of, of all, the coverage as operator deems appropriate.  In any such
event, Operator shall cause certificates of insurance reflective of such
coverage to be forwarded to the Non-Operator(s).

              
                
                   

                

                
                  B-1 

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“C”

              

              Attached
to and made a part of that certain Operating Agreement,

              dated the
18th
day of September, 2006,

              by and between Ridgelake Energy, Inc.,
GulfX, LLC, South Marsh LLC and Lion Energy Limited LLC.

              

              ACCOUNTING
PROCEDURE

              OFFSHORE
JOINT OPERATIONS

              

              

              I.
GENERAL PROVISIONS

              

              
                	
                         
      

                      	
                        1.

                      	
                        Definitions

                      

              

              

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

              

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

              

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

              

              “Operator”
shall mean the party designated to conduct the Joint Operations.

              

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

              

              “Parties"
shall mean Operator and Non-Operators.

              

              “First
Level Supervisors” shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or contract labor
directly employed on the Joint Property in a field operating
capacity.  The First Level Supervisor shall not be required to be
located on the Joint Property, but shall be located at a field location near the
Joint Property.

              

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

              

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

              

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

              

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

              

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

              

              “Offshore
Facilities” shall mean platforms and support systems such as oil and gas
handling facilities, living quarters, offices, shops, cranes, electrical supply
equipment and systems, fuel and water storage and piping, heliport, marine
docking installations, communication facilities, navigation aids, and
other

              similar
facilities necessary in the conduct of offshore operations.

              

              
                
                  
                  

                

                
                  C-1

                  
                    

                  

                

                
                  
                  

                

              

              2.         Statements and
Billings

              

              
                	
                         
      

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

                      

              

              
 

              

              3.         Advances and Payments by
Non-Operators

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                	
                        4.

                      	
                        Adjustments

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        5.

                      	
                        Audits

                      

              

              

              
                	
                         
      

                      	
                        A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                
                  
                  

                

                
                  C-2

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        6.

                      	
                        Approval
      by Non-Operators

                      

              

              

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

              

              II.
DIRECT CHARGES

              

              Operator
shall charge the Joint Account with the following items:

              

              
                	
                        1.

                      	
                        Rentals
      and Royalties

                      

              

              

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

              

              
                	
                        2.

                      	
                        Labor

                      

              

               

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

               

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

              

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

              

              

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

              

               

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

               

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

               

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

               

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

              

              
                	
                        3.

                      	
                        Employee
      Benefits

                      

              

              

              Operator's
current costs of established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus, and other
benefit plans of a like nature, applicable to Operator's labor cost chargeable
to the Joint Account under Paragraphs 2A and 2B of this Section II shall be
Operator's actual cost not to exceed the percent most recently recommended by
the Council of Petroleum Accountants Societies.

              

              
                
                  
                  

                

                
                  C-3

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        4.

                      	
                        Material

                      

              

              

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

              

              
                 
5.      Transportation

              

              

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

              

              
                	
                         
      

                      	
                        A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              
                	
                         
      

                      	
                        C.

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

                      

              

              

              
                	
                        6.

                      	
                        Services

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        7.

                      	
                        Equipment
      and Facilities Furnished by
Operator

                      

              

              

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

              

              

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

              

              

              
                
                  
                  

                

                
                  C-4

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        8.

                      	
                        Damages
      and Losses to Joint Property

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        9.

                      	
                        Legal
      Expense

                      

              

              

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

              

              
                	
                        10.

                      	
                        Taxes

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        11.

                      	
                        Insurance

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        12.

                      	
                        Communications

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                
                  
                  

                

                
                  C-5

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        13.

                      	
                        Ecological
      and Environmental

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        14.

                      	
                        Abandonment
      and Reclamation

                      

              

              

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

              

              
                	
                        15.

                      	
                        Other
      Expenditures

                      

              

              

              
                	
                         
      

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

                      

              

              

              III.  OVERHEAD

              

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

              

              Unless
otherwise agreed to by the Parties, such charge shall be in lieu of costs and
expenses of all offices and salaries or wages plus applicable burdens and
expenses of all personnel, except those directly chargeable under Section
II.  The cost and expense of services from outside sources in
connection with matters of taxation, traffic, accounting or matters before or
involving governmental agencies, except as herein described, shall be considered
as included in the overhead rates provided for in this Section III unless such
cost and expense are agreed to by the Parties as a direct charge to the Joint
Account. Notwithstanding anything
herein contained to the contrary, it is agreed that such costs and services when
directly employed on the Joint Property shall not be covered by the overhead
rates. Furthermore, the reasonable and customary fees and expenses incurred by
contract personnel and professional consultants as such fees relate to matters
before or involving governmental agencies (including but not limited to the
Minerals Management Service and other regulatory agencies) , even if such
contract or professional consultants are working in Operator’s office, shall be
directly chargeable to the Joint Account, to the extent that such fees and
expenses are associated with the operation of the Joint
Property.

              

              
                	
                         
      

                      	
                        i.

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

                      

              

              

              
                	
                         
      

                      	
                        (    
       ) shall be covered by the overhead
rates.

                      

              

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

                      

              

              

              
                	
                         
      

                      	
                        ii.

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

                      

              

              

              
                	
                         
      

                      	
                        (  x  )
      shall be covered by the overhead
rates.

                      

              

              
                	
                         
      

                      	 	 	
                        (      )
      shall not be covered by the overhead
rates.

                      

              

              

              
                
                  
                  

                

                
                  C-6

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        1.

                      	
                        Overhead
      - Drilling and Producing Operations

                      

              

              

              
                	
                         
      

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

                      

              

               

               

              

               

              
                	
                        (  x  )
    

                      	
                        Fixed
      Rate Basis, Paragraph 1A, or

                      
	
                        (      )

                      	
                        Percentage
      Basis, Paragraph 1B

                      

              

               

              

              

              
                	
                        A.

                      	
                        Overhead
      - Fixed Rate Basis

                      

              

              

              
                	
                         
      

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

                      

              

              
                	
                         
      

                      	
                                    
      Drilling Well Rate $30,000.  (Prorated for
      less than a full month)

                      

              

              
                	
                         
      

                      	
                                    
      Producing Well Rate $3,000.

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              

              
                	
                         
      

                      	
                        (3)

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      
	 	 	 
	 	
                        (b)

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

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

              

              

              
              

              

              
              

              

              
                
                  
                  

                

                
                  C-7

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        (d)

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

                      
	 	 	 
	 	
                        (e)

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

                      

              

              

              
              

              

              
                	
                         
      

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

                      

              

              

              
                 
B.     
Overhead - Percentage Basis

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)
      Development

                      

              

              
                	 	
                        __________________ Percent
      (___%) of cost of Development of the Joint Property exclusive of
      costs provided under Paragraph 9 of Section II and all salvage
      credits.

                      

              

              

              

              
                	
                         
      

                      	
                        (b)
      Operating

                      

              

              
                	 	
                             ______________________
      Percent (___%) of the cost of Operating the
  Joint

                      

              

              

              
                	
                         
      

                      	
                        Property
      exclusive of costs provided under Paragraphs 1 and 9 of Section II, all
      salvage credits, the value of injected substances purchased for secondary
      recovery and all taxes and assessments which are levied, assessed and paid
      upon the mineral interest in and to the Joint
  Property.

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                         Application
      of Overhead - Percentage Basis shall be as
      follows:

                      

              

              

              For the
purpose of determining charges on a percentage basis under Paragraph 1B of this
Section III, development shall include all costs in connection with drilling,
redrilling, deepening, or any project with a primary purpose to extend or expand
a wellbore in order to recover new reserves not previously recoverable by the
wellbore; also,
preliminary expenditures necessary in preparation for drilling and expenditures
incurred in abandoning when the well is not completed as a producer, and
original cost of construction or installation of fixed assets, the expansion of
fixed assets and any other project clearly discernible as a fixed asset, except
Major Construction as defined in Paragraph 2 of this Section III.  All
other costs shall be considered as Operating except that catastrophe costs shall
be assessed overhead as provided in Section III, Paragraph 3.

              

              
                
                  
                  

                

                
                  C-8

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        2.

                      	
                        Overhead
      - Major Construction

                      

              

              

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

              

              (1) 6%  of
total costs if such costs are more than $25,000
but less than $100,000; plus

               

              (2)  4
%  of
total costs in excess of $100,000 but less than $1,000,000; plus

               

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

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              (1) 
4%  of
total costs if such costs are more than $
25,000 but less than $100,000; plus

              

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

              

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

              

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

              

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

              

              
                	
                         
      

                      	
                        3.

                      	
                        Overhead
      - Catastrophe

                      

              

              

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

               

              (1) 4%  of
total costs through $100,000; plus

               

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

               

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

              

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

              

              
                
                  
                  

                

                
                  C-9

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        4.

                      	
                        Amendment
      of Rates

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        *IV.

                      	
                        PRICING
      OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
      DISPOSITIONS

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        * Operator shall account
      for material purchase and transfers in accordance with
      COPAS    Interpretation 23, attached hereto, or the
      pricing procedur5e most recently recommended by
  COPAS.

                      

              

              
                	
                        1.

                      	
                        Purchases

                      

              

              

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

              

              
                	
                        2.

                      	
                        Transfers
      and Dispositions

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                
                  
                  

                

                
                  C-10

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        A.

                      	
                        New
      Material (Condition A)

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Tubular
      Goods Other than Line Pipe

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

                      	
                        For
      grades which are special to one mill only, prices shall be computed at the
      mill base of that mill plus transportation cost from that mill to the
      railway receiving point nearest the Joint Property as provided above in
      Paragraph 2.A.(1)(a).  For transportation cost from points other
      than Eastern mills, the 30,000 pound Oil Field Haulers Association
      interstate truck rate shall be
used.

                      

              

              

              
                	
                         
      

                      	
                        (c)

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

                      

              

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                        Line
      Pipe

                      

              

              

              
                	
                         
      

                      	
                        (a)

                      	
                        Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      Over) 30,000 pounds or more shall be priced under provisions of tubular
      goods pricing in Paragraph A.(1 )(a) as provided above. Freight charges
      shall be calculated from Lorain,
Ohio.

                      

              

              

              
                	 	
                        (b)

                      	
                        Line
      pipe movements (except size 24 inch OD and larger with walls 3/4 inch and
      over) less than 30,000 pounds shall be priced at Eastern mill published
      carload base prices effective as of date of shipment, plus 20 percent,
      plus transportation costs based on freight rates as set forth under
      provisions of tubular goods pricing in Paragraph A.(1)(a) as provided
      above. Freight charges shall be calculated from Lorain,
    Ohio.

                      

              

              

              
                	
                         
      

                      	
                        (c)

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

                      

              

              

              
                	
                         
      

                      	
                        (d)

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

                      

              

              

              
                	
                         
      

                      	
                         (3)

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

                      

              

              

              
                	
                         
      

                      	
                         (4)

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

                      

              

              

              
                
                  
                  

                

                
                  C-11

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        B.

                      	
                        Good
      Used Material (Condition B)

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Material
      moved to the Joint Property

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

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

              

               

              
                	 	
                        (a)

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

                      
	 	 	 
	 	
                        (b)

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

                      

              

               

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

                      

              

              
              

              
 

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

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

              

              

              

              
                	
                         
      

                      	
                        C.

                      	
                        Other
      Used Material

                      

              

              

              
                	
                         
      

                      	
                        (1)

                      	
                        Condition
      C

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (2)

                      	
                        Condition
      D

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                         
      

                      	
                        (a)

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

                      

              

              

              
                	
                         
      

                      	
                        (b)

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

                      

              

              

              
                
                  
                  

                

                
                  C-12

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                         
      

                      	
                        (3)     
      Condition E

                      

              

              

              
                	
                         
      

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

                      

              

              

                   
D.     Obsolete Material

              

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

              

                  E.      Pricing
Conditions

              

              
                	
                         
      

                      	
                            (1)

                      	
                        Loading
      or unloading costs may be charged to the Joint Account at the rate
      of  twenty-five cents ($0.25) per hundred weight on all tubular
      goods movements, in lieu of actual loading or unloading costs sustained at
      the stocking point.  The above rate shall be adjusted as of the
      first day of April each year following January 1, 1985 by the same
      percentage increase or decrease used to adjust overhead rates in Section
      III, Paragraph 1.A(4). Each year, the rate calculated shall be rounded to
      the nearest cent and shall be the rate in effect until the first day of
      April next year.  Such rate shall be published each year by the
      Council of Petroleum Accountants
Societies.

                      

              

              

              
                	
                         
      

                      	
                            (2)

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

                      

              

              

              
                	
                        3.

                      	
                        Premium
      Prices

                      

              

              

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

              

              
                	
                        4.

                      	
                        Warranty
      of Material Furnished By Operator

                      

              

              

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

              

              
                
                  
                  

                

                
                  C-13

                  
                    

                  

                

                
                  
                  

                

              

              V.
INVENTORIES

              

              The Operator shall maintain detailed
records of Controllable Material.

              

              
                	
                        1.

                      	
                        Periodic
      Inventories, Notice and
Representation

                      

              

              

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

              

              2.         Reconciliation
and Adjustment of Inventories

              

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

              

              
                	
                        3.

                      	
                        Special
      Inventories

                      

              

              

              
                	
                         
      

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

                      

              

              

              
                	
                        4.

                      	
                        Expense
      of Conducting Inventories

                      

              

              

              
                	
                                   
      A.

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

                      

              

              

              
                	
                         
      

                      	
                        B.

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

                      

              

              

              

              

              
                
                   

                

                
                  C-14

                  
                    

                  

                

                
                   

                

              

              

              EXHIBIT
"D"

              GAS
BALANCING AGREEMENT (“Agreement”)

              

              Attached
to and made a part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              

              
                
                   

                

                
                  D-1 

                  
                    

                  

                

                
                   

                

              

              

              EXHIBIT
“E”

              

              

              Attached
to and made part of that certain Operating Agreement,

              Dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              MEMORANDUM
OF OPERATING AGREEMENT

              AND

              FINANCING
STATEMENT

              

              This
Memorandum of Operating Agreement and Financing Statement is executed to be
effective concurrently with that certain Operating Agreement (the “Operating
Agreement”) by and between Ridgelake Energy Inc., as Operator,
and                                                                ,
as Non-Operator(s), covering, among other things, the development and production
of crude oil, natural gas and associated substances from the lands and leases
(hereinafter called the “Contract Area”) described on Exhibit A attached
hereto and owned by Operator and Non-Operator(s) in the respective percentages
of shares indicated on
Exhibit A. The attached Exhibit A consists of
one or more of the Exhibits A to the
Operating Agreement and refers severally to all Exhibits A attached
hereto.

              

              The
Operating Agreement contains an Accounting Procedure, along with provisions
giving the parties hereto mutual liens and security interests where one or more
parties hereto are or may become Debtors to one or more other parties hereto.
This Memorandum of Operating Agreement and Financing Statement incorporates by
reference all of the terms and conditions of the Operating Agreement, including
but not limited to the lien and security interest provisions.

              

              The
purpose of this Memorandum of Operating Agreement and Financial Statement is to
place third parties on notice of the Operating Agreement and to secure and
perfect the mutual liens and security interests of the parties
hereto.

              

              The
Operating Agreement specifically provides and the parties do hereby confirm and
agree that:

              

              
                	
                         
      

                      	
                        1.

                      	
                        The
      Operator shall conduct and direct and have full control of all operations
      on the Contract Area as permitted and required by, and within the limits
      of, the Operating Agreement.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        The
      Liability of the parties under the Operating Agreement shall be several,
      not joint or collective. Each party shall be responsible only for its
      obligations and shall be liable only for its proportionate share of
      costs.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        Each
      Non-Operator grants the Operator a lien upon its oil and gas rights, oil
      and gas leases and mineral interests in the Contract Area, and a security
      interest in its share of oil and/or gas when extracted and its interest in
      all fixtures, inventory, personal property and equipment located on or
      used on the Contract Area and in all its contract rights and receivables
      related thereto and arising therefrom to secure payment of its present and
      future share of costs and expenses, together with interest thereon at the
      rate provided in the Accounting Procedure referred to above, To the extent
      that Operator has security interest under the Uniform Commercial Code (the
      “Code”) of the state or the states in which the Contract Area is located,
      Operator without prejudice and in addition to all other legal, equitable
      and contractual remedies which are expressly reserved, shall be entitled
      to exercise the rights and remedies of a secured party under the Code. The
      bringing of a suit and the obtaining of judgment by Operator for the
      secured indebtedness shall not be deemed an election of remedies or
      otherwise affect the rights or security interests fir the payment
      thereof.

                      

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        If
      any Non-Operator fails to pay its share of costs and expenses when due,
      Operator may require other Non-Operators to pay their proportionate part
      of the unpaid share whereupon the other Non-Operators shall be subrogated
      to Operator’s Lien and Security Interest described
  herein.

                      

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        The
      Operator grants the Non-Operator(s) a lien and security interest
      equivalent to that granted to Operator as described in paragraph 3 above,
      to secure payment by the Operator of its won share of costs and expenses
      when due.

                      

              

              

              
                
                  
                  

                

                
                  E-1

                  
                    

                  

                

                
                  
                  

                

              

              As
reflected above, either or both Operator and Non-Operator(s) may become Debtors
if they default in their payment obligations under the terms of the Operating
Agreement. On default, the non-defaulting party(ies) will be considered secured
party(ies).

              

              The
Operating Agreement contains other provisions which do not conflict but
supplement the above-described provisions, including non-consent provisions
which provide that parties who elect not to participate in certain operations
shall be deemed to have relinquished their interest until the consenting parties
are able to recover their costs of such operations plus a specified amount.
Should any person or firm desire additional information regarding the Operating
Agreement or wish to inspect a copy of the Operating Agreement, said person or
firm should contact the Operator.

              

              For
purposes of protecting said liens and security interest, the undersigned parties
agree that this Memorandum of Operating Agreement and Financing Statement covers
all right, title and interest of the Debtor(s) in:

              

              Property Subject to Security
Interests:

              

              
                	
                         
      

                      	
                        1.

                      	
                        All
      personal property located upon or used in connection with the Contract
      Area.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        All
      fixtures on the Contract Area.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        All
      oil, gas and associated substances of value in, on or under the Contract
      Area, or which may be extracted
therefrom.

                      

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        All
      accounts and receivables resulting from the sale of the items described in
      subparagraph 3 at the wellhead of every well located on the Contract Area
      or on lands pooled therewith.

                      

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        All
      items used, useful, or purchased for the production, treatment, handling,
      storage, transportation, processing, manufacture, or sale of the items
      described in subparagraph 3.

                      

              

              

              
                	
                         
      

                      	
                        6.

                      	
                        All
      accounts, contract rights, rights under any gas balancing agreement,
      general intangibles, equipment, inventory, farmout rights, option farmout
      rights, acreage and/or cash contributions, and conversion rights, whether
      now owned or existing or hereafter acquired or arising, including but not
      limited to all interest in any enterprise that holds, owns, or controls
      any interest in the Contract Area or in any property encumbered by the
      Memorandum.

                      

              

              

              
                	
                         
      

                      	
                        7.

                      	
                        All
      severed and extracted oil, gas and associated substances now or hereafter
      produced from or attributable to the Contract Area, including without
      limitation, oil, gas and associated substances in tanks or pipelines or
      otherwise held by any person or entity fro treatment, storage,
      transportation, manufacture, processing or
sale.

                      

              

              

              
                	
                         
      

                      	
                        8.

                      	
                        All
      the proceeds and products of the items described in the foregoing
      paragraphs now existing or hereafter arising, and all substitutions
      therefore, improvements and enhancements thereto, replacements thereof, or
      accessions thereto.

                      

              

              

              
                	
                         
      

                      	
                        9.

                      	
                        All
      personal property and fixtures now and hereafter acquired in furtherance
      of the purposes of this Operating Agreement. Certain of the
      above-described items are, or are to become, fixtures on the Contract
      Area.

                      
	 	 	 
	 	
                        10.

                      	
                        The
      proceeds and products of collateral are also specifically
      covered.

                      

              

              

              
              

              

              
                
                  
                  

                

                
                  E-2

                  
                    

                  

                

                
                  
                  

                

              

              Property Subject to
Liens:

              

              
                	
                         
      

                      	
                        1.

                      	
                        All
      real property, oil, gas and mineral leases, severed and unsevered surface
      fees, mineral fees and interest, royalty interests, overriding royalty
      interests, production payments, net profit interests, and other oil and
      gas interests of any nature, including reversionary interests, all as may
      be located within the Contract Area, including all oil, gas and associated
      substances of value in, on or under the Contract Area, or which may be
      extracted therefrom.

                      

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        All
      fixtures within the Contact Area.

                      

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        All
      real property and fixtures now and hereafter acquired in furtherance of
      the purposes of this Operating
Agreement.

                      

              

              

              The above
items will be financed at the wellhead of the well or the wells located in the
Contract Area, and this Memorandum is to be filed for record in the real estate
records of the county(ies) or parish(es) and in the Uniform Commercial Code
records in which the Contract Area is located.

              

              On
default of any covenant or condition of the Operating Agreement, in addition to
any other remedy affected by law, each party to the Operating Agreement and any
successor to such part by assignment, operation of law, or otherwise, shall
have, and is hereby given and vested with, the power and authority to take
possession of and sell any interest which the defaulting party has in the
property identified above securing the obligations provided in the Operating
Agreement and to foreclose this lien and security interest in the manner
provided by law.

              

              Upon
expiration of the Operating Agreement and the satisfaction of all the debts and
the outstanding interest, the Operator shall file of record a release and
termination on behalf of all parties concerned. Upon the filing of such release
and termination, all benefits and obligations under this Memorandum shall
terminate as to all parties who have executed or ratified this Memorandum. In
addition, the Operator shall have the right to file a continuation statement on
behalf of all the parties that have executed or ratified this Memorandum when
Operator in its sole discretion deems such action appropriate.

              

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

              

              This
Memorandum shall be binding upon and shall inure to the benefit of the parties
hereto and to their respective heirs, devisees, legal representatives,
successors and assigns.

              

              A party
having an interest in the Contract Area can ratify this Memorandum by execution
hereof or a separate counterpart hereof or by execution and delivery of an
instrument of ratification adopting the provisions of this Memorandum or
agreeing to be bound by the terms thereof. Any such ratification shall have the
same effect as if the ratifying party had executed this Memorandum or a
counterpart thereof. By execution or ratification of this Memorandum, such party
hereby consents to its ratification and adoption by any party who may have or
may acquire any interest in the Contract Area.

              

              
                
                  
                  

                

                
                  E-3

                  
                    

                  

                

                
                  
                  

                

              

              This
Memorandum may be executed or ratified in one or more counterparts and all of
the executed or ratified counterparts shall together constitute one instrument.
For purpose of recording, only one copy of this Memorandum with individual
signature pages attached thereto needs to be filed of record.

              

              Executed
this ___________ day of ____________________, ____.

              

              

              OPERATOR:                         Ridgelake
Energy, Inc.

              

              

              

              

              By:
_______________________________________

              

              Printed Name:
_______________________

              

              Title:
_______________________________

              

              

              

              

              NON_OPERATOR:             ___________________________________________

              

              

              By:
_______________________________________

              

              Printed Name:
_______________________

              

              Title:
_______________________________

              

               

              
                
                   

                

                
                  E-4

                  
                    

                  

                

                
                   

                

              

              Exhibit A
attached to and made part of the Memorandum of Operating Agreement and Financing
Statement dated ___________________, _____ between Ridgelake Energy, Inc., as
Operator, and ___________________________, as Non-Operator, covering lands in
______________________.

              

              

              

              
                	
                         
      

                      	
                        1.

                      	
                        Contract
      Area:

                      

              

              

              

              
                	
                         
      

                      	
                        2.

                      	
                        Depth
      Limitations:

                      

              

              

              

              
                	
                         
      

                      	
                        3.

                      	
                        Substances
      Covered:

                      

              

              

              

              
                	
                         
      

                      	
                        4.

                      	
                        Interest
      of Parties:

                      

              

              

              

              
                	
                         
      

                      	
                        5.

                      	
                        Oil
      and Gas leases Subject to this
Agreement:

                      

              

              

              

              
                	
                         
      

                      	
                        6.

                      	
                        Addresses
      of Parties for Notice:

                      

              

              

              

              

              

              

              

              

              

               

              
                
                   

                

                
                  E-5

                  
                    

                  

                

                
                   

                

              

              EXHIBIT
“F”

              

              

              Attached
to and made part of that certain Operating Agreement,

              dated
effective the 18th day of
September, 2006,

              by and
between Ridgelake Energy, Inc., GulfX, LLC, South Marsh LLC and Lion Energy
Limited LLC.

              

              TAX
PARTNERSHIP PROVISIONS

              

              OF
THE _______________________________________________

              PARTNERSHIP

              (For Name
of Tax Reporting Partner and Special Elections, See Secs. 8 and 9)

               

              
                Table of
Contents

                
                  	
                          1.1

                        	
                          Designation
      Of Documents

                        	
                          1

                        
	
                          1.2

                        	
                          Relationship
      of the Parties

                        	
                          1

                        
	
                          1.3

                        	
                          Priority
      Of Provisions Of This Exhibit

                        	
                          1

                        
	
                          1.4

                        	
                          Survivorship

                        	
                          1

                        
	
                          2.2

                        	
                          IF
      SMALL PARTNERSHIP EXEPTION FOM TEFRA NOT APPLICABLE

                        	
                          2

                        
	
                          3.1

                        	
                          Tax
      Returns

                        	
                          2

                        
	
                          3.2

                        	
                          Fair
      Market Value Capital Accounts

                        	
                          2

                        
	
                          3.3

                        	
                          Information
      Requests

                        	
                          2

                        
	
                          3.4

                        	
                          Best
      Efforts without Liability

                        	
                          2

                        
	
                          4.1

                        	
                          General
      Elections

                        	
                          2

                        
	
                          4.2

                        	
                          Depletion

                        	
                          2

                        
	
                          4.3

                        	
                          Election
      Out Under Code §761(a)

                        	
                          3

                        
	
                          4.4

                        	
                          Consent
      Requirements For Subsequent Tax Or FMV Capital Account
      Elections

                        	
                          3

                        
	
                          5.1

                        	
                          Capital
      Contributions

                        	
                          3

                        
	
                          5.2

                        	
                          FMV
      Capital Accounts

                        	
                          3

                        
	
                          6.1

                        	
                          FMV
      Capital Accounts Allocations

                        	
                          3

                        
	
                          6.2

                        	
                          Tax
      Return and Tax Basis Capital Account Allocation

                        	
                          4

                        
	
                          7.1

                        	
                          Termination
      of the Partnership

                        	
                          4

                        
	
                          7.2

                        	
                          Balancing
      of FMV Capital Accounts

                        	
                          4

                        
	
                          7.3

                        	
                          Deemed
      Sale Gain/Loss Charge Back

                        	
                          4

                        
	
                          7.4

                        	
                          Deficit
      make-up Obligation and Balancing Cash Contributions

                        	
                          4

                        
	
                          7.5

                        	
                          Distribution
      to balance capital accounts

                        	
                          4

                        
	
                          7.6

                        	
                          FMV
      determination

                        	
                          4

                        
	
                          7.7

                        	
                          Final
      Distribution

                        	
                          4

                        
	
                          8.1

                        	
                          Transfer
      of Partnership Interests

                        	
                          5

                        
	
                          8.2

                        	
                          Correspondence

                        	
                          5

                        
	
                          9.1

                        	
                          Operator
      not the TRP

                        	
                          5

                        
	
                          9.2

                        	
                          Special
      Tax Elections

                        	
                          5

                        
	
                          9.3

                        	
                          Change
      of Majority for Other Tax Elections

                        	
                          5

                        

                

              

              

              
                
                  
                  

                

                
                  F-1

                  
                    

                  

                

                
                  
                  

                

              

              1.           General
Provisions

              1.1           Designation
Of Documents.

               

              This
exhibit is referred to in, and is part of, that Agreement identified above and,
if so provided, a part of any agreement to which the Agreement is an exhibit.
Such agreement(s) (including all exhibits thereto, other than this exhibit)
shall be hereafter referred to as the “Agreement” and this exhibit is
hereinafter referred to as the “Exhibit” or the “Tax Partnership Provisions”
(the “TPPs”). Except as may be otherwise provided in this Exhibit, terms defined
and used in the Agreement shall have the same meaning when used
herein.

              

              

              1.2           Relationship
of the Parties.

               

              The
parties to the Agreement shall be hereinafter referred to as “Party” or
“Parties”. The Parties understand and agree that the arrangement and
undertakings evidenced by the Agreement result in a partnership for purposes of
Federal income taxation and certain State income tax laws which incorporate or
follow Federal income tax principals as to tax partnerships. Such partnership
for tax purposes is hereinafter referred to as the “Partnership”. For every
other purpose of the Agreement the Parties understand and agree that their legal
relationship to each other under applicable State law with respect to all
property subject to the Agreement is one of tenants in common, or undivided
interest owners, or lessee(s) sublessee(s) and not a partnership; that the
liability of the Parties shall be several and not joint or collective; and that
each Party shall be responsible solely for its own obligations.

              

              1.3           Priority
Of Provisions Of This Exhibit.

               

              If there
is a conflict or inconsistency, whether direct or indirect, actual or apparent,
between the terms and the conditions of this Exhibit and the terms and
conditions of the Agreement, or any other exhibit or any part thereof, the terms
and conditions of this Exhibit shall govern and control.

              

              1.4
Survivorship.

               

              
                	
                        1.4.1

                      	
                        Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the termination and liquidation.

                         

                      

              

              
                	
                        1.4.2

                      	
                        Any
      termination of the Agreement shall not affect the continuing application
      of the TPPs for the resolution of all matters regarding Federal and State
      income reporting.

                         

                      

              

              
                	
                        1.4.3

                      	
                        These
      TPPs shall inure to the benefit of, and be binding upon, the Parties
      hereto and their successors and assigns.

                         

                      

              

              
                	
                        1.4.4

                      	
                        The
      effective date of the Agreement shall be the effective date of these TPPs.
      The Partnership shall continue in full force and effect from, and after
      such date, until termination and
liquidation.

                      

              

              

              
                
                  
                  

                

                
                  F-2

                  
                    

                  

                

                
                  
                  

                

              

              2.           Tax
Reporting Partner and Tax Matters Partner

              

              2.1           Tax
Reporting Partner.

               

              The
Operator (or the Party listed in Sec. 9.1) as the Tax Reporting Partner (“TRP”)
is responsible for compliance with all tax reporting obligations of the
Partnership, see Sec. 3.1. below. In the event of any change in the TRP, the
Party serving as the TRP at the beginning of a given taxable year shall continue
as TRP with respect to all matters concerning such year.

              

              2.2           IF SMALL PARTNERSHIP EXCEPTION FROM
TEFRA NOT APPLICABLE

               

              If the
Partnership does not qualify for the “small partnership exception” from, or if
the Partnership elects (see infra Elections at
Sec. 4.1 and 9.2) to be subject to, §§6221 et seq., Subchapter C of Chapter 63
of Subtitle F (the “TEFRA rules”) of the Internal Revenue Code (the “Code”) the
TRP shall also be the Tax Matters Partner as defined in Code §6231(a) (the
“TMP”) and references to the TRP shall then include references to TMP and vice
versa.

               

              
                	
                        2.2.1

                      	
                        The
      TMP shall not be required to incur any expenses for the preparation for,
      or pursuance of, administrative or judicial proceedings, unless the
      Parties agree on a method for sharing such expenses.

                         

                      

              

              
                	
                        2.2.2

                      	
                        The
      Parties shall furnish the TMP, within two weeks from the receipt of the
      request, the information the TMP may reasonably request to comply with the
      requirements on furnishing information to the Internal Revenue
      Service.

                         

                      

              

              
                	
                        2.2.3

                      	
                        The
      TMP shall not agree to any extension of the statute of limitations for
      making assessments on behalf of the Partnership without first obtaining
      the written consent of all Parties. The TMP shall not bind any other Party
      to a settlement agreement in tax audits without obtaining the written
      concurrence of any such Party.

                         

                      

              

              
                	
                        2.2.4

                      	
                        Any
      other Party who enters in a settlement agreement with the Secretary of the
      Treasury with respect to any partnership items, as defined in Code
      §6231(a)(3), shall notify the other Parties of the terms within ninety
      (90) days from the date of such settlement.

                         

                      

              

              
                	
                        2.2.5

                      	
                        If
      any Party intends to file a notice of inconsistent treatment under Code
      §6222(b), such Party shall, prior to filing of such notice, notify the TMP
      of the (actual or potential) inconsistency of the Party’s intended
      treatment of a partnership item with the treatment of that item by the
      Partnership. Within one week of receipt the TMP shall remit copies of such
      notification to the other Parties. If an inconsistency notice is filed
      solely because a Party has not received a Schedule K-1 in time for filing
      of its income tax return, the TMP need not be notified.

                         

                      

              

              
                	
                        2.2.6

                      	
                        No
      Party shall file pursuant to Code §6227 a request for an administrative
      adjustment of partnership items (the “RFAA”) without first notifying all
      other Parties. If all other Parties agree with the requested adjustment,
      the TMP shall file the RFAA on behalf of the Partnership. If unanimous
      consent is not obtained within thirty (30) days from such notice, or
      within the period required to timely file the RFAA, if shorter, any Party,
      including the TMP, may file a RFAA on its own behalf.

                         

                      

              

              
                	
                        2.2.7

                      	
                        Any
      Party intending to file with respect to any partnership item, or any other
      tax matter involving the Partnership, a petition under Code §§6226, 6228,
      or any other provision, shall notify the other Parties prior to such
      filing of the nature of the contemplated proceeding. In the case where the
      TMP is the Party intending to file such petition, such notice shall be
      given within reasonable time to allow the other Parties to participate in
      the choice of the form of such petition. If the Parties do not agree on
      the appropriate forum, then the forum shall be chosen by majority vote.
      Each Party shall have a vote in accordance with its percentage interest in
      the Partnership for the year under audit. If a majority cannot agree, the
      TMP shall choose the forum. If a Party intends to seek review of any court
      decision rendered as a result of such proceeding, the Party shall notify
      the other Parties prior to seeking such
review.

                      

              

              

              
                
                  
                  

                

                
                  F-3

                  
                    

                  

                

                
                  
                  

                

              

              3.           Income
Tax Compliance and Capital Accounts

              

              3.1           Tax
Returns.

               

              The TRP
shall prepare and file all required Federal and State partnership income tax
returns. Not less than thirty (30) days prior to the return due date (including
extensions), the TRP shall submit to each Party for review a copy of the return
as proposed.

              

              3.2           Fair
Market Value Capital Accounts.

               

              The TRP
shall establish and maintain for each Party fair market value (“FMV”) capital
accounts and tax basis capital accounts. Upon request, the TRP shall submit to
each Party along with a copy of any proposed partnership income tax return an
accounting of such Party’s FMV capital accounts as of the end of the return
period.

              

              
                3.3.       
Information
requests.

                 

              

              In
addition to any obligation under Sec. 2.2.2, each Party agrees to furnish to the
TRP not later than sixty (60) days before the return due date (including
extensions) such information relating to the operations conducted under the
Agreement as may be required for the proper preparation of such returns.
Similarly, each Party agrees to furnish timely to the TRP, as requested, any the
information and data necessary for the preparation and/or filing of other
required reports and notifications, and for the computation of the capital
accounts. As provided in Code  §6050K(c), a Party transferring its
interest must notify the TRP to allow compliance with Code §6050K(a) (see also
Sec.8.1).

              

              
                3.4       
Best
Efforts without Liability.

                 

              

              The TRP
and the other Party(ies) shall use its/their best effort to comply with
responsibilities outlined in this Section, and with respect to the services as
TMP as outlined Sec.2.2 and in doing so shall incur no liability to any other
Party.

              

              
                	
                        4.

                      	
                        Tax
      and FMV Capital Account Elections

                      

              

              

              
                4.1       
General
Elections.

                 

              

              For both
income tax and capital account purposes, the Partnership shall
elect:

               

              
                	
                        a)

                      	
                        to
      deduct when incurred intangible drilling and development costs
      (“IDC”);

                      

              

              
                	
                        b)

                      	
                        to
      use the maximum allowable accelerated tax method and the shortest
      permissible tax life for
depreciation;

                      

              

              
                	
                        c)

                      	
                        the
      accrual method of accounting;

                      

              

              
                	
                        d)

                      	
                        to
      report income on a calendar year basis; and
      the Partnership shall also make any elections as specially noted in
      Sec.9.2, below.

                      

              

              

              
                
                  
                  

                

                
                  F-4

                  
                    

                  

                

                
                  
                  

                

              

              
                4.2       
Depletion.

                 

              

              Solely
for FMV capital account purposes, depletion shall be calculated by using
simulated cost depletion within the meaning of Treas. Reg.
§1.704-1(b)(2)(iv)(k)(2), unless the use of simulated percentage depletion is
elected in Sec.9.2, below. The simulated cost depletion allowance shall be
determined under the principles of Code  §612 and be based on the FMV
capital account basis of each Lease. Solely for purposes of this calculation,
remaining shall be determined consistently by the TRP.

              

              
                4.3       
Election
Out Under Code §761(a).

                 

              

              
                	
                        4.3.1

                      	
                        The
      TRP shall notify all Parties of an intended election to be excluded from
      the application of Subchapter K of Chapter 1 of the Code not later than
      sixty (60) days prior to the filling date or due date (including
      extensions) for the Federal partnership income tax return, whichever comes
      earlier. Any Party that does not consent must provide the TRP with written
      objection within thirty (30) days of such notice. Even after an effective
      election-out the TRP’s right and obligations, other than the relief from
      tax return filing obligations of the partnership, continue.

                         

                      

              

              
                	
                        4.3.2

                      	
                        After
      an election-out, to avoid an unintended impairment of the election-out:
      The Parties will avoid, without prior coordination, any operational
      changes which could terminate the qualification for the election-out
      status; all Parties will monitor the continuing qualification of the
      Partnership for the election-out status and will notify the other Parties
      if, in their opinion, a change in operations will jeopardize the
      election-out; and, all Parties will use, unless agreed to by them
      otherwise, the cumulative gas balancing method as described in Treas. Reg.
      §1.761-2(d)(2).

                         

                      

              

              

              
                4.4       
Consent
Requirements For Subsequent Tax Or FMV Capital Account Elections.

                 

              

              Unless
stipulated differently in Sec. 9.3, future elections, in addition to or in
amendment of those in this agreement, must be approved by the affirmative vote
of two (2) or more Parties owning a majority of the working interest based upon
post-Payout ownership.

              

              
                	
                        5.

                      	
                        Capital
      Contributions and FMV Capital
Accounts

                      

              

               

              The
provisions of this Sec. 5 and any other provisions of the TPPs relating to the
maintenance of the capital accounts are intended to comply with Treas. Reg.
§1.704-1(b) and shall be interpreted and applied in a manner consistent with
such regulations.

              

              
                5.1       
Capital
Contributions.

                 

              

              The
respective capital contributions of each Party to the Partnership shall be (a)
each Party’s interest in the oil and gas lease(s), including all associated
lease and well equipment, committed to the Partnership, and (b) all accounts of
money paid by each Party in connection with the acquisition, exploration,
development, and operation of the lease(s), and all other costs characterized as
contributions or expenses borne by such Party under the Agreement. The
contribution of the leases and any other properties committed to the Partnership
shall be made by each Party’s agreement to hold legal title to its interest in
such leases or other property as nominee of the Partnership.

              

              
                
                  
                  

                

                
                  F-5

                  
                    

                  

                

                
                  
                  

                

              

              
                5.2       
FMV
Capital Accounts.

                 

              

              The FMV
capital accounts shall be increased and decreased as follows:

               

              
                	
                        5.2.1

                      	
                        The
      FMV capital account of a Party shall be increased by:

                         

                      

              

              
                	
                      	
                        (i)

                      	
                        the
      amount of money and the FMV (as of the date of contribution) of any
      property contributed by such Party to the Partnership (net of liabilities
      assumed by the Partnership or to which the contributed property is
      subject);

                      

              

              
                	
                      	
                        (ii)

                      	
                        that
      Party’s share of Partnership items of income or gain, allocated in
      accordance with Sec. 6.1; and

                      

              

              
                	
                      	
                        (iii)

                      	
                        that
      Party’s share of any Code §705(a)(1)(B)item.

                         

                      

              

              
                	
                        5.2.2

                      	
                        The
      FMV capital account of a Party shall be decreased by:

                         

                      

              

              
                	
                      	
                        (i)

                      	
                        the
      amount of money and the FMV of property distributed to a Party (net of
      liabilities assumed by such Party or to which the property is
      subject):

                      

              

              
                	
                      	
                        (ii)

                      	
                        that
      Party’s Sec. 6.1 allocated share of Partnership loss and deductions, or
      items thereof; and,

                      

              

              
                	
                      	
                        (iii)

                      	
                        that
      Party’s share of any Code §705(a)(2)(B) item.

                         

                      

              

              
                	
                        5.2.3

                      	
                        The
      “FMV” when it applies to property contributed by a Party to the
      Partnership shall be assumed, for purposes of Sec.5.2.1, to equal the
      adjusted tax basis, as defined in Code § 1011, of that property unless the
      Parties agree otherwise as indicated in Sec. 9.2.

                         

                      

              

              
                	
                        5.2.4

                      	
                        As
      provided in Treas. Reg. §1.704-1(b)(2)(iv)(e), upon distribution of
      Partnership property to a Party the capital accounts will be adjusted to
      reflect the manner in which the unrealized income, gain, loss and
      deduction inherent in distributed property (not previously reflected in
      the capital accounts) would be allocated among the Parties if there were a
      disposition of such property at its FMV as of the time of distribution.
      Furthermore, if so agreed to in Sec. 9.2, under the rules of Treas. Reg.
      §1.704-1(b)(2)(iv)(f), the FMV capital accounts shall be revalued at
      certain times to reflect value changes of the Partnership
      property.

                         

                      

              

              
                	
                        5.2.5

                      	
                        The
      provisions of section 5 is intended to satisfy the requirements of section
      704(b) of the Code and section 1.704-1(b)(2)(iv) of the Treasury
      Regulations and shall be so construed and, if necessary, modified, to
      cause the allocation of profits, losses, income, gain and credit under
      section 6, to have substantial economic effect under such sections of the
      Code and Regulations, and in the event of any conflict between the
      provisions of this section 5.2 and such Regulations, the Regulations shall
      control.

                      

              

              

              

              
                
                  
                  

                

                
                  F-6

                  
                    

                  

                

                
                  
                  

                

              

              
                	
                        6.

                      	
                        Partnership
      Allocations.

                      

              

              

              
                6.1          
FMV
Capital Account Allocations.

                 

              

              Each item
of income, gain, loss or deduction shall be allocated to each Party as
follows:

               

              
                	
                        6.1.1

                      	
                        Actual
      or deemed income from the sale, exchange, distribution or other
      disposition of production shall be allocated to the Party entitled to such
      production or the proceeds from the sale of such production. The amount
      received from the sale of production and the amount of the FMV of
      production taken in kind by the Parties are deemed to be identical;
      accordingly, such items may be omitted from the adjustments made to the
      Parties’ FMV capital accounts.

                         

                      

              

              
                	
                        6.1.2

                      	
                        Exploration
      cost, IDC, operating and maintenance cost shall be allocated to each Party
      in accordance with its respective contribution, or obligation to
      contribute, to such cost.

                         

                      

              

              
                	
                        6.1.3

                      	
                        Depreciation
      shall be allocated to each Party in accordance with its contributions, or
      obligations to contribute, to the cost of the underlying
      asset.

                         

                      

              

              
                	
                        6.1.4

                      	
                        Simulated
      depletion shall be allocated to each Party in accordance with its FMV
      capital account adjusted basis in each oil and gas property of the
      Partnership.

                         

                      

              

              
                	
                        6.1.5

                      	
                        Loss
      (or simulated loss) upon the sale, exchange, distribution, abandonment or
      other disposition of depreciable or depletable property shall be allocated
      to the Parties in the ratio of their respective FMV capital account
      adjusted bases n the depreciable or depletable property.

                         

                      

              

              
                	
                        6.1.6

                      	
                        Gain
      (or simulated gain) upon the sale, exchange, distribution, or other
      disposition of depreciable or depletable property shall be allocated to
      the Parties so that the FMV capital account balances of the Parties will
      most closely reflect their respective percentage of fractional interests
      under the Agreement.

                         

                      

              

              
                	
                        6.1.7

                      	
                        Costs
      or expenses of any other kind shall be allocated to each Party in
      accordance with its respective contribution, or obligation to contribute,
      to such cost or expense.

                         

                      

              

              
                	
                        6.1.8

                      	
                        Any
      other income item shall be allocated to the Parties in accordance with the
      manner in which such income is realized by each Party.

                         

                      

              

              6.2           Tax
return and Tax Basis Capital Account allocations.

               

              
                	
                        6.2.1

                      	
                        Unless
      otherwise expressly provided in the Sec. 6.2, the allocations of the
      Partnership’s items of income, gain, loss, or deduction for tax return and
      tax basis capital account purposes shall follow the principles of the
      allocation under Sec. 6.1. However, the Partnership’s gain or loss on the
      taxable disposition of a Partnership property in excess of the gain or
      loss under Sec 6.1, if any, is allocated to the contributing Party to the
      extent of such Party’s pre-contribution gain or loss.

                         

                      

              

              
                	
                        6.2.2

                      	
                        The
      Parties recognize that under Code §613A(c)(7)(D) the depletion allowance
      is to be computed separately by each Party. For this purpose, each Party’s
      share of the adjusted tax basis in each oil and gas property shall be
      equal to its contribution to the adjusted tax basis of such
      property.

                         

                      

              

              
                	
                        6.2.3

                      	
                        Under
      Code §613A(c)(7)(D) gain or loss on the disposition of an oil and gas
      property is to be computed separately by each Party. According to Treas.
      Reg. §1.704-1(b)(4)(v), the amount realized shall be allocated as follows:
      (i) An amount that represents recovery of the adjusted simulated depletion
      basis is allocated (without being credited t the capital accounts) to the
      Parties in the same proportion as the aggregate simulated depletion basis
      was allocated to such Parties under Sec. 5.2; and (ii) any remaining
      realization is allocated in accordance with Sec. 6.1.6.

                         

                      

              

              
                	
                        6.2.4

                      	
                        Depreciation
      shall be allocated to each Party in accordance with its contribution to
      the adjusted tax basis of the depreciable asset.

                         

                      

              

              
                	
                        6.2.5

                      	
                        In
      accordance with Treas. Reg. §1.1245-I(c),
      depreciation  recapture shall be allocated, to the extent
      possible, among the Parties to reflect their prior sharing of the
      depreciation.

                         

                      

              

              
                	
                        6.2.6

                      	
                        In
      accordance with the principles of Treas. Reg. §1.1254-5, any recapture of
      IDC is determined and reported by each Party separately. Similarly, any
      recapture of depletion shall be computed separately by each Party, in
      accordance with its depletion allowance computed pursuant to Sec.
      6.2.2.

                         

                      

              

              
                	
                        6.2.7

                      	
                        For
      Partnership properties with FMV capital account values different from
      their adjusted tax bases the Parties intend that the allocations described
      in the Section 6.2 constitute a “reasonable method” of allocating gain or
      loss under Treas. Reg. §1.704-3(a)(1).

                         

                      

              

              
                	
                        6.2.8

                      	
                        Take-in-kind.

                         

                      

              

              If
checked “Yes” in Sec. 9.2, below, each Party has the right to determine the
market for its proportionate share of production. All items of income,
deductions, and credits arising from such marketing of production shall be
recognized by the Partnership and shall be allocated to the Party whose
production is so marketed.

              

              

              
                
                  
                  

                

                
                  F-7

                  
                    

                  

                

                
                  
                  

                

              

              
                7.       
Termination
and Liquidating Distribution

              

              

              7.1           Termination
of the Partnership.

               

              
                	
                        7.1.1

                      	
                        Upon
      termination, as provided in Code §708(b)(I)(A), the business shall be
      wound-up and concluded, and the assets shall be distributed to the Parties
      as described below by the end of such calendar year (or, if later, within
      ninety (90) days after the date of such termination). The assets shall be
      valued and distributed to the Parties in the order provided in Secs.
      7.1.2, 7.5. and 7.7.

                         

                      

              

              
                	
                        7.1.2

                      	
                        First,
      all cash representing unexpended contributions by any Party and any
      property in which no interest has been earned by any other Party under the
      Agreement shall be returned to the contributor.

                         

                      

              

              7.2           Balancing
of FMV Capital Accounts.

               

              Second,
the FMV capital accounts of the Parties shall be determined as described
hereafter. The TRP shall take the actions specified under Secs. 7.2 through 7.5
in order to cause the ratios of the Parties’ FMV capital accounts to reflect as
closely as possible their interests under the Agreement. The ratio of a Party’s
FMV capital account is represented by a fraction, the numerator of which the
Party’s FMV capital account balance and the denominator of which is the sum of
all Parties’ FMV capital account balances. This is thereafter referred to as the
“balancing of the FMV capital accounts” and, when completed, the FMV capital
accounts of the Parties shall be referred to as “balanced”.

               

              

              7.3           Deemed
Sale Gain/Loss Charge Back.

               

              The FMV
of all Partnership properties shall be determined and the gain or loss for each
property, which would have resulted if sold at such FMV, shall be allocated in
accordance with Secs. 6.1.5 and 6.1.6.

              

              
                7.4       
Deficit
make-up Obligation and Balancing Cash Contributions.

                 

              

              If
hereafter a Party has a negative FMV capital account balance, that is a balance
of less than zero, in accordance with Treas. Reg. §1.1704-I(b)(2)(ii)(b)(3) such
Party is obligated to contribute, by the end of the taxable year, or if later,
within ninety (90) days form the Partnership’s liquidation, an amount of money
to the Partnership sufficient to achieve a zero balance FMV capital account (the
“Deficit Make-Up Obligation”). Moreover, any Party may contribute an amount of
cash to the Partnership to facilitate the balancing of the FMV capital accounts.
If after these adjustments the FMV capital accounts are not balanced, Sec. 7.5
shall apply.

              

              7.5           Distribution
to balance capital accounts.

               

              
                	
                        7.5.1

                      	
                        If
      all Parties agree, any cash or an undivided interest in certain selected
      properties shall be distributed to one or more Parties as necessary for
      the purpose of balancing the FMV capital accounts.

                         

                      

              

              
                	
                        7.5.2

                      	
                        Distribution
      of undivided interests.

                         

                      

              

              Unless
Sec. 7 applies, an undivided interest in each and every property shall be
distributed to one or more Parties in accordance with the ratios of their FMV
capital accounts.

              

              7.6           FMV
determinations.

               

              If a
property is to be valued for purposes of balancing the capital accounts and
making distributions under this Sec. 7, the Parties must first attempt to agree
on the FMV of the property; failing such an agreement, the TRP shall cause a
nationally recognized independent engineering firm to prepare an appraisal of
the FMV of such property.

              

              7.7           Final
Distribution.

               

              After the
FMV capital accounts of the Parties have been adjusted pursuant to Secs. 7.2 to
7.5, all remaining property and interests then held by the Partnership shall be
distributed to the Parties in accordance with their positive FMV capital account
balances.

              

              
                
                  
                  

                

                
                  F-8

                  
                    

                  

                

                
                  
                  

                

              

              8.           Transfers
and Correspondence

              

              8.1           Transfer
of Partnership Interests.

               

              Transfers
of Partnership interests shall be governed by the Agreement. A Party
transferring its interest, or any part thereof, shall notify the TRP in writing
within two weeks after such transfer.

              

              8.2           Correspondence.

               

              All
correspondence relating to the preparation and filing of the Partnership’s
income tax returns and capital accounts shall be sent to:

              

              

              (Attach
separate list, if necessary)

              
                	
                        TRP

                         

                      	
                        “Att
      to:” reference

                      
	
                        Operator

                         

                      	 
      

              

              Other
Parties:

              
                	
                        Non-Operators

                         

                         

                      	 
      

              

              

              

              9.              Elections
and Changes to above Provisions.

               

              9.1             Operator
not the TRP.

               

              With
respect to Sec. 2.1, (insert name of Party to be TRP instead of Operator, or
indicate “N/A”)______________________is
designated as TRP.

               

              9.2             Special
Tax Elections.

               

              With
respect to Sec. 4.1, the Parties agree (if not applicable insert “N/A” or
strike):

              

              

              
                
                  
                  

                

                
                  F-9

                  
                    

                  

                

                
                  
                  

                

              

              

              

              
                	
                        e)
      that the Partnership shall elect to account for dispositions of
      depreciable assets under the general asset method to the extent permitted
      by Code §168(i)(4);

                      	
                        No

                      
	
                        f)
      that the Partnership shall elect under Code §754 to adjust the basis of
      Partnership property, with the adjustments provided in Code§734 for a
      distribution of property and in Code §743 for a transfer of a partnership
      interest. In case of distribution of property the TRP shall adjust all tax
      basis capital accounts. In the case of a transfer of a partnership
      interest the acquiring party(ies) shall establish and maintain its(their)
      tax basis capital account(s);

                      	
                        Elect-at-time-of-sale

                      
	
                        g)that
      the Partnership shall elect under Code §6231 to be subject to the TEFRA
      rules

                      	
                        Yes

                      

              

              

              

              

              
                	
                        With
      respect to  Sec. 4.2, Depletion the Parties agree that the
      Partnership shall use simulated percentage depletion instead of simulated
      cost depletion.

                      	
                        Yes

                      
	
                        With
      respect to Sec.5.2.4, under the rules of Treas. Reg. §
      1.704-1(b)(2)(iv)(f) the Parties agree that the FMV capital accounts shall
      be revalued to reflect value changes of the Partnership property upon the
      occurrence of the events specified in (5)(i) through (iii) of said –
      1.704-1(b)(2)(iv)(f) regulations.

                      	
                        Yes

                      
	
                        With
      respect to Sec. 6.2.8, the income attributable to take-in-kind production
      will be reflected on the tax return.

                      	
                        No

                      

              

              

              With
respect to Sec. 5.2.3 the FMV for the listed properties are determined as
follows (mark as “N/A” if not applicable; use separate sheet if
necessary)

              

              
                	
                        Property
      Description

                      	
                        FMV

                      
	 
      	 
      
	 
      	 
      
	 
      	 
      

              

              

              
                9.3             
Change of
Majority for Other Tax Elections.

                 

              

              INSTEAD
OF THE Sec. 4.4 majority for other tax elections, a majority shall be considered
if consisting of (specify or line out blanks)
_____________________________________________________.

              

              

              

              

              THE
END

              

              

              
                
                   

                

                
                  F-10

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