Document:

Exhibit 10.1

                         JOINT PARTICIPATION AGREEMENT
                                 ABBOTT PROSPECT
                     WEST CAMERON AREA BLOCKS 259, 265, 266
                                 SHEMP PROSPECT
                   WEST CAMERON AREA, WEST ADDITION BLOCK 365
                             CENTRAL GULF OF MEXICO

This Joint Participation Agreement ("Agreement") effective this 1st day of July,
2005 will serve as the definitive agreement between Marathon Oil Company ("MOC")
and Ridgewood Energy Corporation ("Ridgewood") sometimes hereinafter referred to
collectively as "Parties" and individually as "Party", concerning the drilling
and evaluation of the Abbott Prospect and the option by Ridgewood to participate
in the Shemp Prospect, as each such prospect is more fully described herein.

WHEREAS, MOC represents that it currently owns an undivided one hundred percent
of six-sixths (100% of 6/6ths) record title interest in the Outer Continental
Shelf Leases OCS-G 27012, OCS-G 24722, and OCS-G 24723 covering West Cameron
Area Blocks 259, 265 and 266 respectively (the "Abbott Leases"). The
aforementioned three (3) Abbott Leases and corresponding blocks shall
hereinafter sometimes be referred to as the "Abbott Prospect" or "Abbott" and
are set forth and described on the attached Exhibit "A"; and,

WHEREAS, MOC represents that it currently owns an undivided one hundred percent
of six-sixths (100% of 6/6ths) record title interest in the Outer Continental
Shelf Lease OCS-G 27024 covering West Cameron Area, West Addition Block 365 (the
"Shemp Lease"). The aforementioned Shemp Lease and corresponding block shall
hereinafter sometimes be referred to as the "Shemp Prospect" or "Shemp" and is
set forth and described on the attached Exhibit "A"; and,

WHEREAS, Ridgewood desires to earn from MOC an undivided forty percent (40%)
record title interest in the Abbott Leases by participating in and bearing a
disproportionate share of the cost of a well to be drilled thereon; and,

WHEREAS, MOC desires to make available to Ridgewood an undivided forty percent
(40%) record title interest in the Abbott Leases in accordance with the further
terms and conditions of this Agreement, and the Parties hereto desire to set
forth their agreement concerning the obligations of Ridgewood with respect to
earning such interest from MOC; and,

WHEREAS, the Parties agree that in the event Ridgewood earns an assignment of
the Abbott Leases as provided herein, Ridgewood shall be entitled to elect to
participate, at its sole option, in the first well drilled on the Shemp Prospect
as provided in Section 6.

NOW, THEREFORE, in consideration of the mutual promises and covenants made by
the Parties hereunder, MOC and Ridgewood agree to the following terms and
conditions:

                                       1
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IN WITNESS WHEREOF, this Agreement is executed in the presence of competent
witnesses by the Parties to this Agreement as of the dates set out below, but is
made effective as of the date first above written.

WITNESSES:                                  Marathon Oil Company

[SIGNATURE ILLEGIBLE]                       By: /s/ M. J. Koenig
---------------------                           --------------------------------
                                            Name: M. J-Koenig
[SIGNATURE ILLEGIBLE]                       Title: Attorney-in-Fact
---------------------                              -----------------------------
                                            Date: 08/11/2005

WITNESSES:                                  Ridgewood Energy Corporation

[SIGNATURE ILLEGIBLE]                       By:/s/ W. Greg Tabor
---------------------                          ---------------------------------
                                            Name: W. Greg Tabor
[SIGNATURE ILLEGIBLE]                       Title: Executive Vice President
--------------------                               -----------------------------
                                            Date:  08/11/05

                                       2
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                                 ACKNOWLEDGEMENT
                                 ---------------

STATE OF TEXAS:
COUNTY OF HARRIS:

On this 11th day of August 2005, before me, appeared M. J. Koenig, to me
personally known, who, being by me my sworn, did say that he is the
Attorney-in-Fact for Marathon Oil Company, and that the foregoing instrument was
signed on behalf of said corporation by authority of its Board of Directors, and
said appearer acknowledged said instrument to be the free act and deed of said
corporation.

                                         /s/ Deborah A. Reeder
                                         ---------------------
                                             NOTARY PUBLIC

My Commission expires: 1-22-06
                      ---------

                                         [SEAL]   DEBORAH A. REEDER
                                                  Notary Public, State of Texas
                                                  Commission Expires
                                                  01-22-2006

                                 ACKNOWLEDGEMENT
                                 ---------------

STATE OF TEXAS:
COUNTY OF HARRIS:

On this___ day of _____________ 2005, before me, appeared _____________________,
to me personally known, who, being by me duly sworn, did say that she/he is the
___________________ for Ridgewood Energy Corporation, and that the foregoing
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said appearer acknowledged said instrument to be the free act and
deed of said corporation.

                                         -----------------------
                                              NOTARY PUBLIC
My Commission expires:_________

                                       4
<PAGE>

                                 ACKNOWLEDGEMENT
                                 ---------------

STATE OF TEXAS:
COUNTY OF HARRIS:

On this ___ day of __________2005, before me, appeared M. J. Koenig, to me
personally known, who, being by me duly sworn, did say that he is the
Attorney-in-Fact for Marathon Oil Company, and that the foregoing instrument was
signed on behalf of said corporation by authority of its Board of Directors, and
said appearer acknowledged said instrument to be the free act and deed of said
corporation.

                                         -----------------------
                                              NOTARY PUBLIC
My Commission expires: ________

                                 ACKNOWLEDGEMENT
                                 ---------------

STATE OF TEXAS:
COUNTY OF HARRIS:

On this 11th day of August 2005, before me, appeared W. Greg Tabor to me
personally known, who, being by me duly sworn, did say that she/he is the Exec.
Vice President for Ridgewood Energy Corporation, and that the foregoing
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said appearer acknowledged said instrument to be the free act and
deed of said corporation.

                                         /s/ Donna Ermis
                                         ----------------
                                           NOTARY PUBLIC

My Commission expires: October 1, 2008
                       ---------------

                                            [SEAL]     DONNA ERMIS
                                                      Notary Public,
                                                     State of Texas
                                                   My Commission Expires
                                                     October 01, 2008

                                       5Exhibit 10.2

                                   EXHIBIT "E"

Attached to and made a part of that certain Joint Participation Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.

                          OFFSHORE OPERATING AGREEMENT

                                 DATED EFFECTIVE

                                  JULY 1, 2005

                                    COVERING:

                    OCS-G 27012; WEST CAMERON AREA BLOCK 259
                    OCS-G 24722; WEST CAMERON AREA BLOCK 265
                    OCS-G 24723; WEST CAMERON AREA BLOCK 266

                           FEDERAL OFFSHORE LOUISIANA

<PAGE>

                                TABLE OF CONTENTS

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

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

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

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

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

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ARTICLE 3 EXHIBITS ...........................................................12

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

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

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

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

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

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

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

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

  7.1   ACCESS TO CONTRACT AREA ..............................................20
  7.2   REPORTS ..............................................................20
  7.3   CONFIDENTIALITY ......................................................21
  7.4   LIMITED DISCLOSURE ...................................................21
  7.5   LIMITED RELEASES TO OFFSHORE SCOUT ASSOCIATION .......................21
  7.6   MEDIA RELEASES .......................................................22
     7.6.1    Operator's News Release ........................................22
     7.6.2    Non-operating party's News Release .............................22
     7.6.3    Emergency News Releases ........................................23

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ARTICLE 8 EXPENDITURES .......................................................23

  8.1   BASIS OF CHARGE TO THE PARTIES .......................................23
  8.2   AFES .................................................................23
  8.3   EMERGENCY AND REQUIRED EXPENDITURES ..................................23
  8.4   ADVANCE BILLINGS .....................................................24
  8.5   COMMINGLING OF FUNDS .................................................24
  8.6   SECURITY RIGHTS ......................................................24
  8.7   OVEREXPENDITURES .....................................................24

ARTICLE 9 NOTICES ............................................................25

  9.1   GIVING AND RECEIVING NOTICES .........................................25
  9.2   CONTENT OF NOTICE ....................................................25
  9.3   RESPONSE TO NOTICES ..................................................26
     9.3.1    Platform and/or Development Facilities Proposals ...............26
     9.3.2    Well Proposals .................................................26
     9.3.3    Proposal for Multiple Operations ...............................26
     9.3.4    Other Matters ..................................................26
  9.4   FAILURE TO RESPOND ...................................................26
  9.5   RESPONSE TO COUNTERPROPOSALS .........................................27
  9.6   TIMELY WELL OPERATIONS ...............................................27
  9.7   TIMELY PLATFORM/DEVELOPMENT FACILITIES OPERATIONS ....................27

ARTICLE 10 EXPLORATORY OPERATIONS ............................................28

  10.1  PROPOSING OPERATIONS .................................................28
  10.2  COUNTERPROPOSALS .....................................................28
  10.3  OPERATIONS BY ALL PARTIES ............................................28
  10.4  SECOND OPPORTUNITY TO PARTICIPATE ....................................28
  10.5  OPERATIONS BY FEWER THAN ALL PARTIES .................................29
     10.5.1  Acreage Out .....................................................29
  10.6  EXPENDITURES APPROVED ................................................29
  10.7  CONDUCT OF OPERATIONS ................................................29
  10.8  COURSE OF ACTION AFTER REACHING OBJECTIVE DEPTH ......................30
     10.8.1   Election by Participating Parties ..............................30
     10.8.2   Priority of Operations .........................................30
     10.8.3   Second Opportunity to Participate ..............................31
     10.8.4   Operations by Fewer Than All Parties ...........................31
        10.8.4.1   Additional Testing, Coring or Logging Operation
                   by Fewer than All Parties .................................32
     10.8.5   Subsequent Operations ..........................................32
  10.9    WELLS PROPOSED BELOW DEEPEST PRODUCIBLE RESERVOIR ..................32

ARTICLE 11 DEVELOPMENT OPERATIONS ............................................33

  11.1    PROPOSING OPERATIONS ...............................................33
  11.2    COUNTERPROPOSALS ...................................................33
  11.3    OPERATIONS BY ALL PARTIES ..........................................34
  11.4     SECOND OPPORTUNITY TO PARTICIPATE .................................34
  11.5     OPERATIONS BY FEWER THAN ALL PARTIES ..............................34
  11.6     EXPENDITURES APPROVED .............................................35
  11.7     CONDUCT OF OPERATIONS .............................................35
  11.8     COURSE OF ACTION AFTER REACHING OBJECTIVE DEPTH ...................35
     11.8.1  Election by Participating Parties ...............................35
     11.8.2   Priority of Operations .........................................35
     11.8.3  Second Opportunity to Participate ...............................36
     11.8.4   Operations by Fewer Than All Parties ...........................37
        11.8.4.1   Additional Testing Operation by Fewer than All Parties ....37
     11.8.5   Subsequent Operations ..........................................37

                                        3

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     11.8.6   Restoration of Damaged Development Well ........................38

ARTICLE 12 PLATFORM AND DEVELOPMENT FACILITIES ...............................39

  12.1  PROPOSAL .............................................................39
  12.2  COUNTERPROPOSALS .....................................................39
     12.2.1   Operations by All Parties ......................................39
     12.2.2   Second Opportunity to Participate ..............................39
     12.2.3   Operations by Fewer Than All Parties ...........................39
  12.3  OWNERSHIP AND USE OF THE PLATFORM AND DEVELOPMENT FACILITIES .........40
  12.4  RIGHTS TO TAKE IN KIND ...............................................41
  12.5  EXPANSION OR MODIFICATION OF A PLATFORM AND/OR DEVELOPMENT
        FACILITIES ...........................................................42
  12.6  OFFSITE HOST FACILITIES ..............................................42

ARTICLE 13 NON-CONSENT OPERATIONS ............................................43

  13.1  NON-CONSENT OPERATIONS ...............................................43
     13.1.1   Non-interference ...............................................43
     13.1.2   Multiple Completion Limitation .................................43
     13.1.3   Metering .......................................................43
     13.1.4   Non-consent Well ...............................................43
     13.1.5   Cost Information ...............................................43
     13.1.6   Completions ....................................................44
  13.2  RELINQUISHMENT OF INTEREST ...........................................44
     13.2.1   Production Reversion Recoupment ................................44
     13.2.2   Non-production Reversion .......................................45
  13.3  DEEPENING OR SIDETRACKING OF NON-CONSENT WELL ........................46
  13.4  DEEPENING OR SIDETRACKING COST ADJUSTMENTS ...........................46
  13.5  SUBSEQUENT OPERATIONS IN NON-CONSENT WELL ............................47
  13.6  OPERATIONS IN A PRODUCTION INTERVAL ..................................47
  13.7  OPERATIONS UTILIZING A NON-CONSENT PLATFORM AND/OR DEVELOPMENT
        FACILITIES ...........................................................47
     13.7.1   Forfeiture of Initial Platform or Development Facilities .......48
  13.8  DISCOVERY OR EXTENSION FROM NON-CONSENT DRILLING .....................48
  13.9  ALLOCATION OF PLATFORM/DEVELOPMENT FACILITIES COSTS TO NON-CONSENT
        OPERATIONS ...........................................................48
     13.9.1   Charges ........................................................48
     13.9.2   Operating and Maintenance Charges ..............................50
  13.10 ALLOCATION OF COSTS BETWEEN ZONES ....................................50
  13.11 LEASE MAINTENANCE OPERATIONS .........................................50
     13.11.1  Participation in Lease Maintenance Operations ..................50
     13.11.2  Accounting for Non-participation ...............................51
  13.12 RETENTION OF LEASE BY NON-CONSENT WELL ...............................51
  13.13 NON-CONSENT PREMIUMS .................................................52

ARTICLE 14 ABANDONMENT, SALVAGE, AND SURPLUS .................................52

  14.1  PLATFORM SALVAGE AND REMOVAL COSTS ...................................52
  14.2  ABANDONMENT OF PLATFORMS, DEVELOPMENT FACILITIES OR WELLS ............52
  14.3  ASSIGNMENT OF INTEREST ...............................................53
  14.4  ABANDONMENT OPERATIONS REQUIRED BY GOVERNMENTAL AUTHORITY ............53
  14.5  DISPOSAL OF SURPLUS MATERIAL .........................................53

ARTICLE 15 WITHDRAWAL ........................................................54

  15.1  RIGHT TO WITHDRAW ....................................................54
  15.2  RESPONSE TO WITHDRAWAL NOTICE ........................................54

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     15.2.1   Unanimous Withdrawal ...........................................54
     15.2.2   No Additional Withdrawing Parties ..............................55
     15.2.3   Acceptance of the Withdrawing Parties' Interests ...............55
     15.2.4   Effects of Withdrawal ..........................................55
  15.3  LIMITATION UPON AND CONDITIONS OF WITHDRAWAL .........................55
     15.3.1   Prior Expenses .................................................55
     15.3.2   Confidentiality ................................................56
     15.3.3   Emergencies and Force Majeure ..................................56

ARTICLE 16 RENTALS, ROYALTIES, AND OTHER PAYMENTS ............................57

  16.1  OVERRIDING ROYALTY AND OTHER BURDENS .................................57
  16.2  SUBSEQUENTLY CREATED INTEREST ........................................57
  16.3  PAYMENT OF RENTALS AND MINIMUM ROYALTIES .............................58
  16.4  NON-PARTICIPATION IN PAYMENTS ........................................58
  16.5  ROYALTY PAYMENTS .....................................................58

ARTICLE 17 TAXES .............................................................58

  17.1  PROPERTY TAXES .......................................................58
  17.2  CONTEST OF PROPERTY TAX VALUATION ....................................59
  17.3  PRODUCTION AND SEVERANCE TAXES .......................................59
  17.4  OTHER TAXES AND ASSESSMENTS ..........................................59

ARTICLE 18 INSURANCE .........................................................59

  18.1  INSURANCE ............................................................59
  18.2  BONDS ................................................................59

ARTICLE 19 LIABILITY, CLAIMS, AND LAWSUITS ...................................60

  19.1  INDIVIDUAL OBLIGATIONS ...............................................60
  19.2  NOTICE OF CLAIM OR LAWSUIT ...........................................60
  19.3  SETTLEMENTS ..........................................................60
  19.4  DEFENSE OF CLAIMS AND LAWSUITS .......................................60
  19.5  LIABILITY FOR DAMAGES ................................................61
  19.6  INDEMNIFICATION FOR NON-CONSENT OPERATIONS ...........................61
  19.7  DAMAGE TO RESERVOIR, LOSS OF RESERVES AND PROFIT .....................62
  19.8  NON-ESSENTIAL PERSONNEL ..............................................62
  19.9  DISPUTE RESOLUTION PROCEDURE .........................................62
  19.10 NON-OPERATOR RELEASE FOR CONTRACTOR INDEMNITY ........................62

ARTICLE 20 INTERNAL REVENUE PROVISION ........................................63

  20.1  INTERNAL REVENUE PROVISION ...........................................63

ARTICLE 21 CONTRIBUTIONS .....................................................63

  21.1  NOTICE OF CONTRIBUTIONS OTHER THAN ADVANCES FOR SALE OF PRODUCTION ...63
  21.2  CASH CONTRIBUTIONS ...................................................63
  21.3  ACREAGE CONTRIBUTIONS ................................................63

ARTICLE 22 DISPOSITION OF PRODUCTION .........................................64

  22.1  TAKE-IN-KIND FACILITIES ..............................................64
  22.2  DUTY TO TAKE IN KIND .................................................64
  22.3  FAILURE TO TAKE OIL AND CONDENSATE IN KIND ...........................64
  22.4  FAILURE TO TAKE GAS IN KIND ..........................................65
  22.5  EXPENSES OF DELIVERY IN KIND .........................................65

ARTICLE 23 APPLICABLE LAW ....................................................65

  23.1  APPLICABLE LAW .......................................................65

                                        5

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ARTICLE 24 LAWS, REGULATIONS, AND NONDISCRIMINATION ..........................66

  24.1  LAWS AND REGULATIONS .................................................66
  24.2  NONDISCRIMINATION ....................................................66

ARTICLE 25 FORCE MAJEURE .....................................................66

  25.1  FORCE MAJEURE ........................................................66

ARTICLE 26 SUCCESSORS, ASSIGNS, AND PREFERENTIAL RIGHTS ......................66

  26.1  TRANSFER OF INTEREST .................................................66
     26.1.1   Exceptions to Transfer Notice ..................................67
     26.1.2   Effective Date of Transfer of Interest .........................67
     26.1.3   Form of Transfer of Interest ...................................67
     26.1.4   Warranty .......................................................68
  26.2  PREFERENTIAL RIGHT TO PURCHASE .......................................68
     26.2.1   Notice of Proposed Transfer of Interest ........................68
     26.2.2   Exercise of Preferential Right to Purchase .....................68
     26.2.3   Transfer of Interest Not Affected by the Preferential
              Right to Purchase ..............................................69
     26.2.4   Completion of Transfer of Interest .............................70

ARTICLE 27 ADMINISTRATIVE PROVISIONS .........................................70

  27.1  TERM .................................................................70
  27.2  WAIVER ...............................................................70
  27.3  WAIVER OF RIGHT TO PARTITION .........................................70
  27.4  COMPLIANCE WITH LAWS AND REGULATIONS .................................71
     27.4.1   Severance of Invalid Provisions ................................71
     27.4.2   Fair and Equal Employment ......................................71
  27.5  CONSTRUCTION AND INTERPRETATION OF THIS AGREEMENT ....................71
     27.5.1   Headings for Convenience .......................................71
     27.5.2   Article References .............................................71
     27.5.3   Gender and Number ..............................................72
     27.5.4   Future References ..............................................72
     27.5.5   Currency .......................................................72
     27.5.6   Intentionally Omitted ..........................................72
     27.5.7   Joint Preparation ..............................................72
     27.5.8   Integrated Agreement ...........................................72
     27.5.9   Binding Effect .................................................72
     27.5.10  Further Assurances .............................................72
     27.5.11  Counterpart Execution ..........................................72
  27.6  RESTRICTED BIDDING ...................................................73

                                        6

<PAGE>

                          OFFSHORE OPERATING AGREEMENT

THIS OFFSHORE OPERATING AGREEMENT ("Agreement"), made effective the 1st day of
July, 2005, by the signers hereof, their respective heirs, successors, legal
representatives, and assigns, herein referred to collectively as the "Parties"
and individually as a "Party."

                                   WITNESSETH:

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

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

                                    ARTICLE 1

                                   APPLICATION

1.1    Application to Contract Area

       This Agreement shall apply to the entire Contract Area (whether one or
       more Leases), as to all depths.

                              ARTICLE 2 DEFINITIONS

2.1    Additional Testing

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

2.2    Affiliate

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

                                        7

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2.3    Authorization For Expenditure (AFE)

       An authority to expend funds prepared by a Party to estimate the costs to
       be incurred in conducting an operation under this Agreement.

2.4    Complete, Completing, Completion, Completed

       An operation to complete a well for initial Hydrocarbon production in one
       (1) or more Producible Reservoirs, including, but not limited to, setting
       production casing, perforating the casing, stimulating the well,
       installing Completion Equipment, and/or conducting production tests.

2.5    Completion Equipment

       That certain equipment on an Exploratory Well or a Development Well
       required to be installed prior to the movement of a well-completion rig
       off that well,

       (a)    under 30 CFR 250.502, or any succeeding order or regulation issued
              by the MMS, up to and including the tree, and

       (b)    by any other regulatory agency having jurisdiction, including, but
              not limited to, a caisson and navigational aids.

2.6    Confidential Data

       This Agreement and the information and data obtained under this
       Agreement, including, but not limited to, geological, geophysical, and
       reservoir information; originals and copies of logs; core and core
       analysis; and other well information including, but not limited to, the
       progress, tests, or results of a well drilled or an operation conducted
       under this Agreement, except data or information that becomes public
       other than by breach of this Agreement or as agreed to in writing by the
       Participating Parties.

2.7    Contract Area

       The OCS Blocks or portions thereof covered by the Leases subject to this
       Agreement, as listed on Exhibit "A".

2.8    Deepen, Deepening

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

2.9    Development Facilities

       Production equipment other than Completion Equipment that is installed on
       or outside the Contract Area in order to handle or process Hydrocarbon
       production. Development Facilities include, but are not limited to:

       (a)    compression, separation, dehydration, generators, treaters,
              skimmers, bunkhouses and metering equipment;

       (b)    the flowlines, gathering lines or lateral lines that deliver
              Hydrocarbons and water

              1)     from the Completion Equipment to the Platform or to Offsite
                     Host Facilities, or

              2)     from the Platform to Export Pipelines; and

       (c)    injection and disposal wells.

                                        8

<PAGE>

       Development Facilities exclude Export Pipelines.

2.10   Development Operation

       An operation on the Contract Area other than an Exploratory Operation.

2.11   Development Well

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

2.12   Exploratory Operation

       An operation that is conducted on the Contract Area and that is any of
       the following:

       (a)    proposed to Complete an Exploratory Well;

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

       (c)    proposed for an Objective Horizon that has a Producible Well, but
              that will be penetrated at a location where the distance between
              the midpoint of the Objective Horizon to be penetrated by the
              proposed operation and the midpoint of the same Objective Horizon
              where it is actually penetrated by a Producible Well will be at
              least twenty-five hundred (2500) feet for a gas Completion and at
              least fifteen hundred (1500) feet for an oil Completion.

2.13   Exploratory Well

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

2.14   Export Pipelines

       Pipelines to which a gathering line or lateral line downstream of the
       Platform and/or Development Facilities or, if there is no Platform, the
       Completion Equipment, is connected and which are used to transport
       Hydrocarbons or produced water to shore.

2.15   Force Majeure

       An event or cause that is reasonably beyond the control of the Party
       claiming the existence of such event or cause, which includes, but is not
       limited to, a flood, storm, hurricane, loop current/eddy, or other act of
       God, a fire, loss of well control, oil spill, or other environmental
       catastrophe, a war, terrorist act, a civil disturbance, a labor dispute,
       a strike, a lockout, compliance with a law, order, rule, or regulation,
       governmental action or delay in granting necessary permits or permit
       approvals, and the inability to secure materials or a rig (which shall
       include delays in the ability to take actual possession of contracted
       materials or a rig).

2.16   Hydrocarbons

       Oil and/or gas and associated liquid and gaseous by-products (except
       helium) which may be produced from a wellbore located on the Contract
       Area.

2.17   Joint Account

       This term has the same definition as the defined term "Joint Account" in
       Exhibit "C" (Accounting Procedure).

2.18   Lease

       Each oil and gas lease identified in Exhibit "A" and the lands covered by
       that lease.

                                        9

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2.19   MMS

       The Minerals Management Service, United States Department of Interior, or
       its successor agency. Where appropriate, the reference to MMS shall
       include the appropriate state agency.

2.20   Non-consent Operation

       An operation conducted on the Contract Area by fewer than all Parties,
       which subjects the Nonparticipating Party to Article 13 (Non-Consent
       Operations).

2.21   Non-consent Platform

       A Platform owned by fewer than all Parties.

2.22   Non-consent Well

       An Exploratory Well or a Development Well owned by fewer than all
       Parties.

2.23   Non-operator

       A Party other than the Operator.

2.24   Non-participating Party

       A Party other than a Participating Party.

2.25   Non-participating Party's Share

       The Participating Interest that a Non-participating Party would have had
       if all Parties had participated in the operation.

2.26   Objective Depth

       A depth sufficient to test the lesser of the Objective Horizon or the
       specific footage depth stated in the AFE and approved by the
       Participating Parties or such lesser depth mutually agreed by the
       Parties.

2.27   Objective Horizon

       The interval consisting of the deepest zone, formation, or horizon to be
       tested in an Exploratory Well, Development Well, Deepening operation, or
       Sidetracking operation, as stated in the AFE and approved by the
       Participating Parties.

2.28   Offsite Host Facilities

       Development and handling facilities that (a) are located of the Contract
       Area and (b) are either owned by one or more third parties or by one or
       more Participating Parties in a well, whose interests in the development
       and handling facilities differ from their respective Working Interest
       shares in the well.

2.29   Operator

       The Party designated in Article 4.1 (Designation of the Operator), a
       successor Operator selected under Article 4.5 (Selection of Successor
       Operator), and, if applicable, a substitute Operator selected under
       Article 4.2 (Substitute Operator).

2.30   Participating Interest

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

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<PAGE>

2.31   Participating Party

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

2.32   Platform

       An offshore structure on the Contract Area that supports Wells,
       Completion Equipment, or Development Facilities, whether fixed,
       compliant, or floating, and the components of that structure, including,
       but not limited to, caissons or well protectors to the extent same are
       not Completion Equipment, rising above the water line and used for the
       exploration, development, or production of Hydrocarbons. The term
       "Platform" shall also mean any offshore equipment or template (excluding
       templates used for drilling operations) and any component thereof, other
       than' Completion Equipment (including, but not limited to, flow lines and
       control systems), that is resting on or attached to the sea floor and
       used to obtain production of Hydrocarbons.

2.33   Producible Reservoir

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

2.34   Producible Well

       A well that is drilled under this Agreement and that (a) is producing
       Hydrocarbons; (b) is determined to be, or meets the criteria for being
       determined to be, capable of producing Hydrocarbons in paying quantities
       under an applicable order or regulation issued by the governmental
       authority having jurisdiction; or (c) is determined to be a Producible
       Well by the unanimous vote of the Participating Parties.

2.35   Production Interval

       A zone or interval producing or capable of producing Hydrocarbons from a
       well without Reworking operations.

2.36   Recomplete, Recompleting, Recompletion

       An operation whereby a Completion in one Producible Reservoir is
       abandoned in order to attempt a Completion in a different Producible
       Reservoir within the existing wellbore.

2.37   Rework, Reworking

       An operation conducted in a well, after it has been Completed in one or
       more Producible Reservoirs, to restore, maintain, or improve Hydrocarbon
       production from one or more of those Producible Reservoirs, but
       specifically excluding drilling, Sidetracking, Deepening, Completing, or
       Recompleting the well.

2.38   Sidetrack, Sidetracking

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

                                       11

<PAGE>

2.39   Take-in-Kind Facilities

       Facilities which (i) are not paid for by the Joint Account and (ii) are
       installed for the benefit and use of a particular Party or Parties to
       take its or their share of Hydrocarbon production in kind.

2.40   Transfer of Interest

       A conveyance, assignment, transfer, farmout, exchange, or other
       disposition of all or part of a Party's Working Interest.

2.41   Working Interest

       The record title interest, or where applicable, the operating rights of
       each Party in and to each Lease (expressed as the percentage provided in
       Exhibit "A"). If a Party's record title interest is different from its
       operating rights, the Working Interest of each Party is the interest
       provided in Exhibit "A".

                                    ARTICLE 3

                                    EXHIBITS

3.1    Exhibits

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

       3.1.1  Exhibit "A"

              Operator, Description of Leases, Division of Interests, and
              Notification Addresses

       3.1.2  Exhibit "B"

              Insurance provisions.

       3.1.3  Exhibit "C"

              Accounting procedure.

       3.1.4  Exhibit "D"

              Non-discrimination Provisions.

       3.1.5  Exhibit "E"

              Gas Balancing Agreement.

       3.1.6  Exhibit "F"

              Memorandum of Operating Agreement and Financing Statement.

       3.1.7  Exhibit "G"

              Dispute Resolution

       3.1.8  Exhibit "H"

              Security Rights; Default; Unpaid Charges; Carved-out Interests

                                       12

<PAGE>

3.2    Conflicts

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

                                    ARTICLE 4

                                    OPERATOR

4.1    Operator

       Marathon Oil Company (MOC) is designated as the Operator of the Contract
       Area. The Parties shall promptly execute and provide Operator with all
       documents required by the MMS in connection with the designation of MOC
       as Operator or with the designation of any other Party as a substitute or
       successor Operator. Unless agreed to the contrary by all Parties hereto,
       Operator shall also be classified as the designated applicant for oil
       spill financial responsibility purposes and each Non-operating Party
       shall promptly execute the appropriate documentation reflecting this
       designation and promptly provide same to Operator for filing with the
       MMS.

4.2    Substitute Operator

       Except as otherwise provided in Article 4.2.1 (Circumstances Under Which
       the Operator Must Conduct a Non-Consent Operation), if the Operator
       becomes a Non-participating Party in a Non-consent Operation, the
       Participating Parties may approve the designation of any Participating
       Party as the substitute Operator by the vote of one (1) or more of the
       Participating Parties having a combined forty percent (40%) or more of
       the Participating Interests. The substitute Operator shall serve only (a)
       for the Non-consent Operation, (b) on the Lease, or that portion of the
       Lease, affected by the Non-consent Operation, and (c) with the same
       authority, rights, obligations, and duties as the Operator. If a
       Non-operator is the only Participating Party in a Non-consent Operation,
       then the Non-operator shall be designated as the substitute Operator for
       that Non consent Operation, with no vote required, unless the
       Non-operator elects not to accept the designation. No Non-operator shall
       ever be designated as a substitute Operator against its will. If a
       substitute Operator is not designated under the foregoing procedures, the
       Operator shall, upon the unanimous agreement of the Participating Parties
       and the Operator, conduct the Non-consent Operation on behalf of the
       Participating Parties and at the Participating Parties' sole cost and
       risk under Article 13 (Non-Consent Operations).

       4.2.1  Circumstances Under Which the Operator Must Conduct a Non-Consent
              Operation

              If:

              (a)    a drilling rig is on location and the Operator becomes a
                     Non-participating Party in a supplemental AFE for an
                     Exploratory Operation, or Development Operation, or

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<PAGE>

              (b)    the Operator becomes a Non-participating Party in an
                     operation to be conducted from a Platform operated by the
                     Operator,
              the Operator, as a Non-participating Party, shall conduct the
              Non-consent Operation on behalf of the Participating Parties and
              at the Participating Parties' sole cost and risk under Article 13
              (Non-Consent Operations).

       4.2.2  Operator's Conduct of a Non-Consent Operation in Which it is a
              Non-participating Party

              When, under Article 4.2 (Substitute Operator) or Article 4.2.1
              (Circumstances Under Which the Operator Must Conduct a Non-Consent
              Operation), the Operator conducts a Non-consent Operation in which
              it is a Non-participating Party, it shall follow the practices and
              standards in Article 5 (Exclusive Right to Operate).
              Notwithstanding anything to the contrary in Exhibit "C", the
              Operator shall not be required to proceed with the Non-consent
              Operation until the Participating Parties have advanced the total
              estimated costs of the Non-consent Operation to the Operator. The
              Operator shall never be obligated to expend any of its own funds
              for the Non-consent Operation in which it is a Non-participating
              Party.

       4.2.3  Appointment of a Substitute Operator

              After expiration of all applicable response periods for the
              Non-consent Operation and selection of a substitute Operator, each
              Party shall promptly provide the substitute Operator with the
              appropriate MMS designation of operator forms and designation of
              oil spill responsibility forms. The Operator and the substitute
              Operator shall coordinate the change of operatorship to avoid
              interfering with ongoing activities and operations, if any,
              including but not limited to, lease maintenance activities and
              operations.

       4.2.4  Redesignation of Operator

              Within thirty (30) days after conclusion of the Non-consent
              Operation, all Parties shall execute and provide the Operator with
              the appropriate MMS designation of operator forms and designation
              of oil spill responsibility forms to return operatorship to the
              Operator, thereby superseding the Parties' designation of the
              substitute Operator under Article 4.2.3 (Appointment of a
              Substitute Operator).

4.3    Resignation of Operator

       Subject to Article 4.5 (Selection of Successor), the Operator may resign
       at any time by giving written notice to the Parties, except that the
       Operator may not resign during a Force Majeure or an emergency that poses
       a threat to life, safety, property, or the environment. If the Operator
       ceases to own a Working Interest, the Operator automatically shall be
       deemed to have resigned as the Operator without any action by the
       Non-operators.

                                       14

<PAGE>

4.4    Removal of Operator

       Operator may be removed by an affirmative vote of the Parties owning a
       combined Working Interest of fifty-one percent (51%) or more of the
       remaining Working Interest after excluding the Operator's Working
       Interest if:

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

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

       (c)    a Transfer of Interest by the Operator (excluding an interest
              assigned to an Affiliate) reduces the Operator's Working Interest
              to less than the Working Interest of a Non operator, whether
              accomplished by one (1) or more Transfer of Interest.

       (d)    Operator commits a substantial breach of a material provision of
              this Agreement and fails to cure the breach within thirty (30)
              days after notice of the breach. However, if the breach specified
              in the notice is of such a nature that it reasonably cannot be
              corrected within the thirty (30) day period, and the Operator
              within said period begins corrective action or steps to correct
              the breach, and thereafter diligently carries such corrective
              action to completion, the Operator shall not be removed. The
              Operator shall not be removed under this Article 4.4 if the
              Operator is able to prove the non-existence of the alleged breach
              within thirty (30) days after receipt of written notice of such
              alleged breach.

       If a petition for relief under the federal bankruptcy laws is filed by or
       against Operator, and if a federal bankruptcy court prevents the removal
       of Operator, all Non-operators and Operator shall comprise an interim
       operating committee to operate until Operator has elected to reject or
       assume this Agreement under the Bankruptcy Code. An election by Operator
       as a debtor-in-possession or by a trustee in bankruptcy to reject this
       Agreement shall be deemed to be a resignation by Operator without any
       action by the Non-operators, except the selection of a successor. To be
       effective, a vote to remove Operator for any cause described above must
       be taken within thirty (30) days after a Non-operator receives actual
       knowledge of the cause. A change of corporate name or structure of
       Operator or a transfer of Operator's interest to a single Affiliate shall
       not be deemed to be a resignation or basis for removing Operator. Subject
       to Article 8.6 in Exhibit "H", the resignation or removal of Operator
       shall become effective at the earlier of (a) 7:00 a.m. on the first day
       of the calendar month following the expiration of ninety (90) days after
       the giving of notice of resignation by Operator or action by
       Non-operators to remove Operator, or (b) the time when a successor
       Operator assumes the duties of Operator.

4.5    Selection of Successor

       Upon resignation or removal of Operator, a successor Operator shall be
       selected from among the Parties by an affirmative vote of one (1) or more
       Parties having a combined Working Interest of forty percent (40%) or
       more. If the resigned or removed Operator is not entitled to vote, fails
       to vote, or votes only to succeed itself, then the successor Operator

                                       15

<PAGE>

       shall be selected by the affirmative vote of the Parties owning a
       combined Working Interest of forty percent (40%) or more of the remaining
       Working Interest after excluding the Working Interest of the resigned or
       removed Operator. If the Operator assigns all or a part of its Working
       Interest, then under Article 4.3 (Resignation of Operator) or Article
       4.4.(c), the Party who acquired all or a part of the former Operator's
       Working Interest shall not be excluded from voting for a successor
       Operator. If there are only two (2) Parties to this Agreement when the
       Operator resigns or is removed, then the Non-operator automatically has
       the right, but not the obligation, to become the Operator. If no Party is
       willing to become the Operator, this Agreement shall terminate under
       Article 27.1 (Term).

4.6    Effective Date of Resignation or Removal

       The resignation or removal of the Operator shall become effective as soon
       as practical but no later than 7:00 a.m. on the first day of the month
       following a period of ninety (90) days after the date of resignation or
       removal, unless a longer period is required for the Parties to obtain
       approval of the designation of the successor Operator, and designated
       applicant for oil spill financial responsibility purposes, by the MMS;
       however, in no event shall the resignation or removal of Operator become
       effective until a successor Operator has assumed the duties of Operator.
       The resignation or removal of the outgoing Operator shall not prejudice
       any rights, obligations, or liabilities resulting from its operatorship.
       The successor Operator may charge the Joint Account for reasonable costs
       incurred in connection with copying or obtaining the former Operator's
       records, information or data except when the change of Operator results
       from a merger, consolidation, reorganization or sale or transfer to an
       Affiliate of the Operator.

4.7    Delivery of Property

       On the effective date of resignation or removal of the Operator, the
       outgoing Operator shall deliver or transfer to the successor Operator
       custodianship of the Joint Account and possession of all items purchased
       for the Joint Account under this Agreement, all Hydrocarbons that are not
       the separate property of a Party, all equipment, materials, and
       appurtenances purchased for the Joint Account under this Agreement, which
       are not already in the possession of the successor Operator. The outgoing
       Operator shall further use its reasonable efforts to transfer to the
       successor Operator, as of the effective date of the resignation or
       removal, its rights as Operator under all contracts exclusively relating
       to the activities or operations conducted under this Agreement, and the
       successor Operator shall assume all obligations of the Operator that are
       assignable under the contracts. The Parties may audit the Joint Account
       and conduct an inventory of all property and all Hydrocarbons that are
       not the separate property of a Party, and the inventory shall be used in
       the accounting to all Parties by the outgoing Operator of the property
       and the Hydrocarbons that are not the separate property of a Party. The
       inventory and audit shall be conducted as provided in Exhibit "C".

                                       16

<PAGE>

                                    ARTICLE 5

                        AUTHORITY AND DUTIES OF OPERATOR

5.1    Exclusive Right to Operate

       Unless otherwise provided in this Agreement, Operator shall have the
       exclusive right and duty to conduct operations (or cause them to be
       conducted) under this Agreement. In performing services under this
       Agreement for the Non-operators, Operator shall be an independent
       contractor, not subject to the control or direction of Non-operators,
       except for the type of operation to be undertaken in accordance with the
       voting and election procedures in this Agreement. No Party shall be
       deemed to be, or hold itself out as, the agent or fiduciary of another
       Party.

5.2    Workmanlike Conduct

       Operator shall timely commence and conduct all operations in a good and
       workmanlike manner, as would a prudent operator under the same or similar
       circumstances. OPERATOR SHALL NOT BE LIABLE TO NON-OPERATORS FOR LOSSES
       SUSTAINED OR LIABILITIES INCURRED, EXCEPT AS MAY RESULT FROM OPERATOR'S
       GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Operator shall never be required
       under this Agreement to conduct an operation that it believes would be
       unsafe or would endanger persons, property or the environment. Unless
       otherwise provided in this Agreement, Operator shall consult with
       Non-operators and keep them informed of all important matters.

5.3    Liens and Encumbrances

       Operator shall endeavor to keep the Contract Area, wells, Platforms,
       Development Facilities, and other equipment free from all liens and other
       encumbrances occasioned by operations hereunder, except those provided in
       Article 8.6 (Security Rights).

5.4    Employees and Contractors

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

5.5    Records

       The Operator shall keep or cause to be kept accurate books, accounts, and
       records of activities or operations under this Agreement in compliance
       with the Accounting Procedure in Exhibit "C". Unless otherwise provided
       in this Agreement, all records of the Joint Account shall be available to
       a Non-operator as provided in Exhibit "C". The Operator shall use
       good-faith efforts to ensure the settlements, billings, and reports
       rendered to each Party under this Agreement are complete and accurate.

5.6    Compliance

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

                                       17

<PAGE>

5.7    Contractors

       Operator may enter into contracts with qualified and responsible
       independent contractors for the design, construction, installation,
       drilling, production or operation of wells, Platforms and Development
       Facilities. Insofar as practical, Operator shall use competitive bidding
       to procure goods and services for the benefit of the Parties. All
       drilling operations conducted under this Agreement shall be conducted by
       properly qualified and responsible drilling contractors under current
       competitive contracts. A drilling contract will be deemed to be a current
       competitive contract if it (a) was made within twelve (12) months before
       the commencement of the well (subject to Force Majeure conditions) and
       (b) contains terms, rates, and provisions that, when the contract was
       made, did not materially exceed those generally prevailing in the area
       for operations involving substantially equivalent rigs that are capable
       of conducting the drilling operation within the time period provided in
       Article 9.6 (Timely Well Operations). At its election, Operator may use
       its own or an Affiliate's drilling equipment, derrick barge, tools, or
       machinery to conduct drilling operations, but the work shall be (i)
       performed by Operator or its Affiliate acting as an independent
       contractor, (ii) approved by written agreement with the Participating
       Parties before commencement of operations, and (iii) conducted under the
       same terms and conditions and at the same rates as are customary and
       prevailing in competitive contracts of third parties doing work of
       similar nature.

5.8    Governmental Reports

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

5.9    Information to Participating Parties

       Except as provided in Article 8.6, Operator shall furnish each
       Participating Party the following information, if applicable, for each
       activity or operation conducted by Operator:

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

       5.9.2  A daily drilling report (or Reworking report or Recompletion
              report, if applicable), giving the depth, corresponding
              lithological information, data on drilling fluid characteristics,
              information about drilling or operational difficulties or delays,
              if any, and other pertinent information, by facsimile transmission
              or electronic mail within eight (8) hours (inclusive of Saturdays,
              Sundays, and federal holidays) for well operations conducted in
              the preceding twenty-four (24) hour period.

       5.9.3  A complete report of each core analysis.

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

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

                                       18

<PAGE>

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

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

       5.9.8  A monthly report on the volume of Hydrocarbons and water produced
              from each well.

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

       5.9.10 Upon written request, other pertinent information available to
              Operator, including, but not limited to, those portions of the
              contracts to be used for the benefit of the Joint Account and
              which pertain to the Contract Area, but excluding the Operator's
              proprietary or secret information and its subsurface
              interpretations.

5.10   Information to Non-participating Parties

       Operator shall furnish each Non-participating Party a copy of each
       Operator's governmental report that is available to the public and
       associated with the applicable Non-consent Operation. Until the
       applicable recoupment under Article 13 (Non-consent Operations) is
       complete, a Non participating Party shall not receive or review any other
       information specified by Article 5.9 (Information to Participating
       Parties), except as may be necessary for a payout audit of the Non
       consent Operation.

                                    ARTICLE 6

                          VOTING AND VOTING PROCEDURES

6.1    Voting Procedures

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

       6.1.1  Voting Interest

              Subject to Article 8.6 (Security Rights), each Party shall have a
              voting interest equal to its Working Interest or its Participating
              Interest, as applicable.

       6.1.2  Vote Required

              Unless expressly stated to the contrary herein, a matter requiring
              approval of the Parties shall be decided by the affirmative vote
              of one (1) or more Parties having a combined voting interest of
              forty percent (40%) or more.

                                       19

<PAGE>

       6.1.3  Votes

              The Parties may vote at a meeting, by telephone, promptly
              confirmed in writing to Operator, or by facsimile transmission.
              Operator shall give each Party prompt notice of the results of the
              voting.

       6.1.4  Meetings

              Meetings of the Parties may be called by Operator upon its own
              motion or at the request of a Party having a voting interest of
              not less than ten percent (10%). Except in an emergency, no
              meeting shall be called on less than five (5) days' advance
              written notice, and the notice of meeting shall include the
              meeting agenda prepared by the Operator or the requesting Party.
              The representative of Operator shall be chairman of each meeting.
              Only matters included in the agenda may be discussed at a meeting,
              but the agenda and items included in the agenda may be amended
              prior to or during the meeting by unanimous agreement of all
              Parties.

                                    ARTICLE 7

                                     ACCESS

7.1    Access to Contract Area

       Except as provided in Article 8.6, each Party shall have access, at its
       sole risk and expense and at all reasonable times and subject to the
       reasonable safety requirements of the Operator, to the Contract Area,
       Platform, Development Facilities and Joint Account assets to inspect
       activities, operations and wells in which it participates, and to
       pertinent records and data. A Non-operator shall give Operator at least
       twenty-four (24) hours' notice of the Non-operator's intention to visit
       the Contract Area. To protect Operator and the Non-operators from
       unnecessary lawsuits, claims, and legal liability, if it is necessary
       for a person who is not performing services for Operator directly related
       to the joint operations, but is performing services solely for a
       Non-operator or pertaining to the business or operations of a
       Non-operator, to visit, use, or board a rig, well, Platform, or
       Development Facilities subject to this Agreement, the Non-operator shall
       give Operator advance notice of the visit, use, or boarding, and shall.
       secure from that person an agreement, in a form satisfactory to Operator,
       indemnifying and holding Operator and Non-operators harmless, or shall
       itself provide the same hold harmless and indemnification in favor of
       Operator and other Non-operators before the visit, use, or boarding.

7.2    Reports

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

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<PAGE>

7.3    Confidentiality

       Except as otherwise provided in Article 7.4 (Limited Disclosure), Article
       7.5 (Limited Releases to Offshore Scout Association), Article 7.6 (Media
       Releases), and Article 21.1 (Notice of Contributions Other Than Advances
       for Sale of Production), and except for necessary disclosures to
       governmental authorities having jurisdiction, or except as agreed in
       writing by all Participating Parties, no Party or Affiliate shall
       disclose Confidential Data to a third party. This Article 7.3 shall be in
       force and effect for a term of two (2) years after termination of this
       Agreement.

7.4    Limited Disclosure

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

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

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

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

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

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

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

       (g)    an Affiliate of a Party;

       (h)    such limited well information that is typically disclosed by
              Operator's representative during meetings of the Offshore Oil
              Scouts Association; and

       (i)    third parties with whom a Party is engaged in a bona fide effort
              to sell, farm out, or trade all or a portion of its interest in
              the Contract Area.

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

7.5    Limited Releases to Offshore Scout Association

       The Operator may disclose Confidential Data to the Offshore Oil Scouts
       Association at their regularly scheduled meetings. The Confidential Data
       that may be disclosed is limited to information concerning well
       locations, well operations, and well completions to the extent reasonable
       and customary in industry practice or required under the by-laws of the
       Offshore Oil Scouts Association.

                                       21

<PAGE>

7.6    Media Releases

       Any Party may propose a news release to the media concerning activities
       or operations covered by this Agreement, and such proposal shall require
       unanimous approval. Notwithstanding anything to the contrary, should
       Operator deem that certain well results covered by this Agreement are of
       strategic commercial value to the Participating Parties, no information
       may be released in regards to said activity or operation without
       unanimous approval of the Participating Parties until (a) Operator deems
       that the information is no longer of strategic commercial value, or (b)
       one (1) year after completion of the activity or operation which
       generated the information, whichever occurs first.

       7.6.1  Operator's News Release

              The Operator has an exclusive ten (10) day period, commencing
              immediately after a proposed news release is not unanimously
              approved, in which to issue a basic news release to the media. A
              basic news release does not require approval and its content is
              restricted to the following information:

              (a)    name of well and water depth

              (b)    location of well by area, block, and adjacent state

              (c)    lease bonus paid and lease acquisition date (d) tested
                     interval(s), if applicable

              (e)    test(s) results, if applicable

              (f)    participants and percentages of working interest

              (g)    acreage controlled.

              The Operator will transmit the basic news release to the
              Non-Operating Parties not less than seventy-two (72) hours
              (exclusive of Saturdays, Sundays, and federal holidays) before it
              is to be issued to the media. Any Party may have its name excluded
              from the proposed basic news release by notifying the Operator of
              that desire within forty-eight (48) hours of its receipt of the
              proposed basic news release.

       7.6.2  Non-Operating Party's News Release

              If the Operator does issue a basic news release to the media
              within its exclusive period set forth in Article 7.6.1 (Operator's
              News Release), any other Participating Party may prepare and issue
              its own basic news release, using the content guidelines and
              procedures set forth in Article 7.6.1 (Operator's News Release),
              simultaneously with or following the Operator's basic news
              release. If the Operator does not issue a basic news release to
              the media within its exclusive period set forth in Article 7.6.1
              (Operator's News Release), any other Participating Party may
              prepare and issue its own basic news release, using the content
              guidelines and procedures set forth in Article 7.6.1 (Operator's
              News Release).

                                       22

<PAGE>

       7.6.3  Emergency News Releases

              In an emergency involving extensive property damage, loss of human
              life, or other clear emergency and where there is insufficient
              time to obtain approval from the Parties, the Operator may furnish
              factual information necessary to satisfy legitimate public
              interest or governmental authorities having jurisdiction. The
              Operator shall immediately notify the Parties of the information
              furnished in response to the emergency.

                                    ARTICLE 8

                                  EXPENDITURES

8.1    Basis of Charge to the Parties

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

8.2    AFEs

       Before undertaking an operation or making a single expenditure to be in
       excess of five hundred thousand dollars ($500,000.00), and before
       conducting an activity or operation to drill, Sidetrack, Deepen,
       Complete, Rework or Recomplete a well (regardless of the estimated cost),
       Operator shall submit an AFE for the operation or expenditure to the
       Parties for approval. Operator shall also furnish an informational AFE to
       all Parties for an operation or single expenditure estimated to cost five
       hundred thousand dollars ($500,000.00) or less, but in excess of one
       hundred fifty thousand dollars ($150,000.00) if Operator prepares same
       for its own use.

8.3    Emergency and Required Expenditures

       Notwithstanding anything in this Agreement to the contrary, Operator is
       hereby authorized to conduct operations and incur expenses that in its
       opinion are reasonably necessary to safeguard life, property, and the
       environment in case of an actual or imminently threatened blowout,
       explosion, accident, fire, flood, storm, hurricane, catastrophe, or other
       emergency, and the expenses shall be borne by the Participating Parties
       in the affected operation. Operator shall report to the Participating
       Parties, as promptly as possible, the nature of the emergency and the
       action taken. Operator is also authorized to conduct operations and incur
       expenses reasonably required by statute, regulation, order, or permit
       condition or by a governmental authority having jurisdiction, which
       expenses shall be borne by the Participating Parties in the affected
       operation, subject to Exhibit "C".

                                       23

<PAGE>

8.4    Advance Billings

       Operator may require each Party to advance its respective share of
       estimated expenditures pursuant to Exhibit "C".

8.5    Commingling of Funds

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

8.6    Security Rights

       The security rights of the Parties will be administered as provided in
       Exhibit "H".

8.7    Overexpenditures

       Operator shall notify the Participating Parties when it appears that
       actual expenditures for an approved operation in an Exploratory or
       Development Well or for the design, construction, and installation of a
       Platform (other than a Platform that solely supports Development
       Facilities) will exceed the AFE estimate (the excess being an
       "Overexpenditure"). If it appears that the Overexpenditure will be no
       more than twenty percent (20%), hereinafter referred to as the "Allowable
       Variance," Operator's notice shall be forwarded for information only. If
       Operator determines that the Overexpenditure will exceed the Allowable
       Variance, Operator shall submit a new AFE for the current operation
       ("Supplemental AFE") for approval of the Participating Parties. The
       Participating Parties may then elect whether to continue to participate
       within ten (10) days or forty-eight (48) hours if a rig is on location,
       inclusive of Saturdays, Sundays, and federal holidays, after receipt of
       the Supplemental AFE. If fewer than all, but one (1) or more
       Participating Parties elect to continue to participate in the current
       operation and agree to pay and bear one hundred percent (100%) of the
       costs and risks of conducting it, Operator shall continue to conduct the
       current operation. Otherwise, the operation shall cease. A Participating
       Party that elects not to continue to participate in the current operation
       shall become a Non-participating Party in the operation, from and after
       the date when the Overexpenditure exceeds the Allowable Variance, not
       including emergency expenditures, and Article 13.2 (Relinquishment of
       Interest) shall apply to the Party only to the extent that the costs of
       the operation exceed the Allowable Variance. Unless otherwise agreed by
       the Participating Parties, each Participating Party electing to continue
       to participate in the current operation may, but is not obligated to, pay
       and bear that portion of the costs and risks attributable to the
       interests of the Non-participating Parties in the ratio that the
       Participating Party's interest bears to the total interests of all
       Participating Parties electing to continue participating in the current
       operation. If it appears to Operator that actual expenditures for an
       approved operation will exceed the Supplemental AFE estimate, Operator
       shall again repeat the procedure of this Article 8.7, using the estimate
       in the most recently approved Supplemental AFE as the basis for
       determining the Overexpenditure and Allowable Variance. An initial
       Participating Party in an operation shall remain responsible for its
       share of all costs and risks for plugging, replugging, capping, burying,
       disposing, abandoning, removing, and restoring associated with the
       operation, subject to Article 14 (Abandonment, Salvage, and Surplus),

                                       24

<PAGE>

       regardless of its subsequent election on a Supplemental AFE, except to
       the extent such costs were increased by subsequent operations in which it
       elected not to participate. Notwithstanding anything in this Article to
       the contrary, if expenditures exceed the Allowable Variance for an
       emergency, as provided in Article 8.3 (Emergency and Required
       Expenditures), Operator shall not be required to secure the approval of
       the Participating Parties, as the expenditures will be borne by all
       Participating Parties. However, once stabilization takes place and
       emergency expenditures are no longer being incurred, Operator shall
       promptly furnish a Supplemental AFE to the Participating Parties for
       their review and election to continue participation in the proposed
       operation, as provided above.

                                    ARTICLE 9

                                     NOTICES

9.1    Giving and Receiving Notices

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

9.2    Content of Notice

       An AFE. or notice requiring a response shall indicate the maximum
       response time specified in Article 9.3 (Response to Notices). A proposal
       for a Platform and/or Development Facilities shall include an AFE,
       containing a description of the Platform and/or Development Facilities,
       including, but not limited to, location, and the estimated costs of
       design, fabrication, transportation, and

                                       25

<PAGE>

       installation. A proposal for a well operation shall include an AFE,
       describing the estimated commencement date, the proposed depth, the
       objective formation or formations to be penetrated or tested, the
       Objective Horizon, the surface and bottomhole locations, proposed
       directional or horizontal drilling operations, the type of equipment to
       be used, and the estimated costs of the operation, including, but not
       limited to, the estimated costs of drilling, testing, and Completing (if
       for Development Operations) or abandoning the well. If a proposed
       operation is subject to Article 13.11 (Lease Maintenance Operations), the
       notice shall specify that the proposal is a Lease Maintenance Operation.
       A proposal for multiple operations on more than one (1) well location by
       the same rig shall contain separate AFEs or notices for each operation
       and shall specify in writing in what order the operations will be
       conducted. Each Party shall respond to each proposed multiple operation
       in the manner provided in Article 9.3.3 (Proposal for Multiple
       Operations).

9.3    Response to Notices

       Except as provided in Article 9.1, each Party's response to a proposal
       shall be in writing to the proposing Party. Unless otherwise provided in
       this Agreement, the response time shall be as follows:

       9.3.1  Platform and/or Development Facilities Proposals

              Each Party shall respond within sixty (60) days after its receipt
              of the AFE or notice for a Platform and/or Development Facilities.

       9.3.2  Well Proposals

              Except as provided in Article 9.3.3 (Proposal for Multiple
              Operations), each Party shall respond within thirty (30) days
              after receipt of the well, Rework or Recompletion proposal, but if
              (a) a drilling rig is on location, (b) the proposal relates to the
              same well or its substitute, and (c) standby charges are
              accumulating, a response shall be made within forty-eight (48)
              hours after receipt of the proposal, inclusive of Saturdays,
              Sundays, and federal holidays.

       9.3.3  Proposal for Multiple Operations

              When a proposal is made to conduct multiple Development Operations
              at separate well locations using the same rig, each Party shall
              respond (a) to the well operation taking precedence, within thirty
              (30) days after receipt of the proposal; and (b) to each
              subsequent well location, within forty-eight (48) hours after
              completion of approved operations at the prior location and
              notification thereof by Operator.

       9.3.4  Other Matters

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

9.4    Failure to Respond

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

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<PAGE>

9.5    Response to Counterproposals

       Should a counterproposal be allowed under this Agreement, responses to
       that counterproposal must be made within the response period for the
       original proposal.

9.6    Timely Well Operations

       Unless otherwise provided, an approved well shall be commenced within one
       hundred-eighty (180) days after the date when the last applicable
       election on that well may be made. Wells shall be deemed to have
       commenced on the day charges commence under the drilling contract for
       that well. The time frame for commencement of a well by the Operator may
       be extended due to a Force Majeure for an additional period of up to one
       hundred-eighty (180) days. If an approved well has not been commenced by
       the Operator within the applicable time frame, the proposal of the well
       and its approval will be deemed to have been withdrawn unless the other
       Participating Parties in that well select a substitute Operator to drill
       the approved well. If the substitute Operator fails to commence actual
       drilling operations on an approved well within thirty (30) days after
       designation as the substitute Operator, but in no event, including the
       occurrence of a Force Majeure, one (1) year after the date when the last
       applicable election on that well may be made, the proposal of the well
       and its approval will be deemed to have been withdrawn. Subject to
       Exhibit "C", if a proposal for a well is deemed to have been withdrawn,
       all costs incurred in the preparation for or in furtherance of that well
       will be chargeable to the Parties who voted to participate in the well
       proposal for that well.

9.7    Timely Platform/Development Facilities Operations

       Unless otherwise provided, Operator shall commence, or cause to commence,
       the construction, acquisition, or refurbishment of an approved proposal
       for a Platform and/or Development Facilities within ninety (90) days
       after the date when the last applicable election on that Platform and/or
       Development Facilities may be made. The construction, acquisition, or
       refurbishment of an approved Platform and/or Development Facilities
       proposal shall be deemed to have commenced on the date a contract is
       awarded for the design, acquisition, fabrication, or refurbishment of the
       Platform and/or Development Facilities. If the Operator does not commence
       the construction, acquisition, or refurbishment of an approved Platform
       and/or Development Facilities proposal within the ninety (90) day time
       frame, the other Participating Parties in that Platform and/or
       Development Facilities proposal may select a substitute Operator to
       commence the Platform and/or Development Facilities. In all events,
       including the occurrence of a Force Majeure, if the substitute Operator
       fails to commence the construction, acquisition, or refurbishment of an
       approved Platform and/or Development Facilities within one hundred-eighty
       (180) days from the proposal of the approved Platform and/or Development
       Facilities, the proposal of the Platform and/or Development Facilities
       and their approval will be deemed to have been withdrawn. Subject to
       Exhibit "C", regardless of whether or not the construction, acquisition,

                                       27

<PAGE>

       or refurbishment of a Platform and/or Development Facilities is
       commenced, all costs incurred by Operator, attributable to that activity,
       shall be paid by the Participating Parties.

                                   ARTICLE 10

                             EXPLORATORY OPERATIONS

10.1   Proposing Operations

       A Party may propose an Exploratory Operation in accordance with Article 9
       (Notices) to the other Parties who are entitled to vote or make an
       election in regard to that operation.

       10.2 Counterproposals

       When an Exploratory Operation is proposed, a Party may, within ten (10)
       days after receipt of the AFE or notice for the original proposal, make a
       counterproposal to conduct an alternative Exploratory Operation by
       sending an AFE or notice to such Parties in accordance with Article 9
       (Notices). The AFE or notice shall indicate that the proposal is a
       counterproposal to the original proposal. If one or more counterproposals
       are made, such Parties shall elect to participate in either the original
       proposal, one (1) counterproposal, or neither the original proposal nor a
       counterproposal. If two (2) or more proposals receive the approval of the
       number of Parties and combined Working Interests required by Article 10.5
       (Operations by Fewer Than All Parties), the proposal receiving the
       largest percentage of Working Interest approval shall take precedence,
       and in the event of a tie between two (2) or more approved proposals, the
       proposal first received by the Parties shall take precedence. Except for
       the response period provided in this Article 10.2, a counterproposal
       shall be subject to the same terms and conditions as the original
       proposal.

10.3   Operations by All Parties

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

10.4   Second Opportunity to Participate

       If fewer than all but one (1) or more Parties having a combined Working
       Interest of forty percent (40%) or more elect to participate, then the
       proposing Party shall notify the Parties of the elections made, whereupon
       a Party originally electing not to participate may then elect to
       participate by notifying the proposing Party within twenty-four (24)
       hours, exclusive of Saturdays, Sundays, and federal holidays, after
       receipt of such notice. If all Parties elect to participate in the
       proposed operation, Operator shall conduct the operation at their cost
       and risk. If there are only two (2) Parties to this Agreement and no
       counterproposal is made pursuant to Article 10.2, then there shall not be
       a second opportunity to elect to participate, and if the Participating
       Party agrees to pay and bear one hundred percent (100%) of the costs and
       risks of the operation, then the Operator, subject to Article 4.2
       (Substitute Operator), shall conduct the operation as a Non-consent

                                       28

<PAGE>

       Operation for the benefit of the Participating Party, and the provisions
       of Article 13 (Non-consent Operations) shall apply.

10.5   Operations by Fewer Than All Parties

       If there are more than two (2) Parties to this Agreement, then, after the
       election made under Article 10.4 (Second Opportunity to Participate),
       fewer than all but one (1) or more Parties having a combined Working
       Interest of forty percent (40%) or more have elected to participate in
       the proposed operation, the proposing Party shall notify the
       Participating Parties, and each Participating Party shall have
       twenty-four (24) hours, exclusive of Saturdays, Sundays, and federal
       holidays, after receipt of the notice to notify the proposing Party of
       the portion of the costs and risks attributable to the total
       Non-participating Parties' interests it elects to pay and bear. Unless
       otherwise agreed by the Participating Parties, each Participating Party
       may, but shall not be obligated to, pay and bear that portion of the
       costs and risks attributable to the total Nonparticipating Parties'
       interests in the ratio that the Participating Party's interest bears to
       the total interests of all Participating Parties who elect to pay and
       bear a portion of the costs and risks attributable to the total
       Non-participating Parties' interests. Failure to respond shall be deemed
       to be an election not to pay or bear any additional costs or risks. If
       the Participating Parties agree to pay and bear one hundred percent
       (100%) of the costs and risks of the operation, Operator, subject to
       Article 4.2 (Substitute Operator), shall conduct the operation as a
       Non-consent Operation for the benefit of the Participating Parties, and
       the provisions of Article 13 (Non-consent Operations) shall apply. If
       such agreement is not obtained, however, the operation shall not be
       conducted and the effect shall be as if the proposal had not been made.

       10.5.1 Acreage Out

              With respect to the first Exploratory Well drilled on the Contract
              Area, a Party electing not to participate in an approved proposal
              to drill the first Exploratory Well on the Contract Area shall
              withdraw from this Agreement in accordance with Article l5
              (Withdrawal), and shall forfeit and permanently assign its entire
              interest in and rights to the Contract Area, with the withdrawal
              to be effective on the date actual drilling operations are
              commenced.

10.6   Expenditures Approved

       Approval of an Exploratory Operation shall cover all necessary
       expenditures associated with the operation proposed in the AFE or notice
       that are incurred by Operator in connection with (a) preparations for
       drilling; (b) the actual drilling; (c) evaluations, such as testing,
       coring, and logging; and (d) plugging and abandonment, subject to any
       limitation that may exist as provided under Article 8 above.

10.7   Conduct of Operations

       After commencement of drilling an Exploratory Well, Operator shall
       diligently conduct the operation without unreasonable delay until the
       well reaches the Objective Depth, unless the well encounters, at a lesser
       depth, impenetrable conditions or mechanical difficulties that cannot be

                                       29

<PAGE>

       overcome by reasonable and prudent operations and that render further
       operations impracticable, except as may otherwise be provided in Article
       8.7 (Overexpenditures). If a well does not reach its Objective Depth as a
       result of the conditions mentioned in this Article 10.7, the operation
       shall be deemed to have been completed and Article 13 (Non-consent
       Operations) shall apply to each Non-participating Party for the portion
       of the well drilled.

10.8   Course of Action After Reaching Objective Depth

       When an Exploratory Well has been drilled to its Objective Depth and
       reasonable testing, coring, and logging have been completed as set forth
       in the approved AFE and the results have been furnished to the
       Participating Parties, Operator shall notify the Participating Parties of
       Operator's recommendation for further operations in the well, and the
       following provisions shall apply: 10.8.1 Election by Participating
       Parties A Participating Party shall have the right to propose another
       operation by notifying the Operator and the other Participating Parties
       of its proposed operation within twenty-four (24) hours, inclusive of
       Saturdays, Sundays, and federal holidays, of receipt of the Operator's
       notice. The Participating Parties shall notify Operator within
       forty-eight (48) hours, inclusive of Saturdays, Sundays, and federal
       holidays, of receipt of the Operator's proposal whether the Participating
       Parties elect to (a) participate in a recommended operation, or (b) not
       participate in a recommended operation. Failure to respond shall be
       deemed to be an election not to participate in any of the recommended
       operations.

       10.8.2 Priority of Operations

              If all Participating Parties elect to participate in the same
              proposed operation, Operator shall conduct the operation at their
              cost and risk. If more than one (1) operation is approved by one
              (1) or more Participating Parties having a combined Working
              Interest of forty percent (40%) or more, then the approved
              operation with the lowest number as indicated below shall take
              precedence:

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

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

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

                                       30

<PAGE>

              4)     Sidetrack to a location outside the previously approved
                     Objective Horizon or Horizons.

              5)     Complete at the Objective Horizon or run production casing
                     or a production liner and temporarily abandon the well for
                     future completion at the Objective Depth upon installation
                     of any necessary production structures, Facilities,
                     Flowlines/Pipelines, or other equipment.

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

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

              8)     Temporarily abandon.

              9)     Plug and abandon.

       10.8.3 Second Opportunity to Participate

              If fewer than all but one (1) or more Participating Parties having
              a combined Working interest of forty percent (40%) or more elect
              to participate in an operation, the proposing Party shall notify
              the Participating Parties (and any Non-participating Party subject
              to Article 13.3.) of the elections made, whereupon a Party
              originally electing not to participate in the proposed (or
              original) operation may then elect to participate by notifying the
              proposing Party within twenty-four (24) hours, inclusive of
              Saturdays, Sundays, and federal holidays, after receipt of such
              notice. If all Parties elect to participate in the proposed
              operation, Operator shall conduct the operation at their cost and
              risk. If there are only two (2) Parties to this Agreement and no
              counterproposal is made pursuant to Article 10.8.1, then there
              shall not be a second opportunity to elect to participate, and if
              the Participating Party agrees to pay and bear one hundred percent
              (100%) of the costs and risks of the operation, then the Operator,
              subject to Article 4.2 (Substitute Operator), shall conduct the
              operation as a Non-consent Operation for the benefit of the
              Participating Party, and the provisions of Article 13 (Non-consent
              Operations) shall apply.

       10.8.4 Operations by Fewer Than All Parties

              If, after the election (if applicable) made under Article 10.8.3
              (Second Opportunity to Participate), fewer than all but one (1) or
              more Parties having a combined Working Interest of forty percent
              (40%) or more elect to participate in the proposed operation that
              takes precedence, the proposing Party shall notify the
              Participating Parties and each Participating Party shall have
              twenty-four (24) hours, inclusive of Saturdays, Sundays, and
              federal holidays, after receipt of the notice to notify the
              proposing Party of the portion of the costs and risks attributable
              to the total Non-participating Parties' interests it elects to pay
              and bear. Unless otherwise agreed by the Participating Parties,

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              each Participating Party may, but shall not be obligated to, pay
              and bear that portion of the costs and risks attributable to the
              total Non-participating Parties' interests in the ratio that the
              Participating Party's interest bears to the total interests of all
              Participating Parties who elect to pay and bear a portion of costs
              and risks attributable to the Non-participating Parties'
              interests. Failure to respond shall be deemed to be an election
              not to pay or bear any additional costs or risks. If the
              Participating Parties agree to pay and bear one hundred percent
              (100%) of the costs and risks of the operation, Operator, subject
              to Article 4.2 (Substitute Operator), shall conduct the operation
              as a Non-consent Operation for the benefit of the Participating
              Parties, and the provisions of Article 13 (Non-consent Operations)
              shall apply. If such agreement is not obtained, however, the
              operation shall not be conducted and the effect shall be as if the
              proposal had not been made. If a Participating Party in a well
              elects not to participate in the Deepening or Sidetracking
              operation in the well, such non-consenting Party shall become a
              Non-participating Party in all operations conducted in the
              Deepened or Sidetracked portion of the well after that election.

              10.8.4.1 Additional Testing, Coring, or Logging Operation by Fewer
                       than All Parties

                       If the Non-consent Operation is an Additional Testing,
                       coring, or logging operation, Article 13 (Non-consent
                       Operations) shall not apply, however, a Party electing
                       not to participate in the Additional Testing, coring, or
                       logging shall not be entitled to information resulting
                       from the operation.

       10.8.5 Subsequent Operations

              Upon completion of an operation conducted under Article 10.8
              (Course of Action After Reaching Objective Depth), if the well is
              not either (a) Completed as a Producible Well, or (b) temporarily
              abandoned or permanently plugged and abandoned, Operator shall
              notify the Participating Parties of Operator's recommendation for
              further operations in the well under Articles 10.8.1 through
              10.8.4, which again shall apply. If sufficient approval is not
              obtained to conduct a subsequent operation in a well or if all
              Participating Parties elect to plug and abandon the well, subject
              to Article 14 (Abandonment and Salvage), Operator shall
              permanently plug and abandon the well at the cost and risk of all
              Participating Parties. Each Participating Party shall be
              responsible for its proportionate share of the plugging and
              abandonment costs associated with the operation in which it
              participated.

10.9   Wells Proposed Below Deepest Producible Reservoir

       If a proposal is made to conduct an Exploratory Operation involving the
       drilling of a well to an Objective Horizon below the base of the deepest
       Producible Reservoir, a Party may elect within the applicable period to
       limit its participation in the operation down to the base of the deepest
       Producible Reservoir. For purposes of this Article 10.9, a Party who
       elects to limit its participation in the operation down to the base of

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       the deepest Producible Reservoir shall be referred to as "Shallow
       Participant" and a Party who elects to participate in the entire
       operation shall be referred to as "Deep Participant". If a Party elects
       to limit its participation to the base of the deepest Producible
       Reservoir, Operator shall prepare and submit to the Shallow Participant,
       for informational purposes, a separate AFE covering operations down to
       the deepest Producible Reservoir. The Shallow Participant shall be a
       Participating Party in, and shall pay and bear the costs and risks of,
       each operation to the base of the deepest Producible Reservoir, according
       to its Participating Interest. The Shallow Participant shall be a
       Non-participating Party in each operation below the deepest Producible
       Reservoir, and the operation shall be considered a Non-consent Operation,
       and the provisions of Article 13 (Non-consent Operations) shall apply. If
       the well is Completed and produces Hydrocarbons from a horizon below the
       deepest Producible Reservoir, the Deep Participant shall reimburse the
       Shallow Participant for its share of the actual well costs to the base of
       the deepest Producible Reservoir. Payment shall be due within thirty (30)
       days after receipt of notice of the well being completed below the
       deepest Producible Reservoir. If the well is Completed and produces
       Hydrocarbons from a horizon below the deepest Producible Reservoir, the
       Shallow Participant shall reimburse the Deep Participant for its Working
       Interest share of the actual well costs to the base of the deepest
       Producible Reservoir in accordance with Article 13.4 (Deepening or
       Sidetracking Cost Adjustments), upon the earlier of the time that (a) the
       well is plugged back to a horizon at or above the base of the deepest
       Producible Reservoir, as determined when the original well was proposed,
       (b) the well is plugged and abandoned, or (c) the amount to be recouped
       by the Deep Participant under Article 13 (Non-consent Operations) is
       recovered.

                                   ARTICLE 11

                             DEVELOPMENT OPERATIONS

11.1   Proposing Operations

       A Party may propose a Development Operation in accordance with Article 9
       (Notices) to the other Parties who are entitled to vote or make an
       election in regard to that operation.

11.2   Counterproposals

       When a Development Operation is proposed, a Party may, within ten (10)
       days after receipt of the AFE or notice for the original proposal, make a
       counterproposal to conduct an alternative Development Operation by
       sending an AFE or notice to such Parties in accordance with Article 9
       (Notices). The AFE or notice shall indicate that the proposal is a
       counterproposal to the original proposal. If one (1) or more
       counterproposals are made, such Parties shall elect to participate in
       either the original proposal, one (1) counterproposal, or neither the
       original proposal nor a counterproposal. If two (2) or more proposals
       receive the approval of the number of Parties and combined Working
       Interests required by Article 11.5 (Operations by Fewer Than All

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<PAGE>

       Parties), the proposal receiving the largest percentage Working Interest
       approval shall take precedence, and in the event of a tie between two (2)
       or more approved proposals, the approved proposal first received by the
       Parties shall prevail. Except for the response period provided in this
       Article 11.2, a counterproposal shall be subject to the same terms and
       conditions as the original proposal.

11.3   Operations by All Parties

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

11.4   Second Opportunity to Participate

       If fewer than all but one (1) or more Parties having a combined Working
       Interest of forty percent (40%) or more elect to participate, then the
       proposing Party shall notify the Parties of the elections made, whereupon
       a Party originally electing not to participate may then elect to
       participate by notifying the proposing Party within twenty-four (24)
       hours, exclusive of Saturdays, Sundays, and federal holidays, after
       receipt of such notice. If all Parties elect to participate in the
       proposed operation, Operator shall conduct the operation at their cost
       and risk. If there are only two (2) Parties to this Agreement and no
       counterproposal is made pursuant to Article 11.2, then there shall not be
       a second opportunity to elect to participate, and if the Participating
       Party agrees to pay and bear one hundred percent (100%) of the costs and
       risks of the operation, then the Operator, subject to Article 4.2
       (Substitute Operator), shall conduct the operation as a Non consent
       Operation for the benefit of the Participating Party, and the provisions
       of Article 13 (Non consent Operations) shall apply.

11.5   Operations by Fewer Than All Parties

       If there are more than two (2) Parties to this Agreement, then, after the
       election made under Article 11.4 (Second Opportunity to Participate),
       fewer than all but one (1) or more Parties having a combined Working
       Interest of forty percent (40%) or more have elected to participate in
       the proposed operation, the proposing Party shall notify the
       Participating Parties, and each Participating Party shall have
       twenty-four (24) hours, exclusive of Saturdays, Sundays, and federal
       holidays, after receipt of the notice to notify the proposing Party of
       the portion of the costs and risks attributable to the total
       Non-participating Parties' interests it elects to pay and bear. Unless
       otherwise agreed by the Participating Parties, each Participating Party
       may, but shall not be obligated to, pay and bear that portion of the
       costs and risks attributable to the total Nonparticipating Parties'
       interests in the ratio that the Participating Party's interest bears to
       the total interests of all Participating Parties who elect to pay and
       bear a portion of the costs and risks attributable to the total
       Non-participating Parties' interests. Failure to respond shall be deemed
       to be an election not to pay or bear any additional costs or risks. If
       the Participating Parties agree to pay and bear one hundred percent
       (100%) of the costs and risks of the operation, Operator, subject to
       Article 4.2 (Substitute Operator) shall conduct the operation as a
       Non-consent Operation for the benefit of the Participating Parties, and

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<PAGE>

       the provisions of Article 13 (Non-consent Operations) shall apply. If
       such agreement is not obtained, however, the operation shall not be
       conducted and the effect shall be as if the proposal had not been made.

11.6   Expenditures Approved

       Approval of a Development Operation shall cover all necessary
       expenditures associated with the operation proposed in the AFE or notice
       that are incurred by Operator in connection with (a) preparations for
       drilling; (b) the actual drilling; (c) evaluations, such as testing,
       coring, and logging; and (d) plugging and abandonment, subject to any
       limitation that may exist as provided under Article 8 above.

11.7   Conduct of Operations

       After commencement of a Development Well, Operator shall diligently
       conduct the operation without unreasonable delay until the well reaches
       the Objective Depth, unless the well encounters, at a lesser depth,
       impenetrable conditions or mechanical difficulties that cannot be
       overcome by reasonable and prudent operations and render further
       operations impracticable, except as may otherwise be provided in Article
       8.7 (Overexpenditures). If a well does not reach its Objective Depth as a
       result of the conditions mentioned in this Article 11.7, the operation
       shall be deemed to have been completed and Article 13 (Non-consent
       Operations) shall apply to each Nonparticipating Party for the portion of
       the well drilled.

11.8   Course of Action After Reaching Objective Depth

       When a Development Well has been drilled to its Objective Depth and
       reasonable testing, coring, and logging have been completed as set forth
       in the approved AFE and the results have been furnished to the
       Participating Parties, Operator shall notify the Participating Parties of
       Operator's recommendation for further operations in the well and the
       following provisions shall apply:

       11.8.1 Election by Participating Parties

              A Participating Party shall have the right to propose another
              operation by notifying the Operator and the other Participating
              Parties of its proposed operation within twenty-four (24) hours,
              inclusive of Saturdays, Sundays, and federal holidays, of receipt
              of the Operator's notice. The Participating Parties shall notify
              Operator within forty-eight (48) hours, inclusive of Saturdays,
              Sundays, and federal holidays, of receipt of the Operator's
              proposal whether the Participating Parties elect to (a)
              participate in a recommended operation, or (b) not participate in
              a recommended operation. Failure to respond shall be deemed to be
              an election not to participate in any of the recommended
              operations.

       11.8.2 Priority of Operations

              If all Participating Parties elect to participate in the same
              proposed operation, Operator shall conduct the operation at their
              cost and risk. If more than one (1) operation is approved by one
              (1) or more Participating Parties having a combined Working
              Interest of forty percent (40%) or more, then the approved
              operation with the lowest number as indicated below shall take
              precedence:

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<PAGE>

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

              2)     Complete at the Objective Horizon.

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

              4)     Deepen within the previously approved Objective Horizon or
                     Horizons. (If conflicting proposals are approved, the
                     operation proposed to the shallowest depth shall take
                     precedence.)

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

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

              7)     Deepen below the previously approved Objective Horizon or
                     Horizons.

              8)     Sidetrack to a location outside the previously approved
                     Objective Horizon or Horizons.

              9)     Temporarily abandon.

              10)    Plug and abandon.

       11.8.3 Second Opportunity to Participate

              If fewer than all but one (1) or more Participating Parties having
              a combined Working Interest of forty percent (40%) or more elect
              to participate in an operation, the proposing Party shall notify
              the Participating Parties (and any Non-participating Party subject
              to Article 13.3) of the elections made, whereupon a Party
              originally electing not to participate in the proposed (or
              original) operation may then elect to participate by notifying the
              proposing Party within twenty-four (24) hours, inclusive of
              Saturdays, Sundays, and federal holidays, after receipt of such
              notice. If all Parties elect to participate in the proposed
              operation, Operator shall conduct the operation at their cost and
              risk. If there are only two (2) Parties to this Agreement and no
              counterproposal is made pursuant to Article 11.8.1, then there
              shall not be a second opportunity to elect to participate, and if
              the Participating Party agrees to pay and bear one hundred percent
              (100%) of the costs and risks of the operation, then the Operator,

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<PAGE>

              subject to Article 4.2 (Substitute Operator), shall conduct the
              operation as a Non-consent Operation for the benefit of the
              Participating Party, and the provisions of Article 13 (Non-consent
              Operations) shall apply.

       11.8.4 Operations by Fewer Than All Parties

              If, after the election (if applicable) made under Article 11.8.3
              (Second Opportunity to Participate), fewer than all but one (1) or
              more Parties having a combined Working Interest of forty percent
              (40%) or more elect to participate in the proposed operation that
              takes precedence, the proposing Party shall notify the
              Participating Parties and each Participating Party shall have
              twenty-four (24) hours, inclusive of Saturdays, Sundays, and
              federal holidays, after receipt of the notice to notify the
              proposing Party of the portion of the costs and risks attributable
              to the total Non-participating Parties' interests it elects to pay
              and bear. Unless otherwise agreed by the Participating Parties,
              each Participating Party may, but shall not be obligated to, pay
              and bear that portion of the costs and risks attributable to the
              total Non-participating Parties' interests in the ratio that the
              Participating Party's interest bears to the total interests of all
              Participating Parties who elect to pay and bear a portion of costs
              and risks attributable to the Non-participating Parties'
              interests. Failure to respond shall be deemed to be an election
              not to pay or bear any additional costs or risks. if the
              Participating Parties agree to pay and bear one hundred percent
              (100%) of the costs and risks of the operation, Operator, subject
              to Article 4.2 (Substitute Operator), shall conduct the operation
              as a Non-consent Operation for the benefit of the Participating
              Parties, and the provisions of Article 13 (Non-consent Operations)
              shall apply. If such agreement is not obtained, however, the
              operation shall not be conducted and the effect shall be as if the
              proposal had not been made. If a Participating Party in a well
              elects not to participate in the Deepening or Sidetracking
              operation in the well, such non-consenting Party shall become a
              Non-participating Party in all operations conducted in the
              Deepened or Sidetracked portion of the well after that election.

              11.8.4.1 Additional Testing Operation by Fewer than All Parties

                       If the Non-consent Operation is an Additional Testing
                       operation, Article 13 (Non-consent Operations) shall not
                       apply, however, a Party electing not to participate in
                       the Additional Testing shall not be entitled to
                       information resulting from the operation.

       11.8.5 Subsequent Operations

              Upon the completion of an operation conducted under Article 11.8
              (Course of Action After Reaching Objective Depth), if the well is
              not either (a) Completed as a Producible Well, or (b) temporarily
              abandoned or permanently plugged and abandoned, Operator shall
              notify the Participating Parties of Operator's recommendation for
              operations in the well under Articles 11.8.1 through 11.8.4, which
              again shall apply. If sufficient approval is not obtained to
              conduct a subsequent operation in a well, or if all Participating

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<PAGE>

              Parties elect to plug and abandon the well, subject to Article 14
              (Abandonment, Salvage, and Surplus), Operator shall permanently
              plug and abandon the well at the expense of all Participating
              Parties. Each Participating Party shall be responsible for its
              proportionate share of the plugging and abandonment costs
              associated with the operation in which it participated.

       11.8.6 Restoration of Damaged Development Well

              Notwithstanding anything to the contrary in Article 19.7, if,
              during Additional Testing, or during a Deepening or Sidetracking
              of a Development Operation which does not result in the
              Development Well being Completed as a Producible Well, the
              Development Well is damaged to the extent that the Development
              Well is rendered incapable of having a lower-priority operation
              conducted and a Party (a) who participated in the Development
              Well, but not in the operation being conducted when the
              Development Well was damaged, (b) who has a sufficient percentage
              of the Working Interest to approve an operation, and (c) who
              elected to conduct a lower-priority operation, still desires to
              conduct the lower-priority operation after the Development Well
              has been damaged, may conduct the lower-priority operation, which
              shall include operations to either (a) restore the Development
              Well to a condition that will allow the lower-priority operation
              to be conducted, or (b) drill a new Development Well to the depth
              at which the lower-priority operation was proposed to be conducted
              in the damaged well. The Participating Parties in the
              lower-priority operation shall advise the Participating Parties in
              the operation being conducted when the Development Well was
              damaged of their decision to perform (a) or (b) above and the
              Participating Parties in the operation being conducted when the
              Development Well was damaged shall advise the Participating
              Parties in the lower-priority operation within forty-eight (48)
              hours after receipt of such notice whether or not they elect to
              become a Participating Party in the lower-priority operation. Such
              restored or re-drilled Development Well shall be owned by the
              Parties in the same percentages as the damaged Development Well
              was owned prior to conducting the higher-priority operation. In
              the event the Participating Parties in the operation being
              conducted when the Development Well was damaged elect not to
              participate in the lower-priority operation, such Participating
              Parties in the operation being conducted when the Development Well
              was damaged shall be subject to the non-consent provisions of
              Article 13.2. Upon conclusion of the lower-priority operation, the
              Participating Parties in the operation being conducted when the
              Development Well was damaged shall reimburse the original
              Participating Parties conducting the lower-priority operation all
              of the costs associated with restoration or re-drilling of the
              Development Well, as applicable, to the point prior to the
              lower-priority operation being conducted. In no event, however,
              shall Participating Parties in the operation being conducted when
              the Development Well was damaged be required to reimburse the
              Participating Parties conducting the lower-priority operation an
              amount greater than what was actually incurred in the damaged

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<PAGE>

              Development Well to the point which would have allowed the
              lower-priority operation to be conducted, and any amount in excess
              of what was actually incurred in the damaged Development Well to
              said point shall be borne by the Participating Parties conducting
              the lower-priority operation.

                                   ARTICLE 12

                       PLATFORM AND DEVELOPMENT FACILITIES

12.1   Proposal

       Notwithstanding any other provision herein, from the effective date of
       this Agreement until one hundred-eighty (180) days after completion of
       operations (a) for the first Exploratory Well that results in a
       Producible Well, or (b) for any subsequent operation proposed within one
       hundred-eighty (180) days after completion of the well referred to in
       12.1 (a), Operator shall have the exclusive right to propose the
       fabrication or acquisition and installation of a Platform and/or
       Development Facilities by sending an AFE or notice to the other Parties
       in accordance with Article 9 (Notices). After Operator's exclusive
       period, any Party may propose the fabrication or acquisition and
       installation of a Platform and/or Development Facilities, by sending an
       AFE or notice to the other Parties in accordance with Article 9
       (Notices).

12.2   Counterproposals

       When a Platform and/or Development Facilities is proposed under Article
       12.1, a Party may, within thirty (30) days after receipt of the AFE or
       notice for the original proposal, make a counterproposal to fabricate or
       otherwise acquire and install said Platform and/or Development Facilities
       by sending an AFE or notice to the other Parties in accordance with
       Article 9 (Notices). The AFE or notice shall indicate that the proposal
       is a counterproposal to the original proposal. If one or more
       counterproposals are made, each Party shall elect to participate in
       either the original proposal, one (1) counterproposal, or neither the
       original proposal nor a counterproposal. If two (2) or more proposals
       receive the approval of the number of Parties and combined Working
       Interests required by Article 12.2.3 (Operations By Fewer Than All
       Parties), the proposal receiving the largest percentage Working Interest
       approval shall be deemed approved, and in the event two (2) or more
       approved proposals receive the same Working Interest approval, the
       approved proposal first received by the Parties shall be deemed approved.

       12.2.1 Operations by All Parties

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

       12.2.2 Second Opportunity to Participate

              If fewer than all but one (1) or more Parties having a combined
              Working Interest of forty percent (40%) or more elect to
              participate in the Platform and/or Development Facilities, then
              the proposing Party shall notify the Parties of the elections

                                       39

<PAGE>

              made, whereupon a Party originally electing not to participate may
              then elect to participate by notifying the proposing Party within
              forty-eight (48) hours, exclusive of Saturdays, Sundays, and
              federal holidays, after receipt of such notice. If all Parties
              elect to participate in the Platform and/or Development
              Facilities, Operator shall timely commence the fabrication and
              installation of the Platform and/or Development Facilities at
              their cost and risk. If there are only two (2) Parties to this
              Agreement, then there shall not be a second opportunity to elect
              to participate, and if the Participating Party agrees to pay and
              bear one hundred percent (100%) of the costs and risks of the
              operation, then the Operator, subject to Article 4.2 (Substitute
              Operator), shall conduct the operation as a Non-consent Operation
              for the benefit of the Participating Party, and the provisions of
              Article 13 (Non-consent Operations) shall apply.

       12.2.3 Operations by Fewer Than All Parties

              If there are more than two (2) Parties to this Agreement, then,
              after the election made under Article 12.2.2 (Second Opportunity
              to Participate), fewer than all but one (1) or more Parties having
              a combined Working Interest of forty percent (40%) or more elect
              to participate in the Platform and/or Development Facilities, the
              proposing Party shall notify the Participating Parties, and each
              Participating Party shall have forty-eight (48) hours, exclusive
              of Saturdays, Sundays, and federal holidays, after receipt of the
              notice to notify the proposing Party of the portion of the costs
              and risks attributable to the total Non participating Parties'
              interests it elects to pay and bear. Unless otherwise agreed by
              the Participating Parties, each Participating Party may, but shall
              not be obligated to, pay and bear that portion of costs and risks
              attributable to the total Non-participating Parties' interests in
              the ratio that the Participating Party's interest bears to the
              total interests of all Participating Parties who elect to pay and
              bear a portion of the costs and risks attributable to the total
              Non-participating Parties' interests. Failure to respond shall be
              deemed to be an election not to pay or bear any additional costs
              or risks. If the Participating Parties agree to pay and bear one
              hundred percent (100%) of the costs and risks of the operation,
              the Operator, subject to Article 4.2 (Substitute Operator), shall
              conduct the operation as a Non-consent Operation for the benefit
              of the Participating Parties, and except as provided in Article
              12.4 (Rights to Take in Kind), the provisions of Article 13.2.1
              (b) shall apply. If such agreement is not obtained, however, the
              fabrication and installation of the Platform and/or Development
              Facilities shall not be commenced, and the effect shall be as if
              the proposal had not been made.

12.3   Ownership and Use of the Platform and Development Facilities

       The Participating Parties in the Development Facilities own all of the
       excess capacity of the Development Facilities and the excess weight,
       space and buoyancy of the Platform. Each Participating Party in the
       Development Facilities does not have the right to use its Participating
       Interest share of the excess capacity, weight, space and buoyancy for

                                       40

<PAGE>

       hydrocarbon production from outside the Contract Area. Each Participating
       Party in the Development Facilities or Platform must obtain the unanimous
       approval of the other Participating Parties in the Development Facilities
       or Platform in order to utilize any portion of the excess capacity,
       weight, space and buoyancy. It must negotiate the payment of a fee with
       the Participating Parties in the Development Facilities or Platform in
       order to utilize any portion of the excess capacity, weight, space and
       buoyancy. Each of the Participating Parties in the Development Facilities
       or Platform shall receive its Participating interest share of all fees
       derived from the utilization of the excess capacity, weight, space and
       buoyancy. All hydrocarbon production from outside the Contract Area shall
       be processed under a "Facilities Use and Production Handling Agreement"
       unanimously agreed to by the Participating Parties in the Development
       Facilities.

12.4   Rights to Take in Kind

       Nothing in this Article 12 shall act to limit a Party's rights under
       Article 22 (Disposition of Production), or to otherwise separately
       dispose of its share of Hydrocarbon production. If a Party elects (a) not
       to participate in an approved Development Facilities proposal and (b) to
       separately dispose of its share of Hydrocarbon production (the
       "Separately Disposing Party"), the Separately Disposing Party shall not
       be subject to the provisions of Article 13.2.1(b), but must provide proof
       to the Participating Parties in the approved Development Facilities
       proposal, within thirty (30) days from the last applicable response date
       to the Development Facilities proposal that it has entered into
       fabrication and transportation contracts to separately dispose of its own
       share of Hydrocarbon production. If a Separately Disposing Party fails to
       provide such proof by that deadline and if there is sufficient capacity
       for the Development Facilities to accommodate the Separately Disposing
       Party's share of the Hydrocarbons, it shall immediately (1) become a
       Participating Party in the Development Facilities and utilize the
       Development Facilities for its share of Hydrocarbon production, (II) pay
       to the Participating Parties in the approved Development Facilities
       proposal an amount equal to two hundred percent (200%) of what would have
       been the Separately Disposing Party's share of the costs and expense of
       the Development Facilities had it elected to participate in the
       Development Facilities under Article 12.1 or 12.2, and (111) assume its
       share of the risks and liabilities associated with the construction and
       ownership of the Development Facilities as of the date of commencement of
       the operations to construct same. The Participating Parties in the
       original Development Facilities and the Separately Disposing Party, which
       becomes a Participating Party in the original Development Facilities
       under Article 12.4 (1), shall own the original Development Facilities
       based on their Participating Interest share in the original Development
       Facilities. If a Separately Disposing Party fails to provide such proof
       by that deadline and if there is insufficient capacity for the
       Development Facilities to accommodate the Separately Disposing Party's
       share of the Hydrocarbons, the Separately Disposing Party shall (i)
       become a Participating Party in the original Development Facilities and
       utilize the available capacity in the original Development Facilities, if
       any, for its share of Hydrocarbon production, (ii) pay one hundred
       percent (100%) of the costs of an expansion or modification of the

                                       41

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       Development Facilities, which is required to accommodate all or a portion
       of its share of the Hydrocarbons, and assume one hundred percent (100%)
       of the risks and liabilities associated with (A) the construction,
       installation and commissioning of the expanded or modified Development
       Facilities and (B) the utilization of the expanded or modified
       Development Facilities for thirty (30) days subsequent to the
       commencement of Hydrocarbon production through same, (iii) pay to the
       Participating Parties in the approved Development Facilities proposal an
       amount equal to two hundred percent (200%) of what would have been the
       Separately Disposing Party's share of the costs and expense of the
       original Development Facilities had it elected to participate in the
       original Development Facilities under Article 12.1 or 12.2, (iv) assume
       its share of the risks and liabilities associated with the construction
       and ownership of the original Development Facilities as of the date of
       commencement of the operations to construct the original Development
       Facilities. The Participating Parties in the original Development
       Facilities and the Separately Disposing Party, which becomes a
       Participating Party in the original Development Facilities under Article
       12.4(i), shall own the expanded or modified Development Facilities based
       on their Participating Interest share in the original Development
       Facilities, and the Participating Parties in the original Development
       Facilities shall assume their Participating Interest share of the risks
       and liabilities associated with the ownership of the expanded or modified
       Development Facilities thirty-one (31) days after that the expanded or
       modified Development Facilities have been utilized. 12.5 Expansion or
       Modification of a Platform and/or Development Facilities After
       installation of a Platform and/or Development Facilities, any
       Participating Party in that Platform and/or Development Facilities may
       propose the expansion or modification of that Platform and/or Development
       Facilities by written notice (along with its associated AFE) to the other
       Participating Parties in that Platform and/or Development Facilities.
       That proposal requires approval by two (2) or more of the Participating
       Parties in the Platform and/or Development Facilities with more than
       fifty percent (50%) of the Participating Interest in the Platform and/or
       Development Facilities. If approved, that proposal will be binding on all
       Participating Parties in that Platform and/or Development Facilities, and
       the Operator shall commence that expansion or modification at the sole
       cost and risk of all of the Participating Parties in that Platform and/or
       Development Facilities unless otherwise agreed.

12.6   Offsite Host Facilities

       In the event that one (1) or more Parties with forty percent (40%) or
       more of the Participating Interest in Hydrocarbon production agree that
       Hydrocarbon production can most effectively be processed and handled by
       Offsite Host Facilities, the Operator, on behalf of the Participating
       Parties, shall use reasonable efforts to secure a formal "Facilities Use
       and Production Handling Agreement" from the owners of the Offsite Host
       Facilities. If the Operator does secure access to Offsite Host Facilities
       in a Facilities Use and Production Handling Agreement, each Participating
       Party shall have the right, but not the obligation, to utilize its

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<PAGE>

       Participating Interest share of the capacity so secured. This Article
       12.6 shall not constitute a limit on a Party's right to install its own
       Take-in-Kind Facilities under Article 22 (Disposition of Production).

                                   ARTICLE 13

                             NON-CONSENT OPERATIONS

13.1   Non-consent Operations

       Operator or substitute Operator under Article 4.2 (Substitute Operator)
       shall conduct Non-consent Operations at the sole cost and risk of the
       Participating Parties in accordance with the following provisions:

       13.1.1 Non-interference

              Non-consent Operations shall not interfere unreasonably with
              operations approved by all of the Parties.

       13.1.2 Multiple Completion Limitation

              Subject to Article 10.9, a Non-consent Operation shall not be
              conducted in a well having multiple Completions unless (a) each
              Completion is owned by the same Parties in the same proportions;
              (b) the well is incapable of producing from all Completions; or
              (c) all Participating Parties in the well consent to the
              operation.

       13.1.3 Metering

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

       13.1.4 Non-consent Well

              Operations on a Non-consent Well shall not be conducted in a
              Producible Reservoir without approval of all Parties unless (a)
              the Producible Reservoir is designated in the notice as a
              Completion objective; (b) Completion of the well in the Producible
              Reservoir will not increase the rates of Hydrocarbon production
              that are prescribed and approved for the Producible Reservoir by
              the governmental authority having jurisdiction; and (c) the
              horizontal distance between the vertical projections of the
              midpoint of the Producible Reservoir in the well and an existing
              well currently completed in and producing from the same Producible
              Reservoir will. be at least fifteen hundred (1,500) feet for an
              oil-well Completion or twenty-five hundred (2,500) feet for a
              gas-well Completion.

       13.1.5 Cost Information

              Operator shall, within one hundred twenty (120) days after
              completion of a Non-consent Operation, furnish the Parties either
              (a) an inventory and an itemized statement of the cost of the
              Non-consent Operation and equipment pertaining thereto, or (b) a

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<PAGE>

              detailed statement of the monthly billings. Each quarter
              thereafter, while the Participating Parties are being reimbursed
              under Article 13.2.1 (Production Reversion Recoupment), Operator
              shall furnish the Non-participating Parties a quarterly statement
              detailing all costs and liabilities incurred in the Non-consent
              Operation, together with a statement of the quantities of
              Hydrocarbons produced from it and the amount of the proceeds from
              the sale of the Non-participating Parties' relinquished
              Hydrocarbon production from the Non consent Operation for the
              preceding quarter. Operator shall prepare the quarterly statement
              of the quantities of Hydrocarbons produced and the amounts of the
              proceeds from the sale of Non-participating Parties' relinquished
              Hydrocarbon production based on the proceeds received for the
              Operator's share of Hydrocarbon production. When Operator's payout
              calculation indicates that payout has occurred, Operator shall
              promptly notify all Parties. The Participating Parties who assumed
              a portion of the Non participating Parties' relinquished interest
              shall then provide Operator all information pertaining to the
              cumulative proceeds received from the sale of the
              Non-participating Parties' relinquished Hydrocarbon production.
              Operator shall revise the payout date using the actual proceeds
              from the sale of the Non-participating Parties' relinquished
              Hydrocarbon production and administer any subsequent adjustments
              between the Parties.

       13.1.6 Completions

              For determinations under Article 13.1 (Non-consent Operations),
              each Non-consent Operation in a single wellbore shall be accounted
              for separately.

13.2   Relinquishment of Interest

       Upon commencement of Non-consent Operations, other than Non-consent
       Operations governed by the Acreage Out Option under Article 10.5.1
       (Acreage Out), Article 13.7 (Operations Utilizing a Non-consent Platform
       and/or Development Facilities), or Article 13.7.1 (Forfeiture on Initial
       Platform or Development Facilities), each Non-participating Party's
       interest and leasehold operating rights in the Non-consent Operation and
       title to Hydrocarbon production resulting therefrom; and if Article 13.8
       (Discovery or Extension from Non-consent Drilling) is effective, one half
       (1/2) of each Non-participating Party's interest and leasehold operating
       rights and title to Hydrocarbon production from wells mentioned in
       Article 13.8 (Discovery or Extension from Non consent Drilling); shall be
       owned by and vested in each Participating Party in proportion to its
       Participating Interest, or in the proportions otherwise agreed by the
       Participating Parties, for as long as the Non-Consent Operation is being
       conducted or Hydrocarbon production is obtained therefrom, subject to the
       following:

       13.2.1 Production Reversion Recoupment

              When the Participating Parties have recouped out of Hydrocarbon
              production from the Non-consent Operations attributable to the

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<PAGE>

              Non-participating Party's interest an amount, which when added to
              amounts received under Article 13.3 (Deepening or Sidetracking of
              Non-consent Well), equals the sum of the following:

              (a)    eight hundred percent (800%) of the Non-participating
                     Party's share of the costs of the following Non-consent
                     Exploratory Operations, or five hundred percent (500%) of
                     the Non-participating Party's share of the costs of the
                     following Non consent Development Operations: drilling,
                     testing, Completing, Recompleting, Deepening, Sidetracking,
                     Reworking, plugging back, and temporarily abandoning a
                     well, reduced by the Non-participating Party's Share of a
                     cash contribution received under Article 21.2 (Cash
                     Contributions);

              (b)    if applicable, four hundred percent (400%) of
                     Non-participating Party's Share of the cost of Platforms
                     and/or Development Facilities approved under Article 12.1
                     (Proposal) or Article 12.2 (Counterproposals); such
                     recoupment is limited to the Non-participating Party's
                     Share of the Hydrocarbon production that utilize such
                     Platform and/or Development Facilities;

              (c)    four hundred percent (400%) of the Non-participating
                     Party's Share of the cost charged in accordance with
                     Article 13.9 (Allocation of Platform/Development Facilities
                     Costs to Non-consent Operations) of using an existing
                     Platform/Development Facilities; and

              (d)    the Non-participating Party's Share of the costs of
                     operation, maintenance, treating, processing, gathering,
                     and transportation, including, but not limited to, an
                     Offsite Host Facilities' handling fees, as well as lessor's
                     royalties and severance, Hydrocarbon production, and excise
                     taxes,

              then, the relinquished interests of the Non-participating Party
              shall automatically revert to the Non-participating Party as of
              7:00 a.m. of the day after the recoupment occurs. Thereafter, the
              Non-participating Party shall own the same interest in the
              Non-consent Well, equipment pertaining thereto and the Hydrocarbon
              production therefrom as the Non-participating Party would have
              owned or been entitled to if it had participated in the
              Non-consent Operation. Upon reversion, the Non-participating Party
              shall become a Participating Party and, as such, shall become
              liable for its proportionate share of the further costs of the
              operation as set forth in this Agreement and Exhibit "C".

       13.2.2 Non-production Reversion

              If the Non-consent Operation fails to obtain Hydrocarbon
              production or if the operation results in Hydrocarbon production
              that ceases before complete recoupment by the Participating
              Parties under Article 13.2.1 (Production Reversion Recoupment),
              such leasehold operating rights shall revert to each
              Non-participating Party, except that all Non-consent Wells shall
              remain vested in the Participating Parties (but the salvage value
              in excess of the sum remaining under Article 13.2.1 shall be
              credited to all Parties).

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<PAGE>

13.3   Deepening or Sidetracking of Non-consent Well

       If a Participating Party proposes to Deepen or Sidetrack a Non-consent
       Well, a Non-participating Party may then elect to participate in the
       Deepening or Sidetracking operation by notifying Operator within thirty
       (30) days, or within twenty-four (24) hours, inclusive of Saturdays,
       Sundays, and federal holidays, if a rig is on location and standby
       charges are being incurred, after receiving notice of the proposal. A
       Non-participating Party that elects to participate in Deepening or
       Sidetracking the well, as proposed, shall immediately pay the
       Participating Parties, in accordance with Article 13.4 (Deepening or
       Sidetracking Cost Adjustments), its Working Interest share of actual well
       costs (excluding logging, coring, testing, and Completion costs other
       than the cost of setting any casing or Completion Equipment that is used
       in the Deepening or Sidetracking), less all amounts recovered by the
       Participating Parties from the proceeds of Hydrocarbon production from
       the well, as if the Non-participating Party had originally participated
       to the initial objective depth or formation, in the case of a Deepening
       operation, or the depth at which the Sidetracking operation is initiated.
       Thereafter, the Non-participating Party shall be deemed to be a
       Participating Party for the Deepening or Sidetracking operations, and
       Article 13.2.1 (a) shall not apply to that Party for the Deepened or
       Sidetracked portion of the well. The initial Participating Parties,
       however, shall continue to recoup out of the proceeds of Hydrocarbon
       production from the non consent portion of the well any balance for the
       Non-consent Well remaining to be recovered under Article 13.2.1
       (Production Reversion Recoupment), less the amounts paid by the
       Non-participating Party under this Article 13.3.

13.4   Deepening or Sidetracking Cost Adjustments

       If a proposal is made to Deepen or Sidetrack a Non-consent Well, a well
       cost adjustment will be performed as follows:

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

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

       (c)    For Sidetracking operations, the values determined in Articles
              13.4(a) and 13.4(b) shall be reduced by the amount allocated to
              that portion of the well from the surface to one hundred feet
              (100') below the point at which the Sidetracking was initiated.
              Such allocations shall be consistent with the guidelines
              recommended by the applicable Council of Petroleum Accountants
              Societies ("COPAS") Guideline, as amended from time to time.

       (d)    Amortization/depreciation shall be applied to both intangible and
              tangible values at the rate of five percent (5%) per annum from
              the date the well commenced Hydrocarbon production to the date
              operations commence to Deepen or Sidetrack the well, provided,
              however, the value of tangible materials after applying
              depreciation shall never be less than sixty percent (60%) of the
              value determined in Article 13.4(b).

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<PAGE>

13.5   Subsequent Operations in Non-consent Well

       Except as provided in Article 13.3 (Deepening or Sidetracking of
       Non-consent Well), an election not to participate in the drilling,
       Sidetracking, or Deepening of a well shall be deemed to be an election
       not to participate in any subsequent operations in the well before full
       recovery by the Participating Parties of the Non-participating Party's
       recoupment amount.

13.6   Operations in a Production Interval

       A Participating Party in a Production Interval may propose Rework or
       Sidetrack operations within that Production Interval, or to permanently
       plug and abandon that Production Interval in a well; however, no
       Production Interval in a well shall be abandoned without the unanimous
       approval of the Participating Parties in the Production Interval. If a
       proposal, estimated to exceed the amount specified in Article 8.2
       (Authorization), is made to Rework or Sidetrack a Production Interval,
       the unanimous approval of the Parties owning an interest in the
       Production Interval shall be required to conduct the operation. A
       proposal to Rework an interval, other than a Production Interval, shall
       be made and approved in accordance with Article 11.5 (Operations by Fewer
       Than All Parties).

13.7   Operations Utilizing a Non-consent Platform and/or Development Facilities

       Except as otherwise provided in Article 12.4 (Rights to Take in Kind) and
       this Article 13.7, if applicable, a Party that did not originally
       participate in a Platform and/or Development Facilities shall be a
       Non-participating Party for all operations utilizing the Platform and/or
       Development Facilities and shall be subject to Article 13.2
       (Relinquishment of Interest). Notice, in accordance with Article 9
       (Notices), shall be given to the Non-participating Party for all wells
       proposed to be drilled from or tied-back to the Non-consent Platform
       and/or handled by non-consent Development Facilities. If a
       Non-participating Party in a Non-consent Platform and/or Development
       Facilities desires to participate in the drilling of any such well
       proposed by the Participating Parties in the Platform and/or Development
       Facilities, the Non-participating Party desiring to join in the proposed
       well shall first pay the Participating Parties in the Platform and/or
       Development Facilities its proportionate share of the cost of the
       Platform and/or Development Facilities, including, but not limited to,
       costs of material, fabrication, transportation, and installation plus any
       remaining amounts to be recouped under Article 13.2.1(b). The
       Non-participating Party shall remit payment to Operator and Operator
       shall (a) reimburse the Participating Parties in the Platform and/or
       Development Facilities in the same proportions they are sharing in the
       Platforms and/or Development Facilities recoupment account, and (b)
       credit the applicable payout account. Upon payment of that amount, the
       original Non-participating Party shall become an owner and a
       Participating Party in the Platform and/or Development Facilities in the
       same manner as if recoupment had occurred under Article 13.2.1
       (Production Reversion Recoupment), and may participate in all future
       wells drilled from or tied back to the Platform. As to well operations
       conducted from the Platform and/or Development Facilities prior to
       payment under this Article 13.7, the original Non-participating Party

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<PAGE>

       shall remain a Non-participating Party in such Non-consent Operations
       until such time as the entire recoupment balance applicable to all such
       Non consent Operations in the aggregate has occurred, as provided for in
       Articles 13.2.1 (a) and 13.2.1(d).

       13.7.1 Forfeiture on Initial Platform or Development Facilities

              Notwithstanding anything to the contrary contained herein, a Party
              that does not participate in the initial approved Platform or
              Development Facilities shall withdraw from this Agreement in
              accordance with Article 15 (Withdrawal), and shall forfeit and
              permanently assign its entire interest in and rights to the
              Contract Area, with the withdrawal to be effective on the date of
              such non-consent.

13.8   Discovery or Extension from Non-consent Drilling

       If a Non-consent Well (a) discovers a new Producible Reservoir or (b)
       extends an existing Producible Reservoir beyond its recognized
       boundaries, as unanimously agreed by the Participating Parties in all
       existing wells currently producing from the existing Producible Reservoir
       before commencement of drilling operations, the recoupment of costs for
       the well shall be governed by Article 13.2 (Relinquishment of Interest)
       and shall be recovered by the Participating Parties in one of the
       following ways:

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

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

13.9   Allocation of Platform/Development Facilities Costs to Non-consent
       Operations

       Non-consent Operations shall be subject to further conditions as follows:

       13.9.1 Charges

              In the event a well is drilled or produced from a Platform and/or
              is produced through Development Facilities whose Participating
              Parties are different from the Participating Parties in that well
              or if the Participating Parties' Participating interest shares in
              that Platform and/or Development Facilities are different from
              their Participating Interest shares in that well, the rights of
              the Participating Parties in that well and the costs to use the
              Platform and/or Development Facilities for that well shall be
              determined as follows:

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<PAGE>

              (a)    The Participating Parties in that well shall pay to the
                     Operator a one-time slot usage fee for the use of a slot on
                     the Platform equal to the cost of the Platform divided by
                     the total number of slots on the Platform. Within fifteen
                     (15) days of its receipt of that fee, the Operator shall
                     distribute to the Participating Parties in the Platform
                     their Participating Interest share of that payment. For
                     purposes of calculating the slot usage fee, the total cost
                     of the Platform shall be reduced by four tenths of one
                     percent (0.4%) per month, commencing on the date the
                     Platform was installed and continuing every month
                     thereafter until the month actual drilling operations on
                     that well are commenced; however, the total cost of the
                     Platform shall not be reduced by more than sixty percent
                     (60%) of the total Platform's costs. The cost of additions
                     to the Platform shall be reduced in the same manner
                     commencing the first month after the addition is installed.
                     If that well is abandoned, having never produced
                     Hydrocarbons, the right of the Participating Parties in
                     that well to use the Platform slot through which the well
                     was drilled shall terminate unless those Parties commence
                     drilling a substitute well for the abandoned well through
                     the same slot within ninety (90) days of the abandonment.
                     If that substitute well is abandoned, having never produced
                     Hydrocarbons, the right of the Participating Parties in
                     that well to use the Platform slot through which the well
                     was drilled shall terminate. The slot usage fee shall not
                     apply to a slot deemed to be "surplus." A slot may be
                     deemed surplus only by the unanimous agreement of the
                     Participating Parties in the Platform.

              (b)    The Participating Parties in that well shall pay to the
                     owners of the Development Facilities a lump sum equal to
                     that portion of the total cost of those Development
                     Facilities that the throughput volume of the Non-consent
                     Operation bears to the current total design throughput
                     volume of the Development Facilities. Throughput volume
                     shall be estimated by the Operator in barrels produced per
                     day (with 1 barrel of oil equaling 5.8 mcf of gas), using
                     an average daily volume of the first three months of
                     Hydrocarbon production from the Non-consent Operation. For
                     purposes of calculating the Development Facilities lump sum
                     payment, the total cost of the Development Facilities,
                     shall be reduced by four tenths of one percent (0.4%) per
                     month, commencing from the date when the Development
                     Facilities were installed and continuing every month
                     thereafter until the first month during which Hydrocarbon
                     production from the Non-consent Operation commences, but
                     the total cost of the Development Facilities shall not be
                     reduced more than sixty percent (60%) of the total
                     Development Facilities' cost. If a modification, expansion,
                     or addition to the Development Facilities is made after
                     commencing first Hydrocarbon production and before
                     connection of the Non-consent Operation

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<PAGE>

                     to the Development Facilities, the Development Facilities
                     lump sum payment shall be reduced in the same manner
                     described above, from the month in which the Development
                     Facilities modification, expansion or addition is completed
                     until the first month during which Hydrocarbon production
                     from the Non-consent Operation is commenced.

              Payment of sums under this Article 13.9.1 is not a purchase of an
              additional interest in the Platform or the Development Facilities.
              Such payment shall be included in the total amount that the
              Participating Parties are entitled to recoup out of Hydrocarbon
              production from the Non-consent Well.

       13.9.2 Operating and Maintenance Charges

              The Participating Parties shall pay all costs necessary to connect
              a Non-consent Well to the Platform and/or Development Facilities
              and that proportionate part of the costs of operating and
              maintaining the Platform and/or Development Facilities applicable
              to the Non-consent Well. Platform operating and maintenance costs
              that are costs not directly attributable to a wellbore shall be
              allocated equally to all actively producing Completions. Operating
              and maintenance costs for the Development Facilities shall be
              allocated on a volume throughput basis, that is, in the proportion
              that the volume throughput of the well bears to the total volume
              throughput of all wells connected to the Development Facilities.
              Volume throughput, as used in this Article 13.9.2, shall be
              determined by considering all Hydrocarbons and water volumes.

13.10  Allocation of Costs Between Zones

       Except as provided in Article 10.9 (Wells Proposed Below Deepest
       Producible Reservoir), if for any reason the Participating Interests of
       the Parties in a well are not the same for the entire depth or the
       Completion thereof, the costs of -drilling, Completing, and equipping the
       well shall be allocated in an equitable manner, as agreed by the Parties,
       based on the value and allocation recommended in the applicable COPAS
       Guideline, as amended from time to time.

13.11  Lease Maintenance Operations

       An operation proposed within the last twelve (12) months of the primary
       term or, subsequent thereto, an operation proposed to perpetuate a Lease
       or portion thereof at its expiration date or otherwise, including, but
       not limited to, well operations, regulatory relief (for example, course
       of action necessary to satisfy the statutory or regulatory requirements
       of the governmental authority having jurisdiction), and other Lease
       operations, shall be deemed to be a "Lease Maintenance Operation." To
       invoke this Article 13.11, a notice or AFE that proposes an operation
       must state that the proposed operation is a Lease Maintenance Operation.

       13.11.1 Participation in Lease Maintenance Operations

              A Party may propose a Lease Maintenance Operation by giving notice
              to the other Parties. If fewer than all Parties elect to

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<PAGE>

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

       13.11.2 Accounting for Non-participation

              If after one (1) year from completion of a well operation
              conducted as a Lease Maintenance Operation, the Lease or portion
              thereof is being perpetuated by a Lease Maintenance Operation, as
              provided in Article 13.11.1 (Participation in Lease Maintenance
              Operations), Operator shall render a final statement, if
              applicable, to the assigning Party for its share of all expenses
              attributed to the assigned interest before the effective date of
              the assignment, plus any credit or deficiency in salvage value
              calculated under Article 15.3.1 (Prior Expenses). The assigning
              Party shall settle any deficiency owed the non-assigning Parties
              within thirty (30) days after receipt of Operator's statement.

13.12  Retention of Lease by Non-consent Well

       If, at the expiration of the primary term of a Lease, one (1) or more
       Non-consent Wells, except wells drilled under the Acreage Out under
       Article 10.5.1 (Acreage Out), are the only wells perpetuating the Lease,
       Operator shall give written notice to each Non-participating Party that

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<PAGE>

       the Non-consent Wells are serving to perpetuate the Lease. Each
       Non-participating Party shall, within thirty (30) days after receipt of
       Operator's written notice, elect one of the following:

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

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

       A Non-participating Party that fails to make the required election shall
       be deemed to have elected under Article 13.12(a) to relinquish its entire
       interest in the Lease. If a Non-participating Party elects to make
       payment under Article 13.12(b) but fails to make the required payment
       within sixty (60) days after its election, the Non-participating Party
       shall either remain liable on the obligation to pay or, by unanimous vote
       of the Participating Parties, be deemed to have elected under Article
       13.12 (a) to relinquish its entire interest in the Lease. Each
       relinquishing Non-participating Party shall promptly execute and deliver
       an assignment of its interest to the Participating Parties, in accordance
       with Article 26 (Successors, Assigns, and Preferential Rights).

13.13  Non-Consent Premiums

       A non-consent premium paid by a Non-Participating Party to the
       Participating Parties shall be allocated to the Participating Parties
       based on their original Participating Interest share in the Non-consent
       Operation which generated the non-consent premium.

                                   ARTICLE 14

                        ABANDONMENT, SALVAGE, AND SURPLUS

14.1   Platform Salvage and Removal Costs

       When the Parties owning wells, Platforms and/or Development Facilities
       unanimously agree to dispose of the wells, Platforms and/or Development
       Facilities, it shall be disposed of by Operator in the time and manner
       approved by the Parties. The costs, risks, and net proceeds, if any, for
       the disposal shall be shared by the Parties in proportion to their
       Participating Interests therein.

14.2   Abandonment of Platforms, Development Facilities or Wells

       Except as provided in Article 10 (Exploratory Operations) and Article 11
       (Development Operations), a Participating Party may propose the
       abandonment of a Platform and Development Facilities or wells by
       notifying the other Participating Parties. No Platform and Development
       Facilities or wellbore shall be abandoned without the unanimous approval

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       of the Participating Parties. If the Participating Parties do not approve
       abandoning the Platform and Development Facilities or wells, the Operator
       shall prepare a statement of the abandoning Party's share of estimated
       abandonment costs, less its share of estimated salvage value, as
       determined by the Operator pursuant to Exhibit "C". The Party desiring to
       abandon it shall pay the Operator, on behalf of the Participating Parties
       for that Party's share of the estimated abandonment costs, less its share
       of estimated salvage value, within thirty (30) days after receipt of the
       Operator's statement. If an abandoning Party's respective share of the
       estimated salvage value is greater than its share of the estimated costs,
       Operator, on behalf of the Participating Parties, shall pay a sum equal
       to the deficiency to the abandoning Party within thirty (30) days after
       the abandoning Party's receipt of the Operator's statement.

14.3   Assignment of Interest.

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

14.4   Abandonment Operations Required by Governmental Authority

       A well abandonment or Platform and Development Facilities removal
       required by a governmental authority having jurisdiction shall be
       accomplished by Operator with the costs, risks, and net proceeds, if any,
       to be shared by the Parties owning the well or Platform and Development
       Facilities in proportion to their Participating Interests therein. No
       approval by the Parties will be necessary for Operator to proceed with
       the government required well abandonment, or Platform and Development
       Facilities removal. The Operator shall provide the Parties with an
       informational AFE prior to commencing such an abandonment or removal.

14.5   Disposal of Surplus Material

       Material and equipment acquired hereunder may be classified as surplus by
       Operator when deemed no longer needed in present or foreseeable
       operations. Operator shall determine the value and cost of disposing of
       the materials in accordance with Exhibit "C". If the material is
       classified as junk or if the value, less cost of disposal, is less than
       or equal to one hundred thousand dollars ($100,000.00), Operator shall
       dispose of the surplus materials in any manner it deems appropriate. If
       the value, less the cost of disposal of the surplus material, is greater
       than one hundred thousand dollars ($100,000.00), Operator shall give
       written notice thereof to the Parties owning the material. Unless
       purchased by Operator, the surplus material shall be disposed of in
       accordance with the method of disposal approved by the Parties owning the

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       material. Proceeds from the sale or transfer of surplus material shall be
       promptly credited to each Party in proportion to its ownership of the
       material at the time of retirement or disposition.

                                   ARTICLE 15

                                   WITHDRAWAL

15.1   Right To Withdraw

       Subject to this Article 15.1, any Party may withdraw from this Agreement
       (the "Withdrawing Party") by giving prior written notice to all other
       Parties stating its decision to withdraw ("the withdrawal notice"). The
       withdrawal notice shall specify an effective date of withdrawal that is
       at least sixty (60) days, but not more than ninety (90) days, after the
       date of the withdrawal notice. Within thirty (30) days of receipt of the
       withdrawal notice, the other Parties may join in the withdrawal by giving
       written notice of that fact to the Operator ("written notice to join in
       the withdrawal") and upon giving written notice to join in the withdrawal
       are "Other Withdrawing Parties". The withdrawal notice and the written
       notice to join in the withdrawal are unconditional and irrevocable offers
       by the Withdrawing Party and the Other Withdrawing Parties to convey to
       the Parties who do not join in the withdrawal ("the Remaining Parties")
       the Withdrawing Party's and the Other Withdrawing Parties' entire Working
       Interest in all of the Contract Area, Hydrocarbon production, and other
       property and equipment owned under this Agreement.

15.2   Response to Withdrawal Notice

       Failure to respond to a withdrawal notice is deemed a decision not to
       join in the withdrawal.

       15.2.1 Unanimous Withdrawal

       If all the other Parties join in the withdrawal,

       (a)    no assignment of Working Interests shall take place;

       (b)    subject to Article 14.4, no further operations may be conducted
              under this Agreement unless agreed to by all Parties;

       (c)    the Parties shall abandon all activities and operations within the
              Lease and relinquish all of their Working Interests to the MMS
              within three hundred sixty-five (365) days of the conclusion of
              the thirty (30) day joining period; and

       (d)    notwithstanding anything to the contrary in Article 14
              (Abandonment, Salvage and Surplus), the Operator shall:

              1)     furnish all Parties a detailed abandonment plan, if
                     applicable, and a detailed cost estimate for the
                     abandonment within thirty (30) days after the conclusion of
                     the thirty (30) day joining period; and

              2)     cease operations and begin to permanently plug and abandon
                     all wells and remove all Facilities in accordance with the
                     abandonment plan.

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       15.2.2 No Additional Withdrawing Parties

              If none of the other Parties join in the withdrawal, then the
              Remaining Parties must accept an assignment of their Participating
              Interest share of the Withdrawing Party's Working Interest.

       15.2.3 Acceptance of the Withdrawing Parties' Interests.

              If one (1) or more but not all of the other Parties join in the
              withdrawal and become Other Withdrawing Parties, then within
              forty-eight (48) hours (exclusive of Saturdays, Sundays, and
              federal holidays) of the conclusion of the thirty (30) day joining
              period, each of the Remaining Parties shall submit to the Operator
              a written rejection or acceptance of its Participating Interest
              share of the Withdrawing Party's and Other Withdrawing Parties'
              Working Interest. Failure to make that written rejection or
              acceptance shall be deemed a written acceptance. If the Remaining
              Parties are unable to select a successor Operator, if applicable,
              or if a Remaining Party submits a written rejection and the other
              Remaining Parties do not agree to accept one hundred percent
              (100%) of the Withdrawing Party's and Other Withdrawing Parties'
              Working Interest within ten (10) days of the conclusion of the
              forty-eight (48) hour period to submit a written rejection or
              acceptance, the Remaining Parties will be deemed to have joined in
              the withdrawal, and Article 15.2.1 (Unanimous Withdrawal) will
              apply.

       15.2.4 Effects of Withdrawal

              Except as otherwise provided in this Agreement, after giving a
              withdrawal notice or a written notice to join in the withdrawal,
              the Withdrawing Party and Other Withdrawing Parties are not
              entitled to approve or participate in any activity or operation in
              the Lease, other than those activities or operations for which
              they retain a financial responsibility. The Withdrawing Party and
              Other Withdrawing Parties shall take all necessary steps to
              accomplish their withdrawal by the effective date referred to in
              Article 15.1 (Right to Withdraw) and shall execute and deliver to
              the Remaining Parties all necessary instruments to assign their
              Working Interest to the Remaining Parties. A Withdrawing Party and
              Other Withdrawing Parties shall bear all expenses associated with
              their withdrawal and the transfer of their Working Interest.

15.3   Limitation Upon and Conditions of Withdrawal

       15.3.1 Prior Expenses

              The Withdrawing Party and Other Withdrawing Parties shall remain
              liable for their Participating Interest share of the costs of all
              activities, operations, rentals, royalties, taxes, damages,
              Hydrocarbon imbalances, or other liability or expense accruing or
              relating to (i) obligations existing as of the effective date of
              the withdrawal, (ii) operations conducted before the effective
              date of the withdrawal, (iii) operations approved by the
              Withdrawing Party and Other Withdrawing Parties before the

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              effective date of the withdrawal, or (iv) operations commenced by
              the Operator under one of its discretionary powers under this
              Agreement before the effective date of the withdrawal. Before the
              effective date of the withdrawal, the Operator shall provide a
              statement to the Withdrawing Party and Other Withdrawing Parties
              for (1) their respective shares of all identifiable costs under
              this Article 15.3.1 and (2) their respective Participating
              Interest shares of the estimated current costs of plugging and
              abandoning all wells and removing all Platforms, Development
              Facilities, and other material and equipment owned by the Joint
              Account, less their respective Participating Interest Shares of
              the estimated salvage value of the assets at the time of
              abandonment, as approved by vote. This statement of expenses,
              costs, and salvage value shall be prepared by the Operator under
              Exhibit "C". Before withdrawing, the Withdrawing Party and Other
              Withdrawing Parties shall either pay the Operator, for the benefit
              of the Remaining Parties, the amounts allocated to them as shown
              in the statement, or provide security satisfactory to the
              Remaining Parties for all obligations and liabilities they have
              incurred and all obligations and liabilities attributable to them
              before the effective date of the withdrawal. All liens, charges,
              and other encumbrances, including but not limited to overriding
              royalties, net profits interest and production payments, which the
              Withdrawing Party and Other Withdrawing Parties placed (or caused
              to be placed) on their Working Interest shall be fully satisfied
              or released prior to the effective date of its withdrawal (unless
              the Remaining Parties are willing to accept the Working Interest
              subject to those liens, charges, and other encumbrances).

       15.3.2 Confidentiality

              The Withdrawing Party and Other Withdrawing Parties will continue
              to be bound by the confidentiality provisions of Article 7.3
              (Confidentiality) after the effective date of the withdrawal but
              will have no further access to technical information relating to
              activities or operations under this Agreement. The Withdrawing
              Party and Other Withdrawing Parties are not required to return to
              the Remaining Parties Confidential Data acquired prior to the
              effective date of the withdrawal.

       15.3.3 Emergencies and Force Majeure

              No Party may withdraw during a Force Majeure or emergency that
              poses a threat to life, safety, property or the environment but
              may withdraw from this Agreement after termination of the Force
              Majeure or emergency. The Withdrawing Party and Other Withdrawing
              Parties shall remain liable for their share of all costs and
              liabilities arising from the Force Majeure or emergency, including
              but not limited to the drilling of relief wells, containment and
              cleanup of oil spills and pollution, and all costs of debris
              removal made necessary by the Force Majeure or emergency.

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                                   ARTICLE 16

                     RENTALS, ROYALTIES, AND OTHER PAYMENTS

16.1   Overriding Royalty and Other Burdens

       If the Working Interest or Participating Interest of a Party is subject
       to an overriding royalty, Hydrocarbon production payment, net profits
       interest, mortgage, lien, security interest, or other burden or
       encumbrance, other than lessor's royalty and other burdens listed in
       Exhibit "A", the Party so burdened shall pay and bear all liabilities and
       obligations created or secured by the burden or encumbrance and shall
       indemnify and hold the other Parties harmless from all claims and demands
       for payment asserted by the owners of the burdens or encumbrances. If a
       Party becomes entitled to an assignment under this Agreement, or as a
       result of Non-consent Operations hereunder becomes entitled to receive a
       relinquished interest, as provided in Article 13.2 (Relinquishment of
       Interest), otherwise belonging to a Non-participating Party whose Working
       Interest in the operations is so burdened or encumbered, the Party
       entitled to receive the assignment from the Non-participating Party or
       the relinquished interest of the Non-participating Party's Hydrocarbon
       production shall receive same free and clear of all such burdens and
       encumbrances, and the Non-participating Party whose interest is subject
       to the burdens and encumbrances shall hold the Participating Parties
       harmless for the burdens and encumbrances, and will bear same at its own
       expense.

16.2   Subsequently Created Interest

       Notwithstanding anything in this Agreement to the contrary, if a Party,
       after execution of this Agreement, creates an overriding royalty,
       Hydrocarbon production payment, net profits interest, carried interest,
       or any other interest out of its Working Interest which the Parties do
       not unanimously agree to list on Exhibit "A", (hereinafter called
       "Subsequently Created Interest"), the Subsequently Created Interest shall
       be made specifically subject to this Agreement. If the Party owning the
       interest from which the Subsequently Created Interest was established
       fails to pay, when due, its share of costs, and if the proceeds from the
       sale of Hydrocarbon production under Article 8.6 (Security Rights) are
       insufficient for that purpose, or elects to abandon a well, or elects to
       relinquish its interest in the applicable Lease, the Subsequently Created
       Interest shall be chargeable with a pro rata portion of all costs in the
       same manner as if the Subsequently Created Interest were a Working
       Interest, and Operator may enforce against the Subsequently Created
       Interest the lien and other rights granted or recognized under this
       Agreement to secure and enforce collection of costs chargeable to the
       Subsequently Created Interest. The rights of the owner of the
       Subsequently Created Interest shall be, and hereby are, subordinated to
       the rights granted or recognized by Article 8.6 (Security Rights).

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16.3   Payment of Rentals and Minimum Royalties

       Operator shall pay in a timely manner, for the joint account of the
       Parties, all rental, minimum royalties, and other similar payments
       accruing under each Lease and shall, on request, submit evidence of each
       such payment to the Parties. Operator shall not be held liable to the
       other Parties in damages for loss of a Lease or interest therein if,
       through mistake or oversight, a rental, minimum royalty, or other payment
       is not paid or is erroneously paid. The loss of a Lease or interest
       therein resulting from the Operator's failure to pay, or erroneous
       payment of rental or minimum royalty shall be a joint loss, and there
       shall be no readjustment of interests. For Hydrocarbon production
       delivered in kind by Operator to a Non-operator or to another for the
       account of a Non-operator, the Non-operator shall provide Operator with
       information about the Non-operator's proceeds received or the value of
       the Hydrocarbon production taken in kind in order that Operator may make
       payments of minimum royalties due.

16.4   Non-participation in Payments

       A Party that desires not to pay its share of a rental, minimum royalty,
       or similar payment shall notify the other Parties in writing at least
       sixty (60) days before the payment is due. Operator shall then make the
       payment for the benefit of the Parties that do desire to maintain the
       Lease. In such event, the Non-participating Party shall assign to the
       Participating Parties the portions of its interest in the Lease
       maintained by the payment. The assigned interest shall be owned by each
       Participating Party in proportion to its Participating Interest. The
       assignment shall be made in accordance with Article 27 (Successors,
       Assigns, and Preferential Rights).

16.5   Royalty Payments

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

                                   ARTICLE 17

                                      TAXES

17.1   Property Taxes

       Operator shall render property covered by this Agreement for ad valorem
       taxation, if applicable, and shall pay the property taxes for the benefit
       of each Party. Operator shall charge each Party its share of the tax
       payments. If the ad valorem taxes are based in whole or in part upon

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       separate valuations of each Party's Working Interest, then
       notwithstanding anything in this Agreement to the contrary, each Party's
       share of property taxes shall be in proportion to the tax value generated
       by that Party's Working Interest.

17.2   Contest of Property Tax Valuation

       Operator shall timely and diligently protest to a final determination
       each tax valuation it deems unreasonable. Pending such determination,
       Operator may elect to pay under protest. Upon final determination,
       Operator shall pay the taxes and the interest, penalties, and costs
       accrued as a result of the protest. In either event, Operator shall
       charge each Party its share of any amounts due, and each Party shall be
       responsible for reimbursing Operator for any such amounts paid.

17.3   Production and Severance Taxes

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

17.4   Other Taxes and Assessments

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

                                   ARTICLE 18

                                    INSURANCE

18.1   Insurance

       Operator shall provide and maintain the insurance prescribed in Exhibit
       "B" and charge those costs to the Joint Account. No other insurance shall
       be carried for the benefit of the Parties under this Agreement, except as
       provided in Exhibit "B".

18.2   Bonds

       Operator shall obtain and maintain all bonds or financial guarantees
       required by an applicable law, regulation or rule. The costs of those
       bonds or financial guarantees acquired exclusively for the conduct of
       activities and operations under this Agreement shall be charged to the
       Joint Account, including an amount equivalent to the reasonable cost of
       that bond or financial guarantee if Operator provides that bond or
       guarantee itself and does not engage a third party to do so. Operator
       shall require all contractors to obtain and maintain all bonds required
       by an applicable law, regulation or rule

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                                   ARTICLE 19

                         LIABILITY, CLAIMS, AND LAWSUITS

19.1   Individual Obligations

       The obligations, duties, and liabilities of the Parties under this
       Agreement are several, not joint or collective. Nothing in this Agreement
       shall ever be construed as creating a partnership of any kind, joint
       venture, agency relationship, association, or other character of business
       entity recognizable in law for any purpose. In their relations with each
       other under this Agreement, the Parties shall not be considered to be
       fiduciaries or to have established a confidential relationship, except as
       specifically provided in Article 7.3 (Confidentiality) and Article 7.4
       (Limited Disclosure), but rather shall be free to act at arm's length in
       accordance with their own respective self-interests. Each Party shall
       hold all other Parties harmless from liens and encumbrances on the
       Contract Area arising as a result of its acts.

19.2   Notice of Claim or Lawsuit

       If, on account of a matter involving activities or operations under this
       Agreement, or affecting the Contract Area, a claim is made against a
       Party, or if a party outside of this Agreement files a lawsuit against a
       Party, or if a Party files a lawsuit, or if a Party receives notice of a
       material administrative or judicial hearing or other proceeding, that
       Party shall give written notice of the claim, lawsuit, hearing, or
       proceeding ("Claim") to the other Parties as soon as reasonably
       practicable.

19.3   Settlements

       The Operator may settle a Claim, or multiple Claims arising out of the
       same incident, involving activities or operations under this Agreement or
       affecting the Contract Area, if the aggregate expenditure, exclusive of
       outside professional fees and expenses, does not exceed three hundred
       thousand ($300,000.00) and if the payment is in complete settlement of
       these Claims. If the amount required for settlement exceeds this amount,
       the Parties shall determine the further handling of the Claims under
       Article 19.4 (Defense of Claims and Lawsuits).

19.4   Defense of Claims and Lawsuits

       The Operator shall supervise the handling, conduct, and prosecution of
       all Claims involving activities or operations under this Agreement or
       affecting the Contract Area. Claims may be settled in excess of the
       amount specified in Article 19.3 (Settlements) if the settlement is
       approved by vote in accordance with Article 6.1.2 (Vote Required) of the
       Participating Parties in the activity or operation out of which the Claim
       arose, but a Party may independently settle a Claim or the portion of a
       Claim which is attributable to its Participating Interest share alone as
       long as that settlement does not directly adversely affect the interest
       or rights of the other Participating Parties. Charges for services
       performed by the legal staff of a Party shall be made in accordance with
       Exhibit "C", but all other expenses incurred by the Operator in the

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       prosecution or defense of Claims for the Parties, together with the
       amount paid to discharge a final judgment, are costs and shall be paid by
       the Parties in proportion to their Participating Interest share in the
       activity or operation out of which the Claim arose. The employment of
       outside counsel, but not the selection of that counsel, requires approval
       by vote of the Participating Parties in the activity or operation out of
       which the Claim arose. If the use of outside counsel is approved, the
       fees and expenses incurred as a result thereof shall be charged to the
       Parties in proportion to their Participating Interest share in the
       activity or operation out of which that Claim arose. Each Party has the
       right to hire its own outside counsel at its sole cost with respect to
       its own defense.

19.5   Liability for Damages

       UNLESS SPECIFICALLY PROVIDED OTHERWISE IN THIS AGREEMENT, LIABILITY FOR
       LOSSES, DAMAGES, COSTS, EXPENSES OR CLAIMS INVOLVING ACTIVITIES OR
       OPERATIONS UNDER THIS AGREEMENT OR AFFECTING THE CONTRACT AREA WHICH ARE
       NOT COVERED BY OR IN EXCESS OF THE INSURANCE CARRIED FOR THE JOINT
       ACCOUNT SHALL BE BORNE BY EACH PARTY IN PROPORTION TO ITS PARTICIPATING
       INTEREST SHARE IN THE ACTIVITY OR OPERATION OUT OF WHICH THAT LIABILITY
       ARISES, EXCEPT TO THE EXTENT LIABILITY RESULTS FROM THE GROSS NEGLIGENCE
       OR WILLFUL MISCONDUCT OF A PARTY, IN WHICH CASE THAT PARTY SHALL BE
       SOLELY RESPONSIBLE FOR LIABILITY RESULTING FROM ITS GROSS NEGLIGENCE OR
       WILLFUL MISCONDUCT.

19.6   Indemnification for Non-Consent Operations

       TO THE EXTENT ALLOWED BY LAW, THE PARTICIPATING PARTIES WILL HOLD THE
       NON-PARTICIPATING PARTIES (AND THEIR PARENT, AFFILIATES, AGENTS,
       INSURERS, DIRECTORS, OFFICERS, AND EMPLOYEES) HARMLESS AND RELEASE,
       DEFEND, AND INDEMNIFY THEM AGAINST ALL CLAIMS, DEMANDS, LIABILITIES,
       REGULATORY DECREES, AND LIENS FOR ENVIRONMENTAL POLLUTION AND PROPERTY
       DAMAGE OR PERSONAL INJURY, INCLUDING SICKNESS AND DEATH, CAUSED BY OR
       OTHERWISE ARISING OUT OF NON-CONSENT OPERATIONS, AND ANY LOSS AND COST
       SUFFERED BY A NON-PARTICIPATING PARTY AS AN INCIDENT THEREOF, EXCEPT
       WHERE THAT LOSS OR COST RESULTS FROM THE SOLE, CONCURRENT, OR JOINT
       NEGLIGENCE, FAULT OR STRICT LIABILITY OF THAT NON-PARTICIPATING PARTY, IN
       WHICH CASE EACH PARTY SHALL PAY OR CONTRIBUTE TO THE SETTLEMENT OR
       SATISFACTION OF JUDGMENT IN THE PROPORTION THAT ITS NEGLIGENCE, FAULT OR
       STRICT LIABILITY CAUSED OR CONTRIBUTED TO THE INCIDENT. IF AN INDEMNITY
       IN THIS AGREEMENT IS DETERMINED TO VIOLATE LAW OR PUBLIC POLICY, THAT
       INDEMNITY SHALL THEN BE ENFORCEABLE ONLY TO THE MAXIMUM EXTENT ALLOWED BY
       LAW.

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19.7   Damage to Reservoir, Loss of Reserves and Profit

       NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, NO PARTY TO
       THIS AGREEMENT SHALL BE LIABLE TO ANY OTHER PARTY TO THIS AGREEMENT FOR
       DAMAGE TO A RESERVOIR(S), LOSS OF HYDROCARBONS, OR FOR LOSS OF PROFITS OR
       FOR OTHER CONSEQUENTIAL OR BUSINESS INTERRUPTION DAMAGES, NOR DOES ANY
       PARTY INDEMNIFY ANY OTHER PARTY FOR SUCH LOSS.

19.8   Non-Essential Personnel

       A NON-OPERATOR THAT REQUESTS TRANSPORTATION OR ACCESS TO A DRILLING RIG,
       PLATFORM, VESSEL, OR OTHER FACILITY USED FOR ACTIVITIES OR OPERATIONS
       UNDER THIS AGREEMENT SHALL HOLD THE OTHER PARTIES HARMLESS AND SHALL
       RELEASE, DEFEND, AND INDEMNIFY THEM AGAINST (I) ALL CLAIMS, DEMANDS, AND
       LIABILITIES FOR PROPERTY DAMAGE AND (II) ALL CLAIMS, DEMANDS, AND
       LIABILITIES FOR ANY LOSS OR COST SUFFERED BY A PARTY AS AN INCIDENT
       THEREOF, INCLUDING, BUT NOT LIMITED TO, INJURY, SICKNESS AND DEATH,
       CAUSED BY OR OTHERWISE ARISING OUT OF THAT TRANSPORTATION OR ACCESS, OR
       BOTH, EXCEPT TO THE EXTENT THAT LOSS OR COST RESULTS FROM THE GROSS
       NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY SO INDEMNIFIED AND
       PROTECTED.

19.9   Dispute Resolution Procedure

       Any claim, controversy or dispute arising out of, relating to, or in
       connection with this Agreement or an activity or operation conducted
       under this Agreement shall be resolved under the Dispute Resolution
       Procedure in Exhibit "G" to this Agreement.

19.10  Non-Operator Release For Contractor Indemnity

       It is contemplated that Operator, in the performance of its duties as
       Operator under this Agreement, will retain the services of independent
       contractors on behalf of the Joint Account. It is also contemplated that,
       to retain the services of such contractors, Operator will in some
       instances be required to release and indemnify such contractors, and
       possibly their subcontractors, from liability, including, without
       limitation, from liability for the consequences of said indemnitees' own
       negligence. It is not the intention of the Parties, where Operator has
       agreed to release and indemnify contractors and subcontractors incident
       to work to be performed for the Joint Account, that Operator would incur
       individual liability as an indemnitor. Therefore, to the extent of
       indemnities granted by Operator to contractors and subcontractors, in
       connection with goods to be provided and services to be performed for the
       Joint Account under this Agreement, it is agreed: (1) Non-Operators shall
       release Operator's indemnitees just as if the said Non-Operators had
       ratified, approved and adopted the release provisions of Operator's
       contracts with said indemnitees relative to said Non-Operator's losses,

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       and (2) that losses to third parties arising out of indemnities granted
       by Operator shall be obligations of the Joint Account maintained pursuant
       to this Agreement.

                                   ARTICLE 20

                           INTERNAL REVENUE PROVISION

20.1   Internal Revenue Provision

       Notwithstanding any provision in this Agreement to the effect that the
       rights and liabilities of the Parties are several, not joint or
       collective, and that the Agreement and the activities and operations
       under this Agreement do not constitute a partnership under state law,
       each Party elects to be excluded from the application of all or any part
       of the provisions of Subchapter K, Chapter 1, Subtitle A, of the Internal
       Revenue Code of 1986, as amended, or similar provisions of applicable
       state laws regardless of whether for federal income tax purposes this
       Agreement and the activities and operations under this Agreement are
       regarded as a partnership.

                                   ARTICLE 21

                                  CONTRIBUTIONS

21.1   Notice of Contributions Other Than Advances for Sale of Production

       Each Party shall promptly notify the other Parties of all offers of
       contributions that it may obtain, or contributions it is attempting to
       obtain, for the drilling of a well or the conducting of an operation on
       the Contract Area. Payments received as consideration for entering into a
       contract for the sale of Hydrocarbon production from the Contract Area,
       loans, and other financial arrangements shall not be considered
       contributions for the purpose of this Article 21. No Party shall release
       or obligate itself to release Confidential Data in return for a
       contribution from a third party without prior written consent of the
       Participating Parties or Parties having the right to participate in the
       well.

21.2   Cash Contributions

       If a Party receives a cash contribution for drilling a well on the
       Contract Area or conducting an activity or operation on the Contract
       Area, the cash contribution shall be paid to Operator, and Operator shall
       credit the amount thereof to the Parties in proportion to their
       Participating Interests in the well or the Platform and/or Development
       Facilities. If the well is a Non-consent Well, the amount of the
       contribution shall be deducted from the cost specified in Article
       13.2.1(a) before computation of the amount to be recouped out of
       Hydrocarbon production.

21.3   Acreage Contributions

       If a Party receives an acreage contribution for the drilling of a well on
       the Contract Area, the acreage contribution shall be shared by each

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       Participating Party that accepts it in proportion to its Participating
       Interest in the well. As between the Participating Parties, this
       Agreement shall apply separately to the acreage.

                                   ARTICLE 22

                            DISPOSITION OF PRODUCTION

22.1   Take-in-Kind Facilities

       Subject to Article 22.2, a Party may, at its sole cost and risk,
       construct Take-in-Kind Facilities to take its share of Hydrocarbon
       production in kind.

22.2   Duty to Take in Kind

       Each Party shall own and, at its own cost and risk, shall take in kind or
       separately dispose of its share of the oil, gas, and condensate produced
       and saved from the Contract Area, exclusive of Hydrocarbon production
       used by Operator in activities or operations conducted under this
       Agreement, subject to this Article 22. In order to avoid interference
       with operations on or regarding the Platform, the Development Facilities,
       and the Contract Area, a Party exercising its right to construct Take in
       Kind Facilities ("the Take in Kind Party) shall provide the Operator with
       a list of equipment it deems necessary for its Take in Kind Facilities
       ("the components") along with its notice informing the Operator of its
       election to take in kind. If the Operator agrees to install and operate
       the Take in Kind Facilities, the Operator shall purchase the components
       and install it on behalf of the Take in Kind Party at the Take in Kind
       Party's sole risk and cost, including, but not limited to, any fees,
       penalties or other costs incurred as a result of any cancellation of
       placed orders as may be requested by the Take in Kind Party. The Operator
       shall provide the Take in Kind Party with monthly updates on the progress
       of the ordering and installation of the Take in Kind Facilities. The
       Operator, based on the instructions of the Take in Kind Party, shall
       install and operate all of the components. The Operator shall not be
       responsible for any losses or damages to the components or the Take in
       Kind Party's Hydrocarbon production metered, treated, processed or
       transported by the components unless such losses or damages are the
       result of the Operator's gross negligence or willful misconduct. If the
       Operator refuses or fails to install the Take-in Kind Facilities within a
       commercially reasonable period of time, the Take-in Kind Party shall have
       the right to install and operate the Take-in Kind Facilities provided
       that such operations do not interfere with existing operations or
       proposed operations that have been approved under the terms of this
       Agreement.

22.3   Failure to Take Oil and Condensate in Kind

       Notwithstanding Article 22.2 (Duty to Take in Kind), if a Party fails to
       take in kind or dispose of its share of the oil or condensate, Operator
       shall have the right, but not the obligation, subject to revocation at
       will by the Party owning the Hydrocarbon production, to purchase for its
       own account, sell to others, or otherwise dispose of all or part of the

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<PAGE>

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

22.4   Failure to Take Gas in Kind

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

22.5   Expenses of Delivery in Kind

       A cost that is incurred by Operator in making delivery of a Party's share
       of Hydrocarbons or disposing of same shall be paid by the Party.

                                   ARTICLE 23

                                 APPLICABLE LAW

23.1   APPLICABLE LAW

       THIS AGREEMENT AND THE RELATIONSHIP OF THE PARTIES UNDER THIS AGREEMENT
       SHALL BE GOVERNED BY AND INTERPRETED UNDER U.S. GENERAL MARITIME LAW, IF
       APPLICABLE; OTHERWISE, UNDER THE LAWS OF THE STATE OF TEXAS, WITHOUT
       REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD OTHERWISE REFER THE
       MATTER TO THE LAWS OF ANOTHER JURISDICTION.

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                                   ARTICLE 24

                    LAWS; REGULATIONS, AND NONDISCRIMINATION

24.1   Laws and Regulations

       This Agreement and operations under this Agreement are subject to all
       applicable laws, rules, regulations, and orders by all governmental
       authorities claiming jurisdiction now and in the future. A provision of
       this Agreement found to be contrary to or inconsistent with any such law,
       rule, regulation, or order shall be deemed to have been modified
       accordingly.

24.2   Nondiscrimination

       In performing work under this Agreement, the Parties shall comply and
       Operator shall require each independent contractor to comply with the
       governmental requirements in Exhibit "D" and with the applicable
       provisions of Executive Order 11246, as amended.

                                   ARTICLE 25

                                  FORCE MAJEURE

25.1   Force Majeure

       If a Party is unable, wholly or in part because of a Force Majeure, to
       carry out its obligations under this Agreement, other than the obligation
       to make money payments, that Party shall give the other Parties prompt
       written notice of the Force Majeure with full particulars about it.
       Effective upon the date notice is given, the obligations of the Party, so
       far as they are affected by the Force Majeure, shall be suspended during,
       but no longer than, the continuance of the Force Majeure. Time is of the
       essence in the performance of this Agreement, and every reasonable effort
       will be made by the Party to avoid delay or suspension of any work or
       acts to be performed under this Agreement. The requirement that the Force
       Majeure be remedied with all reasonable dispatch shall not require a
       Party to settle strikes or other labor difficulties.

                                   ARTICLE 26

                  SUCCESSORS, ASSIGNS, AND PREFERENTIAL RIGHTS

26.1   Transfer of Interest

       Except as provided in 26.1.1 (Exceptions to Transfer Notice), a Transfer
       of Interest shall be preceded by written notice to the Operator and the
       other Parties ("the transfer notice"). Any Transfer of Interest shall be
       made to a party financially capable of assuming the corresponding
       obligations under this Agreement. No Transfer of Interest shall release a
       Party from its obligations and liabilities under this Agreement, and the

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       security rights under Article 8.6 (Security Rights) shall continue to
       burden the Working interest transferred and to secure the payment of
       those obligations and liabilities. No Transfer of Interest shall be made
       that is not an undivided interest in all of a Party's Working Interest in
       the Contract Area (unless otherwise provided under this Agreement).
       Unless unanimously agreed otherwise, any Transfer of Interest to a third
       party shall be limited to a minimum Working Interest of ten percent (10%)
       in the entire Contract Area. If the Working Interest of any Party is
       subsequently conveyed or distributed to other entities, so that any one
       of them owns a Working Interest of less than ten percent (10%), such
       entities shall be entitled to only a single joint representative at
       meetings of the Parties and shall vote or act collectively on all matters
       hereunder. Such Parties shall be entitled to only a single set of logs,
       samples, information and reports and shall be considered as only one
       Party for all purposes under this Agreement.

       26.1.1 Exceptions to Transfer Notice

              Notwithstanding any contrary provision of this Agreement, the
              transfer notice is not required when a Party proposes to mortgage,
              pledge, hypothecate or grant a security interest in all or a
              portion of its Working Interest (including Assignments of
              Hydrocarbon production executed as further security for the debt
              secured by that security device), any wells, Platforms,
              Development Facilities or other equipment. However, an encumbrance
              arising from the financing transaction shall be expressly made
              subject and subordinated to this Agreement.

       26.1.2 Effective Date of Transfer of Interest

              A Transfer of Interest becomes effective five (5) days after the
              day all Parties are in receipt of the transfer notice. No Transfer
              of Interest, other than those provided in Article 15.1 (Right to
              Withdraw) and Article 26.1.1 (Exceptions to Transfer Notice), is
              binding upon the Parties unless and until (i) the assignor or
              assignee provides all remaining Parties with a photocopy of a
              fully executed Transfer of Interest, an executed MMS "Designation
              of Operator" form and a designation of oil spill responsibility
              form and (ii) evidence of receipt of all necessary approvals by
              the MMS. The Parties shall promptly undertake all reasonable
              actions necessary to secure those approvals and shall execute and
              deliver all documents necessary to effectuate that Transfer of
              Interest. All costs attributable to a Transfer of Interest are the
              sole obligation of the assigning Party.

       26.1.3 Form of Transfer of Interest

              Any Transfer of Interest shall incorporate provisions that the
              Transfer of Interest is subordinate to and made expressly subject
              to this Agreement and provide for the assumption by the assignee
              of the performance of all of the assigning Party's obligations
              under this Agreement. Any Transfer of Interest not in compliance
              with this provision is voidable by the non-assigning Parties.

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       26.1.4 Warranty

              Any Transfer of Interest, vesting or relinquishment of Working
              Interest between the Parties under this Agreement shall be made
              without warranty of title except by, through and under assignor.
              All liens, charges, and other encumbrances, including but not
              limited to overriding royalties, net profits interest and
              production payments, which a Party placed (or caused to be placed)
              on its Working Interest shall be fully satisfied or released prior
              to the effective date of a Transfer of Interest, vesting or
              relinquishment of Working Interest between that Party and another
              Party under this Agreement (unless the other Party is willing to
              accept the Working Interest subject to those liens, charges, and
              other encumbrances).

26.2   Preferential Right to Purchase

       Any Transfer of Interest shall be subject to the following provisions:

       26.2.1 Notice of Proposed Transfer of Interest

              The transfer notice shall provide full information about the
              proposed Transfer of Interest, including, but not limited to, the
              name and address of the prospective assignee (who must be ready,
              willing, and able to acquire the interest and deliver the stated
              consideration therefor), the full consideration for the Transfer
              of Interest, and all other terms of the offer. In the case of a
              sale of oil and gas interests that includes all or part of the
              assigning Party's Working Interest, or if the proposed Transfer of
              Interest is structured as a like-kind exchange, the Working
              Interest that is subject to the Transfer of Interest shall be
              separately valued and the transfer notice shall state the monetary
              value attributed to the Working Interest by that prospective
              assignee. Article 26.2 (Preferential Right to Purchase) shall
              apply only to the Working Interest that is subject to the Transfer
              of Interest.

       26.2.2 Exercise of Preferential Right to Purchase

              Within twenty (20) days after receipt of the transfer notice, each
              non-assigning Party may exercise its preferential right to
              purchase its Participating Interest share of the Working Interest
              offered (on the same terms and conditions, or on equivalent terms
              for a non-cash transaction as stated in the notice) without
              reservations or conditions by written notice of that fact to all
              of the Parties. If one or more non-assigning Parties, but not all
              non-assigning Parties, exercise their preferential right to
              purchase (the "Acquiring Parties"), then within fifteen (15) days
              after the termination of the twenty (20) day notice period set
              forth in the previous sentence, each Acquiring Party may exercise
              its preferential right to purchase its Participating Interest
              share of the Working Interest offered based on its Participating
              Interest share as a non-assigning Party or based on its
              Participating Interest share as an Acquiring Party. If within the
              fifteen (15) day notice period set forth in the previous sentence
              an Acquiring Party does not exercise its preferential right to

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<PAGE>

              purchase its Participating Interest share of the Working Interest
              offered based on its Participating Interest share as an Acquiring
              Party but does exercise its preferential right to purchase its
              Participating Interest share of the Working Interest offered based
              on its Participating Interest share as a non-assigning Party, then
              the other Acquiring Parties shall have ten (10) days in which to
              agree to pay the remainder of the full consideration for the
              Transfer of Interest and notify the assigning Party of that fact.
              If within the ten (10) day period set forth in the previous
              sentence the other Acquiring Parties do not agree to pay the
              remainder of the full consideration for the Transfer of Interest,
              or if the other Acquiring Parties do agree to pay the remainder of
              the full consideration for the Transfer of Interest but do not
              notify the assigning Party of the fact, the assigning Party shall
              be free to complete the proposed conveyance on the terms disclosed
              in the notice. If the non assigning Parties or the Acquiring
              Parties agree to pay the full consideration for the Transfer of
              interest and accept all of the other terms of the third party
              offer, the assigning Party shall transfer the Working Interest to
              the non-assigning Parties or Acquiring Parties who exercised their
              preferential right to purchase under this Article 26 (Successors,
              Assigns, and Preferential Rights). The Transfer of Interest shall
              be concluded within a reasonable time, but no later than one
              hundred twenty (120) days after the applicable period in which the
              non-assigning Parties or Acquiring Parties may exercise their
              preferential right to purchase.

       26.2.3 Transfer of Interest Not Affected by the Preferential Right to
              Purchase

              Article 26.2 (Preferential Right to Purchase) shall not apply when
              a Party proposes to:

              (a)    mortgage, pledge, hypothecate or grant a security interest
                     in all or a portion of its Working Interest (including
                     assignments of Hydrocarbon production executed as further
                     security for the debt secured by that security device), or

              (b)    grant an overriding royalty, a net profits interest, or a
                     production payment, or

              (c)    dispose of its Working Interest by:

                     (1)    a merger, reorganization, or consolidation;

                     (2)    a Transfer of Interest of substantially all of a
                            Party's exploration and production properties in the
                            Gulf of Mexico; or

                     (3)    a Transfer of Interest to an Affiliate, provided
                            that there is included in the Transfer of Interest a
                            provision that if for any reason the assignee ceases
                            to be an Affiliate of the Transferring Party within
                            one (1) year after Transfer of Interest, those
                            rights shall be immediately reassigned to the
                            original Party before the assignee ceases to be an
                            Affiliate, and that all rights of the assignee in
                            the Contract Area shall terminate if the
                            reassignment does not take place.

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       26.2.4 Completion of Transfer of Interest

              If the proposed Transfer of Interest is not executed and filed of
              record with the MMS within one hundred eighty (180) days after
              receipt of the transfer notice by the non-assigning Parties, or if
              the terms of the proposed Transfer of Interest conveyance are
              materially altered, the proposed Transfer of Interest shall be
              deemed withdrawn, and the Working Interest included in the
              proposed Transfer of Interest shall again be governed by this
              Article 26.2 (Preferential Right to Purchase).

                                   ARTICLE 27

                            ADMINISTRATIVE PROVISIONS

27.1   Term

       This Agreement shall remain in effect so long as a Lease remains in
       effect and thereafter until (a) all wells have been abandoned and plugged
       or turned over to the Parties owning an interest in the Lease on which
       the wells are located; (b) all Platforms, Development Facilities, and
       equipment have been disposed by the Operator in accordance with Article
       14 (Abandonment, Salvage, and Surplus); (c) all Claims as defined in
       Article 19 (Liability, Claims, and Lawsuits) have been settled or
       otherwise disposed of; and (d) there has been a final accounting and
       settlement by all Parties. In accordance with Article 4.5 (Selection of
       Successor Operator), this Agreement will terminate if no Party is willing
       to become Operator, effective after all conditions in clauses (a) through
       (d) above have been completed. In accordance with Article 15.2.1
       (Unanimous Withdrawal), this Agreement will terminate if all Parties
       elect to withdraw, effective after all conditions in clauses (a) through
       (d) above have been completed. Termination of this Agreement shall not
       relieve a Party of a liability or obligation accrued or incurred before
       termination and is without prejudice to all continuing confidentiality
       obligations or other obligations in this Agreement.

27.2   Waiver

       A term, provision, covenant, representation, warranty, or condition of
       this Agreement may be waived only by written instrument executed by the
       Party waiving compliance. The failure or delay of a Party in the
       enforcement or exercise of the rights granted under this Agreement shall
       not constitute a waiver of said rights nor shall it be considered as a
       basis for estoppel. Time is of the essence in the performance of this
       Agreement and all time limits shall be strictly construed and enforced.

27.3   Waiver of Right to Partition

       Each Party waives the right to bring an action for partition of its
       interest in the Lease(s), wells, Platform, Development Facilities, and
       other equipment held under this Agreement, and covenants that during the
       existence of this Agreement it shall not resort at any time to an action

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       at law or in equity to partition any or all of the Leases and lands or
       personal property subject to this Agreement.

27.4   Compliance With Laws and Regulations

       This Agreement, and all activities or operations conducted by the Parties
       under this Agreement, are expressly subject to, and shall comply with,
       all laws, orders, rules, and regulations of all federal, state, and local
       governmental authorities having jurisdiction over the Contract Area.

       27.4.1 Severance of Invalid Provisions

              If, for any reason and for so long as, a clause or provision of
              this Agreement is held by a court of competent jurisdiction to be
              illegal, invalid, unenforceable or unconscionable under a present
              or future law (or interpretation thereof), the remainder of this
              Agreement will not be affected by that illegality or invalidity.
              An illegal or invalid provision will be deemed severed from this
              Agreement, as if this Agreement had been executed without the
              illegal or invalid provision. The surviving provisions of this
              Agreement will remain in full force and effect unless the removal
              of the illegal or invalid provision destroys the legitimate
              purposes of this Agreement; in which event this Agreement shall be
              null and void.

       27.4.2 Fair and Equal Employment

              Each of the Parties is an Equal Opportunity Employer, and the
              equal opportunity provisions of 30 CFR 270 and 41 CFR 60-1, as
              amended or modified, are incorporated in this Agreement by
              reference. The affirmative action clauses concerning disabled
              veterans and veterans of the Vietnam era (41 CFR 60-250) and the
              affirmative action clauses concerning employment of the
              handicapped (41 CFR 60-741) are also incorporated in this
              Agreement by reference. In performing work under this Agreement,
              the Parties shall comply with (and the Operator shall require each
              independent contractor to comply with) the governmental
              requirements in Exhibit "D" that pertain to non segregated
              facilities.

27.5   Construction and Interpretation of this Agreement

       27.5.1 Headings for Convenience

              Except for the definition headings in Article 2 (Definitions), all
              the table of contents, captions, numbering sequences, and
              paragraph headings in this Agreement are inserted for convenience
              only and do not define, expand or limit the scope, meaning, or
              intent of this Agreement.

       27.5.2 Article References

              Except as otherwise provided in this Agreement, each reference to
              an article of this Agreement includes all of the referenced
              article and its sub-articles.

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       27.5.3 Gender and Number

              The use of pronouns in whatever gender or number is a proper
              reference to the Parties to this Agreement though the Parties may
              be individuals, business entities, or groups thereof. Reference in
              this Agreement to the singular of a noun or pronoun includes the
              plural and vice versa.

       27.5.4 Future References

              A reference to a Party includes such Party's successors and
              assigns and, in the case of governmental bodies, persons
              succeeding to their respective functions and capacities.

       27.5.5 Currency

              Any amounts due or payable under this Agreement shall be paid in
              United States currency.

       27.5.6 Intentionally Omitted

       27.5.7 Joint Preparation

              This Agreement shall be deemed for all purposes to have been
              prepared through the joint efforts of the Parties and shall not be
              construed for or against one (1) Party or the other as a result of
              the preparation, submittal, drafting, execution or other event of
              negotiation hereof.

       27.5.8 Integrated Agreement

              This Agreement contains the final and entire agreement of the
              Parties for the matters covered by this Agreement and, as such,
              supersedes all other prior written or oral communications and
              agreements. This Agreement may not be modified or changed except
              by written amendment signed by the Parties.

       27.5.9 Binding Effect

              To the extent it is assignable, this Agreement shall bind and
              inure to the benefit of the Parties and their respective
              successors and assigns, and shall constitute a covenant running
              with the land comprising the Contract Area. This Agreement does
              not benefit or create any rights in a person or entity that is not
              a Party to this Agreement.

       27.5.10 Further Assurances

              Each Party will take all actions necessary and will sign all
              documents necessary to implement this Agreement. Except as
              otherwise provided in this Agreement, within thirty (30) days
              after their receipt of a valid written request for those documents
              from a Party, all other Parties shall prepare and execute the
              documents.

       27.5.11 Counterpart Execution

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

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              the original of this Agreement. This Agreement may also be
              ratified by a separate instrument that refers to this Agreement
              and adopts by reference all provisions of this Agreement. A
              ratification shall have the same effect as an execution of this
              Agreement.

27.6   Restricted Bidding

       If more than one (1) Party is ever on the list of restricted joint
       bidders for Outer Continental Shelf ("OCS") lease sales, as issued by the
       MMS under 30 CFR 256.44, as amended, the Parties shall comply with all
       statutes and regulations regarding restricted joint bidders on the OCS.

IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the
day and year first above written.

WITNESSES:                                ______________________________

___________________________               By:_____________________________

___________________________               Title:__________________________

                                          _____________________________

                                          By: /s/ W. G. Tabor
---------------------------               -----------------------------
                                          Title: Executive Vice President
                                                --------------------------

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

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<PAGE>

                                   EXHIBIT "A"

Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.

                                    OPERATOR
                                    --------

                              Marathon Oil Company

                DESCRIPTION OF LEASE(S) AND DIVISION OF INTEREST
                ------------------------------------------------

I.     Oil and Gas Lease(s)
       --------------------

       Federal Lease No. OCS-G 27012, effective June 1, 2005 covering all of
       Block 259, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
       containing approximately 5000.00 acres.

       Federal Lease No. OCS-G 24722, effective July 1, 2003 covering all of
       Block 265, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
       containing approximately 5000.00 acres.

       Federal Lease No. OCS-G 24723, effective July 1, 2003 covering all of
       Block 266, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
       containing approximately 5000.00 acres.

II.    Working Interest of the Parties
       -------------------------------

       The Working Interest of the Parties in the Contract Area shall be as
       follows:

                                MARATHON  - 60 %
                                RIDGEWOOD - 40 %

                             NOTIFICATION ADDRESSES
                             ----------------------

       Marathon Oil Company                 M.J. Koenig
       P.O. Box 3128 77253-3128             Manager, Contracts and Negotiations
       5555 San Felipe Road                 (713) 296-3402
       Houston, TX 77056-2723               Alternate: R.P. Pinkerton
       Facsimile: (713) 296-4209            (713) 296-3200

       Ridgewood Energy Corporation         W. Greg Tabor
       11700 Old Katy Road, Suite 280       Executive Vice President
       Houston, TX 77079                    (281) 293-8449
       Facsimile: (281) 293-7705            Alternate: Randy A. Bennett
                                            (281) 293-9384

<PAGE>

                                   EXHIBIT "B"

Attached to and made `a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.

                          OFFSHORE INSURANCE PROVISIONS
                          -----------------------------

I.     WORKERS COMPENSATION & EMPLOYERS LIABILITY INSURANCE
       ----------------------------------------------------

       Operator will carry Workers Compensation insurance in compliance with all
       state and federal regulations in the jurisdiction where any of the work
       under this Agreement shall be performed, including the following special
       coverage extensions:

              1.     Employer's Liability coverage with limits of not less than
                     $1,000,000 per accident.

              2.     U. S. Longshoremen and Harbor Workers' Act and Outer
                     Continental Shelf Lands Act coverage.

              3.     Employers' Liability arising out of Maritime operations
                     including coverage for benefits and damages under the Jones
                     Act with limits of at least $1,000,000 per occurrence.

              4.     "In Rem" endorsement providing that a claim "In Rem" shall
                     be treated as a claim against the Operator.

              5.     Waiver of Subrogation endorsement which waives the insurers
                     rights of subrogation against all of the Parties to this
                     Agreement.

       Premiums for the insurance above specified shall be charged to the Joint
       Account. Provided, however, that if the Operator either self-insures or
       effectively self-insures, the Operator shall charge to the Joint Account,
       in lieu of any premiums for such insurance, an amount not to exceed the
       workers compensation manual rates times the payroll. Claims under
       Operator's self-insurance program shall not be charged to the Joint
       Account. Except as provided above, Operator shall not be obligated to
       obtain or cause to be carried insurance for the benefit of the Joint
       Account. Operator shall not obtain or cause to be carried for the benefit
       of the Joint Account, control of well or seepage and pollution insurance
       nor insurance against the hazards of fire, windstorm, explosion, blowout,
       cratering, reservoir damage or insurance other than specified below.

<PAGE>

II.    INSURANCE NOT CHARGED TO THE JOINT ACCOUNT
       ------------------------------------------

       At all times while this Agreement is in effect, each Party to this
       Agreement shall insure or self insure for their share of any liabilities
       assumed under this Agreement. The cost of these insurance or
       self-insurance programs shall be the individual responsibilities of each
       of the Parties and none of the cost associated with these programs shall
       be charged to the Joint Account. Each Party shall insure or self-insure
       the following coverage for the minimum limits stated.

              1.     Commercial General Liability Insurance covering all of the
                     Parties operations, including their offshore operations,
                     and including contractual liability coverage with combined
                     single limits of at least $10,000,000 per occurrence and in
                     the annual aggregate.

              2.     Automobile Liability covering all owned, non-owned and
                     leased vehicles with combined single limits of at least
                     $1,000,000 per occurrence and in the annual aggregate.

              3.     Pollution Liability insurance covering offshore oil
                     pollution with the limits of at least $10,000,000 per
                     occurrence.

              4.     Physical Damage insurance and coverage for Wreck Removal
                     for Facilities covered by this Agreement, with limits not
                     less than the Parties share of the replacement cost of the
                     facility.

              5.     Control of Well and Seepage and Pollution insurance with
                     limits of at least $10,000,000 per occurrence.

              Non-owned aviation liability insurance in the amount of $1,000,000
                     per occurrence covering liability arising out of any leased
                     aircraft used in the connection with the work to be
                     performed under this Agreement.

       All of the above coverages shall be endorsed to waive the insurers'
       rights of subrogation against Operator and all other Parties to this
       Agreement. Any Party to this Agreement, at the request of any other
       Party, shall advise all of the other Parties as to whether it will insure
       or self-insure the above mentioned coverages. If insurance is purchased,
       upon request, a Party will provide all other Parties with a certificate
       of insurance evidencing that all of the above insurance and special
       insuring provisions are in place.

       In the event a Party elects to self-insure all or part of the above
       requirements, and if any of the other Parties believe or have a concern
       that the Party does not have the financial capability to meet its
       obligations under such self-insurance programs, any Party may request any
       other Party to provide proof of its ability to self-insure these risks.
       Proof will consist of independently audited financial statements

<PAGE>

       demonstrating Tangible Net Worth (calculated in accordance with Generally
       Accepted Accounting Procedures ("GAAP")) in an amount at least equal to
       ten (10) times the amount of the above required insurance that the Party
       elects to self-insure. If the self-insuring Party is unable to meet that
       test, the other Parties may, but are not required to do so, purchase any
       or all of the insurance that the Party elected to self-insure. The cost
       of said insurance shall be for the individual account of the Party on
       whose behalf the insurance was purchased.

III.   CONTRACTORS' INSURANCE
       ----------------------

       Operator (including any Party conducting Non-Consent operations) shall
       use its best efforts to require each contractor who performs work
       pursuant to this Agreement to carry the following insurance and special
       insuring provisions.

              1.     Workers' Compensation and Employers' Liability insurance in
                     accordance with all state and federal regulations in the
                     jurisdiction where the work is to be performed. This
                     coverage shall contain the following special endorsements:

                     a.     Employers' Liability coverage with limits of not
                            less than $1,000,000 per accident.

                     b.     U.S. Longshoremen and Harbor Workers' Act and Outer
                            Continental Shelf Lands Act coverage.

                     c.     Employers' Liability arising out of Maritime
                            operations including coverage for benefits and
                            damages under the Jones Act with limits of at least
                            $1,000,000 per person and $2,000,000 all persons in
                            any one occurrence.

                     d.     "In Rem" endorsement providing that a claim "In Rem"
                            shall be treated as a claim against the Contractor,

                     e.     `Borrowed Servant' endorsement providing that a
                            Workers' Compensation claim brought against Operator
                            or any Party, by a Contractor's employee will be
                            treated as a claim against the Contractor.

                     f.     Waiver of Subrogation endorsement which waives the
                            insurers rights of subrogation against all of the
                            Parties to this Agreement.

              2.     Commercial General Liability insurance and/or Excess
                     Liability insurance, including contractual liability
                     covering the indemnity obligations assumed in the contract

<PAGE>

                     with Operator, with combined single limits of $5,000,000
                     per occurrence for injuries to or death of persons and
                     damage to property.

              3.     Automobile Liability insurance covering all owned,
                     non-owned and hired vehicles with combined single limits of
                     at least $1,000,000 per occurrence for injuries to or death
                     of persons and damage to property.

              4.     In the event watercraft is used by the Contractor,
                     Contractor shall carry or require owners of such watercraft
                     to carry Protection and Indemnity Insurance in the amount
                     of not less than the market value of the vessel or
                     $1,000,000, whichever is greater.

              5.     If Contractor's operations require it to use aircraft,
                     Contractor shall carry or require the owners of such
                     aircraft to carry liability insurance with a combined
                     single limit of $500,000 per passenger seat or $1,000,000,
                     whichever is greater.

              6.     Any other insurance that Operator deems necessary.

              7.     All of the insurance carried by Contractors pursuant to
                     Sections 2 through 6 above shall contain endorsements
                     waiving the insured's rights of subrogation against
                     Operator and all other Parties to the Agreement.

       Operator shall make a good faith effort to obtain all of the above
       required insurance and special insuring provisions. Operator shall also
       make a good faith effort to obtain endorsements naming the Operator and
       all other Parties as an Additional Insured on the policies of insurance
       pursuant to Sections 2 through 6 above. However, Operator shall not be
       liable to Non-operators or to their parent companies, subsidiaries or any
       affiliated companies for failure to obtain any of the above. It is
       recognized in the industry that there are certain contractors and service
       companies whose services are necessary to operations contemplated by the
       Parties, who as a matter of policy refuse contractually to indemnify
       Working Interest owners. As to those entities, Operator may waive any
       requirement of contractual indemnity or any or all of the insurance or
       special insurance provisions required above.

IV.    NOTICE
       ------

       Operator shall promptly notify Non-operators of any loss, damage or claim
       not covered by the insurance obtained hereunder for the Joint Account.
       All losses which are not covered and all losses in excess of insurance
       coverage shall be borne by the Parties in accordance with the terms of
       this Agreement under which said operations are being conducted by the
       Parties.

<PAGE>

                                   EXHIBIT "D"

Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.

                    CERTIFICATION OF NONSEGREGATED FACILITIES

Contractor certifies that it does not maintain or provide for its employees any
segregated facilities at any of its establishments and that it does not permit
its employees to perform their services at any location under its control, where
segregated facilities are maintained. Contractor certifies further that it will
not maintain or provide for its employees any segregated facilities at any of
its establishments and that it will not permit its employees to perform their
services at any location, under its control, where segregated facilities are
maintained. Contractor agrees that a breach of this certification is a violation
of the Equal Opportunity Clause in any Government contract between Contractor
and Operator. As used in this certification, the term "segregated facilities"
means any waiting rooms, work areas, rest rooms and other storage or dressing
areas, parking lots, drinking fountains, recreation or entertainment areas,
transportation, and housing facilities provided for employees which are
segregated by explicit directive or are in fact segregated on the basis of race,
color, religion, or national origin because of habit, local custom or otherwise.
Contractor further agrees that (except where it has obtained identical
certifications from proposed subcontractors) prior to the award of subcontracts
exceeding $10,000 which are not exempt from the provisions of the Equal
Opportunity Clause; that it will retain such certifications in its files; and
that it will forward the following notice to such proposed subcontractors
(except where the proposed subcontractors have submitted identical
certifications for specific time periods):

NOTICE TO PROSPECTIVE SUBCONTRACTORS- OF REQUIREMENT FOR CERTIFICATIONS OF
NONSEGREGATED FACILITIES. A Certification of Nonsegregated Facilities, as
required by the May 9, 1.967 order on Elimination of Segregated Facilities, by
the Secretary of Labor (32 Fed. Reg. 7439, May 19, 1967) must be submitted prior
to the award of a subcontract exceeding $10,000 which is not exempt from the
provisions of the Equal Opportunity Clause. The certification may be submitted
either for each subcontract or for all subcontracts during a period (i.e.,
quarterly, semi-annually or annually). (1968 MAR.)(Note: The penalty for making
false statements in offers is prescribed in 18.U.S.C. 1001.) Whenever used in
the foregoing Section, the term "contractor" refers to each Party to this
Agreement.

<PAGE>

                                   EXHIBIT "E"

Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.

                             GAS BALANCING AGREEMENT
                                   (OFFSHORE)

1.     Gas Imbalances.
       ---------------

       Notwithstanding anything to the contrary in the Operating Agreement to
which this Gas Balancing Agreement is attached, if any Party hereto takes and
disposes of less than its percentage interest share of gas (including casinghead
gas) produced and saved during any calendar month, then the volume not taken by
such Party may be taken by any other Party or Parties hereto. If such volume is
taken by more than one Party, then each taking Party shall be entitled to take
the proportion thereof that its percentage interest bears to the sum of the
percentage interests of all taking Parties, or in such other proportions as the
taking Parties may agree upon among themselves. The Parties shall provide
sufficient nomination to cover any casinghead gas production. In the event any
Party's nomination does not cover casinghead gas volumes, the Operator shall,
when legally possible, market the shortfall at the prices then available for
that particular volume, and credit that sale and pay proceeds to the Party who
had the insufficient nomination. This will insure casinghead wells stay in
balance. All gas volumes shall be adjusted for its heating value in British
Thermal Units (BTUs).

2.     Volumetric Balancing.
       ---------------------

       2.1 Balancing by Category. Volumetric balancing hereunder shall apply
separately to each category established by law, regulation or governmental order
for the purpose of setting a ceiling price for gas, including but not limited to
the categories established by the Natural Gas Policy Act of 1978 and the Federal
Energy Regulatory Commission. All gas which is now or hereafter becomes
unregulated as to price as to all Parties shall be considered a single category,
and any Cumulative Overproduction or Cumulative Underproduction accrued in a
previously regulated category shall not, upon deregulation, be carried forward
into the unregulated category.

       2.2 Definitions. The term "Cumulative Underproduction" means the amount
by which the cumulative volume of gas taken by a Party within a particular
category is less than the cumulative volume that Party was entitled to take
within such category according to its percentage interest; the term "Cumulative
Overproduction" means the amount by which the cumulative volume of gas taken by
a Party within a category exceeds the cumulative volume that Party was entitled
to take within such category according to its percentage interest; the term
"Underproducer" means a Party credited with Cumulative Underproduction; the term
"Overproducer" means a Party charged with Cumulative Overproduction; and the
term "Make-Up Gas" means the volume taken by an Underproducer to make up
Cumulative Underproduction pursuant to Paragraph 2.4 below.

       2.3 Operator's Statements. On or before the end of each calendar month,
Operator shall furnish the Parties hereto a written statement showing for each
category (a) the total volume of gas taken by each Party during the preceding
calendar month; (b) the Make-Up Gas taken by each Party during that month; and
(c) the Cumulative Overproduction or Cumulative Underproduction, if any, of each
Party as of the end of that month.

       2.4 Make-Up. Any Part y underproduced as to a given category of gas shall
endeavor to bring that category of gas into balance. Commencing on the first day

                                       -1-

<PAGE>

of the month after fifteen days written notice to the Operator, a Party may
begin taking and/or delivering to its purchaser(s) its full share of each
category of gas produced. In addition, to allow for the recovery and make-up of
underproduced gas in a category and to balance the gas account for that category
between the Parties in accordance with their respective Participating Interests,
the underproduced Party shall be entitled to take an additional share of gas
("make-up gas") equal to the underproduced Party's Participating Interest share
of gas taken for its account; provided, the amount of make-up gas taken shall
not exceed twenty-five percent (25%) of the overproduced Party's Participating
Interest share of the monthly quantity of the category of gas to be balanced,
and provided that the right to take make-up gas shall not subordinate to the
right of any other Party to take its full Working Interest share of gas from
time to time to satisfy the deliverability test requirements of its gas
contract. If more than one underproduced Party desires to take make-up gas
during the same month and the combined volume they desire to take exceeds the
volume available as make-up gas, the volume available as make-up gas shall be
shared by such Underproducers in proportion to their respective amounts of
Cumulative Underproduction. The first gas made up shall be assumed to be the
first gas underproduced.

It is specifically agreed that no underproduced Party will be allowed to take
make-up gas during the months of November, December, January or February ("the
winter period"). However, gas make-up will be allowed during the winter period
if the underproduced Party has taken at least eighty percent (80%) of the
make-up gas to which it was entitled during the six consecutive months
commencing with March through August.

All written notices required under this section must be received by the Operator
at least fifteen (15) days prior to the end of the month in order to be
effective for the next month.

       2.5 Oil and Other Minerals. Regardless of the volume of gas actually
taken by any Party hereto, such Party shall share, as otherwise provided in the
Operating Agreement, in the production of crude oil, condensate and other
minerals separated from the gas in facilities operated for the joint account.
Any condensation within the pipeline or plant liquids allocated to the Lease
will be allocated to the Parties in proportion to the Parties' share of gas sold
for that month.

       2.6 Costs and Expenses. Regardless of the volume of gas actually taken by
any Party hereto, such Party shall bear costs and expenses as otherwise provided
in the Operating Agreement.

3.     Final Cash Balancing.
       ---------------------

       3.1 Statements. If all Parties have not achieved volumetric gas balance
for a particular category upon termination of the lease, Operator shall furnish
to all Parties within ninety (90) days a statement showing the final Cumulative
Overproduction and Cumulative Underproduction for such category, and the month
and year in which it accrued. In determining the timing of accruals, Make-Up Gas
shall be applied against Cumulative Overproduction and Cumulative
Underproduction on a first-in-first-out basis. Within sixty (60) days after
receipt of Operators statement, each Overproducer shall furnish to the Operator
a statement showing the value of its Cumulative Overproduction for such
category, based on the price the Overproducer actually received for the
Cumulative Overproduction in a sale to a Nonaffiliate during the month(s) in
which the Cumulative Overproduction accrued, less all payments made by the
Overproducer for production, severance and excise taxes. In the absence of a
sale to a Nonaffiliate, value shall be based on the weighted average price
received by the Parties hereto in sales to Nonaffiliates during the month in
question. For the purpose of this Agreement, the term "Nonaffiliate" as it
relates to a Party means any corporation or other business organization not in
control of, and not controlled by, and not under common control with, such
Party. Notwithstanding anything contained herein to the contrary, an otherwise
affiliated marketing organization will be considered a Nonaffiliate provided it
remits to its producer the full proceeds of the sale of its producer's gas to a
nonaffiliated end-user, less the actual transportation costs. It is the intent
of this provision to consider as a Nonaffiliate, those marketing organizations
which do not retain a marketing fee and/or price arbitrage from their producer.
Based upon the statements furnished by Overproducers, the net amount owed by or
to each Party for all categories combined shall be calculated by Operator and
furnished to all Parties in a final cash balancing statement.

                                       -2-

<PAGE>

       3.2 Dispositions. In the event any Party sells, assigns or otherwise
transfers to any Nonaffiliate not already a Party to this Lease any of its
interest in the Lease to which this Agreement applies, and if at the time of
such disposition such Party is an Overproducer, all Underproducers shall have
the option, upon written request from any one Underproducer made within sixty
(60) days of being notified of such disposition, to get an immediate cash
balancing of their shares of the Cumulative Overproduction of the disposing
Party in accordance with the concepts set forth in this Agreement.

       3.3 Settlements. Within sixty (60) days after receipt of Operator's final
cash balancing statement, each Overproducer shall pay each Underproducer in
accordance with the statement and without interest. To the extent any value used
to calculate a cash settlement hereunder is subject to refund by the
Overproducer pursuant to law, regulation or governmental order, the
Underproducer entitled to such cash settlement shall, prior to payment thereof,
agree in writing to indemnify the Overproducer against the Underproducer's
proportionate part of any refund (including interest) which the Overproducer
shall be required to make. Any Party may challenge any volumes or values or
amounts specified in any of the statements furnished under Paragraph 2.3 or 3.1
above, in the same manner and subject to the same limitations as an invoice from
Operator may be challenged under the Operating Agreement or the accounting
procedure thereto.

4.     Payments on Production.
       -----------------------

       Each Party shall pay all production or severance taxes, excise taxes,
royalties, overriding royalties, production payments and other such payments on
production for which it is obligated by law or by lease or by contract
(including the Operating Agreement), and nothing in this Gas Balancing Agreement
shall be construed as affecting such obligations. Each Party hereto agrees to
indemnify and hold harmless the other Parties hereto against all claims, losses
or liabilities arising out of its failure to fulfill such obligations.

5.     Complete Taking by Overproducer.
       --------------------------------

       In any situation in which there exists an imbalance of gas, Operator
shall make every effort to determine the point in time when an Overproducer has
taken and produced one hundred percent (100%) of its Working Interest share of
gas reserves for a particular category of gas. Upon notice by Operator that it
believes that such point in time has been reached, Operator shall suspend
delivery of such gas to such Overproducer and all other Parties shall be
entitled to take such Overproducer's share of production as to that category of
gas in proportion to their percentage interests. Notwithstanding the above, if
at any time the other Parties fail to take one hundred percent (100%) of such
production, then at such time, such Overproducer shall be entitled to produce
and sell the gas the other Parties fail to take as provided for in this Article
5.

m:Shelf JOA:Abbott JOA EXHIBIT E Accepted.doc

<PAGE>

                                   EXHIBIT "F"

Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.

                        MEMORANDUM OF OPERATING AGREEMENT
                             AND FINANCING STATEMENT
                             -----------------------
                                  (LOUISIANA)

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

1.0    This Memorandum of Operating Agreement and Financing Statement
       (Louisiana) (this "Memorandum") is effective as of the effective date of
       the Operating Agreement referred to in Paragraph 2.0 below and is
       executed by the undersigned, duly authorized representative of Marathon
       Oil Company, an Ohio corporation, whose taxpayer identification number is
       and whose address is P. 0. Box 3128, Houston, TX 77253-3128 (the
       "Operator"), and the undersigned, duly authorized representative of
       Ridgewood Energy Corporation, a Delaware corporation, whose taxpayer
       identification number is and whose address is 11700 Old Katy Road, Suite
       280, Houston, TX 77079 (the "Non Operating Party").

2.0    The Operator and the Non-Operating Parties are parties to that certain
       Operating Agreement dated the 1st day of July, 2005 (the "Operating
       Agreement"), which Operating Agreement provides for the development and
       production of crude oil, natural gas and associated substances from the
       lands and oil and gas leases described in Exhibit "A" of the Operating
       Agreement and in Attachment "1" to this Memorandum (hereinafter called
       the "Contract Area") and which designates Marathon Oil Company as the
       Operator, to conduct such operations for itself and the Non-Operating
       Parties. All such leases and any future oil and gas leases covering lands
       included within the Contract Area that may be acquired by the Operator
       and the Non-Operating Parties (including substitutions for or
       replacements of existing leases) are hereinafter called the "Lease."

3.0    Among other provisions, the Operating Agreement (a) provides for certain
       liens, mortgages, pledges and security interests to secure payment by the
       parties of their respective share of costs and performance of other
       obligations under the Operating Agreement, (b) contains an Accounting
       Procedure, which establishes, among other things, interest to be charged
       on indebtedness, certain costs, and other expenses under the Operating
       Agreement at the rate set forth therein, (c) includes non-consent clauses
       which establish that parties who elect not to participate in certain
       operations shall (i) be deemed to have relinquished their interest in
       production until the carrying consenting parties recover their costs of

<PAGE>

       such operations plus a specified amount or (ii) forfeit their interest in
       certain Leases or portions thereof involved in such operations, (d)
       grants each party to the Operating Agreement the right to take in kind
       its proportionate share of all oil and gas produced from the Contract
       Area, and (e) includes a volumetric Gas Balancing Agreement which is
       attached as Exhibit "E" to the Operating Agreement.

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

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

       5.1    Each Non-Operating Party hereby grants to the Operator a mortgage,
              hypothec, and pledge of and over all of its rights, titles, and
              interests in and to (a) the Lease, (b) the oil and gas in, on,
              under, and that may be produced from the lands covered by the
              Lease or included within the Contract Area, and (c) all other
              immovable property susceptible of mortgage situated within the
              Contract Area.

       5.2    Each Non-Operating Party hereby grants to the Operator a
              continuing security interest in and to all of its rights, titles,
              interests, claims, general intangibles, proceeds, and products
              thereof, whether now existing or hereafter acquired, in and to (a)
              all oil and gas produced from the offshore blocks covered by the
              Lease or the Contract Area or attributable to the Lease or the
              Contract Area when produced, (b) all accounts receivable accruing
              or arising as a result of the sale of such oil and gas (including,
              without limitation, accounts arising from gas imbalances or from
              the sale of oil and gas at the wellhead), (c) all cash or other
              proceeds from the sale of such oil and gas once produced, and (d)
              all platforms, wells, facilities, fixtures, other corporeal
              property, whether movable or immovable, whether now or hereafter
              placed on the offshore blocks covered by the Lease or the Contract
              Area or maintained or used in connection with the ownership, use,
              or exploitation of the Lease or the Contract Area, and other
              surface and sub-surface equipment of any kind or character located
              on or attributable to the Lease or the Contract Area, and the cash
              or other proceeds realized from any sale, transfer, disposition or
              conversion thereof. The interest of the Non-Operating Parties in
              and to the oil and gas produced from or attributable to the Lease
              or the Contract Area when extracted and the accounts receivable
              accruing or arising as the result of the sale thereof shall be

<PAGE>

              financed at the wellhead of the well or wells located on the Lease
              or the Contract Area. To the extent susceptible under applicable
              law, the security interest granted by each Non-Operating Party
              hereunder covers (i) all substitutions, replacements, and
              accessions to the property of such Non-Operating Party described
              herein and is intended to cover all of the rights, titles, and
              interests of such Non-Operating Party in all movable property now
              or hereafter located upon or used in connection with the Contract
              Area, whether corporeal or incorporeal, (ii) all rights under any
              gas balancing agreement, farmout rights, option farmout rights,
              acreage and cash contributions, and conversion rights of such
              Non-Operating Party in connection with the Lease or the Contract
              Area, or the oil and gas produced from or attributable to the
              Lease or the Contract Area, whether now owned and existing or
              hereafter acquired or arising, including, without limitation, all
              interests of each Non-Operating Party in any partnership, tax
              partnership, limited partnership, association, joint venture, or
              other entity or enterprise that holds, owns, or controls any
              interest in the Contract Area, and (iii) all rights, claims,
              general intangibles, and proceeds, whether now existing or
              hereafter acquired, of such Non-Operating Party in and to the
              contracts, agreements, permits, licenses, rights-of-way, and
              similar rights and privileges that relate to or are appurtenant to
              the Lease or the Contract Area, including the following:

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

                     (2)    all of its rights, titles, and interests, whether
                            now owned and existing or hereafter acquired or
                            arising, in, to, and under or derived from all
                            presently existing and future advance payment
                            agreements, and oil, casinghead gas, and gas sales,
                            exchange, and processing contracts and agreements,
                            including, without limitation, those contracts and
                            agreements that are described on Attachment "1," to

<PAGE>

                            the extent, and only to the extent, those contracts
                            and agreements cover or include all or any portion
                            of the Lease or the Contract Area; and

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

       5.3    To the extent susceptible under applicable law, the mortgage and
              the security interest granted by each Non-Operating Party in the
              Operating Agreement and this Memorandum shall secure (a) the
              complete and timely performance of and payment by such
              Non-Operating Party to the Operator of all of its obligations and
              indebtedness of every kind and nature, whether now owed by such
              Non-Operating Party or hereafter arising pursuant to the Operating
              Agreement and this Memorandum, and (b) the payment of all expenses
              incurred by the Operator and the Participating Parties for (or on
              account of) any and all operations conducted pursuant to the
              Operating Agreement ("Costs") and other expenses properly charged
              to such Non-Operating Party together with (1) interest on such
              indebtedness, Costs, and other expenses at the rate set forth in
              Exhibit "C" attached hereto (the "Accounting Procedure") or the
              maximum rate allowed by law, whichever is the lesser, (2)
              reasonable attorneys' fees, (3) court costs, and (4) other
              directly related collection costs.

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

       5.5    The maximum amount for which the mortgage herein granted by each
              Non-Operating Party shall be deemed to secure the obligations and
              indebtedness of such Non-Operating Party 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-Operating
              Party"). 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-Operating Party to the Operator is secured hereby without
              limitation. Notwithstanding the foregoing Limit of the Mortgage of

<PAGE>

              each Non-Operating Party, the liability of each Non-Operating
              Party under this Memorandum and the mortgage and security interest
              granted hereby shall be limited to (and the Operator shall not be
              entitled to enforce the same against such Non-Operating Party for,
              an amount exceeding) the actual obligations and indebtedness
              (including all interest charges, costs, attorneys' fees, and other
              charges provided for in this Memorandum or in the Operating
              Agreement) outstanding and unpaid and that are attributable to or
              charged against the interest of such Non-Operating Party pursuant
              to the Operating Agreement.

       5.6    The Operator hereby grants to each Non-Operating Party a mortgage,
              hypothec, and pledge of and over all of its rights, titles, and
              interests in and to (a) the Lease, (b) the oil and gas in, on,
              under, and that may be produced from the lands covered by the
              Lease or included within the Contract Area, and (c) all other
              immovable property susceptible of mortgage situated within the
              Contract Area.

       5.7    The Operator hereby grants to each Non-Operating Party a
              continuing security interest in and to all of its rights, titles,
              interests, claims, general intangibles, proceeds, and products
              thereof, whether now existing or hereafter acquired, in and to (a)
              all oil and gas produced from the offshore blocks covered by the
              Lease or the Contract Area or attributable to the Lease or the
              Contract Area when produced, (b) all accounts receivable accruing
              or arising as a result of the sale of such oil and gas (including,
              without limitation, accounts arising from gas imbalances or from
              the sale of oil and gas at the wellhead), (c) all cash or other
              proceeds from the sale of such oil and gas once produced, and (d)
              all platforms, wells, facilities, fixtures, other corporeal
              property, whether movable or immovable, whether now or hereafter
              placed on the property covered by the Lease or the Contract Area
              or maintained or used in connection with the ownership, use or
              exploitation of the. Lease or the Contract Area, and other surface
              and sub-surface equipment of any kind or character located on or
              attributable to the Lease or the Contract Area and the cash or
              other proceeds realized from any sale, transfer, disposition or
              conversion thereof. The interest of the Operator in and to the oil
              and gas produced from or attributable to the Lease or the Contract
              Area when extracted and the accounts receivable accruing or
              arising as the result of the sale thereof shall be financed at the
              wellhead of the well or wells located on the Lease or the Contract
              Area. To the extent susceptible under applicable law, the security
              interest granted by the Operator hereunder covers (i) all
              substitutions, replacements, and accessions to the property of the
              Operator described herein and is intended to cover all of the
              rights, titles and interests of the Operator in all movable
              property now or hereafter located upon or used in connection with
              the Contract Area, whether corporeal or incorporeal, (ii) all
              rights under any gas balancing agreement, farmout rights, option

<PAGE>

              farmout rights, acreage and cash contributions, and conversion
              rights of the Operator in connection with the Lease or the
              Contract Area, or the oil and gas produced from or attributable to
              the Lease or the Contract Area, whether now owned and existing or
              hereafter acquired or arising, including, without limitation, all
              interests of the Operator in any partnership, tax partnership,
              limited partnership, association, joint venture, or other entity
              or enterprise that holds, owns, or controls any interest in the
              Contract Area, and (iii) all rights, claims, general intangibles,
              and proceeds, whether now existing or hereafter acquired, of the
              Operator in and to the contracts, agreements, permits, licenses,
              rights-of-way, and similar rights and privileges that relate to or
              are appurtenant to the Lease or the Contract Area, including the
              following:

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

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

                     (3)    all of its rights, titles, and interests, whether
                            now owned and existing or hereafter acquired or
                            arising, in, to, and under or derived from all
                            existing and future permits, licenses,
                            rights-of-way, and similar rights and privileges

<PAGE>

                            that relate to or are appurtenant to the Lease or
                            the Contract Area.

       5.8    To the extent susceptible under applicable law, the mortgage and
              the security interest granted by the Operator in the Operating
              Agreement and this Memorandum shall secure (a) the complete and
              timely performance of and payment by the Operator to the
              Non-Operating Parties of all of its obligations and indebtedness
              of every kind and nature, whether now owed or hereafter arising
              pursuant to the Operating Agreement and this Memorandum, and (b)
              the payment of all Costs and other expenses properly charged to
              the Operator, together with (1) interest on such indebtedness,
              Costs, and other expenses at the rate set forth in the Accounting
              Procedure or the maximum rate allowed by law, whichever is the
              lesser, (2) reasonable attorneys' fees, (3) court costs, and (4)
              other directly related' collection costs.

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

       5.10   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-Operating Parties 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"), irrespective of the total number of non operators
              party to the Operating Agreement at any time. Except as provided
              in the previous sentence (and then only to the extent such
              limitations are required by law), the entire amount of obligations
              and indebtedness of the Operator to the Non-Operating Parties is
              secured hereby without limitation. Notwithstanding the foregoing
              Limit of the Mortgage of the Operator, the liability of the
              Operator under this Memorandum and the mortgage and security
              interest granted hereby shall be limited to (and the Non-Operating
              Parties shall not be entitled to enforce the same against Operator
              for, an amount exceeding) the actual obligations and indebtedness
              (including all interest charges, costs, attorneys' fees, and other
              charges provided for in this Memorandum or in the Operating
              Agreement) outstanding and unpaid and that are attributable to or
              charged against the interest of the Operator pursuant to the
              Operating Agreement.

6.0    To serve as notice of the existence of the Operating Agreement as a
       burden on the title of the Operator and the Non-Operating Parties to
       their interests in and to the

<PAGE>

       Lease and the Contract Area and for purposes of satisfying otherwise
       relevant recording and filing requirements of applicable law, this
       Memorandum is to be filed or recorded, as the case may be, in (a) the
       conveyance records of the parish or parishes in which the offshore blocks
       covered by the Lease or included within the Contract Area are located or
       adjacent pursuant to La. R.S. 9:2731 et seq., (b) the mortgage records of
       such parish or parishes, and (c) the appropriate Uniform Commercial Code
       records. All parties to the Operating Agreement are identified on
       Attachment "I" hereto.

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

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

9.0    It is understood and agreed by the parties hereto that if any part, term,
       or provision of this Memorandum is held by the courts to be illegal or in

<PAGE>

       conflict with any law of the state where made, the validity of the
       remaining portions or provisions shall not be affected, and the rights
       and obligations of the parties shall be construed and enforced as if the
       Memorandum did not contain the particular part, term, or provision held
       to be invalid.

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

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

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

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

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

<PAGE>

       EXECUTED on the dates set forth below each signature but effective as of
the day of ______, ______.

                                                        OPERATOR:
                                                        --------

WITNESSES:                                  ______________________________
                                            By:___________________________
_________________________                   Printed Name:_________________
(Printed Name of Witness)                   Title:________________________
                                            Date:_________________________
_________________________
(Printed Name of Witness)

                                                   NON-OPERATING PARTY:
                                                   -------------------

WITNESSES:                                  ______________________________
                                            By:___________________________
_________________________                   Printed Name:_________________
(Printed Name of Witness)                   Title:________________________
                                            Date:_________________________

_________________________
(Printed Name of Witness)
                                 ACKNOWLEDGMENT
                                    OPERATOR:

STATE OF ______________
PARISH OF _______

       On this ____ day of _____________, 200_, before me, appeared _____, to me
personally known, who, being by me duly sworn, did say that he is the
___________ of ________________, a ________________, and that the foregoing
instrument was signed on behalf of the corporation by authority of its Board of
Directors and that ________ acknowledged the instrument to be the free act
and deed of the corporation.

                                        NOTARY PUBLIC in and for
                                        the Parish of _________________

My Commission expires:

<PAGE>

                                 ACKNOWLEDGMENT
                             NON-OPERATING PARTIES:

STATE OF __________
PARISH OF ___________

       On this ____ day of _____________, 200_, before me, appeared _____, to me
personally known, who, being by me duly sworn, did say that he is the
___________ of ________________, a ________________, and that the foregoing
instrument was signed on behalf of the corporation by authority of its Board of
Directors and that ________ acknowledged the instrument to be the free act
anddeed of the corporation.

                                        NOTARY PUBLIC in and for
                                        the Parish of _________________

My Commission expires:

<PAGE>

                          ATTACHMENT "1" TO EXHIBIT "F"

                        Attached to and made a part of the
                        Memorandum of Operating Agreement
                        and Financing Statement (Louisiana)
                        dated effective ________, by and
                        between Marathon Oil Company and
                        Ridgewood Energy Corporation.

I.     DESCRIPTION OF LANDS AND LEASES WITHIN THE CONTRACT AREA
       --------------------------------------------------------

       Federal Lease No. OCS-G 27012, effective June 1, 2005 covering all of
       Block 259, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
       containing approximately 5000.00 acres.

       Federal Lease No. OCS-G 24722, effective July 1, 2003 covering all of
       Block 265, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
       containing approximately 5000.00 acres.

       Federal Lease No. OCS-G 24723, effective July 1, 2003 covering all of
       Block 266, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
       containing approximately 5000.00 acres.

II.    OPERATOR
       --------

       Marathon Oil Company

III.   PARTIES, REPRESENTATIVES. ADDRESSES, AND INTERESTS CONTRIBUTED
       --------------------------------------------------------------

       Marathon Oil Company                 M.J. Koenig
       P.O. Box 3128 77253-3128             Manager, Contracts and Negotiations
       5555 San Felipe Road                 (713) 296-3402
       Houston, TX 77056-2723               Alternate: R.P. Pinkerton
       Facsimile: (713) 296-4209            (713) 296-3200

       Ridgewood Energy Corporation         W. Greg Tabor
       11700 Old Katy Road, Suite 280       Executive Vice President
       Houston, TX 77079                    (281) 293-8449
       Facsimile: (281) 293-7705            Alternate: Randy A. Bennett
                                            (281) 293-9384

       Working Interest of the Parties in the Contract Area:

                                 MARATHON  - 60%
                                 RIDGEWOOD - 40%

<PAGE>

                                   EXHIBIT "G"

Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.

                          DISPUTE RESOLUTION PROCEDURE
                          ----------------------------

I.     OVERVIEW
       --------

       A.     Description and Goals: Arbitration as used in this statement is a
              procedure whereby an Arbitrator resolves any claim(s),
              controversy(ies) or dispute(s) (the "Dispute") between the parties
              to the Agreement to which this Exhibit is attached, arising out
              of, relating to, or in connection with operations under the
              Agreement, including the interpretation, validity, termination or
              breach thereof.

              (i)    Binding: The arbitration process is binding on the Parties
                     and this arbitration is intended to be a final resolution
                     of any Dispute between the Parties as described above, to
                     the same extent as a final judgment of a court of competent
                     jurisdiction. Each Party hereby expressly covenants that it
                     shall not resort to court remedies except as provided for
                     herein, and for preliminary relief in aid of arbitration.

              (ii)   Violation: A non-prevailing Party shall pay all legal and
                     court costs incurred by the other Party in connection with
                     the enforcement of the final resolution of any Dispute
                     under this Dispute Resolution Procedure. Suits, actions or
                     proceedings in connection with such enforcement shall be
                     instituted in the United States District Court for the
                     Eastern District of Texas, and pursuant to Title IX of the
                     United States Code. Each Party waives any option or
                     objection which it may now or hereafter have to the laying
                     of the venue in any such suit, action or proceeding and
                     irrevocably submits to the jurisdiction of such court in
                     any such suit, action or proceeding.

       B.     Duty to Negotiate: The Parties shall inform one another promptly
              following the occurrence or discovery of any item or event which
              might reasonably be expected to result in a Dispute in connection
              with the Agreement. The Parties will attempt to resolve
              satisfactorily any such matters.

       C.     Notice of Unresolved Dispute: Should a Dispute arise which the
              Parties cannot resolve satisfactorily, either Party may deliver to
              the other Party a written notice of the Dispute with supporting
              documentation as to the circumstances leading to the Dispute (the
              "Notice of Dispute"). The Parties, within ten (10) business days
              from delivery of such notice, shall then each appoint a management
              representative ("Management Representative") who has no prior
              direct involvement with the subject matter of the Notice of
              Dispute and who is duly authorized to investigate, negotiate and
              settle the Dispute. The Management Representative for each Party
              shall meet and confer as often as they deem reasonably necessary
              for a period not exceeding thirty (30) days following the delivery
              of the Notice of Dispute in good faith negotiations to resolve the
              Dispute amicably. The Parties in their sole discretion may also
              agree to utilize the service of a mediator pursuant to a joint
              engagement. Unless otherwise provided herein, all such notices
              shall be served in accordance with the provisions of the
              Agreement.

II.    ARBITRATION PROCESS
       -------------------

       A.     Arbitration: If the Parties are unable to resolve the Dispute
              within forty (40) days following the receipt of the Notice of
              Dispute, or such additional time as may be mutually agreed, the
              matter shall be submitted to arbitration in accordance with the
              procedures set forth below.

                                     Page 1

<PAGE>

       B.     Initiation of Arbitration: The arbitration shall be initiated by
              either Party delivering to the other a Notice of Intention to
              Arbitrate.

       C.     Governing Procedures: Except as expressly provided herein, the
              arbitration shall be conducted in accordance with procedures that
              are mutually acceptable to the Parties, including limited
              depositionless discovery.

              (i)    Governing Law: The Arbitrator shall apply the governing
                     substantive law of the state chosen by the Parties to the
                     Agreement excluding any conflict rules or choice of law
                     rules which would otherwise require the application of the
                     laws of another jurisdiction.

       D.     Arbitrator: There shall be one Arbitrator, who shall be
              independent and impartial, and experienced in arbitration
              proceedings. The Arbitrator shall be experienced in the oil and
              gas industry and knowledgeable or specializing as to the subject
              matter involved in the Dispute. The Arbitrator shall be chosen as
              follows: the Parties shall have thirty (30) days from the delivery
              of a Notice of Intention to Arbitrate to mutually agree on an
              Arbitrator. If the Parties cannot mutually agree within said
              thirty (30) day period, then the Parties shall, within three (3)
              days after expiration of the thirty (30) day period, apply to the
              American Arbitration Association as the appointing authority, for
              the appointment of an Arbitrator for or on behalf of the Parties,
              and in such case, the Arbitrator appointed by the appointing
              authority shall meet the criteria set forth in this Section II.D
              and shall act as if mutually agreed to by the Parties.

              (i)    Conflicts: Any Arbitrator, prior to his or her appointment,
                     shall disclose to the Parties all actual or perceived
                     conflicts of interest and business relationships involving
                     the Dispute or the Parties, including but not limited to,
                     any professional or social relationships, present or past,
                     with any Party (or its affiliates), including any Party's
                     (or its affiliates) directors, officers, and supervisory
                     personnel and counsel. Any Party may challenge in writing
                     the appointment or continued service of any Arbitrator for
                     lack of independence, partiality, or other cause likely to
                     impair such Arbitrator's ability to effectively participate
                     in the proceedings or render a fair and equitable decision.
                     Where such challenge is made, the appointing authority
                     shall uphold or dismiss the challenge. In the event a
                     challenge is upheld, the Arbitrator shall be replaced. A
                     replacement will be selected in the same manner as the
                     original Arbitrator was selected. If an Arbitrator resigns
                     or becomes unable or unwilling to continue to serve as the
                     Arbitrator, a replacement shall be selected in the same
                     manner as that Arbitrator was chosen.

              (ii)   Multi-Party Arbitrations: Where more than two Parties are
                     involved in the Dispute ("Multi-Party Arbitration"), all
                     Parties shall jointly name and agree as the appointment of
                     the Arbitrator, meeting the criteria set forth in Section
                     II.D above. If the parties cannot agree as to the choice of
                     the Arbitrator within the said thirty (30) days, any of the
                     Parties hereto may in like manner, within three (3) days
                     after written notice to the other Parties, apply to the
                     appointing authority for the appointment of an Arbitrator
                     meeting the criteria set forth in Section II.D above.

                                     Page 2

<PAGE>

              (iii)  Management of the Arbitration: The Arbitrator shall
                     actively manage the proceedings as he or she deems best so
                     as to make the same expeditious, economical, and less
                     burdensome and adversarial than litigation.

       E.     Confidentiality: All documents, briefs, testimony, transcripts, as
              well as all Arbitrator decisions shall be confidential. Likewise,
              the views, suggestions, admissions, proposals, and other
              information exchanged in the arbitration are confidential and are
              inadmissable in any other proceeding.

       F.     Costs and Expenses: The Parties shall be equally responsible for
              all costs, fees and expenses incurred by the Arbitrator and any
              other incidental costs incurred in connection with the arbitration
              proceeding shall also be borne equally by the Parties. Each Party
              is solely responsible for its own attorneys' fees and expenses
              incurred in the Arbitration. In the event of a Multi-Party
              Arbitration, all costs and expenses shall be borne equally by all
              Parties.

       G.     Submissions: Within thirty (30) days after the selection of the
              Arbitrator, each Party shall provide the Arbitrator with a short
              and plain submission defining the issues to be decided and the
              nature of the relief that the Arbitrator may award (the
              "Submission"). This Submission shall explicitly authorize the
              Arbitrator to decide these issues. This authorization shall stay
              in force for six (6) months from the earliest Submission. If the
              parties are unable to reach consensus as to the issues involved,
              the Arbitrator in his or her sole discretion shall frame the
              issues through a reasonable procedure. The Arbitrator will render
              decisions on the specific issues established and shall fashion any
              remedy that the Arbitrator deems appropriate so long as that
              remedy is consistent with the Parties' Submissions hereunder. Any
              money judgment entered by the Arbitrator shall be payable in U.S.
              dollars.

       H.     Transcriptions: The presentations and argument will be transcribed
              for the benefit of the Arbitrator and the Parties.

       I.     Discovery: Commencing thirty (30) days after the receipt of the
              opposing Party's Submission, each Party may serve upon the other
              Party up to ten (10) requests for the production of documents,
              including subparts. The requests shall be made in good faith and
              not be served for the purpose of delay or harassment. Each request
              shall describe the type of document(s) sought and each request
              shall be limited to documents that are relevant to a claim or
              defense in the Arbitration proceeding, or reasonably calculated to
              lead to the discovery of admissible evidence. The requests need
              not be served all at once but may be served in stages.

              (i)    The Party served with a request under this provision shall
                     provide the adverse Party with copies of the requested
                     documents, and identify the request to which each document
                     is responsive, within twenty (20) days of the receipt of
                     the request. If the Party served with a request objects to
                     the production of any of the requested documents, it shall
                     nevertheless produce within the permitted time all
                     documents responsive to any request that is not objected to
                     by that Party.

              (ii)   A Party that is served with a request may challenge the
                     propriety of the request within the time permitted for
                     response by a short written objection which shall be
                     forwarded to the adverse party and to the Arbitrator. The
                     adverse Party shall submit its response, if any, to the

                                     Page 3

<PAGE>

                     objecting Party and the Arbitrator within five (5) days of
                     receipt of the objection. The Arbitrator shall consider the
                     request, the objection, and the response, if any, and
                     decide whether the production shall be allowed or denied or
                     whether the request should be modified within (10) days
                     after the submission of the adverse Party's response.

       J.     Presentations: No later than twenty-five (25) days prior to the
              date that presentations to the Arbitrator are to begin, each Party
              will submit to the Arbitrator and serve on the other Party a
              written position statement. The original statement of each party
              shall not exceed thirty-five (35) typewritten letter-size pages.
              Each party shall have the right to submit reply statements no
              later than fifteen (15) days prior to the date of the
              presentation. Such reply statements shall not exceed fifteen (15)
              typewritten letter-size pages.

              (i)    All documents and affidavits that a Party intends to use
                     during its presentation shall be submitted to the
                     Arbitrator and served on the other party with the position
                     and reply statements. All demonstrative exhibits shall be
                     exchanged five (5) days in advance of the presentations.

              (ii)   The presentations to the Arbitrator shall extend for such
                     time as the Arbitrator agrees to be appropriate. In the
                     absence of any agreement, the presentations for both
                     Parties shall extend for no longer than two (2) days and
                     shall be concluded within six (6) months after selection of
                     the Arbitrator. Presentations of each Party shall occur
                     successively with no intervening delay.

              (iii)  Each Party shall make an oral and/or documentary
                     presentation of its position in such order and in
                     accordance with the time schedule established by the
                     Arbitrator. The Arbitrator may question each of the
                     presenters during or following any and all presentations.
                     The Arbitrator shall determine a reasonable time and
                     location for the presentations.

       K.     Decision and Award: The Arbitrator shall promptly (within sixty
              [60] days of conclusion of the presentations or such longer period
              as the Parties may mutually agree) determine the claims of the
              Parties and render their final decision in writing. The decision
              shall state with specificity the findings of fact and conclusions
              of law on which it rests. The decision rendered by the Arbitrator
              may be enforced in any federal court having jurisdiction to do so
              and may only be appealed pursuant to Section L below. The decision
              shall be served upon each of the Parties by facsimile transmission
              and by first class mail.

              (i)    If applicable law allows pre-award interest, the Arbitrator
                     may, in his or her discretion, grant pre-award interest
                     and, if so, such interest may be at commercial rates in the
                     state chosen by the Parties pursuant to Section II.C.(i)
                     during the relevant period. Each Party shall be responsible
                     for its own attorneys' fees and costs of arbitration. The
                     Arbitrator shall not award consequential or punitive
                     damages.

              (ii)   Within ten (10) days of receipt of the award either side
                     may submit a Motion to Modify the award. A response shall

                                     Page 4

<PAGE>

                     be due within fifteen (15) days thereafter and the
                     Arbitrator shall rule thereon within fifteen (15) days
                     after receipt of the response.

              (iii)  Judgment on the award may be entered in a United States
                     District Court for the federal district within which the
                     decision was made at any time within one year after the
                     decision is made.

       L.     Vacation of Award and Appeal: The Parties agree that an award made
              by the Arbitrator may only be vacated or confirmed by a federal
              court of proper jurisdiction as established above. The parties
              agree that an award made by the Arbitrator may be vacated by a
              court only if the award was procured by or through fraud or
              corruption. An appeal from an order or judgment pursuant to this
              Section II.L shall be instituted in the United States District
              Court for the Eastern District of Texas. Each party waives any
              option or objection which it may now or thereafter have to the
              laying of the venue of any such suit, action, or proceeding and
              irrevocably submits to the jurisdiction of the court in any such
              suit, action, or proceeding. Each party agrees that a remedy at
              law for a violation of this Section II.L may not be adequate and
              therefore agrees that the remedies of specific performance and
              injunctive relief shall be available in the event of any violation
              in addition to any other right or remedy at law or in equity to
              which any Party may be entitled.

       M.     Res Judicata: To the extent permitted by law any decision of the
              Arbitrator shall not be res judicata or have any binding effect in
              any unrelated litigation or arbitration where any Party to this
              Agreement may also be a Party.

                                     Page 5

<PAGE>

                                   EXHIBIT "H"

Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 between Marathon Oil Company and Ridgewood Energy
Corporation.

                               ARTICLE 8.6 ET SEQ.
                            SHELF OPERATING AGREEMENT
                                   (LOUISIANA)

         Security Rights; Default; Unpaid Charges; Carved-out Interests.

8.6    Security Rights (LA).

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

       8.6.1  Mortgage in Favor of the Operator.

       Each Non-operator hereby grants to the Operator a mortgage, hypothecate,
       and pledge of and over all of its rights, titles, and interests in and to
       (a) the Contract Area, (b) the Hydrocarbons in, on, under, and that may
       be produced from the lands within the Contract Area, and (c) all other
       immovable property susceptible of mortgage situated within the Contract
       Area. This mortgage is given to secure the complete and timely
       performance of and payment by each Non-operator of all obligations and
       indebtedness of every kind and nature, whether now owed by such
       Non-operator or hereafter arising, pursuant to this Agreement. To the
       extent susceptible under applicable law, this mortgage and the security
       interests granted in favor of the Operator herein shall secure the
       payment of all costs and other expenses properly charged to such Party,
       together with (A) interest on such indebtedness, costs, and other
       expenses at the rate set forth in Exhibit "C" 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
       Hydrocarbon production and collect such costs and other expenses out of
       the proceeds from the sale of the defaulting Non-operator's share of
       Hydrocarbon production until the amount owed has been paid. The Operator
       shall have the right to offset the amount owed against the proceeds from
       the sale of such defaulting Non-operator's share of Hydrocarbon
       production. Any purchaser of such production shall be entitled to rely on
       the Operator's statement concerning the amount of costs and other
       expenses owed by the defaulting Non-operator and payment made to the
       Operator by any purchaser shall be binding and conclusive as between such
       purchaser and such defaulting Non-operator.

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

                                        1

<PAGE>

              8.6.1.1 Security Interest in Favor of the Operator.

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

                                       2

<PAGE>

                     (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 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 Contract
                            Area.

              8.6.1.2 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 Contract Area; (b) the Hydrocarbons
              in, on, under, and that my be produced from the lands within the
              Contract Area; and (c) all other immovable property or other
              property susceptible of mortgage situated within the Contract
              Area.

              This mortgage is given to secure the complete and timely
              performance of and payment by the Operator of all obligations and
              indebtedness of every kind and nature, whether now owed by the
              Operator or hereafter arising, pursuant to this Agreement. To the
              extent susceptible under applicable law, this mortgage and the
              security interests granted in favor of each Non-operator herein
              shall secure the payment of all costs and other expenses properly
              charged to the Operator, together with (A) interest on such
              indebtedness, costs, and other expenses at the rate set forth in
              Exhibit "C" or the maximum rate allowed by law, whichever is the
              lesser, (B) reasonable attorneys' fees, (C) court costs, and (D)
              other directly related collection costs. If the Operator does not
              pay such costs and other expenses or perform its obligations under
              this Agreement when due, the Non-operators shall have the
              additional right to notify the purchaser or purchasers of the
              Operator's Hydrocarbon production and collect such costs and other
              expenses out of the proceeds from the sale of the Operator's share
              of Hydrocarbon production until the amount owed has been paid. The
              Non-operators shall have the right to offset the amount owed
              against the proceeds from the sale of the Operator's share of
              Hydrocarbon production. Any purchaser of such production shall be
              entitled to rely on Non-operator's 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 Section 8.6.1.4 hereof] outstanding and unpaid
              and that are attributable to or charged against the interest of
              the Operator pursuant to this Agreement.

                                       3

<PAGE>

              8.6.1.3 Security Interest in Favor of the Non-operators.

              To secure the complete and timely performance of and payment by
              the Operator of all obligations and indebtedness of every kind and
              nature, whether now owed by the Operator or hereafter arising,
              pursuant to this Agreement, the Operator hereby grants to each Non
              operator a continuing security interest in and to all of its
              rights, titles, interests, claims, general intangibles, proceeds,
              and products thereof, whether now existing or hereafter acquired,
              in and to (a) all Hydrocarbons produced from the lands or offshore
              blocks covered by the Contract Area or included within the
              Contract Area or attributable to the Contract Area when produced,
              (b) all accounts receivable accruing or arising as a result of the
              sale of such Hydrocarbons (including, without limitation, accounts
              arising from gas imbalances or from the sale of Hydrocarbons at
              the wellhead), (c) all cash or other proceeds from the sale of
              such Hydrocarbons once produced, and (d) all Platforms and
              Development Facilities, wells, fixtures, other corporeal property
              whether movable or immovable, whether now or hereafter placed on
              the offshore blocks covered by the Contract Area or maintained or
              used in connection with the ownership, use or exploitation of the
              Contract Area, and other surface and sub-surface equipment of any
              kind or character located on or attributable to the Contract Area
              and the cash or other proceeds realized from the sale, transfer,
              disposition or conversion thereof. The interest of the Operator in
              and to the Hydrocarbons produced from or attributable to the
              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 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 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 Contract Area, the Hydrocarbons
              produced from or attributable to 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 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 Contract
              Area, including the following:

                     (a)    all of its rights, titles, and interests, whether
                            now owned and existing or hereafter acquired or
                            arising, in, to, and under or derived from any
                            present or future operating, farmout, bidding,
                            pooling, unitization, and communitization
                            agreements, assignments, and subleases, whether or
                            not described in Exhibit "A," 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 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 Contract Area;

                     (b)    all of its rights, titles, and interests, whether
                            now owned and existing or hereafter acquired or
                            arising, in, to, and under or derived from all
                            presently existing and future advance payment
                            agreements, and oil, casinghead gas, and gas sales,
                            exchange, and Development contracts and agreements,
                            including, without limitation, those contracts and

                                       4

<PAGE>

                            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 Contract Area; and

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

              8.6.1.4 Recordation.

              To provide evidence of, and to further perfect the Parties'
              security rights created hereunder, upon request, each Party shall
              execute and acknowledge the Memorandum of Operating Agreement and
              Financing Statement (Louisiana) attached as Exhibit "F" [the
              "Memorandum of Operating Agreement and Financing Statement
              (Louisiana)"] in multiple counterparts as appropriate. The Parties
              authorize the Operator to file the Memorandum of Operating
              Agreement and Financing Statement (Louisiana) in the public
              records set forth below to serve as notice of the existence of
              this Agreement as a burden on the title of the Operator and the
              Non-operators to their interests in the 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 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 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 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.

       8.6.2  Default.

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

                                       5

<PAGE>

       8.6.3  Unpaid Charges.

       If any Participating Party fails to pay its share of the costs and other
       expenses authorized under this Agreement in accordance with Exhibit "C"
       or to otherwise perform any of its obligations under this Agreement when
       due, the Party to whom such payment is due, in order to take advantage of
       the provisions of this Article 8.6, shall notify the other Party by
       certified or registered U.S. Mail that it is in default and has thirty
       (30) days from the receipt of such notice to pay. If such payment is not
       made timely by the non-paying Party after the issuance of such notice to
       pay, the Party requesting such payment may take immediate steps to
       diligently pursue collection of the unpaid costs and other expenses owed
       by such Participating Party and to exercise the mortgage and security
       rights granted by this Agreement. The bringing of a suit and the
       obtaining of a judgment by any Party for the secured indebtedness shall
       not be deemed an election of remedies or otherwise affect the security
       rights granted herein. In addition to any other remedy afforded by law,
       each Party shall have, and is hereby given and vested with, the power and
       authority to foreclose the lien, mortgage, pledge, and security interest
       established hereby in its favor in the manner provided by law, to
       exercise the Power of Sale provided for herein, if applicable, and to
       exercise all rights of a secured party under the Uniform Commercial Code
       as adopted by the state in which the Contract Area is located or such
       other states as such Party may deem appropriate. The Operator shall keep
       an accurate account of amounts owed by the nonperforming Party (plus
       interest and collection costs) and any amounts collected with respect to
       amounts owed by the nonperforming Party. In the event there become three
       or more Parties to this Agreement, then if any nonperforming Party's
       share of costs remains delinquent for a period of sixty (60) days, each
       other Participating Party shall, upon the Operator's request, pay the
       unpaid amount of costs in the proportion that its Working Interest bears
       to the total non-defaulting Working Interests. Each Participating Party
       paying its share of the unpaid amounts of a nonperforming Party shall be
       subrogated to the Operator's mortgage and security rights to the extent
       of the payment made by such Participating Party.

       8.6.4  Carved-out Interests.

       Any agreements creating any overriding royalty, production payment, net
       proceeds interest, net profits interest, carried interest or any other
       interest carved out of a Working Interest in the 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 Hydrocarbon production
       pursuant to this Article 8.6 are insufficient to pay such costs and
       expenses, the security rights provided for in this Article 8.6 may be
       applied against the carved-out interests with which the defaulting or
       non-performing Party's interest in the 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 this Article 8.6.

                                       6

<PAGE>

                                   EXHIBIT "F"

Attached to and made a part of that certain Joint Participation Agreement
effective July 1, 2005 between Marathon Oil Company and Ridgewood Energy
Corporation.

                           TAX PARTNERSHIP PROVISIONS
                   OF THE ___________________ TAX PARTNERSHIP

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 hereinafter referred to as the "Agreement"; and
              this exhibit is hereinafter referred to as the "Exhibit." 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 this Agreement shall
              be hereinafter referred to as "Party" or collectively as
              "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 principles 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: (i) 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; (ii)
              that the liabilities of the Parties shall be several and not joint
              or collective; and (iii) that each Party shall be responsible
              solely for its 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 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 Partnership
                            provisions for termination and liquidation.

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

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

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

                                        1

<PAGE>

2.     INCOME TAX COMPLIANCE AND CAPITAL ACCOUNTS
       ------------------------------------------

       2.1    Tax Returns. The Tax Matters Partner ("TMP"), as designated in
              Section 3.I, shall prepare and file all required Federal and State
              partnership income tax returns. In preparing such returns the TMP
              shall use its best efforts and in doing so shall incur no
              liability to any other Party. Not less than thirty (30) days prior
              to the return due date (including extensions) the TMP shall submit
              to each Party for review a copy of the return as proposed.

       2.2    Fair Market Value Capital Accounts. The TMP shall establish and
              maintain for each Party fair market value ("FMV") capital accounts
              and tax basis capital accounts. Upon request, the TMP 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.

       2.3    Information Requests. Each Party agrees to furnish to the TMP not
              later than sixty (60) days before the return due date (including
              extensions) such information relating to the operations conducted
              under this Agreement as may be required for the proper preparation
              of such returns and capital accounts.

3.     TAX MATTERS PARTNER
       -------------------

       3.1    Tax Matters Partner. The Operator is designated TMP as defined in
              Internal Revenue Code (the "Code") ss.6231(a)(7). In the event of
              any change in the TMP, the Party serving as TMP at the beginning
              of a given taxable year shall continue as TMP with respect to all
              matters concerning such year. The TMP and other Parties shall use
              their best efforts to comply with responsibilities outlined in
              this section and Code ss.ss.6222 through 6233 and 6050K (and the
              Treasury Regulations thereunder) and in doing so shall incur no
              liability to any other Party. Notwithstanding the TMP's obligation
              to use its best efforts in the fulfillment of its
              responsibilities, 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.

       3.2    Information Request by the TMP. The Parties shall furnish the TMP,
              within two weeks from the receipt of the request, the information
              (including information specified in Code ss.ss.6230(e) on partner
              identification and 6050K for transfers of partnership interests)
              the TMP may reasonably request to comply with the requirements on
              furnishing information to the Internal Revenue Service.

       3.3    TMP Agreements with IRS.

              3.3.1  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.

              3.3.2  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 ss.6231(a)(3), shall
                     notify the other Parties of the terms within ninety (90)
                     days from the date of such settlement.

                                       2

<PAGE>

       3.4    Inconsistent Treatment of Partnership Items. If any Party intends
              to file a notice of inconsistent treatment under Code ss.6222(b),
              such Party shall, prior to the 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 the filing of its income tax
              return, the TMP need not be notified.

       3.5    Request for Administrative Adjustment. No Party shall file
              pursuant to Code ss.6227 a request for an administrative
              adjustment of partnership items without first notifying all other
              parties. If all other Parties agree with the requested adjustment,
              the TMP shall file the request 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
              request, if shorter, any Party, including the TMP, may file a
              request for administrative adjustment on its own behalf.

       3.6    judicial Proceedings. Any Party intending to file a petition under
              Code ss.ss.6226, 6228, or any other Code section with respect to
              any partnership item, or other tax matters involving the
              Partnership, 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 a reasonable time to allow the other Parties
              to participate in the choice of the forum for 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.

4.     TAX AND FMV CAPITAL ACCOUNT ELECTIONS
       -------------------------------------

       4.1    General Elections. For both income tax return and capital account
              purposes, the Partnership shall elect:

                     (a)    to deduct currently intangible drilling and
                            development costs ("IDC");

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

                     (c)    to use the accrual method of accounting;

                     (d)    to report income on a calendar year basis;

                     if checked below:

              [_](e) to account for dispositions of depreciable assets under the
                     general asset method to the extent permitted by Code ss.
                     I68(I)(4);

              [X](f) under Code ss.754 to adjust the basis of partnership
                     property, with the adjustments provided in Code ss.734 for
                     a distribution of property and in Code ss.743 for a
                     transfer of a partnership interest. In the case of a

                                        3

<PAGE>

                     distribution of property the TMP 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
                     accounts(s). The acquiring Party(ies) shall pay all costs
                     incurred by the Partnership in connection with the transfer
                     including, without limitation, reasonable attorney's and
                     accountant's fees. Furthermore, the acquiring Party(ies)
                     shall indemnify and hold harmless the Partnership in
                     connection with the acquiring Party(ies) partnership basis,
                     including the reasonable cost of legal and accounting
                     services and any penalty or interest assessed by the
                     Internal Revenue Service. Any Party who enters into a
                     transfer of a Partnership interest with respect to which a
                     Section 754 election is made shall provide the TMP, within
                     thirty (30) days after the transfer, with all necessary
                     information for filing the Partnership Federal Income Tax
                     return.

       4.2    Depletion. Solely for FMV capital account purposes, depletion
              shall be calculated by using simulated cost depletion within the
              meaning of Treas. Reg. ss. 1.704 1 (b)(2)(iv)(k)(2), to be
              determined under the principles of Code ss.612 and be based on the
              FMV capital account basis of each Lease. Solely for purposes of
              this calculation, remaining reserves shall be as determined
              consistently by the TMP.

       4.3    Election Out Under Code ss.761 a. The TMP 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 fling date or the due date
              (including extensions) for the Federal partnership income tax
              return, whichever comes earlier. Any Party that does not consent
              must provide the TMP with written objection within thirty (30)
              days of such notice.

       4.4    Other Tax or FMV Capital Account Elections or Consents. Any
              election other than those referenced above must be approved by the
              affirmative vote of two (2) or more Parties owning a Majority
              Working Interest based upon post-Payout ownership.

5.     CAPITAL CONTRIBUTIONS AND FMV CAPITAL ACCOUNTS
       ----------------------------------------------

       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 amounts
              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 accounts shall be increased by: (i) the
                     amount of money and the fair market value of any property
                     contributed by each Party to the Partnership (net of
                     liabilities assumed by the Partnership or to which the
                     contributed property is subject); (ii) a Party's ss.6.1
                     allocated share of Partnership income and gain, or items
                     thereof; and (iii) that Party's share of Code
                     ss.705(a)(1)(B) items.

                                        4

<PAGE>

              5.2.2  The FMV capital accounts shall be decreased by: (i) the
                     amount of money and the fair market value of property
                     distributed to each Party (net of liabilities assumed by
                     such Party or to which the property is subject), (ii) that
                     Party's ss.6.1 allocated share of Partnership loss and
                     deductions, or items thereof; and (iii) that Party's share
                     of Code ss.705(a)(2)(B) items.

              5.2.3  "Fair Market Value" when it applies to property contributed
                     by a Party to the Partnership shall be assumed to equal the
                     adjusted tax basis, as defined in Code ss.1011, of that
                     property unless the Parties agree otherwise as indicated
                     below.

                            Property Contributed       Agreed Fair Market Value
                            --------------------       ------------------------

                            -----

                            -----

                            -----

              if checked below:

              [_]5.3 FMV Capital Account Revaluation. The FMV capital accounts
                     will be revalued to reflect revaluation of partnership
                     property according to Treas. Reg. ss.1.704-1(b)(2)(iv)(f)
                     if the Parties agree pursuant to ss.4.4.

6.     PARTNERSHIP ALLOCATIONS
       -----------------------

       6.1    FMV Capital Account Allocations. Each items 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 amounts
                     received from the sale of production and of the fair market
                     value 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, and 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 contribution, or obligation 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 basis in the depreciable or depletable
                     property.

                                        5

<PAGE>

              6.1.6  Gain (or simulated gain) upon the sale, exchange,
                     distribution, abandonment 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 or fractional interests under the Agreement.
                     However, as provided in Treas. Reg. ss. 1 .704- 1 (b)(4)(v)
                     for oil and gas properties, the amount realized is
                     allocated as follows: (i) first, an amount that represents
                     recovery of adjusted simulated depletion basis is allocated
                     (without being credited to the capital accounts) to the
                     Parties in the same proportion as the aggregate simulated
                     depletion basis was allocated to such Parties under this
                     section; (ii) next, from the remainder of the amount
                     realized, if any, an amount up to any remaining
                     pre-contribution gain under Code ss.704(c), but only to the
                     extent not included in the allocation under the first
                     allocation step, is allocated to the Parties having
                     contributed the respective property; and (iii) finally, any
                     amount of realization remaining after the allocations under
                     (i) and (ii) is allocated in accordance with the first
                     sentence of this ss.6.1.6.

              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 costs or expenses.

              6.1.8  Any other income items 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 this Section 6.2,
                     the allocations of partnership items of income, gain, loss,
                     or deduction for tax return and tax basis capital account
                     purposes shall follow the principles of the allocations
                     under Section 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 Section 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 ss.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  The Parties recognize that under Code ss.613A(c)(7)(D) the
                     computation of gain or loss on the disposition of an oil
                     and gas property is to be computed separately by each
                     Party.

              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  Any recapture of depreciation, IDC, and any other item of
                     deduction or credit shall, to the extent possible, be
                     allocated among the Parties in accordance with their
                     sharing of the depreciation, IDC, or other item of
                     deduction or credit which is recaptured.

                                        6

<PAGE>

              6.2.6  Any recapture of depletion shall be computed separately by
                     each Party, in accordance with its depletion allowance
                     computed pursuant to ss.6.2.2.

              6.2.7  For partnership properties with FMV capital account values
                     different from their adjusted taxes bases the Parties
                     intend that the allocations described in this ss.6.2
                     constitute a "reasonable method" of allocating gain or loss
                     under Treas. Reg. ss.1.704-3(a)(1).

              6.2.8  Take-in-kind:

                     6.2.8.1 Unless checked below, the income attributable to
                            take-in-kind production will not be reflected on the
                            tax return.

                     6.2.8.2 _____ The provision for taking production in-kind,
                            as provided in the Agreement, is recognized as each
                            Party's 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 each Party who
                            designated such a market.

7.     TERMINATION AND LIQUIDATING DISTRIBUTION
       ----------------------------------------

       7.1    Termination of the Partnership. Termination shall occur on the
              earlier of the events described in Code ss.708(b)(1)(A) or (B).

              7.1.1  Upon termination under Code ss.708(b)(1)(B), each Party's
                     FMV capital account shall be adjusted as provided in Treas.
                     Reg. ss.1.704-1(b)(2)(iv)(1) and Section 7.3. The
                     distributions provided in Sections 7.2 through 7.4 shall be
                     deemed to have occurred with the Partnership cash and
                     properties deemed contributed to a new Partnership to which
                     this Exhibit also applies.

              7.1.2  Upon termination under Code ss.708(b)(1)(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 Sections 7.2 through 7.4.

       7.2    Reversion. 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.

       7.3    Balancing. Second, the FMV capital accounts of the Parties shall
              be determined as described hereafter. The TMP shall take the
              actions specified under this Section 7.3 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 is the Party's FMV capital account balance and
              the denominator of which is the sum of all Parties' FMV capital
              account balances. This is hereafter 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

<PAGE>

              7.3.1  The fair market value of all Partnership properties shall
                     be determined and the gain or loss for each property, which
                     would have resulted if sold at such fair market, value,
                     shall be allocated in accordance with Sections 6.1.5 and
                     6.1.6. If hereafter any Party has a negative FMV capital
                     account balance, that is a balance of less than zero, in
                     accordance with Treas. Reg. ss.ss.1.704-1(b)(2)(ii)(b)(3)
                     such Party is obligated to contribute 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; Sections 7.3.2 and 7.3.3 shall
                     apply.

              7.3.2  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.

              7.3.3  Unless Section 7.3.2 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.

              7.3.4  If a property is to be valued under Section 7.3.1 or
                     distributed pursuant to Sections 7.3.2 or 7.3.3 the Parties
                     must first attempt to agree on the FMV of the property;
                     failing such an agreement, the TMP shall cause a nationally
                     recognized independent engineering firm to prepare an
                     appraisal of the FMV of such property.

       7.4    Final Distribution. After the FMV capital accounts of the Parties
              have been adjusted pursuant to Section 7.3, 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 INDEMNIFICATION, 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 TMP in writing
              within two weeks after such transfer.

       8.2    Indemnification. This agreement does not provide for any
              indemnification to protect Parties against any tax cost from a
              Code ss.708(b)(1)(B) termination. If the Parties desire such
              indemnification, it must be expressly stipulated as a variation
              from this Exhibit.

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

              Marathon Oil Company

              Ridgewood Energy Corporation

                                       8

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