Document:

<page>
EXHIBIT 10.78

                          OVERRIDING ROYALTY AGREEMENT
                          ----------------------------

THIS AGREEMENT is dated the 16th day of February, 2007, by and between FOREST
ALASKA OPERATING, LLC, a Delaware limited liability company ("Forest") and
PIONEER NATURAL RESOURCES ALASKA, INC., a Delaware corporation ("Pioneer").

WHEREAS, Forest has agreed to sell and Pioneer has agreed to purchase all of
Forest's right title and interest in and to certain properties (the
"Properties") pursuant to the Asset Sale Agreement between Forest and Pioneer
dated the date hereof (the "Sale Agreement") which is attached hereto, for
reference purposes only, as Exhibit "A"; and

WHEREAS, the Sale is subject to a reservation by Forest of an overriding royalty
interest that is described on Exhibit "B" to the Sale Agreement (the "ORRI");

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Forest and Pioneer agree as follows:

1. DEFINITIONS

The following terms shall have the meanings set forth below:

       1.1 "Effective Date" shall mean the Effective Date as set forth in the
       Sale Agreement.

       1.2 "Overriding Royalty Payments" shall mean the payments made on the
       Overriding Royalty Interest; the value of which shall be determined and
       paid in the same manner as royalties are payable under the underlying oil
       and gas leases.

       1.3 "Overriding Royalty Interest" shall mean the ORRI as described on
       Exhibit "B" to the Sale Agreement.

       1.4 "Properties" shall mean those leases as are identified in Exhibit "A"
       to the Sale Agreement.

       1.5 "Substances" shall mean all hydrocarbon substances produced from the
       Properties.

       1.6 "Working Interest" shall mean all of the interest owned by Forest in
       and to the Unit.

2. ORRI PAYMENTS AND TAXES

       2.1 PERIOD OF PAYMENT. Overriding Royalty Payments shall commence on the
       Effective Date, and shall continue, as to each lease, until termination
       of such lease.

       2.2 PAYMENTS. Accompanying each payment, Pioneer shall furnish to Forest
       the same information supporting the calculation of the Overriding Royalty
       Interest payment that Pioneer regularly provides to other parties who
       receive royalty or overriding royalty payments from Pioneer. If the
       amount of the ORRI payment for such month is greater than $1000, then
       contemporaneously with the delivery of such statement, Pioneer shall pay
       to Forest such amount by certified check or wire transfer to an account
       that shall be designated in writing from time to time by Forest. If the
       amount of the ORRI payment for such month is less than $1000, then the
       amount to be paid to Forest shall rollover to the next month until the
       cumulative amount exceeds the value of $1000.

<page>

       2.3 TAXES. Forest shall be responsible for income taxes, gross receipt
       taxes, or other similar taxes assessed against, measured by, or related
       to the interests to be conveyed to Forest pursuant to this Agreement.

3. AUDIT RIGHTS

       3.1 AUDIT RIGHTS. Forest may initiate an audit of the books and records
       of Pioneer pertaining to the calculation and payment of the ORRI at any
       time and from time to time (not to exceed once per year). Such audits
       shall be conducted at Forest's expense in Pioneer's offices during normal
       business hours. Pioneer shall make all of the books and records relevant
       to the calculation of the ORRI available to Forest and its
       representatives, and Pioneer shall fully cooperate with Forest and its
       representatives during the course of any such audits. The parties shall
       attempt in good faith to resolve any differences or make any necessary
       adjustments.

4. GOVERNING LAW

       4.1 GOVERNING LAW. This Agreement shall be governed by and construed
       under the laws of the state of Colorado, without regard to the conflict
       of laws principles thereof; and the value of any action brought by either
       Pioneer or Forest in regard hereto or arising out of the terms or
       conditions hereof shall be exclusively in the state or federal courts of
       Colorado.

5. MISCELLANEOUS

       5.1 NOTICES. All notices and other communications required, permitted, or
       desired to be given hereunder must be in writing and sent by first class,
       registered or certified mail, or by courier or overnight delivery,
       properly addressed as shown below, and with postage or charges fully
       prepaid or by hand delivery. Date of service by mail or hand delivery is
       the date on which such notice or other communication is received by the
       addressee, or if such date is on a weekend or federal or state holiday,
       then on the next date which is not Saturday, Sunday or such a holiday.
       Each Party may change its address by notifying the other party in
       writing.

If to Forest by mail:                   If to Pioneer by mail:
--------------------------------------------------------------------------------
Forest Alaska Operating LLC             Pioneer Natural Resources Alaska, Inc.
310 K Street                            700 G Street
Suite 700                               Suite 600
Anchorage, Alaska 99501                 Anchorage, Alaska 99501
Attn: Land Manager                      Attn: Manager Land and External Affairs
Tel.: (907) 258-8600                    Tel.: (907)277-2700
Fax.: (907) 258-8601                    Fax.: (907) 343-2190
--------------------------------------------------------------------------------

       5.2 AMENDMENTS, SEVERABILITY AND CONFLICT. No alterations, modifications,
       amendments, or changes in this Agreement shall be effective or binding
       unless the same shall be in writing and signed by both Forest and
       Pioneer. The invalidity of any one or more covenants or provisions of the
       Agreement shall not affect the validity of the Agreement as whole, and in
       case of such invalidity, this Agreement shall be construed as if such
       invalid provision had not been included herein.

       5.3 SUCCESSORS AND ASSIGNS. The terms, covenants and conditions hereof
       shall be binding upon and shall inure to the benefit of Forest its
       successors an assigns, and upon Pioneer and its partners and their
       successors, heirs and assigns.

       5.4 CONFIDENTIALITY. Any technical and commercial information, data,
       records, documents, reports, and valuations ("Confidential Information")
       which may be provided to Forest pursuant to this Agreement shall be kept
       strictly confidential and shall not be sold, traded, published, or
       otherwised disclosed to anyone in any manner whatsoever, including by
       means of photocopy or reproduction, without Pioneer's prior written
       consent.

                                     * * *

                                                                          Page 2

<page>
IN WITNESS WHEREOF, the Parties have executed this agreement on the day and year
set forth above, but effective as of the Effective Date.

FOREST ALASKA OPERATING LLC                  PIONEER NATURAL RESOURCES ALASKA,
                                             INC.

By: /s/ Glen Mizenko                         By: /s/ J. Patrick Foley
   ---------------------------------             -------------------------------
   Name: Glen Mizenko                            Name: J. Patrick Foley
   Title: Vice President, Business               Title: Attorney in Fact
          Development

THE UNITED STATES OF AMERICA    )            Qualification File # 2307
                                ) SS.
STATE OF COLORADO               )

This certifies that on the 15th day of February, 2007, before me, a notary
public in and for the State of Colorado, duly commissioned and sworn, personally
appeared, Glen J. Mizenko, Vice President, Business Development of Forest Alaska
Operating LLC, to me known and known to me to be the person described in, and
who executed the foregoing assignment, who then after being duly sworn according
to law, acknowledged to me under oath that he executed same freely and
voluntarily for the uses and purposes therein mentioned. WITNESS my hand and
official seal the day and year in this certificate first above written.

[SEAL]                                       /s/ signature
                                             -----------------------------------
                                             Notary Public
                                             My Commission expires Jan 14, 2009

THE UNITED STATES OF AMERICA    )            Qualification File # 2255
                                ) SS.
STATE OF ALASKA                 )

This certifies that on the 16th day of February, 2007, before me, a notary
public in and for the State of Alaska, duly commissioned and sworn, personally
appeared, J. Patrick Foley, Attorney in Fact, to me known and known to me to be
the person described in, and who executed the foregoing assignment, who then
after being duly sworn according to law, acknowledged to me under oath that he
executed same freely and voluntarily for the uses and purposes therein
mentioned. WITNESS my hand and official seal the day and year in this
certificate first above written.

[SEAL]                                       /s/ Linda R. Birdsong
                                             -----------------------------------
                                             Notary Public
                                             My Commission expires 6/17/2008

                                                                          Page 3<PAGE>

EXHIBIT 10.79

                                TRADING BAY FIELD

                            JOINT OPERATING AGREEMENT

                                 BY AND BETWEEN

                         UNION OIL COMPANY OF CALIFORNIA

                                       AND

                              MARATHON OIL COMPANY

                                    MAY 1996

<page>

                               OPERATING AGREEMENT
                                TRADING BAY FIELD
                               COOK INLET, ALASKA

                                TABLE OF CONTENTS
                                -----------------

SECTION        ARTICLE                                                      PAGE
-------        -------                                                      ----

ARTICLE 1- EXHIBITS - APPENDICES............................................   1
     1.1  EXHIBITS .........................................................   1

ARTICLE II - DEFINITIONS....................................................   1
     2.1  AREA OR TRACT.....................................................   1
     2.2  COSTS.............................................................   1
     2.3  DEVELOPMENT WELL..................................................   1
     2.4  DRILL, DRILLED OR DRILLING, DEEPEN OR PLUG PACK...................   1
     2.5  EXPLORATORY WELL..................................................   1
     2.6  INJECTION WELL....................................................   2
     2.7  LEASE BURDENS.....................................................   2
     2.8  MARKET VALUE......................................................   2
     2.9  NON-DRILLING PARTY................................................   2
     2.10 PARTY.............................................................   2
     2.11 POOL..............................................................   2
     2.12 PRODUCTION........................................................   2
     2.13 OPERATOR..........................................................   2
     2.14 WORKING INTEREST..................................................   2

ARTICLE III - SUPERVISION OF OPERATIONS BY PARTIES..........................   3
     3.1  OVER-ALL SUPERVISION..............................................   3
     3.2  PARTICULAR POWERS AND DUTIES......................................   3

ARTICLE IV - MANNER OF EXERCISING SUPERVISION...............................   4
     4.1  VOTING PROCEDURE..................................................   4
     4.2  POLL VOTES........................................................   4
     4.3  VOTE BINDING ON PARTIES...........................................   4
     4.4  VOTE REQUIRED.....................................................   5

ARTICLE V - INDIVIDUAL RIGHTS OF PARTIES....................................   5
     5.1  RESERVATION OF RIGHTS.............................................   5
     5.2  SPECIFIC RIGHTS...................................................   5

ARTICLE VI - OPERATOR.......................................................   6
     6.1  INITIAL OPERATOR..................................................   6
     6.2  RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF
          SUCCESSOR.........................................................   6

                                       -i-

<page>

                          TABLE OF CONTENTS (Continued)
                          -----------------------------

SECTION        ARTICLE                                                      PAGE
-------        -------                                                      ----

ARTICLE VII - AUTHORITIES AND DUTIES OF OPERATOR ...........................   7
     7.1  OPERATOR .........................................................   7
     7.2  OPERATIONS........................................................   8

ARTICLE VIII - DRILLING. DEEPENING. PLUG ING BACK OR
     ABANDONMENT OF EXPLORATORY, DEVELOPMENT AND
     INJECTION WELLS .......................................................  10
     8.1  GENERAL PROVISIONS FOR EXPLORATORY, DEVELOPMENT AND
          INJECTION WELLS ..................................................  10
     8.2  EXPLORATORY WELLS ................................................  12
     8.3  DEVELOPMENT WELLS ................................................  12
     8.4  RELINQUISHMENT AND REVERSION OF INTERESTS.........................  12
     8.5  ABANDONMENT OF PRODUCING WELLS ...................................  14
     8.6  INJECTION WELLS ..................................................  14

ARTICLE IX - CONSTRUCTION OF CERTAIN FACILITIES.............................  15
     9.1  GENERAL ..........................................................  15
     9.2  OPERATOR TO CONDUCT OPERATIONS ...................................  15
     9.3  NOTICE OF PROPOSED CONSTRUCTION...................................  15
     9.4  RESPONSE TO NOTICE ...............................................  15
     9.5  PARTICIPATION.....................................................  16
     9.6  RELINQUISHMENT AND REVERSION OF INTERESTS.........................  16

ARTICLE X - RIGHT TO TAKE IN KIND AND FAILURE TO TAKE IN
     KIND -- UNDERLIFTING ..................................................  17
     10.1 TAKING IN KIND....................................................  17
     10.2 UNDERLIFTING OF PRODUCTION........................................  18
     10.3 ALLOCATION OF COSTS ..............................................  18
     10.4 INDEMNITY.........................................................  18

ARTICLE XI - EXPENSE .......................................................  18
     11.1 BASIS OF CHARGE TO PARTIES .......................................  18
     11.2 ADVANCE BILLINGS .................................................  19
     11.3 COMMINGLING OF FUNDS .............................................  19
     11.4 LIEN OF OPERATOR .................................................  19

ARTICLE XII - TITLES........................................................  19
     12.1 WARRANTY AND INDEMNITY ...........................................  19

                                      -ii-

<page>

                          TABLE OF CONTENTS (Continued)
                          -----------------------------

SECTION        ARTICLE                                                      PAGE
-------        -------                                                      ----

ARTICLE XIII - RENTALS AND LEASE BURDENS ...................................  20
     13.1 RENTALS ..........................................................  20
     13.2 LEASE BURDENS ....................................................  20
     13.3 PAYMENTS TO BE BORNE BY PARTIES ..................................  20

ARTICLE XIV - TAXES ........................................................  21
     14.1 TAXES UPON PROPERTY AND OPERATIONS ...............................  21
     14.2 OTHER TAXES ......................................................  21
     14.3 TRANSFER OF INTERESTS ............................................  21
     14.4 NOTICES AND RETURNS ..............................................  21

ARTICLE XV - INSURANCE .....................................................  22
     15.1 REQUIRED INSURANCE ...............................................  22
     15.2 INDIVIDUAL INSURANCE .............................................  23
     15.3 CONTRACTORS' INSURANCE............................................  23
     15.4 NOTICE OF LOSSES AND CLAIMS.......................................  23

ARTICLE XVI - RELEASE FROM OBLIGATIONS: SURRENDER; RIGHT OF
     FIRST REFUSAL..........................................................  23
     16.1 SURRENDER OR RELEASE .............................................  23
     16.2 ACCRUED OBLIGATIONS ..............................................  24
     16.3 RIGHT OF FIRST REFUSAL ...........................................  24

ARTICLE XVII - FORCE MAJEURE................................................  25
     17.1 FORCE MAJEURE ....................................................  25

ARTICLE XVIII - NOTICES.....................................................  25
     18.1 GIVING AND RECEIPT................................................  25
     18.2 PROPER ADDRESSES .................................................  26

ARTICLE XIX - LIABILITY, CLAIMS, AND SUITS..................................  26
     19.1 INDIVIDUAL LIABILITY .............................................  26
     19.2 SETTLEMENTS ......................................................  26

ARTICLE XX - INTERNAL REVENUE PROVISION ....................................  27
     20.1 INTERNAL REVENUE PROVISION .......................................  27

                                      -iii-

<page>

                          TABLE OF CONTENTS (Continued)
                          -----------------------------

SECTION        ARTICLE                                                      PAGE
-------        -------                                                      ----

ARTICLE XXI - EFFECTIVE TERM ...............................................  27
     21.1 TERM .............................................................  27

ARTICLE XXII - NON-DISCRIMINATION...........................................  27
     22.1 NON-DISCRIMINATION ...............................................  27

ARTICLE XXIII - OTHER PROVISIONS ...........................................  28
     23.1 AUDITS ...........................................................  28
     23.2 LAWS AND REGULATIONS .............................................  28
     23.3 ADDITIONAL BURDENS ...............................................  28
     23.4 SUCCESSORS AND ASSIGNS ...........................................  29
     23.5 ENTIRE AGREEMENT .................................................  29
     23.6 WAIVER ...........................................................  29
     23.7 CAPTIONS .........................................................  29
     23.8 GOVERNING LAW.....................................................  29

ARTICLE XXIV - EXECUTION . .................................................  30
     24.1 COUNTERPARTS......................................................  30
     24.2 RATIFICATION .....................................................  30

                                      -iv-

<page>

                               OPERATING AGREEMENT
                                TRADING BAY FIELD
                               COOK INLET, ALASKA

         THIS AGREEMENT, entered into as of June 12, 1996 by and between
Marathon Oil Company ("Marathon"), an Ohio corporation and Union Oil Company of
California ("Union") a California corporation (collectively the "Parties").

ARTICLE I - EXHIBITS - APPENDICES
---------------------------------

1.1 EXHIBITS

         The following exhibits are attached hereto and by this reference are
         made a part hereof;

         A. Exhibit A - Map

         B. Exhibit B - Lease Description

         C. Exhibit C, which is the Accounting Procedure for the determination
         of costs and expenses incurred in the conduct of operations under this
         Agreement. If there is any conflict between this Agreement and Exhibit
         C, this Agreement shall govern.

ARTICLE II - DEFINITIONS
------------------------

2.1      AREA or TRACT - shall mean the State Lease ADL 18731 as described in
         Exhibits A and B.

2.2      COSTS - shall mean all costs and expenses, other than Lease Burdens,
         incurred in the development and operation pursuant to this Agreement
         and all other expenses that are herein made chargeable as Costs,
         determined in accordance with the Accounting Procedure set forth in
         Exhibit C hereto.

2.3      DEVELOPMENT WELL - shall mean any well other than an Injection Well
         Drilled to a location within the Area and projected to the Pool for
         which such Area was established.

2.4      DRILL, DRILLED OR DRILLING, DEEPEN OR PLUG BACK- shall mean to perform
         all operations reasonably necessary and incident to the drilling,
         deepening or plugging back of a well, including testing, and completing
         and equipping for production or injection, or plugging and abandoning.

2.5      EXPLORATORY WELL - shall mean any well other than a Development Well or
         an Injection Well which is drilled to a new pool.

                                        1

<page>

2.6      INJECTION WELL - shall mean any well Drilled or taken over for the
         injection of substances for the purpose of disposal or conducing
         pressure maintenance or secondary recovery operations.

2.7      LEASE BURDENS - shall mean the royalty reserved to the lessor in an oil
         and gas lease, an overriding royalty, a production payment and any
         other burden upon the Working Interests.

2.8      MARKET VALUE - shall mean the arithmetical average price upon which the
         State of Alaska's royalty is paid and finally accepted on the
         Production during the relevant period from the Area.

2.9      NON-DRILLING PARTY - shall mean the Party or Parties who have had the
         right to participate in the Costs of Drilling, Deepening or Plugging
         Back a well in accordance with this Agreement at the commencement of
         such operation, and who have elected not to participate therein.

2.10     PARTY OR PARTIES - shall mean a party to this Agreement.

2.11     POOL - shall mean an underground reservoir containing, or appearing to
         contain, a common accumulation of oil or gas. Each zone of a structure
         which is completely separated from any other zone in the same structure
         is a Pool.

2.12     PRODUCTION - shall mean all oil, gas and hydrocarbons produced and
         saved from the Area, except so much thereof as is used in the conduct
         of operation under this Agreement with or for the benefit of the Area.

2.13     OPERATOR - shall mean Union Oil Company of California and its
         successors, as the Operator designed in accordance with the Agreement,
         acting in that capacity, or any successor Operator selected pursuant to
         Article VI of this Agreement.

2.14     WORKING INTEREST - shall mean an interest, whether held under an oil
         and gas lease or otherwise, including a carried Working Interest, which
         interest is chargeable with and obligated to pay or bear, whether in
         cash or out of Production or otherwise, all or a portion of the Costs
         of operations conducted under this Agreement.

                                        2

<page>

ARTICLE III - SUPERVISION OF OPERATIONS BY PARTIES
--------------------------------------------------

3.1      OVER-ALL SUPERVISION. The Parties shall exercise over-all supervision
         and control of all matters pertaining to the development and operation
         of the Area pursuant to this Agreement. In the exercise of such power
         each Party shall act solely in its own behalf in the capacity of an
         Individual Working Interest owner and not on behalf of the Working
         Interest Owners as an entirety.

3.2      PARTICULAR POWERS AND DUTIES. The matters to be passed upon and decided
         by the Parties as provided herein or in the Agreement shall include,
         but not be limited to, the following:

         A.       The appointment, removal and selection of successor Operators.

         B.       The enlargement or contraction of the Area.

         C.       The subsequent joinder of any Working Interest Owner to this
                  Agreement

         D.       The kind, character and method of operation, including any
                  type of pressure maintenance or secondary recovery.

         E.       The drilling of any well within the Area either to recover
                  Production or for use as an injection Well, or for other
                  purposes.

         F.       The recompletion, workover, abandonment, or change of status
                  of any well in the Area or use of any such well for injection
                  or other purposes.

         G.       The making of any single expenditure in excess of One Hundred
                  Thousand Dollars ($100,000.00), except in the case of an
                  emergency involving the preservation of life, environment or
                  property.

         H.       The selling or otherwise disposing of any major item of
                  surplus material or equipment, the current list price of new
                  equipment similar thereto being Five Thousand Dollars
                  ($5,000.00) or more; provided, however, surplus material or
                  equipment classified as junk may be disposed of by Operator at
                  prevailing prices.

                                        3

<page>

         I.       The authorizing of charges to the joint account for services
                  by consultants or any Party's technical personnel not covered
                  by the charges set forth in Exhibit "C".

         J.       The taking of periodic inventories under the terms of Exhibit
                  "C".

         K.       The designation of a representative to appear before any court
                  or regulatory body in matters pertaining to operations
                  hereunder, provided, however, that such designation shall not
                  prevent a Party from appearing in person or from designating
                  another representative in its behalf and at its own expense.

ARTICLE IV - MANNER OF EXERCISING SUPERVISION
---------------------------------------------

4.1      VOTING PROCEDURE

         GENERAL. In the supervision of an operation conducted by Operator the
         Parties chargeable with the costs of such operation shall have the
         right to vote thereon in proportion to their respective obligations for
         such Costs.

4.2      POLL VOTES

         The Parties may decide any matter by vote taken by letter or facsimile,
         provided the matter is first submitted to each Party entitled to vote
         thereon. Operator will give prompt notice of the results of such voting
         to all such Patties. Any such Party failing to vote on any matter for
         which a vote is provided by this Agreement within the time stated in
         such letter or facsimile shall be deemed to have voted in the negative.

4.3      VOTE BINDING ON PARTIES

         Any approval, direction, consent, determination, redetermination,
         agreement, stipulation, designation or other decision of the Parties
         provided for in this Agreement which receives the affirmative vote
         herein specified shall be deemed given by and shall be binding upon all
         Parties to this Agreement, except as otherwise specified herein.

                                        4

<page>

4.4      VOTE REQUIRED

         Except where specified otherwise in this Agreement, a vote of the
         owners of a majority of the Working Interests shall decide all issues
         to be decided hereunder.

ARTICLE V - INDIVIDUAL RIGHTS OF PARTIES
----------------------------------------

5.1      RESERVATION OF RIGHTS

         The Parties severally reserve to themselves all their rights, except as
         otherwise provided in this Agreement.

5.2      SPECIFIC RIGHTS

         Each Party owning a Working Interest shall have, among others, the
         following specific rights:

         A.       REPORTS. The right to receive from Operator copies of all
                  reports to any governmental agency, reports of crude oil runs
                  and stocks, inventory reports, well logs, engineering and
                  geological data and all other information pertaining to
                  operations hereunder. All such reports and information shall
                  be limited to factual and not interpretative data, unless
                  accomplished by or charged to the Parties. The cost of
                  gathering and furnishing information not ordinarily furnished
                  by Operator to the Parties shall be charged to the Party who
                  requests the information.

         B.       ACCESS to such operations being conducted for the benefit
                  thereof at all reasonable times to inspect such operations,
                  wells and the records and data pertaining thereto.

                                        5

<page>

ARTICLE VI - OPERATOR
---------------------

6.1      INITIAL OPERATOR

         Union Oil Company of California is hereby designated as Operator.

6.2      RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR

         Any Operator shall have the right to resign at any time, but such
         resignation shall not become effective so as to release such Operator
         from its duties and obligations and terminate its rights as such for a
         period of six months after notice of Intention to resign has been
         served by an Operator on all Parties, unless a new Operator shall have
         been selected and approved and shall have taken over and assumed the
         duties and obligations of that Operator prior to the expiration of said
         period. In all instances of resignation or removal, until a successor
         Operator is selected and approved as hereinafter provided, the Parties
         snail be jointly responsible for performance of the duties of that
         Operator, and shall not later than 30 days before such resignation or
         removal becomes effective appoint a common agent to represent them in
         any action to be taken hereunder.

         The resignation of the Operator shall not release that Operator from
         any liability for any default by it hereunder occurring prior to the
         effective data of its resignation.

         Any Operator may, upon default or failure in the performance of its
         duties or obligations hereunder be subject to removal by a vote
         representing fifty percent (50%) or more of the voting power of the
         Parties. Such removal shall be effective upon notice thereof to the
         Parties.

         The resignation or removal of an Operator under this Agreement shall
         not terminate its right, title, or interest as the owner of a Working
         Interest, but upon the resignation or removal of an Operator becoming
         effective such Operator shall deliver possession of all equipment,
         materials, and appurtenances used in conducting the operations and
         owned by the Parties to the duly qualified successor Operator or to the
         owners thereof if no such new Operator is elected, to be used for the
         purpose of conducting operations hereunder. Nothing herein shall be
         construed as authorizing removal of any

                                        6

<page>

         material, equipment and appurtenance needed for the preservation of any
         wells.

         Whenever the Operator shall resign, or shall be removed as hereinabove
         provided or a change of an Operator is negotiated by the Parties, the
         Parties shall select a successor Operator. Such selection shall not
         become effective until the Operator so selected shall accept in writing
         the duties and responsibilities of Operator.

ARTICLE VII - AUTHORITIES AND DUTIES OF OPERATOR
------------------------------------------------

7.1      OPERATOR

         A.       GENERAL DUTIES. Operator shall be responsible for submitting
                  all required reports to the State of Alaska and other
                  regulatory authorities and shall, subject to subsection 3.2K,
                  represent the Parties at hearings or other meetings held by
                  any regulatory bodies pertaining to operations hereunder.
                  Pursuant to the provisions of this Agreement, Operator shall
                  have the exclusive right and duty to conduct operations
                  according to plans and procedures as specified by the Parties
                  and to do all things necessary and consistent therewith,
                  including the execution of all contracts as Operator which
                  affect drilling, reworking and servicing of wells, and
                  construction and operation of facilities, and the purchasing
                  of supplies, and shall prepare or assist in the preparation of
                  any and all applications, reports, or other documents required
                  by any governmental agency.

         B.       RECORDS AND REPORTS. Operator shall keep correct books,
                  accounts and records and shall furnish the Parties with
                  periodic reports of operations conducted by it pursuant to
                  this Agreement. Daily or periodic reports for production,
                  drilling and other operations shall be submitted as general
                  practices dictate.

         C.       WELLS DRILLED, DEEPENED OR WORKED OVER BY OPERATOR. All wells
                  drilled by Operator through independent contractors shall be
                  at not more than the usual rates prevailing in the area.
                  Operator may employ its own tools and equipment, butt the
                  charge therefor shall not exceed the prevailing rate in the
                  area and the work shall be performed under terms

                                        7

<page>

                  and conditions customary in the area in contracts of
                  independent contractors doing work of a similar nature.

7.2      OPERATIONS

         A.       WORKMANLIKE CONDUCT Operator shall conduct all operations in a
                  good and workmanlike manner. Operator shall not be liable to
                  the Parties for damages unless such damages result from
                  Operator's gross negligence or willful misconduct.

         B.       LIENS AND ENCUMBRANCES. Operator shall endeavor to see that
                  the lands and leases in the Area are kept free from all liens
                  and encumbrances occasioned by operations, except the liens of
                  Operator granted hereunder.

         C.       EMPLOYEES. All individuals employed by Operator in conducting
                  operations shall be the employees of that party employing
                  same, and their selection, hours of labor, compensation, and
                  all other matters relating to their employment shall be
                  determined by Operator.

         D.       EXPENDITURES.

                  1.       The Operator shall have the right to make
                           expenditures up to an aggregate of one hundred
                           thousand dollars ($100,000) for any single project of
                           any kind, without consent of the Parties.

                  2.       For all projects exceeding fifty thousand dollars
                           ($50,000) but less than fifty thousand dollars
                           ($100,000), an international Authorization for
                           Expenditure (AFE) shall be prepared by the Operator
                           and submitted to the working Interest owners before
                           work commences

                  3.       Projects exceeding one hundred thousand dollars
                           ($100,000) shall require approval of the Parties. An
                           AFE shall be prepared by the Operator and supplied to
                           the Parties for approval. Response to a request for
                           approval of an AFE shall be given to the Operator
                           within forty-five (45) days after receipt of the
                           request. The non-consent

                                        8

<page>

                           provisions of Article IX shall apply if fewer than
                           all Parties vote to approve the AFE.

                  4.       If, at any time, it becomes apparent that
                           expenditures for an AFE and any Supplemental AFE's
                           for such item previously approved pursuant to this
                           Subsection 7.2D will be or has exceeded the
                           authorized limit by ten percent (10%) or fifty
                           thousand dollars ($50,000) whichever is greater, or
                           by one million dollars ($1,000,000), the Operator
                           shall notify the Parties and shall. without delay,
                           prepare a Supplemental AFE. A Supplemental AFE shall
                           also be prepared for an informational AFE if it
                           becomes apparent that expenditures will have or have
                           exceeded the $100,000 formal AFE threshold. The
                           Supplemental AFE shall include reasons of the
                           increased cost, and shall request approval for the
                           additional expenditures anticipated. The Operator
                           shall give verbal notification to the Parties
                           advising that a Supplemental AFE may be required. The
                           Parties shall have 3 business days from receipt of a
                           Supplemental AFE to vote on the approval requested.

                  5.       Unless otherwise stated in an AFE or Supplemental
                           AFE, the approval granted for the project described
                           in the AFE or Supplemental AFE will be canceled if no
                           work has been performed or money spent on the project
                           six (6) months after the AFE or Supplemental AFE has
                           received requisite approval, or six (6) months after
                           proposed start date, whichever occurs first.

                  6.       If any emergency occurs, Operator may immediately
                           make or incur such expenditures as in its opinion are
                           required to deal with the emergency. Operator shall
                           report to the Parties as promptly as practicable the
                           nature of the emergency and the action taken and, as
                           soon as practical, prepare an AFE if otherwise
                           required by the provisions of this Sub-section 7.2D.

                                        9

<page>

ARTICLE VIII - DRILLING. DEEPENING, PLUGGING BACK OR ABANDONMENT OF EXPLORATORY,
--------------------------------------------------------------------------------
DEVELOPMENT AND INJECTION WELLS
-------------------------------

8.1      GENERAL PROVISIONS FOR EXPLORATORY, DEVELOPMENT AND INJECTION WELLS

         A.       GENERAL. The Drilling, Deepening, Plugging Back or abandoning
                  of a well within the Area shall be conducted only in
                  accordance with the provisions of this Article VIII.

         B.       OPERATOR TO CONDUCT OPERATIONS. All Drilling, Deepening,
                  Plugging Back, and abandoning operations shall be conducted by
                  the Operator.

         C.       NOTICE OF PROPOSED OPERATIONS. If any Party hereto should
                  desire to Drill any well within the Area, or, if any Party
                  should desire to rework, sidetrack, Deepen, recomplete or Plug
                  Back a dry hole or a well no longer capable of producing in
                  paying quantities in which such Party has not otherwise
                  relinquished its interest in the proposed objective Pool under
                  this Agreement, the party desiring to Drill, rework,
                  sidetrack, Deepen, recomplete or Plug back such a well shall
                  give written notice of the proposed operation to the Parties
                  who have not otherwise relinquished their interest in such
                  objective Pool under this Agreement and to the other Parties
                  in the case of a proposal for sidetracking or Deepening,
                  specifying the work to be performed, the location, proposed
                  depth, objective Pool and the estimated cost of the operation.
                  All proposed operations shall be subject to the requirements
                  of Article VII section 7.2 D.

         D.       RESPONSE TO NOTICE. Within forty-five (45) days after receipt
                  of such notice, each Party shall advise all other Parties, in
                  writing, whether or not it approves and desires to participate
                  in such operations_ If the Parties approve such operations,
                  then the proposed operations shall be conducted by the
                  designated Operator. If any Party fails to respond to such
                  notice within said forty-five (45) day period, it shall be
                  deemed to have failed to approve such proposed operation and
                  to have elected not to participate therein. Notwithstanding
                  the provisions of the foregoing paragraph, if a drilling rig
                  has suspended operations awaiting approval of redrilling,
                  Deepening, Plugging Back or abandoning of a well, then the
                  Parties receiving such notice shall have forty-eight (48)
                  hours

                                       10

<page>

                  (exclusive of Saturdays, Sundays, and legal holidays) after
                  receipt thereof within which to notify the Parties giving such
                  notice whether they approve and desire to participate in the
                  proposed operations. All such notices given under this
                  paragraph shall be by telephone, or facsimile, followed by
                  written notice.

         E.       FEWER THAN ALL PARTIES. Whenever all Parties entitled to
                  participate in approved operations fail to agree to
                  participate, then within fifteen (15) days after expiration of
                  said forty-five (45) days' notice period or within twenty-four
                  (24) hours (exclusive of Saturdays, Sundays and legal
                  holidays) after expiration of said forty-eight (48) hour
                  notice period, each such Party who desires to participate in
                  the approved operations shall give to the other Parties
                  written notice (or in the case of the twenty-four (24) hour
                  notice period, by telephone, or facsimile) of the election to
                  participate in such approved operations. Failure to give such
                  notice shall be deemed an election not to participate. Unless
                  otherwise agreed by the Parties, the entire cost, risk,
                  liability and expense of the Drilling, Deepening. or Plugging
                  Back of a Development or Exploratory Well by fewer than all
                  the Parties shall be borne by the Parties comprising the
                  Drilling Party. No operations by fewer than all Parties shall
                  be conducted in such a manner as to interfere or conflict with
                  any other operations.

         F.       ABANDONMENT OF NON-PRODUCTIVE POOL WITHIN A WELL. In the event
                  the proposed operation is the abandonment of a non-productive
                  Pool, within a well, then the notice required in Subsection
                  8.1C. shall also be given to the Parties. If the Parties give
                  notice of election, in the manner provided in Subsection 8.1D,
                  to take over the well drilled into such Pool and if the
                  Parties participating in the Costs of said well approve the
                  proposed abandonment, the Parties electing not to abandon such
                  pool shall take over said well upon such terms and conditions
                  contained in Subsection 8.5.

         G.       USE OF EQUIPMENT. In the case of any Plugging Back or
                  Deepening operation, the Drilling Party shall purchase, at
                  salvage value, all casing, tubing and other equipment in the
                  well.

                                       11

<page>

8.2      EXPLORATORY WELLS

         A.       RIGHT TO DRILL. If any Party desires to Drill, Deepen or Plug
                  Back a well as an Exploratory Well, then it shall have the
                  right to do so under the provisions of this Article VIII.

         B.       DRILLING FROM MOBILE PLATFORMS. The Drilling of an Exploratory
                  Well from a mobile platform or drilling barge shall be outside
                  the scope of this Agreement, but nothing herein contained
                  shall be deemed to prevent the Drilling of such a well on the
                  Tract by a Party owning a Working Interest therein.

         C.       OPERATIONS AND PARTICIPATION. The Drilling, Deepening or
                  Plugging Back of an Exploratory Well from any facility other
                  than a mobile platform or drilling barge shall be accomplished
                  in the following manner In the event the proposed operation
                  receives the approval of the Parties as provided in Subsection
                  8.10 or 8.1E, then each owner of a Working interest in the
                  Tract shall have the right to participate in proportion to its
                  Working Interest in that Tract. If fewer than all Working
                  Interest owners approve such operations, then those electing
                  to proceed shall conduct such operations al their sole cost,
                  risk and expense.

8.3      DEVELOPMENT WELLS

         A.       RIGHT TO DRILL. If any Party desires to Drill, Deepen, or Plug
                  Back a well as a Development Well, then it shall have the
                  right to do so under the provisions of this Article VIII.

         B.       OPERATIONS AND PARTICIPATION. The Drilling, Deepening or
                  Plugging Back of a Development Well shall be accomplished in
                  the following manner in the event the proposed operation
                  receives the approval of the Parties as provided in Subsection
                  8.1 D or 8.1E, each Party shall have the right to participate
                  therein in proportion to its Working interest.

8.4      RELINQUISHMENT AND REVERSION OF INTERESTS

         A.       OPERATIONS BY LESS THAN ALL PARTIES. In order for the Drilling
                  Party to receive the benefits of this Section 8.4, the
                  proposed operations shall

                                       12

<page>

                  be commenced within six months after the expiration of the
                  notice period provided in Subsection 8.10 or 8.1E, whichever
                  is the later date.

         B.       RELINQUISHMENT OF INTEREST BY NON-DRILLING PARTY. When a well
                  which is Drilled, Deepened or Plugged Back by less than all
                  Parties entitled to participate therein is completed as a
                  producer, each Non-Drilling Party shall be deemed to have
                  relinquished to the Drilling Party all of its operating rights
                  and Working interest in and to such Well. and Drilling Party
                  shall make, or cause to be made, payments for Lease Burdens in
                  respect of Production from said well, in accordance with
                  Article XIII.

         C.       REVERSION OF RELINQUISHED INTERESTS. The operating rights and
                  Working Interests relinquished by a Non-Drilling Party shall
                  revert to it at such time as the Market Value, calculated by
                  Drilling Party, of that Non-Drilling Party's share of the
                  Production obtained from the well after such relinquishment
                  (after deducting from such Market Value all taxes upon or
                  measured by Production and all Lease Burdens) shall equal the
                  total of the following:

                  1)       One hundred per cent (100%) of that portion of the
                           Costs Incurred in operating the well (including the
                           portion of costs of acquisition or use of platforms,
                           pipelines or other facilities attributable to such
                           operations by less than all Parties, but excluding
                           the Costs provided for in this Subsection 8.4C(2))
                           that would have been charged to such Non-Drilling
                           Party had all Parties entitled thereto participated
                           therein; and

                  2)       Six hundred per cent (600%) in the case of an
                           Exploratory Well, or four hundred per cent (400%) in
                           the case of a Development Well, of that portion of
                           the Costs incurred by Drilling Party in the Drilling,
                           Deepening, or Plugging Back of said well, through and
                           including the wellhead connections, that would have
                           been chargeable to such Non-Drilling Party had all
                           Parties entitled thereto participated therein.

         D.       EFFECT OF REVERSION. From and after reversion to a
                  Non-Drilling Party of its relinquished interest in a well,
                  such Non-Drilling Party shall share in the ownership of the
                  well, the operating rights and Working Interest therein, the
                  materials and equipment in or pertaining to the well, the

                                       13

<page>

                  Production therefrom and the Costs of operating the well as
                  otherwise provided in this Agreement.

8.5      ABANDONMENT OF PRODUCING WELLS

         No well which is producing or has once produced shall be abandoned
         without approval of the Parties then owning a Working Interest therein.
         If such approval is not obtained, then this Parties not desiring to
         abandon shall pay to such other Party the latter Party's proportionate
         share of the fair market value of the salvable material and equipment
         in and on such well determined at the time such abandonment is
         proposed. less such latter Party's estimated share of the cost of
         abandonment. Upon receipt of said sum, the Party desiring to abandon
         said well shall assign to the other Parties, without warranty of title,
         all of its operating rights and Working Interest in the well and all
         subsequent Production therefrom, as to the Pool from which said well is
         then producing, or has once produced, but not as to any other Pool and
         all of its interest in the material and equipment in and on said well
         If such assignment or conveyance shall run in favor of more than one
         Party herF.ito, the interest covered thereby shall be shared by such
         Parties in the proportion that the interest of each Party assignee
         bears to the interest of all Parties assignee. The Party proposing such
         abandonment shall give the notice required in Subsection 8.1 C to the
         Parties. If the Parties give notice of election. in the matter provided
         in Subsection 8.1D, to take over said well and if the Parties then
         owning a Working Interest in said well approve the proposed
         abandonment, the Parties shall take over said well as provided in this
         Section 8.5. Unless at the direction of the Fames me well is to be
         taken over for use in operations, the Operator shall plug and abandon
         the well far the account of the Parties owning a Working Interest
         therein. As used in this Section 8.5, "Well" shall be deemed to apply
         separately to each Pool from which that well is then producing or has
         produced, and the value of the salvable material and equipment therein
         shall be attributed in proportion to the ownership thereof.

8.6      INJECTION WELLS

         The Costs of Drilling, Deepening, Plugging Back, abandoning, or taking
         over a well as an Injection Well shall be borne by all the Parties for
         which the well is to be used for the purpose of disposal or pressure
         maintenance or

                                       14

<page>

         secondary recovery operations. All parties shall bear such Costs
         according to their respective Working Interest.

ARTICLE IX - CONSTRUCTION OF CERTAIN FACILITIES
-----------------------------------------------

9.1      GENERAL

         The construction of any production equipment, pipeline, or other
         facilities not related to secondary recovery or pressure maintenance
         programs, the cost of which exceeds One Million Five Hundred Thousand
         Dollars ($1,500,000.00), referred to in this Article IX as "Such
         Construction," shall be conducted in or for the benefit of the Area
         only in accordance with the provisions of this Article IX. For the
         purposes of this Article IX, reference to Parties shall mean all
         Parties to be served by the proposed production equipment, pipeline, or
         other facility.

9.2      OPERATOR TO CONDUCT OPERATIONS

         Such Construction shall be conducted by the Operator designated by the
         Parties participating in the Costs thereof.

9.3      NOTICE OF PROPOSED CONSTRUCTION

         Any Party may propose Such Construction by giving to each of the other
         Parties written notice specifying the location, contemplated service,
         design, specifications, proposed operator, and estimated Costs of Such
         Construction.

9.4      RESPONSE TO NOTICE

         Within forty-five (45) days after receipt of such notice, each Party
         shall advise all other Parties, in writing, whether or not it approves
         Such Construction AND whether or not it desires to participate in Such
         Construction. If the Parties approve Such Construction in the mariner
         provided in Article IV, then Such Construction shall be conducted by
         the Operator.

                                       15

<page>

9.5      PARTICIPATION

         In the event Such Construction receives the approval of the Parties as
         provided in Section 9.4, each Party shall have the right to participate
         therein. Unless otherwise agreed by the Parties, the entire cost, risk,
         liability and expense of Such Construction by fewer than all of the
         Parties shall be borne by the Parties comprising the Participating
         Party (as hereinafter defined) in proportion to their respective
         interests in Such Construction as herein after provided. The Party or
         Parties electing to participate in Such Construction shall be referred
         to in this Article IX as "Participating Party."

9.6      RELINQUISHMENT AND REVERSION OF INTERESTS

         A.       SUCH CONSTRUCTION BY LESS THAN ALL PARTIES. In order for the
                  Participating Party to receive the benefits of this Section
                  9.6, Such Construction shall be commenced within one (1) year
                  after the expiration of the period provided in Section 9.4.
                  Each Participating Party shall participate in Such
                  Construction in the proportion of its Working Interest.

         B.       NON-OWNERSHIP AND RELINQUISHMENT OF INTEREST. When any Party
                  who is entitled to participate in such Construction elects not
                  to participate therein, such Party referred to in this Article
                  IX as "Non-Participating Party", it shall be deemed to have no
                  interest in and shall not be entitled to the use of the
                  facility constructed.

         C.       ACQUISITION OF AN INTEREST AND REVERSION OF RELINQUISHED
                  INTEREST. Within thirty (30) days after the production
                  equipment, pipeline or other facility is put into service,
                  operator of Such Construction shall furnish each
                  Non-Participating Party a statement of the estimated Costs of
                  Such Construction. Within sixty (60) days after receipt of
                  such statement. each Non-Participating Party may elect to pay
                  to the operator who conducted Such Construction an amount of
                  money equal to the total of the following:

                  (1)      One hundred per cent (100%) of that portion of the
                           Costs incurred in operating the facility that would
                           have been charged to such Non-Participating Party had
                           it participated In Such Construction;

                                       16

<page>

                  (2)      One hundred thirty-five per cent (135%) of that
                           portion of the Costs incurred and committed in Such
                           Construction; and

                  (3)      Interest at the rate of one percent (1%) per month
                           (or, if lower, the highest rate permitted by law) on
                           such amounts computed from the month during which
                           each portion of such Costs was paid. If a
                           Non-Participating Party has elected to make the
                           payment hereinabove provided, and does so within
                           thirty (30) days after such election, such Non-
                           Participating Party shall immediately have
                           transferred to it that interest in that production
                           equipment, pipeline or other facility as it would
                           have had if it had participated in the construction
                           thereof, and the operating rights and Working
                           interests which it relinquished by failing to
                           participate in Such Construction shall at that time
                           revert to such Party.

         D.       PAYMENT BY OPERATOR. All payments received by Operator from a
                  Non- Participating Party pursuant to Subsection 9.6C shall be
                  paid promptly to the Participating Parties in the proportions
                  in which they shared the Costs of Such Construction and
                  Drilling.

ARTICLE X - RIGHT TO TAKE IN KIND AND FAILURE TO TAKE IN KIND - UNDERLIFTING
----------------------------------------------------------------------------

10.1     TAKING IN KIND

         Each Party shall currently take in kind or separately dispose of its
         share of Production, but its share shall include any Production said
         Party is then making up as the result of its underlift pursuant to this
         Article X. Each such Party shall have the right to construct, maintain,
         and operate all necessary facilities for that purpose, provided that
         they are so constructed, maintained and operated as not to interfere
         with operations. Any extra expenditures incurred by reason of delivery
         In kind of any portion of the Production shall be borne by the
         receiving Party. If a royalty owner has the right to take in kind a
         share of Production and fails to do so, each Party taking Production
         shall take its lessor's Royalty Share of Production. On all purchases
         or sales each

                                       17

<page>

         Party shall execute any division order or contract of sale pertaining
         to its interest.

10.2     UNDERLIFTING OF PRODUCTION

         Notwithstanding the ownership of Production set forth in this
         Agreement, in the event any Party fails to take or otherwise dispose of
         its entire share of Production, the other Parties shall be entitled to
         take the Production not taken, and the Parties will cooperate in
         returning all Parties to balance of cumulative Production as soon as
         practicable.

10.3     ALLOCATION OF COSTS

         Except as to Lease Burdens and taxes measured by production, no
         adjustment shall be made in Costs when a Party is underlifting or
         overlifting. Lease Burdens and taxes measured by Production shall be
         borne by the Parties in proportion to the Production taken by each of
         them.

10.4     INDEMNITY

         In the event any Party or Parties is underlined and any such action
         causes the rate of production hereunder to be reduced, then said Party
         or Parties shall be solely responsible to the State of Alaska and any
         other royalty owner or overriding royalty owner for, and hold the other
         Parties harmless and indemnify them against any and all claims
         whatsoever which arise as a result of such failure to take.

ARTICLE XI - EXPENSE
--------------------

11.1     BASIS OF CHARGE TO PARTIES

         All Costs incurred for the benefit of the Area initially shall be paid
         by Operator. Each Party shall reimburse Operator for its Working
         Interest share of such Costs except as otherwise provided in Articles
         VIII, IX, and X. All charges, credits and accounting shall be in
         accordance with Exhibit "C."

                                       18

<page>

11.2     ADVANCE BILLINGS

         Operator shall have the right to require the Parties to advance their
         respective shares of estimated Costs by submitting to such Parties, on
         or before the 15th day of any month, an itemized estimate thereof for
         the succeeding month, with a request for payment In advance. Within
         fifteen (15) days thereafter, each Party shall pay to Operator its
         share of such estimate. Adjustments between estimated and actual Costs
         shall be made by Operator at the close of each calendar month, and the
         accounts of such Parties shall be adjusted accordingly.

11.3     COMMINGLING OF FUNDS

         No funds received by Operator under this Agreement need be segregated
         or maintained by it as a separate fund, but may be commingled with its
         own funds.

11.4     LIEN OF OPERATOR

         Each Party grants to the Operator a lien upon its Working Interests in
         the Area, and Its interest In all property, as security for payment of
         its share of Costs together with interest thereon at the rate of twelve
         per cent (12%) per annum or, if lower, at the highest rate allowed by
         law. Operator shall have the right to bring suit to enforce collection
         of such indebtedness with or without seeking foreclosure of the lien.
         In addition, upon default by any Party in the payment of its share of
         Costs. Operator shall have the right to collect from the purchaser the
         proceeds from the sate of such Party's share of Production until the
         amount owed by such Party, plus interest as aforesaid, has been paid.
         Each purchaser shall be entitled to rely upon Operators written
         statement concerning the amount of any amount due hereunder.

ARTICLE XII - TITLES
--------------------

12.1     WARRANTY AND INDEMNITY

         Each Party represents and warrants that it is the owner of the
         respective Working Interests and hereby agrees to indemnify and hold
         harmless the other

                                       19

<page>

         Parties from any loss due to failure, in whole or in part, of its title
         to any such interest. except failure of title arising out of
         operations: provided that such indemnity shall be limited to an amount
         equal to the net value that has been received from the sale or receipt
         of Production attributable to the interest as to which title failed.
         Each failure of title will be deemed to be effective, insofar as this
         Agreement is concerned, as of the first day of the calendar month in
         which such failure is finally determined, and there shall be no
         retroactive allocation of Costs or retroactive allocation of Production
         or the proceeds therefrom, as a result of title failure.

ARTICLE XIII - RENTALS AND LEASE BURDENS
----------------------------------------

13.1     RENTALS

         Each Party shall be obligated to pay, or cause to be paid, any and all
         rentals and other sums (other than Lease Burdens) payable upon or in
         respect of its Working Interests, subject, however, to the right of
         each Party to surrender any of its Working Interests in accordance with
         Article XVI. Upon request, each Party shall furnish to Operator
         satisfactory evidence of the making of such payments. However, no Party
         shall be liable to any other Party for unintentional failure to make
         any such payments provided it has acted in good faith.

13.2     LEASE BURDENS

         Each Party entitled to receive a share of Production shall make, or
         cause to be made, payments for that portion of the Lease Burdens
         constituting the Royalty Share due the State of Alaska on such Party's
         share of Production or the proceeds allocated thereto under this
         Agreement. Each Party shall be obligated to pay, or cause to be paid,
         all other Lease Burdens attributable to its Working Interest, and shall
         be liable for any additional Costs occasioned thereby.

11.3     PAYMENTS TO BE BORNE BY PARTIES

         All payments made pursuant to this Article XIII shall be borne by the
         Party responsible for such payments in accordance with this Agreement,
         any

                                       20

<page>

         payments made by Operator on behalf of a Party snail be reimbursed by
         the Party liable for payment.

ARTICLE XIV - TAXES
-------------------

14.1     TAXES UPON PROPERTY AND OPERATIONS

         All taxes assessed or levied upon property or operations under this
         Agreement, except income taxes, taxes measured by Production and taxes
         upon Lease Burdens which are payable by the owners thereof: snail be
         paid by Operator as and when due and payable. All such taxes shall be
         charged to and borne by the Parties in proportion to their respective
         Working Interests.

14.2     OTHER TAXES

         Each Party shall pay or cause to be paid all taxes imposed upon or in
         respect of its share of Production or handling of its share of
         Production.

14.3     TRANSFER OF INTERESTS

         In the event of a transfer by one Party to another under the provisions
         of this Agreement of any Working Interest, or of any interest in any
         well or in the materials and equipment in any well, or of any interest
         in platforms, pipelines or other facilities, or in the event of the
         reversion of any relinquished interest as in this Agreement provided,
         the taxes above mentioned assessed against the interest transferred or
         reverted for the taxable period in which such transfer or reversion
         occurs shall be apportioned between such Parties so that each shall
         bear the percentage of such taxes which is proportionate to that
         portion of the taxable period during which it owned such interest.

14.4     NOTICES AND RETURNS

         Each Party shall promptly furnish Operator with copies of notices,
         assessments, levies or tax statements received by it pertaining to the
         taxes to be paid by Operator. Operator shall make such returns, reports
         and statements as may be required by law in connection with any taxes
         above provided to be paid by it, shall furnish copies to the Parties
         upon request, and

                                       21

<page>

         shall notify the Parties of any tax which it does not propose to pay
         before such tax becomes delinquent.

ARTICLE XV - INSURANCE
----------------------

15.1     REQUIRED INSURANCE

         Operator shall procure and maintain the following insurance for the
         protection of all Parties hereto and the premiums therefor shall be
         charged as Costs under this Agreement. In lieu of providing insurance,
         Operator may cover its obligation under this Agreement through its
         financial resources and satisfy any required evidence of such with a
         "Letter of Self insurance". The insurance coverage may be altered from
         time to time as conditions warrant subject to approval of the Parties.

         A. Operator shall carry:

                  (1)      General Liability Insurance and Marine Liability
                           (also referred to as Protection and Indemnity
                           Insurance) and Aircraft Liability (if aircraft are
                           used) each with a combined single limit of at least
                           $500,000 per occurrence.

                  (2)      All Risk Physical Damage Insurance, if readily
                           available, including Debris Removal, and Cost of
                           Control of Well Insurance, with a deductible of at
                           least $100,000 per occurrence.

         B.       Operator shall carry: Workmen's Compensation and Employers'
                  Liability in cover all operations including marine operations
                  (and liability for transportation, wages, maintenance and cure
                  to a master or a member of a crew of any vessel) conducted
                  under this Agreement with an Employers' Liability limit of at
                  least $800,000. Such insurance shall contain a provision
                  wherein carrier waives its right to subrogation against the
                  Parties hereto.

                                       22

<page>

15.2     INDIVIDUAL INSURANCE

         Any Party may procure and maintain at its own cost and expense such
         other insurance as it shall determine and any such insurance shall
         inure solely for the benefit of such Party procuring the same;
         provided, however, that each such insurance policy shall contain a
         waiver an the part of the insurance carrier of all rights, by
         subrogation or otherwise, against each Party not named as an insured in
         such policy or if such waiver is not secured the insured shall
         indemnify and hold harmless each Party not named as an insured in such
         policy against any claim of the insurance carrier arising against such
         Party by subrogation or otherwise.

15.3     CONTRACTORS' INSURANCE

         Operator shall require all contractors engaged in operations under this
         Agreement to comply with the Workman's Compensation Law or the State of
         Alaska, and cover all marine operations conducted under the contract,
         and to maintain such other insurance in such amounts as is deemed
         necessary by the Operator. All such insurance shall contain a waiver of
         subrogation by the carrier as to each Party not named as an insured
         therein.

15.4     NOTICE OF LOSSES AND CLAIMS

         Operator shall notify the other Parties as soon as practicable after
         the occurrence of any major accident involving either damage to
         property or injuries to or death of persons.

ARTICLE XVI - RELEASE FROM OBLIGATIONS; SURRENDER: RIGHT OF FIRST REFUSAL
-------------------------------------------------------------------------

16.1     SURRENDER OR RELEASE

         A Working Interest shall not be surrendered except with the consent of
         all Parties. However, a Party who owns a Working Interest and who is
         not at the time committed to participate in the Drilling, Deepening or
         Plugging Back of a Well may be relieved of further obligations with
         respect to such Pool as than constituted by executing and delivering to
         Operator an assignment conveying

                                       23

<page>

         to all other Parties all Working Interests owned by such Party,
         together with the entire interest of such Party in any and all wells,
         materials, equipment and other property, and, if applicable, the
         payment required by Section 8.5.

16.2     ACCRUED OBLIGATIONS

         A Party making an assignment or surrender in accordance with Section
         16.1 shall not be relieved of its liability for any obligation accrued
         hereunder at the time the assignment or surrender is made or of any
         obligation to bear its share of the Casts incurred in any Drilling,
         Deepening or Plugging Back operation in which such Party has elected to
         participate prior to the making of such assignment or surrender
         provided, however, that the liability of Marathon and Union for such
         costs shall terminate when both of them have disposed of all of their
         Working Interests in the Area.

16.3     RIGHT OF FIRST REFUSAL

         No Party shall sell all or any portion of Its Working Interests in the
         Area to a third party unless that Party has first offered to sell all
         or such portion of its Working Interests to each of the other Parties
         pursuant to this Section 16.3. Any Party which proposes to sell all or
         a portion of its Working Interests ("Selling Party") to a third party
         shall provide to each of the other Parties a notice of the name end
         address of the prospective third-party purchaser (who must be ready,
         willing and able to purchase), the purchase price, a legal description
         of the assets TO BE purchased, and all substantive terms of such offer.
         Within twenty days following the date a Party receives such notice, it
         ("Purchasing Party") may notify the Selling Party of its agreement to
         purchase the Selling Party's Working Interests which are subject to the
         offer from the third party, in which case the Selling Party shall
         convey the Working Interests which are subject to the third-party offer
         to the Purchasing Party for the same consideration and on the same
         terms and conditions to which the third party has agreed. If there is
         more than one Purchasing Party, then the Selling Party shall convey
         such interests to each Purchasing Party in the same proportion that
         each Purchasing Party's Working Interests in the Area bears to the
         Working Interests of all Purchasing Parties in the Area at the time
         that the Selling Party provides the notice required by this Section
         16.3 However, there shall be no preferential right to purchase in those
         cases in which any Party wishes to mortgage its interests, or to
         transfer title to its interests to its mortgagee in lieu of or pursuant
         to foreclosure of a mortgage of its interests,

                                       24

<page>

         or to dispose of its interests by merger, reorganization,
         consolidation, or by sale of all or substantially all of its oil and
         gas assets to any party, or by transfer of its interests to a
         subsidiary or parent company or to a subsidiary of a parent company, or
         to any company in which such Party owns a majority of the stock.

ARTICLE XVII - FORCE MAJEURE
----------------------------

17.1     FORCE MAJEURE

         The obligations of Operator hereunder shall be suspended to the extent
         that. and only so long as, performance thereof is prevented, in whole
         or in part, by acts of God, fire, action of the elements, weather or
         natural phenomena, including, but not limited to, ice within the Area
         rendering continued operations hazardous to life or property, strikes
         or other differences with workmen, unavoidable accidents, acts of civil
         or military authorities, acts of the public enemy, restrictions or
         restraints imposed by law or by regulation or order of governmental
         authority, whether Federal, state, or local, inability to obtain
         necessary rights of access, uncontrollable delays in transportation,
         inability to obtain necessary materials in open market, or any other
         cause reasonably beyond control of Operator whether or not similar to
         any cause above enumerated. Operator shall not be required against its
         will to adjust or settle any labor dispute. Whenever performance of
         obligations is prevented by any such cause, Operator shall give notice
         thereof to the other Parties as promptly as reasonably possible.

ARTICLE XVIII - NOTICES
-----------------------

18.1     GIVING AND RECEIPT

         Except as otherwise specified herein, any notice, consent, or statement
         herein provided or permitted shall be deemed to have been properly
         served when sent by mail, facsimile transmission, courier or telegram
         to the address of the representative of each Party as furnished to
         Operator in accordance with Article XVIII. A notice given under any
         provision hereof shall be deemed given only when received by the Party
         to whom such notice is directed.

                                       25

<page>

18.2 PROPER ADDRESSES

         Each Party's proper address for notice as of the date of this Agreement
         is listed as follows:

          Union Oil Company of California         Marathon Oil Company
          909 W 9th Ave                           3201 C St. Suite 800
          P.O. Box 196247                         P.O. Box 196168
          Anchorage, AK 99519-6247                Anchorage, AK 99519-6168

          Ph (907) 276-7600                       Ph (907) 561-5311
          Fax (907) 263-7698                      Fax (907) 564-6489

ARTICLE XIX - LIABILITY, CLAIMS, AND SUITS
------------------------------------------

19.1     INDIVIDUAL LIABILITY

         The duties, obligations, and liabilities of the Parties shall be
         several and not joint or collective; and nothing herein contained shall
         ever be construed as creating a partnership of any kind, joint venture,
         association, trust, or other legal entity among the Parties.

19.2     SETTLEMENTS

         Operator may settle any single damage claim or suit involving
         operations but not involving an expenditure in excess of Ten Thousand
         Dollars ($10,000.00) provided the payment is in complete settlement of
         such claim or suit. If the amount required for settlement exceeds the
         above specified amount, the Parties shall assume and take over the
         further handling of the claim or suit unless such authority is
         expressly delegated to Operator All costs and expense of handling,
         settling, or otherwise discharging such claim or suit shall be an item
         of Costs. If a claim is made against any Party on account of any matter
         arising from operations hereunder for which such Party is not solely
         responsible under this Agreement, the Party shall immediately notify
         the other Parties and the claim or suit shall be treated as any other
         claim or suit involving operations.

                                       26

<page>

ARTICLE XX - INTERNAL REVENUE PROVISION
---------------------------------------

20.1     INTERNAL REVENUE PROVISION

         Each of the Parties hereby elects to be excluded from the application
         of Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code
         of 1986, or such portion or portions thereof as may be permitted or
         authorized by the Secretary of the Treasury OF the United States or his
         delegate insofar as such Subchapter or any portion or portions thereof
         may be applicable to the Parties, If any present or future income tax
         laws of the State of Alaska contain provisions similar to those
         contained in the Subchapter of the Internal Revenue Code of 1986 above
         referred to under which a similar election is permitted, each of the
         Parties hereby elects to he excluded from the application of such laws.
         Accordingly, each Party hereby authorizes and directs Operator to
         execute such an election or elections on its behalf and file the same
         with the proper administrative office or agency. If requested by
         Operator, each Party agrees to execute and join in such instruments as
         are necessary to make such elections effective.

ARTICLE XXI - EFFECTIVE TERM
----------------------------

21.1     TERM

         This Agreement is effective on the date first written above and shall
         continue in effect until:

         A.       all wells have been plugged and abandoned or otherwise
                  disposed of,

         B.       all property acquired for the joint account has been disposed
                  of in accordance with the instructions of the Parties, and

         C.       there has been a final accounting.

ARTICLE  XXII - NON-DISCRIMINATION
----------------------------------

22.1     NON-DISCRIMINATION

         In connection with the performance of work under this Agreement,
         Operator agrees to comply with all of the provisions of Section 202(1)
         to (7), inclusive,

                                       27

<page>

         of Executive Order 11246, as amended (30 FR 12319), which are hereby
         incorporated by reference in this Agreement Operator agrees to insert
         the foregoing provision in all contracts for standard commercial
         supplies or raw materials.

ARTICLE  XXIII - OTHER PROVISIONS
---------------------------------

23.1     AUDITS

         An audit shall be made of Operators records and books or account
         pertaining to operations under this Agreement whenever the making of
         such audit is requested, except that Operator shall not be audited more
         often than once each year, except upon the resignation or removal of
         such Operator Such audit shall be made by auditors in the employ of the
         Parties desiring to participate therein, and the allowance to be made
         to each Party furnishing an auditor shall be determined by the approval
         of such Parties, and paid by such Parties in proportion to their
         respective participation among themselves in Costs incurred during the
         period covered by the audit.

23.2     LAWS AND REGULATIONS

         This Agreement shall be subject to all applicable laws and regulations,
         and shall be interpreted in accordance with the laws of the State of
         Alaska.

23.3     ADDITIONAL BURDENS

         In the event that any Party has created or should subsequently create
         against its interest, any additional royalty, overriding royalty,
         production payment, or other burden or charge, the Party which has
         created or subsequently creates any such additional burden or charge
         shall hold the other Parties to this Agreement harmless from such
         additional burdens and charges out of its own funds. As security for
         the performance of the obligations created by this paragraph, the
         Parties entitled to be held harmless shall have a lien to secure the
         performance of the obligations created by this Section 213. Such lien
         shall exist upon the interests owned by the Party charged with
         performing such obligation.

                                       28

<page>

23.4     SUCCESSORS AND ASSIGNS

         The provisions of this Agreement shall be covenants running with the
         lands, leases, and interests covered hereby, and shall be binding upon
         and inure to the benefit of the legal representatives, successors and
         assigns of the Parties hereto.

23.5     ENTIRE AGREEMENT

         This Agreement including all exhibits attached here and made a party
         hereof, constitute the entire agreement between the Parties with
         respect to the subject matter hereof and thereof and superseded all
         prior agreements, understandings, negotiations and discussion, whether
         oral or written, of the Parties with respect to same. No supplement,
         amendment, alteration, modification, waiver or termination of this
         Agreement shall be binding unless executed in writing by the Parties
         hereto.

23.6     WAIVER

         No waiver of any of the provisions of this Agreement shall be deemed or
         shall constitute a waiver of any other provisions hereof (whether or
         not similar), nor shall such waiver constitute a continuing waiver
         unless otherwise expressly provided.

23.7     CAPTIONS

         The captions in this Agreement are for convenience only and shall not
         constitute a waiver of any other provisions hereof (whether or not
         similar), nor shall such waiver constitute a continuing waiver unless
         otherwise expressly provided.

23.8     GOVERNING LAW

         This Agreement shall be governed by and interpreted in accordance with
         the laws OF the State of Alaska without regard to conflict of law rules
         that would direct the application of the law of another jurisdiction.

                                       29

<page>

ARTICLE XXIV - EXECUTION
------------------------

24.1     COUNTERPARTS

         This Agreement may he executed in counterparts and all such
         counterparts taken together shall be deemed to constitute one and the
         same instrument,

24.2     RATIFICATION

         This Agreement may be executed by the execution and delivery of a good
         sufficient instrument or ratification, adopting and entering into this
         Agreement. Such ratification shall have the same effect as if the Party
         executing it had executed this Agreement or a counterpart hereof.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
effective as of the date first herein written.

Operator/and Party
Union Oil Company of California

/s/ Keven A. Tabler
----------------------------
Kevin A. Tabler
Attorney-in-fact
Date: June 12, 1996

Party
Marathon Oil Company

/s/ D.T. Perkins
----------------------------
Production Manager
Date: 6/12/96

                                       30

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}]]