Document:

Exhibit 10.63

                              SETTLEMENT AGREEMENT

                            Regarding the Fences Area

Entered into this 8 day of January 2003, by and between

1)       Polskie Gornictwo Naftowe i Gazownictwo S.A., having its seat in Warsaw
         at ul. Krucza 6/14 ("POGC"); and

2)       FX Energy Poland Sp. z o.o. having its seat in Warsaw at Al. Jana Pawla
         II 29 ("FX")

hereinafter jointly called the "Parties" and each of them individually a "Party"

                                    Article 1
                   Subject matter of the Settlement Agreement

By entering into this Settlement Agreement the Parties desire to resolve
disputes between them arising in connection with implementation of the following
prior agreements:

         1)       the Agreement on Cooperation in Exploration of Hydrocarbons on
                  Foresudetic Monocline of April 11, 2000 (the "Cooperation
                  Agreement");

         2)       the Joint Operating Agreement Covering the Areas in the
                  Foresudetic Monocline of May 12, 2000 (the "Fences JOA"); and

         3)       the Natural Gas Sale and Purchase Agreement, for Fences Area
                  Fields, Republic of Poland of December 18, 2000 (the "Gas
                  Sales and Purchases Agreement");

                                    Article 2
                            Parties' representations

The Parties unanimously state as follows:

1)       The Cooperation Agreement and the Fences JOA provide that the Parties'
         respective interests in all cost and benefits arising as a result of
         the joint operations are equal to: 51% - POGC and 49% - FX, provided
         that FX has committed to fund 100% of the initial costs of joint
         operations up to the equivalent of 16 million US Dollars, in
         consideration of the value of the geological data and drilling prospect
         structures obtained by POGC in the Fences area as a result of its prior
         seismic and drilling work;

2)       The results of joint operations conducted so far, which focused on
         several exploration targets identified based on the geological data
         provided by POGC, and the funding of which was provided by FX, have
         occurred to be disappointing for each of the Parties;

3)       Both Parties recognize that any misunderstanding about the quality of
         the data processing and interpretation methods used in the past was not
         due to any bad intention of either of the Parties; and FX hereby
         revokes any statements it may have made to the contrary of the above
         and apologizes for them to POGC.

<PAGE>

4)       The Parties believe that the Fences area and other geologically similar
         areas can be successfully explored through application of new data
         reprocessing techniques proposed by FX, and they desire to continue
         their cooperation on the 51/49 rights and obligations sharing basis,
         pursuant to the principles stated in the Fences JOA;

5)       The Parties desire to settle and clarify all issues regarding the
         Fences area and the existing agreements between them.

                                    Article 3
          FX obligations under Fences JOA and the Cooperation Agreement

3.1      Subject to further provisions of this Agreement, FX reaffirms its
         commitment to spend USD 16 million on hydrocarbon exploration within
         the Fences area as per the Fences JOA. Once the costs of joint
         operations within the Fences area reach the equivalent of USD 16
         million, all further exploration costs within the Fences area shall be
         covered in accordance with the Parties interests under the Fences JOA,
         i.e. 49% - FX and 51% - POGC.

3.2      FX shall pay to POGC the total of PLN 18,809,026.35 consisting of :

         a)       PLN 16,323,333.48 representing the principal amount invoiced
                  and outstanding; and

         b)       PLN 2,485,692.87 representing interest accrued until October
                  31, 2002;

by December 31, 2003, together with interest on the amount specified under
letter a) above, pursuant to the rate of interest agreed upon in the Fences JOA,
i.e. equal to 80% the Polish statutory interest rate, as applicable from time to
time, calculated from November 1, 2002 until payment, in cash or, if the Parties
so agree, by financing the POGC part of joint operational costs within the
Fences area or any other area of joint operations.

3.3      The amounts stated above constitute the entire FX obligation to POGC
         payable as of the date hereof.

                                    Article 4
                 Transfer of mining usufruct in the Fences area

4.1      POGC and FX shall conclude an agreement (the "Transfer Agreement"),
         substantially in the form set forth in Appendix 2 hereto, to transfer
         to FX a 49% interest in the mining usufruct established on the
         Srem-Jarocin concession area covering the Fences area (not to include
         any of the exploitation concession areas and producing wells excluded
         under the definition of the Contract Area set forth in Appendix 1
         hereto), subject to obtaining the required consent from the State
         Treasury, which POGC shall promptly apply for and shall make best
         efforts to obtain as soon as possible. The Transfer Agreement shall be
         signed concurrently with this Agreement.

4.2      All administrative cost and taxes connected with the transfer of rights
         pursuant to the Transfer Agreement shall be paid by FX. FX shall be
         responsible for filing the appropriate tax return. Other fees and costs
         related to the mining usufruct shall be covered from the Joint Account
         in accordance with the Fences JOA.

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<PAGE>

4.3      Should the State Treasury refuse its consent for the mining usufruct
         transfer, the Parties shall act diligently to find alternative ways of
         securing FX direct rights to 49% of benefits produced by the joint
         operations within the Fences area.

4.4      Together with the interest in the mining usufruct and without a
         separate compensation, POGC shall transfer to FX a 49% ownership
         interest in all geological data regarding the Fences area owned by
         POGC, subject to obtaining the required consent of the Minister of
         Environment. Other provisions of this Article 4 shall apply to the
         geological data mutatis mutandis.

                                    Article 5
                    Other matters concerning the Fences area

5.1      The Parties agree that they will not form a company solely for the
         purposes of cooperation within the Fences area, but may in the future
         decide to form a joint company to carry out other tasks, which may
         include some activities within the Fences or/and other areas.

5.2      The Parties hereby agree to amend the Fences JOA as specified in
         Appendix 1.

5.3      The Parties intend to drill two new exploratory wells within the Fences
         area during 2003.

                                    Article 6
                           Detailed financial matters

6.1      The Parties confirm that the financial expenditures already incurred on
         their joint operations within the Fences area are equal to USD
         10,567,364.78 of which the equivalent of USD 6,597,685.59 has been paid
         by FX to POGC, and the equivalent of USD 3,969,697.16 has been invoiced
         by POGC to FX and is to be paid in accordance with Clause 3.2.

6.2      Subject to Clause 7.1, in order to fulfil its commitment to ensure an
         amount of USD 16 million on financing of works within the Fences area,
         FX shall cover 100% costs of drilling the two wells within the Fences
         area referred to in Clause 5.3 above and any additional joint
         operations within the Fences area conducted after the date hereof,
         until such cost, together with the amount specified in Clause 6.1 above
         reach the equivalent of USD 16 million, following which all further
         such operations shall be financed 51% POGC and 49% FX.

6.3      For the purposes of calculating any US Dollar equivalent of any amounts
         to be paid in Polish Zloty (or vice versa), the average exchange rate
         published by the National Bank of Poland on the day the payment is made
         (i.e. the appropriate amount is received by the payee), shall be
         applied.

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<PAGE>

                                    Article 7
                       Kleka 11 gas and further gas sales

7.1      POGC acknowledges and confirms that pursuant to the Fences JOA, FX is
         entitled to 49% of all gas produced from the Kleka 11 well. The total
         value of the gas which has been produced from that well since the
         beginning of the test production and which is still capable of being
         produced in accordance with good international practices (the "Kleka 11
         Gas Value") shall be calculated, by applying the gas price stipulated
         in the Gas Sales Agreement, by an independent expert appointed by the
         Parties within 3 months following the date hereof and shall be
         deducted, by way of set-off, from the amount due under Article 3.2
         above. The costs of the calculation by the independent expert shall be
         paid by the Parties in proportion of 51/49.

7.2      FX shall ensure that all gas produced from the Kleka 11 well, and the
         Kleka 11 well itself, is not subject to any lien established by FX in
         favor of Rolls Royce Power Ventures Limited or any other third party.

7.3      POGC commits to purchase any gas produced under the Fences JOA from any
         wells drilled hereafter in the Fences area pursuant to the Gas Sales
         Agreement, subject to any applicable mandatory provisions of Polish
         law. The Gas Sales Agreement shall be in force until December 31, 2008.

                                    Article 8
                                  Default by FX

8.1      Should FX fail to fully perform its obligations specified in Article 3
         in accordance with the provisions of this Agreement, POGC shall have
         the right to terminate the Fences JOA by a 90-day written notice to FX,
         provided that the termination shall not occur if FX fulfills all its
         obligations within the notice period.

8.2      If the Fences JOA is terminated pursuant to Clause 8.1, it will
         nevertheless remain in effect with respect to aerial extent of any
         prospects mapped and drilled as joint operations under the Fences JOA
         prior to the termination and FX shall keep an interest specified below
         in rights to such structure, for the duration of the relevant POGC
         concession listed in Appendix 3 (including any amendment or extension).
         The interest kept by FX shall be equal to the proportion between the
         total costs of work actually covered by FX pursuant to the Fences JOA
         and this Agreement (excluding any interest on delay on payment) and the
         USD 16 million, as of the date of termination of the Fences JOA, but
         shall not be greater than 49%. (The prospect aerial extent shall be
         delineated by the lowest closing contour or by the bottom of a defined
         hydrocarbon contact determined by a well penetration, whichever is
         deeper). Subject to the preceding sentence, promptly following the
         termination of the Fences JOA, FX shall transfer the mining usufruct to
         POGC or any party nominated by POGC, pursuant to an agreement
         substantially consistent with the form specified in Appendix 2, mutatis
         mutandis.

                                    Article 9
                              Assignment and pledge

9.1      FX shall have the right to assign its rights and obligations under the
         Fences JOA, the Gas Sales Agreement or this Agreement to a third party
         of its choice with a written consent of POGC.

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<PAGE>

9.2      POGC may not refuse its consent without an important reason, which
         shall include in particular a weak financial position of the proposed
         assignee or POGC remaining in a serious dispute with the proposed
         assignee.

9.3      FX shall have the right to pledge its rights under the Fences JOA, the
         Gas Sales Agreement or this Agreement in accordance with Polish law,
         provided that FX shall inform POGC in writing of its intention to
         establish a pledge with a 14-days prior notice and shall withhold the
         establishment of the pledge, if POGC raises, within this period, an
         objection based on an important reason, as referred to in Clause 9.2.

9.4      POGC shall have the right to assign its rights and obligations under
         the Fences JOA, the Gas Sales Agreement or this Agreement to a
         subsidiary formed pursuant to the POGC restructuring program which
         shall hold rights to the fields concerned by the Fences JOA, the Gas
         Sales Agreement and this Agreement.

                                   Article 10
                            Waiver of further claims

10.1     FX hereby unconditionally waives all claims it may have against POGC in
         connection with the quality of geological data obtained as a result of
         work conducted by POGC prior to the Cooperation Agreement. Except as
         otherwise provided herein, each Party hereby waives all claims it may
         have vis-a-vis the other in respect of obligations to finance 100% of
         certain works or any other obligations arising from the Cooperation
         Agreement. Subject to obtaining by FX a consent from Rolls Royce Power
         Ventures, the Cooperation Agreement shall be terminated and fully
         superseded hereby, effective upon the obtaining of the said consent, a
         copy of which FX shall deliver to POGC.

10.2     The waiver pursuant to Clause 10.1 above shall be properly recorded by
         credit notes and/or correction invoices, to the extent required or
         desirable under Polish tax regulations and the Accounting Act.

                                   Article 11
                                  Miscellaneous

11.1     Articles XVI through XVIII of the Fences JOA are incorporated herein by
         reference and become Articles 12 through 14 of this Agreement.

FX ENERGY POLAND SP. Z O.O.

/s/ David N. Pierce, Member of the Management Board

POLSKIE GORNICTWO NAFTOWE I GAZOWNICTWO S.A.

/s/ Zbigniew Tatys, Director of Exploration and Production

/s/ A. Hoscilowicz, Director of Investments

                                       5
<PAGE>

                                   APPENDIX 1
                          Amendments to the Fences JOA

The respective provisions of the Fences JOA shall be amended to read as follows:
 Definition of Contract Area.
 The Contract Area consists of the area covered by Concession #29/2001/p and by
 that certain Mining Usufruct dated September 28, 2001, covering prospecting for
 and exploring deposits of oil and natural gas in the "Srem-Jarocin" area. The
 following areas and wells shall not constitute part of the Contract Area:

         Concessions                                          Wells
         Name                      Number                     Solec 7
         Kaleje                    127/93                     Solec 8
         Jarocin                   128/93                     Kaleje 11
         Kleka                     129/93                     Kaleje 14
         Radlin                    172/94                     Kleka 11

                                       6
<PAGE>

                                   APPENDIX 2

                               Transfer Agreement

THIS AGREEMENT is made the __ day of January, 2003, in Warsaw.

BETWEEN:

1.       POLSKIE GORNICTWO NAFTOWE I GAZOWNICTWO S.A. with its registered office
         in Warsaw, at ul. Krucza 6/14, 00-537 Warsaw, entered into the National
         Court Register maintained by the District Court for the city of Warsaw
         under the KRS No. 0000059492 ("PGNiG"),

and

2.       FX ENERGY POLAND Sp. z o.o. with its registered seat in Warsaw, at al.
         Jana Pawla II 29, 00-867 Warsaw, entered into the National Court
         Register maintained by the District Court for the city of Warsaw under
         the KRS No. 0000052459 ("FX"),

jointly called the "Parties" and each of them individually a "Party".

                                    Article 1
                            Purpose of the Agreement

The Parties enter into this Agreement pursuant to Article 4 of the Settlement
Agreement Regarding the Fences Area of even date herewith.

                                    Article 2
                         PGNiG title to Mining Usufruct

PGNiG represents that it holds 100% of the mining usufruct for exploration and
prospecting for oil and natural gas (the "Mining Usufruct") in the
"Srem-Jarocin" area (also called the "Fences Area") established pursuant to the
Agreement on Establishment of the Mining Usufruct dated September 28, 2001 and
the Concession No.29/2001/p, both of which are attached hereto as Schedule 2.
The Mining Usufruct is free of any encumbrances or third party claims.

                                    Article 3
                           Transfer of Mining Usufruct

3.1      PGNiG hereby transfers to FX and FX receives, a 49% ownership interest
         in the Mining Usufruct, subject to Clause 3.2 below and subject to the
         suspensory condition of obtaining a consent from the State Treasury for
         the transfer, as required under the relevant mining usufruct agreement.
         As soon as the consent is obtained, PGNiG shall notify that to FX in
         writing.

3.2      No interest in the Mining Usufruct is transferred hereby with respect
         to:

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<PAGE>

         a)       the areas covered by the following exploitation concessions
                  held by PGNiG: Kaleje (No. 127/93); Jarocin (No.128/93); Kleka
                  (No. 129/93); Radlin (No. 172/94); and

         b)       the following wells: Solec 7; Solec 8; Kaleje 11; Kaleje 14;
                  Kleka 11.

                                    Article 4
                Transfer the ownership of geological information

4.1      PGNiG, as the owner of the geological information contained in the
         documentation regarding the Fences Area acquired before January 1,
         2002, (listed in Schedule 4 to the agreement referred to in Article 1),
         hereby transfers to FX and FX receives a 49% interest in ownership in
         rights to all of geological information contained in the documentation,
         subject to the suspensory condition of obtaining a consent from the
         Minister of Environment, as required pursuant to the Geological and
         Mining law. As soon as the consent is obtained, PGNiG shall notify that
         to FX in writing.

4.2      PGNiG, as the holder of the exclusive right to commercial use the
         geological documentation regarding the Fences Area acquired after
         January 1, 2002, (listed in Schedule 5 to the agreement referred to in
         Article 1) hereby transfers to FX and FX receives a 49% interest in the
         above right.

                                    Article 5
                                      Costs

FX shall pay all administrative cost and taxes due in connection with this
Agreement.

                                    Article 6
                                  Miscellaneous

6.1      Any disputes related to this Agreement shall be resolved by the
         Arbitration Court at the Polish Chamber of Commerce in accordance with
         its rules.

6.2      This Agreement has been executed in Polish and English. In case of any
         discrepancies between both versions, the Polish version shall prevail.

6.3      Any amendments to this Agreement must be in writing to be valid.

POLSKIE GORNICTWO NAFTOWE I GAZOWNICTWO S.A.

____________________

____________________

FX ENERGY POLAND SP. Z O.O.

____________________

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<PAGE>

                                   SCHEDULE 3
               Copies of Mining Usufruct Agreement and Concession

                                       9
<PAGE>

                                   SCHEDULE 4
         Geological information regarding the Fences Area owned by PGNiG

Covered is all geological and geophysical information from the Fences Area
obtained by POGC as a result of geological and geophysical work conducted during
the period between 01.02.1989 and 01.01.2002. This information is managed by the
archives department of Geological Bureau GEONAFTA.

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<PAGE>

                                   SCHEDULE 5
                Geological information regarding the Fences Area
            to which PGNiG has the exclusive right of commercial use

Covered is all geological and geophysical information from the Fences Area
obtained by POGC as a result of geological and geophysical work before
01.02.1989 or after 01.01.2002. PGNiG is obliged to obtain consent from the
State Treasury to use the information obtained prior to 01.02.1989, and then to
use it in accordance with the terms specified by the State Treasury.

                                       11Exhibit 10.64

                                FARMOUT AGREEMENT

                           ENTERED INTO BY AND BETWEEN

                           FX ENERGY POLAND Sp. z o.o.

                                       AND

                       CALENERGY POWER (POLSKA) Sp. z o.o.

                           COVERING THE "FENCES AREA"
                          IN THE FORESUDETIC MONOCLINE

<PAGE>

THIS Farmout Agreement (hereinafter referred to as the "Agreement") is made as
of the 9th day of January, 2003, among:

FX ENERGY POLAND Sp. z o.o. with its registered seat in Warsaw, at al. Jana
Paw(3)a II 29, 00-867 Warsaw, entered into the Polish Court Register maintained
by the District Court in Warsaw under the KRS No. 0000052459 ("FX"), represented
by Mr. David Pierce, a member of the Management Board; and

CALENERGY POWER (POLSKA) Sp. z o.o. with its registered seat in Warsaw at
Niedzwiedzia 8C, 02-737, Warsaw entered into the Polish Court Register
maintained by the District Court in Warsaw under the RHB No. 52059 ("CE Power"),
represented under power of attorney by Mr. Peter Youngs;

                                   WITNESSETH:

WHEREAS, Polskie Gornictwo Naftowe I Gazownictwo S.A. with its registered seat
in Warsaw, at Krucza 6/14, 00-537 Warsaw, entered into the Polish Court Register
maintained by the District Court in Warsaw under the KRS No. [ ] ("POGC") has
entered into that certain Mining Usufruct dated September 28, 2001, with the
State Treasury of the Republic of Poland, dated September 28, 2001, covering
prospecting for and exploring deposits of oil and natural gas in the
"Srem-Jarocin" area (the "Fences Mining Usufruct") and POGC has also received
Concession #29/2001/p relating thereto (the "Fences Concession");

WHEREAS, POGC and FX entered into that certain Agreement on Cooperation in
Exploration of Hydrocarbons on Foresudetic Monocline dated April 11, 2000, (the
"Fences Cooperation Agreement") and that certain Joint Operating Agreement dated
May 12, 2000, (the "Fences JOA"), all of which agreements grant FX certain
rights and obligations with respect to the area (the "Fences Area") covered by
the Fences Mining Usufruct and the Fences Concession;

WHEREAS, POGC and FX entered into that certain Settlement Agreement (the "Fences
Settlement Agreement") dated January 8, 2003 such agreement clarifying and
resolving matters and issues arising under the Fences Cooperation Agreement.

WHEREAS, CE Power wishes to earn and acquire from FX undivided interests in the
Fences Mining Usufruct and the Fences JOA, and FX is willing to have CE Power
participate in operations conducted in the Fences Area and to earn the
interests;

WHEREAS, the Parties wish to set out the terms and conditions upon which FX will
transfer and CE Power will earn and receive a transfer of such interests;

WHEREAS this Agreement is intended to set forth in more detail the respective
rights and obligations of the Parties hereto with respect to the aforesaid
agreements;

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

1.       Definitions

         1.1      In this Agreement the following capitalized words and
                  expressions shall have the following respective meanings:

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<PAGE>

         "AFE" shall have the meaning defined in the Fences JOA.

         "Affiliate" shall have the meaning defined in the Fences JOA.

         "Agreement" means this agreement.

         "Best Efforts" means that the Party in question shall immediately carry
         out all actions that could be expected of it in order to discharge the
         relevant obligation placed upon it by this Agreement, which shall
         include lending all assistance to the other Parties as could reasonably
         be expected.

         "Business Day" shall have the meaning defined in the Fences JOA.

         "CE Gas" means CalEnergy Gas (Holdings) Ltd, an English company with
         its registered office in London at 60 Gray's Inn Road, London, England
         (Registration Number 2772202).

         "CalEnergy Resources Limited" means an English company with its
         registered office in Carliol House, Market Street, Newcastle, England
         (Registration Number 04508881).

         "Contract Area" shall have the meaning defined in the Fences JOA.

         "Data" means all data which any Party has a right to dispose of,
         whether in hard copy or digital form (where available) including, but
         not limited to, geoscientific and engineering data and logs.

         "Day" shall have the meaning defined in the Fences JOA.

         "Dollars" means United States of America dollars.

         "Drilling" means (in addition to its usual meaning) preparation for
         drilling, drilling, taking and running logs, cores and flow and
         formation tests to evaluate formations encountered which are
         prospectively productive of hydrocarbons, together with plugging and
         abandonment (in the case of a dry hole), suspension or completion as a
         producer.

         "End Date" means the date specified in Clause 3.10.

         "Fences Area" means the land area covered by the Fences JOA, the Fences
         Mining Usufruct and the Fences Concession.

         "Fences Concession" means that certain concession, number 29/2001/p,
         issued to POGC by the Minister of Environment, a copy of which is
         attached at Exhibit 2.

         "Fences Cooperation Agreement" means that certain Agreement on
         Cooperation in Exploration of Hydrocarbons on Foresudetic Monocline
         dated April 11, 2000, between POGC and FX, pertaining to exploration
         and exploitation of hydrocarbons in the Fences Area, a copy of which is
         attached at Exhibit 3.

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<PAGE>

         "Fences JOA" means that certain Joint Operating Agreement dated May 12,
         2000, between POGC and FX, as amended by inter alia the Fences
         Settlement Agreement, a copy of which is attached at Exhibit 4.

         "Fences Mining Usufruct" means that certain Mining Usufruct dated
         September 28, 2001 between the State Treasury of the Republic of Poland
         represented by the Minister of Environment and POGC covering
         prospecting for and exploring deposits of oil and natural gas in the
         "Srem-Jarocin" area, a copy of which is attached at Exhibit 1.

         "Fences Settlement Agreement" means that certain Settlement Agreement
         regarding the Fences Area dated January 8, 2003, a copy of which is
         attached at Exhibit 5.

         "First Earning Well" means the well in respect of which CE Power may
         elect to pay an amount equal to the Drilling costs pursuant to Clause
         2.3.

         "Force Majeure" means any reason or circumstance (other than lack of
         financial resources) which has a direct impact on the performance of
         the obligations of a Party hereunder and which is beyond the reasonable
         control of the Party concerned and which it could not have predicted or
         prevented acting with due care in accordance with good international
         petroleum industry practices;

         "Maximum Carried Well Cost" means Drilling costs of Two Million Five
         Hundred Thousand US Dollars.

          "Minimum Earned Acreage" means in respect of each of the First Earning
         Well and the Second Earning Well, the minimum area surrounding such
         First Earning Well or Second Earning Well (as the case may be) which CE
         Power may earn an interest in by paying an amount equal to the Drilling
         costs of such well in accordance with the terms of this Agreement.

         "Non-Operator" means a Non-Operator as defined in the Fences JOA.

         "Operating Committee" means the Operating Committee as defined in the
         Fences JOA.

         "Operator" means the Operator as defined in the Fences JOA.

         "Party" means a party to this Agreement and Parties means all of them.

         "Second Earning Well" means the well in respect of which CE Power may
         elect to pay an amount equal to the Drilling costs pursuant to Clause
         5.3.

         "Total Depth" means as to the First Earning Well or the Second Earning
         Well the maximum depth actually reached during those drilling
         operations.

         "VAT" means the value added tax applied if due in accordance with the
         laws of Poland.

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<PAGE>

         1.2      In this Agreement and the Schedules hereto, unless the context
                  otherwise requires:

                  1.2.1    a reference to a statute or statutory provision
                           includes a reference to:
                           (A)      that statute or provision as consolidated,
                                    modified, re-enacted or replaced by any
                                    statute or statutory provision prior to the
                                    date of this Agreement;
                           (B)      any repealed statute or statutory provision
                                    which it re-enacts (with or without
                                    modification) prior to the date of this
                                    Agreement; and
                           (C)      any subordinate legislation made under the
                                    relevant statute prior to the date of this
                                    Agreement;
                  1.2.2    words in the singular shall include the plural, and
                           vice versa;
                  1.2.3    the masculine gender shall include the feminine and
                           neuter and vice versa;
                  1.2.4    a reference to a Recital, Clause, Exhibit or Schedule
                           (other than to a schedule to a statutory provision)
                           shall be a reference to a Recital, Clause, Exhibit or
                           Schedule of or to this Agreement;
                  1.2.5    the headings are for convenience only and shall not
                           affect the interpretation of any provision of this
                           Agreement; and
                  1.2.6    the Schedules form part of this Agreement and have
                           the same force and effect as if expressly set out in
                           the body of this Agreement and any reference to this
                           Agreement shall include the Schedules.

2.       The First Earning Well Decision.

         2.1      Selection of Drillsite. On the date of this Agreement CE Power
                  shall give notice to FX of its choice of drillsite for the
                  First Earning Well and FX shall forthwith give notice to POGC
                  advising of such choice. The CE Power notice shall also
                  include CE Power's proposal for the Minimum Earned Acreage
                  (defined by the aerial extent of the prospect as mapped
                  delineated by the lowest closing contour or by a defined
                  hydrocarbon contact determined by a well penetration whichever
                  is deeper) to be earned by CE Power in connection with the
                  First Earning Well. During the 60 days following the date of
                  this Agreement the technical representatives of CE Power will
                  make themselves available to meet at convenient times and
                  places with the technical representatives of POGC and FX to
                  discuss the drillsite selection and all other matters in
                  respect of the First Earning Well.

         2.2      Drilling Plan, etc

                  2.2.1    As soon as practicable after receipt of notice from
                           CE Power under Clause 2.1 FX shall use its Best
                           Efforts to procure that POGC, in its capacity as
                           Operator under the Fences JOA, makes appropriate
                           arrangements to work with CE Power, either by
                           appointment as agent or otherwise in a manner
                           satisfactory to CE Power, in preparing and finalizing
                           the drilling program proposal for the First Earning
                           Well, to be presented and decided upon at the
                           Operating Committee meeting referred to in Clause
                           2.2.2.

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<PAGE>

                  2.2.2    As soon as practicable after receipt of notice from
                           CE Power under Clause 2.1, FX shall use its Best
                           Efforts to procure that POGC shall also confirm
                           acceptance of CE Power's proposal or submit a
                           counterproposal for the drillsite and the Minimum
                           Earned Acreage and nominate a date for a meeting of
                           the Operating Committee and the representatives of CE
                           Power, which meeting shall be at least 30 days but
                           not more than 45 days after the date that CE Power is
                           appointed agent or other arrangements are agreed
                           under Clause 2.2.1.

                  2.2.3    CE Power, whether as agent for POGC or as otherwise
                           agreed, shall prepare proposals for the Operating
                           Committee meeting covering the well program, AFE,
                           insurance coverage and the selection of the
                           contractors and subcontractors (suppliers and
                           services) including contract terms.

                  2.2.4    The Parties agree that the purpose of the Operating
                           Committee meeting will be to discuss and endeavor to
                           agree the proposals that CE Power shall make on all
                           details of the well program, AFE, insurance coverage,
                           list of contractors and subcontractors including
                           contract terms, Minimum Earned Acreage, and any other
                           matters related to the First Earning Well.

                  2.2.5    FX shall use its Best Efforts to procure that the
                           final decisions of the Operating Committee will be
                           reported to CE Power in writing within 7 Days
                           following the meeting in the form of a final proposal
                           for the well program, AFE, insurance coverage, list
                           of contractors and subcontractors including contract
                           terms, Minimum Earned Acreage, and any other matters
                           related to the First Earning Well.

         2.3      Decision to Drill or Terminate. Within 7 Days after receipt of
                  the final decisions of the Operating Committee pursuant to
                  Clause 2.2.5, CE Power shall notify FX of its decision whether
                  or not to pay an amount equal to the Drilling costs of the
                  First Earning Well, which decision shall be entirely within
                  the discretion of CE Power. If CE Power elects to pay an
                  amount equal to the Drilling costs of the First Earning Well,
                  FX shall use its Best Efforts to procure that POGC, in its
                  capacity as Operator under the Fences JOA, promptly appoints
                  CE Power as agent for the management of the drilling operation
                  of the First Earning Well. In its capacity as agent CE Power
                  shall be required to manage the Drilling of the First Earning
                  Well in accordance with the terms of the Fences JOA. If either
                  the Operating Committee meeting referred to in Clause 2.2.5 is
                  not held, or the final decisions thereof are not reported as
                  required by Clause 2.2.5, by the End Date, then CE Power may
                  elect to terminate this Agreement by giving FX seven (7) Days
                  written notice. If CE Power elects not to pay an amount equal
                  to the Drilling costs of the First Earning Well, or fails to
                  notify FX within the said 7 Days, this Agreement shall
                  terminate forthwith.

                                       6
<PAGE>

         2.4      Effect of Termination under Clause 2.3. If this Agreement is
                  terminated pursuant to Clause 2.3, then save and except for
                  matters in this Clause 2.4 and Clause 11, this Agreement shall
                  be at an end and no Party shall have any further rights or
                  obligations hereunder and CE Power shall forthwith return to
                  FX, or destroy all Data received from FX related to the Fences
                  Area, except for that portion thereof which consists of
                  analyses, compilations, studies or other documents prepared by
                  or on behalf of CE Power.

3.       Conditions Precedent.

         3.1      Transfer of Interest; Amendment of JOA. Promptly following
                  timely receipt of an affirmative notice from CE Power under
                  Clause 2.3, the Parties shall execute and FX shall procure
                  that POGC also execute an amendment to the Fences JOA in the
                  form attached hereto as Schedule 1, to:

                  3.1.1    effect the transfer of a 24.5% working interest in
                           and under the Fences JOA from FX to CE Power and
                           record the unconditional assumption by CE Power of
                           the obligations of a Non-Operator in respect of such
                           24.5% working interest in accordance with Article XI
                           and other applicable provisions of the Fences JOA;

                  3.1.2    prohibit all operations under the Fences JOA, except
                           for operations specifically referred to in this
                           Agreement, without the unanimous consent of all
                           parties to the Fences JOA until this Agreement has
                           been terminated;

                  3.1.3    conform the definition of the Contract Area to the
                           areas described in the Fences Concession and the
                           Fences Mining Usufruct, excluding the Kleka 11 well;

                  3.1.4    amend the provision regarding governing law;

                  3.1.5    amend the provision regarding dispute resolution; and

                  3.1.6    add a provision regarding future amendments to
                           conform to international petroleum industry
                           practices; 3.1.7 add a provision requiring that in
                           the event of the termination of this Agreement
                           pursuant to Clauses 5.3, 6.3, 6.4 or 7.1 the Parties
                           and POGC will:

                           (A)      amend the Fences JOA so that it no longer
                                    covers the land comprising the Minimum
                                    Earned Acreage in respect of the First
                                    Earning Well or the Minimum Earned Acreage
                                    in respect of the Second Earning Well, as
                                    applicable;

                           (B)      execute a new joint operating agreement
                                    ("JOA") to govern the rights and obligations
                                    of the Parties and POGC in respect of
                                    operations conducted on the Minimum Earned
                                    Acreage for each of the First Earning Well
                                    and the Second Earning Well, as applicable,
                                    which JOA shall contain the same terms and
                                    conditions as the Fences JOA except, for the
                                    purposes of identification only, with such
                                    alterations as are necessary to reflect the
                                    identity of the parties and their respective
                                    working interests and the area to be covered
                                    by the JOA.

                           Execution by the Parties and POGC of the amendment of
                           the Fences JOA shall be a Condition Precedent.

                                       7
<PAGE>

         3.2      Interest Fully Earned; No Pre-Existing Obligations. FX shall
                  use its Best Efforts to obtain the acknowledgement and written
                  agreement of POGC that the interest to be transferred to CE
                  Power will be fully earned by FX and unencumbered by any claim
                  by POGC (notwithstanding any agreement between FX and POGC) at
                  the date of such transfer (subject only to future performance
                  as set forth in this Agreement and in the Fences JOA, the
                  Fences Concession and the Fences Mining Usufruct) and not be
                  subject to any claims, liabilities or obligations other than
                  as set forth in this Agreement and in the Fences JOA. In
                  particular, such acknowledgement and written agreement shall
                  specify that neither CE Gas nor CE Power shall under any
                  circumstances whatever be subject to any claims, liabilities
                  or obligations connected with the Fences Cooperation Agreement
                  and the Fences Settlement Agreement. Receipt of such written
                  agreement from POGC, in form and substance satisfactory to CE
                  Power, shall be a Condition Precedent.

         3.3      Assignment of Usufruct. FX shall promptly submit for approval
                  by the Minister of Environment representing the Polish State
                  Treasury an executed assignment in the form set out in
                  Schedule 2, from FX to CE Power, of 24.5% of the Fences Mining
                  Usufruct. FX shall deliver to CE Power copies of such
                  assignment when submitted and, on receipt, copies of the
                  Minister's approval of such assignment. Receipt of the consent
                  of the Minister of Environment to such assignment, in form and
                  substance reasonably satisfactory to the Parties, shall be a
                  Condition Precedent.

         3.4      Waiver of Lien by RRPV. FX shall promptly seek the written
                  consent of Rolls Royce Power Ventures Limited ("RRPV") to the
                  transfer of interests to CE Power contemplated by this
                  Agreement, such transfer to be free and clear of any lien or
                  other encumbrance of RRPV. Such consent shall be substantially
                  in the form attached hereto as Schedule 4. Receipt of the
                  consent of RRPV to such assignment shall be a Condition
                  Precedent.

         3.5      Gas Sales Matters. FX will use its Best Efforts to cause the
                  Parties and POGC to execute an amendment, substantially in the
                  form attached hereto as Schedule 5, to the Natural Gas Sale
                  and Purchase Agreement dated [insert] December 2000 between
                  [insert], (the "GSA") to the effect that:

                  3.5.1    CE Power shall become a party to the GSA;
                  3.5.2    gas produced from any wells located within the
                           Minimum Earned Acreage in respect of the First
                           Earning Well or the Second Earning Well may be added,
                           at the seller's option, to the gas required to be
                           taken by the buyer under the GSA; and
                  3.5.3    the term of the GSA will be extended to at least
                           December 31, 2008.
                  Execution of such amendment to the GSA by POGC, FX, and CE
                  Power shall be a Condition Precedent.

         3.6      Confirmation of Certain Gas Sales Matters. FX shall use its
                  Best Efforts to cause POGC, as Operator under the Fences JOA,
                  to confirm the following matters and receipt of such
                  confirmation shall be a Condition Precedent:

                  3.6.1    the entry pressure into the POGC gas system in the
                           Fences Area does not exceed 300 psi; and

                                       8
<PAGE>

                  3.6.2    subject to gas meeting applicable quality
                           specifications, POGC knows of no impediment that
                           would restrict gas produced in the Fences Area from
                           being immediately accepted into the nearest
                           appropriate entry point of the POGC gas system for
                           sale.

         3.7      Ownership and Transfer of Data. Upon signing the amendment to
                  the Fences JOA referred in Clause 3.1, CE Power shall become
                  the owner of 24.5% interest in the Data pertaining to the
                  Fences area, and FX shall promptly seek the consent of the
                  Minister of Environment acting as the geological
                  administration authority for the transfer of the Data. On
                  receipt of such consent FX shall deliver to CE Power a copy of
                  such consent along with copies of all Data as to which it has
                  rights pertaining to the Contract Area. Receipt of the consent
                  of the Minister of Environment to such transfer shall be a
                  Condition Precedent.

         3.8      Transfer of Ownership of CE Power. CE Gas shall have procured
                  that CE Power is a wholly owned subsidiary of CalEnergy
                  Resources Limited. The transfer of CE Power to the ownership
                  of CalEnergy Resources Limited shall be a Condition Precedent.

         3.9      Corporate Approvals. Each of the Parties shall have already
                  obtained, and on the date of execution of this Agreement shall
                  provide a copy to each other Party of the approval of its
                  management board and any other necessary corporate consents to
                  entering into this Agreement and any other agreements
                  contemplated by this Agreement, and FX shall solicit the
                  approval/consent of the management board of POGC to the
                  actions to be taken by POGC pursuant to the terms of this
                  Agreement. The provision of the approvals and consents
                  described in this Clause 3.9, including without limitation the
                  receipt of the approval/consent of POGC, shall be a Condition
                  Precedent.

         3.10     Termination for Failure to Satisfy Conditions Precedent. FX
                  shall use all reasonable endeavors to procure that each of the
                  Conditions Precedent except the Condition Precedent contained
                  in Clause 3.8 is satisfied as expeditiously as possible. CE
                  Power shall, to the extent not already done so by CE Gas, use
                  all reasonable endeavours to procure that the Conditions
                  Precedent contained in Clause 3.8 and 3.9 are satisfied as
                  expeditiously as possible. Each Party must keep the other
                  Party fully informed of the status of the satisfaction of the
                  Conditions Precedent and must notify the other Party
                  immediately upon becoming aware that each Condition Precedent
                  has been satisfied. CE Power may, in its sole discretion,
                  waive the requirement for satisfaction of any or all of the
                  Conditions Precedent. If the Conditions Precedent are not
                  satisfied or waived by 31 March 2003, or such later date as
                  the Parties may agree ("End Date"), then either Party may
                  terminate this Agreement by giving the other Party 14 days
                  written notice delivered at any time following the End Date.

                                       9
<PAGE>

         3.11     Effect of Termination under Clause 3.10. If this Agreement is
                  terminated pursuant to Clause 3.10 then save and except for
                  this Clause 3.11 and Clause 11, this Agreement shall be at an
                  end and no Party shall have any further rights or obligations
                  hereunder and CE Power shall forthwith: (i) return to FX or
                  POGC, as applicable, or destroy all Data related to the Fences
                  Area, except for that portion thereof which consists of
                  analyses, compilations, studies or other documents prepared by
                  or on behalf of CE Power; (ii) reassign all interests in the
                  Fences JOA and Fences Mining Usufruct that it has received
                  from FX and/or POGC pursuant to this Agreement; (iii) execute
                  all other documents as may be reasonably necessary to return
                  the Parties and POGC as nearly as practicable to their
                  positions prior to the execution of this Agreement.

         3.12     Clauses 4, 5, 6, 7 and 8 of this Agreement will be of no force
                  and effect until all of the conditions contained in Clauses
                  3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8 and 3.9 ("Conditions
                  Precedent") have been satisfied or waived in accordance with
                  this Clause 3.

4.       Drilling the First Earning Well.

         4.1      Commitment to Pay Drilling Costs; JOA to Govern Drilling.
                  Provided that CE Power has elected under Clause 2.3 to pay an
                  amount equal to the Drilling costs of the First Earning Well,
                  the start date for drilling operations shall be the earliest
                  practicable date thereafter as determined by the Operator
                  after due consultation with CE Power as agent. The First
                  Earning Well shall be drilled in accordance with the final
                  proposal issued by the Operating Committee under Clause 2.2
                  and in accordance with the terms of the Fences JOA, which
                  shall govern all aspects of the First Earning Well except as
                  expressly provided in this Agreement. In addition to an amount
                  equal to the Drilling costs, CE Power shall also pay an amount
                  equal to 100% of the costs of any geological or geophysical
                  work that the Operator conducts at the sole written request of
                  CE Power prior to testing and completing or plugging and
                  abandoning (as a dry hole) the well.

         4.2      Limitation on Drilling Costs. CE Power's commitment to pay an
                  amount equal to the Drilling costs of the First Earning Well
                  means that CE Power agrees to pay to the Operator 24.5% of the
                  Drilling costs in accordance with the Fences JOA and to FX
                  75.5% of the Drilling costs as a first installment for the
                  Fences Mining Usufruct up to the Maximum Carried Well Cost. If
                  the cumulative Drilling costs on the First Earning Well exceed
                  an amount equal to the Maximum Carried Well Cost then CE
                  Power, in its sole discretion, has the right to require, by
                  giving notice in writing to the Operator and FX, that the
                  Operator cease all Drilling forthwith ("First Earning Well
                  Cease Notice") and to plug and abandon the well immediately.
                  CE Power shall remain liable for Drilling costs on the First
                  Earning Well including such plugging and abandonment (payable
                  24.5% to the Operator and 75.5% to FX).

         4.3      Takeover of the First Earning Well. If the First Earning Well
                  is to be plugged and abandoned pursuant to Clause 4.2 then any
                  one or more parties to the Fences JOA other than CE Power
                  shall have the right to propose taking over the well as an
                  Exclusive Operation under the Fences JOA and such party or
                  parties must provide a notice ("First Earning Well
                  Continuation Notice") to CE Power within 24 hours of receipt
                  of a First Earning Well Cease Notice. If any party to the JOA
                  issues a First Earning Well Continuation Notice then CE
                  Power's obligation to pay an amount equal to the subsequent
                  Drilling costs of the First Earning Well shall cease and be
                  deemed to have ceased from the time of receipt of the First
                  Earning Well Cease Notice.

                                       10
<PAGE>

         4.4      Reassignment on Issuance of First Earning Well Cease Notice.
                  If CE Power issues a First Earning Well Cease Notice then CE
                  Power shall be obliged to reassign to FX all of CE Power's
                  interest in the Fences Area and CE Power shall be obliged to
                  return to POGC or FX, as appropriate, or destroy all Data
                  received from POGC or FX related to the Fences Area, except
                  for that portion thereof which consists of analyses,
                  compilations, studies or other documents prepared by or on
                  behalf of CE Gas or CE Power.

5.       The Second Earning Well Decision.

         5.1      Selection of Drillsite. If CE Power wishes to drill the Second
                  Earning Well, which decision shall be entirely within its sole
                  discretion, and if CE Power has fully performed its
                  obligations under Clause 4, then within 20 Days after the
                  First Earning Well has reached Total Depth, CE Power shall
                  give notice to the other parties to the Fences JOA of its
                  choice of drillsite for the Second Earning Well. The notice
                  shall also include its proposal for the Minimum Earned Acreage
                  (defined by the aerial extent of the prospect as mapped
                  delineated by the lowest closing contour or by a defined
                  hydrocarbon contact determined by a well penetration whichever
                  is deeper) to be earned in connection with the Second Earning
                  Well. The Parties and representatives of POGC shall then meet
                  within the next 10 days at a convenient time and place to
                  discuss drillsite selection and all other matters in respect
                  of the Second Earning Well.

         5.2      Drilling Plan, etc

                  5.2.1    As soon as practicable after receipt of notice from
                           CE Power under Clause 5.1, FX shall use its Best
                           Efforts to procure that POGC, in its capacity as
                           Operator under the Fences JOA, makes appropriate
                           arrangements to work with CE Power, either by
                           appointment as agent or otherwise in a manner
                           satisfactory to CE Power, in preparing and finalizing
                           the drilling program proposal for the Second Earning
                           Well, to be presented and decided upon at the
                           Operating Committee Meeting referred to in Clause
                           5.2.2.

                  5.2.2    As soon as practicable after receipt of notice from
                           CE Power under Clause 5.1 FX shall use its Best
                           Efforts to procure that POGC shall also confirm
                           acceptance or submit a counterproposal for the
                           drillsite and the Minimum Earned Acreage and provide
                           a date for a meeting of the Operating Committee and
                           the representatives of CE Power, which meeting shall
                           be at least 30 days but not more than 45 days after
                           the date that CE Power is appointed agent or other
                           arrangements are agreed under Clause 5.2.1.

                  5.2.3    CE Power, whether as agent for POGC or as otherwise
                           agreed, shall prepare proposals for the Operating
                           Committee Meeting covering the well program, AFE,
                           insurance coverage and the selection of the
                           contractors and subcontractors (suppliers and
                           services).

                                       11
<PAGE>

                  5.2.4    The purpose of the Operating Committee meeting will
                           be to discuss and endeavor to agree the proposals
                           that CE Power shall make on all details of the well
                           program, AFE, insurance coverage, list of contractors
                           and subcontractors including contract terms, Minimum
                           Earned Acreage, and any other matters related to the
                           Second Earning Well.

                  5.2.5    FX shall use its Best Efforts to procure that the
                           final decisions of the Operating Committee will be
                           reported in writing within 7 Days following the
                           meeting in the form of a final proposal for the well
                           program, AFE, insurance coverage, list of contractors
                           and subcontractors including contract terms, Minimum
                           Earned Acreage, and any other matters related to the
                           Second Earning Well.

         5.3      Decision to Drill or Terminate. Within 7 Days after receipt of
                  the final proposal of the Operating Committee pursuant to
                  Clause 5.2.5, CE Power shall notify FX of its decision whether
                  or not to pay an amount equal to the Drilling costs of the
                  Second Earning Well, which decision shall be entirely within
                  the discretion of CE Power. If CE Power elects to pay an
                  amount equal to the Drilling costs of the Second Earning Well,
                  FX shall use its Best Efforts to procure that POGC in its
                  capacity as Operator under the Fences JOA promptly appoints CE
                  Power as agent for the management of the drilling operation of
                  the Second Earning Well. In its capacity as agent, CE Power
                  shall be required to manage the Drilling of the Second Earning
                  Well in accordance with the terms of the Fences JOA. If either
                  the Operating Committee Meeting referred to in Clause 5.2.5 is
                  not held or the final decisions thereof are not reported as
                  required by Clause 5.2.5, by 75 days after the First Earning
                  Well has reached Total Depth, then CE Power may terminate this
                  Agreement by giving FX seven (7) days written notice. If CE
                  Power elects not to pay an amount equal to the Drilling costs
                  of the Second Earning Well, or fails to notify FX within the
                  said 7 Days, this Agreement shall terminate forthwith. If CE
                  Power elects to pay an amount equal to the Drilling costs of
                  the Second Earning Well, it shall also pay to FX the sum of
                  One Million Dollars as a second installment for the Fences
                  Mining Usufruct not later than seven (7) days after CE Power
                  has notified FX of its election to pay an amount equal to the
                  Drilling costs of the Second Earning Well under this Clause
                  5.3 ("Due Date One"), which decision shall be entirely within
                  the discretion of CE Power If such payment is not made by Due
                  Date One, this Agreement shall terminate forthwith.

         5.4      Effect of Termination under Clause 5.3. If this Agreement is
                  terminated pursuant to Clause 5.3, then save and except for
                  matters in this Clause 5.4 and Clause 11, this Agreement shall
                  be at an end and no Party shall have any further rights or
                  obligations hereunder. If this Agreement is terminated
                  pursuant to Clause 5.3, then CE Power shall promptly:

                  5.4.1    return to POGC or FX, as appropriate, or destroy all
                           Data received from POGC or FX related to the Fences
                           Area outside the Minimum Earned Acreage surrounding
                           the First Earning Well, except for that portion
                           thereof which consists of analyses, compilations,
                           studies or other documents prepared by or on behalf
                           of CE Gas or CE Power; and

                                       12
<PAGE>

                  5.4.2    transfer to FX all of CE Power's interest in and
                           under the Fences JOA and the Fences Mining Usufruct
                           outside the Minimum Earned Acreage surrounding the
                           First Earning Well;

6.       Drilling the Second Earning Well.

         6.1      Commitment to Pay Drilling Costs; JOA to Govern Drilling.
                  Provided CE Power has elected under Clause 5.3 to pay an
                  amount equal to the Drilling costs of the Second Earning Well,
                  and provided it has made a timely payment to FX under Clause
                  5.3, the start date for drilling operations shall be the
                  earliest practicable date thereafter as determined by the
                  Operator after due consultation with CE Power as agent. The
                  Second Earning Well shall be drilled in accordance with the
                  final proposal issued by the Operating Committee under Clause
                  5.2 and in accordance with the terms of the Fences JOA, which
                  shall govern all aspects of the Second Earning Well except as
                  expressly provided in this Agreement. In addition to an amount
                  equal to the Drilling costs, CE Power shall also pay an amount
                  equal to 100% of the costs of any geological or geophysical
                  work that the Operator conducts at the sole written request of
                  CE Power prior to testing and completing or plugging and
                  abandoning the well (as a dry hole).

         6.2      Limitation on Drilling Costs. CE Power's commitment to pay an
                  amount equal to the Drilling costs of the Second Earning Well
                  means that CE Power agrees to pay to the Operator 24.5% of the
                  Drilling costs in accordance with the Fences JOA and to FX
                  75.5% of the Drilling costs as a third installment for the
                  Fences Mining Usufruct up to the Maximum Carried Well Cost. In
                  the event cumulative Drilling costs on the Second Earning Well
                  exceed an amount equal to the Maximum Carried Well Cost then
                  CE Power, in its sole discretion, has the right to require, by
                  giving notice in writing to the Operator and FX, that the
                  Operator cease all Drilling forthwith ("Second Earning Well
                  Cease Notice") and to plug and abandon the well immediately.
                  CE Power shall remain liable for Drilling costs on the Second
                  Earning Well including such plugging and abandonment (payable
                  24.5% to the Operator and 75.5% to FX).

         6.3      Takeover of Second Earning Well. If the Second Earning Well is
                  to be plugged and abandoned pursuant to Clause 6.2 then any
                  one or more parties to the Fences JOA other than CE Power
                  shall have the right to propose taking over the well as an
                  Exclusive Operation under the Fences JOA and such party or
                  parties must provide a notice ("Second Earning Well
                  Continuation Notice") to CE Power within 24 hours of receipt
                  of a Second Earning Well Cease Notice. If any party issues a
                  Second Earning Well Continuation Notice then CE Power's
                  obligations to pay an amount equal to the subsequent Drilling
                  costs of the Second Earning Well shall cease and be deemed to
                  have ceased from the time of receipt of the Second Earning
                  Well Cease Notice and this agreement shall have terminated.

                                       13
<PAGE>

         6.4      Reassignment on Issuance of Second Earning Well Cease Notice.
                  If CE Power issues a Second Earning Well Cease Notice then CE
                  Power shall be obliged to reassign to FX all of CE Power's
                  interest in the Fences Area except the Minimum Earned Area
                  surrounding the First Earning Well and CE Power shall be
                  obliged to return to POGC or FX, as appropriate, or destroy
                  all Data received from POGC or FX related to the Fences Area
                  except the Minimum Earned Acreage surrounding the First
                  Earning Well, except for that portion thereof which consists
                  of analyses, compilations, studies or other documents prepared
                  by or on behalf of CE Gas or CE Power.

7.       The Final Earning Decision and Action.

         7.1      Decision to Retain Entire Interest. If CE Power has fully
                  performed its obligations under Clauses 4 and 6, then on or
                  before the earlier of: (a) 50 Days after the Second Earning
                  Well has reached Total Depth, or (b) December 15, 2003 ("Due
                  Date Two") CE Power shall give notice to FX ("Final Earning
                  Notice") of its decision whether or not to retain its interest
                  in the Contract Area outside the Minimum Earned Acreage
                  surrounding the First Earning Well and the Second Earning
                  Well. Such decision shall be entirely within the discretion of
                  CE Power. If such decision is negative, or if no notice is
                  received by Due Date Two, this Agreement shall terminate
                  forthwith with no liability on CE Power to make any further
                  payments. If CE Power makes an affirmative decision CE Power
                  shall pay to FX a fourth installment for the Fences Mining
                  Usufruct. This installment will be calculated as the sum of
                  Ten Million Six Hundred Thousand Dollars less (i) the
                  cumulative amounts paid by CE Power to either the Operator or
                  FX measured by Drilling costs of the First Earning Well and
                  the Second Earning Well, (ii) the cumulative amounts paid by
                  CE Power to either the Operator or FX measured by the costs of
                  any geological or geophysical work that the Operator has
                  conducted at the sole written request of CE Power but which
                  has also been approved by the Operating Committee and as such
                  qualifies as earn in expenditure that FX is required to pay to
                  POGC under the Fences Cooperation Agreement and (iii) the sum
                  of One Million Dollars made to FX under Clause 5.3. Such sum
                  shall be received by FX not later than Due Date Two. If such
                  payment is not made by Due Date Two, this Agreement shall
                  terminate forthwith.

         7.2      Effect of Termination under Clause 7.1. If this Agreement is
                  terminated pursuant to Clause 7.1, then save and except for
                  matters in this Clause 7.2 and Clause 11, this Agreement shall
                  be at an end and no Party shall have any further rights or
                  obligations hereunder. If this Agreement is terminated
                  pursuant to Clause 7.1, then CE Power shall promptly:

                  7.2.1    return to POGC or FX, as appropriate, or destroy all
                           Data received from POGC or FX related to the Fences
                           Area outside the Minimum Earned Acreage surrounding
                           the First Earning Well and the Second Earning Well,
                           except for that portion thereof which consists of
                           analyses, compilations, studies or other documents
                           prepared by or on behalf of CE Gas or CE Power; and

                  7.2.2    transfer to FX all of CE Power's interest in and
                           under the Fences JOAand the Fences Mining Usufruct
                           outside the Minimum Earned Acreage surrounding the
                           First Earning Well and the Second Earning Well;

                                       14
<PAGE>

8.       Indemnity.

         8.1      This Clause 8 is without prejudice to the other provisions of
                  this Agreement.

         8.2      With respect to the interests transferred to CE Power under
                  Clause 3, FX shall be liable for all costs, charges, expenses,
                  liabilities and obligations in respect of the relevant
                  transferred interest (together the "Obligations") which are
                  attributable to events or circumstances occurring in any
                  period before the effective date of the transfer and FX shall
                  be entitled to all income, receipts, credits, reimbursements,
                  monies receivable, rebates and other benefits in respect of
                  the relevant transferred interest (together the "Benefits")
                  which are attributable to events or circumstances occurring in
                  any period before the effective date of the transfer.

         8.3      From and after the effective date of the transfer of interests
                  under Clause 3, CE Power shall be liable for its pro-rata
                  percentage of Obligations and entitled to the equivalent
                  pro-rata Benefits which accrue in or relate to any period on
                  or after the effective date of transfer.

         8.4      If applicable FX shall pay a 50% share and CE Power shall pay
                  a 50% share of any stamp duty due with respect to the transfer
                  of the interests under Clause 3.

9.       Warranties of FX.

         9.1      Subject to the provisions of this Clause 9, FX represents,
                  warrants and undertakes to CE Power that each of the
                  statements set out in Schedule 6 is true and accurate as at
                  the date hereof.

         9.2      Each of FX's Warranties shall be separate and independent and,
                  save as expressly provided to the contrary, shall not be
                  limited by reference to or inference from any other term of
                  this Agreement.

         9.3      No claim for breach of any FX Warranty set out in Schedule 6
                  shall be made against FX unless written notice thereof (giving
                  such details of the matter in respect of which the claim is
                  made as shall then be reasonably practicable) shall have been
                  given by or on behalf of CE Power to FX on or before the date
                  occurring 12 months after the date of this Agreement.

         9.4      The maximum aggregate liability of FX in respect of all claims
                  for breach of FX's Warranties shall not exceed 10,600,000.00
                  (ten million six hundred thousand) Dollars.

10.      Warranties of CE Power

         10.1     Subject to the provisions of this Clause 10 CE Power
                  represents and warrants to FX that each of the statements set
                  out in Schedule 7 is true and accurate as at the date hereof.

                                       15
<PAGE>

         10.2     CE Power's Warranties shall be separate and independent and,
                  save as expressly provided to the contrary, shall not be
                  limited by reference to or inference from any other term of
                  this Agreement.

         10.3     No claim for breach of any warranty set out in Schedule 7
                  shall be made against CE Power unless written notice thereof
                  (giving such details of the matter in respect of which the
                  claim is made as shall then be reasonably practicable) shall
                  have been given to CE Power on or before the date occurring 12
                  months after the date of this Agreement.

         10.4     The maximum aggregate liability of CE Power in respect of all
                  claims for breach of CE Power's Warranties shall not exceed
                  $50,000 (fifty thousand) Dollars

11.      Costs.

         11.1     The Parties shall pay their own costs and expenses in relation
                  to the preparation and negotiation of this Agreement and the
                  documents contemplated hereby or executed pursuant hereto.

12.      Invoicing

         12.1     Installments for the Fences Mining Usufruct pursuant to
                  Clauses 4.2, 5.3, 6.2 and 7.1 will be paid subsequently by CE
                  Power upon presentation of invoices issued by FX. Installments
                  will be outside the scope of Polish VAT unless the Law is
                  changed.

         12.2     Charges from POGC to CE Power will be paid by CE Power in
                  accordance with the Fences JOA.

13.      Notices.

         13.1     Any notice pursuant to this Agreement may be given by
                  facsimile transmission or by letter to the Party to be served
                  at the address stated in Clause 12.3 or such other address as
                  may be given for the purposes of this Agreement by written
                  notice to the other Parties.

         13.2     A notice given by facsimile transmission shall, provided that
                  such notice is also sent by post on the same day, be deemed to
                  be served on the first Business Day following the date of
                  dispatch, but a notice sent by post or delivered personally
                  shall not be deemed to be delivered until received.

                                       16
<PAGE>

         13.3     The respective addresses for service are:

         FX:             FX Energy Poland Sp. z o.o.
                         al. Jana Paw(3)a II 29, 00-867, Warsaw, Poland
                         with a copy to FX Energy, Inc., attn: David Pierce
                         3006 Highland Dr., #206, Salt Lake City, Utah 84106 USA
                         Fax: 1-801-486-5575

         CE Power        CalEnergy Power (Polska) Sp. z o.o.
                         Niedzwiedzia 8C,
                         02-737 Warsaw, Poland
                         with a copy to CalEnergy Resources Limited,
                         attn Managing Director 60 Grays Inn Road,
                         London, WC1X 8LU
                         Fax: 44 20 7208 1610

14.      Announcements.

         14.1     Subject to Clause 13.2 any Party shall be entitled to make a
                  public announcement or statement regarding the Transferred
                  Interest except that the prior approval of the other Party
                  (such approval not to be unreasonably withheld) shall be
                  required where such announcement or statement relates to:

                  14.1.1   the execution of this Agreement or its completion; or
                  14.1.2   the terms of this Agreement or the negotiation of
                           such Agreement; or
                  14.1.3   any dispute or litigation or potential litigation
                           with a third party or parties relating to or arising
                           in connection with this Agreement;

         PROVIDED THAT no such prior approval shall be required where such
         announcement or statement is required by law or by a competent
         government agency or other regulatory body excluding any relevant stock
         exchange.

         14.2     Where a Party is required pursuant to the regulations of any
                  relevant stock exchange to make a public announcement or
                  disclosure, no prior approval of the other Party shall be
                  required provided that not less than 24 hours notice is given
                  to the other Party for comment prior to such announcement or
                  disclosure.

15.      Assignment.

         15.1     None of the rights, liabilities or obligations of a Party
                  under this Agreement shall be assignable except with the prior
                  written consent of the other Party except where the assignment
                  is to an Affiliate when no such consent is required

16.      General.

         16.1     This Agreement constitutes the entire agreement between the
                  Parties and supersedes all warranties and representations
                  previously made, and all previous agreements, arrangements or
                  understandings between the Parties relating to the matters
                  contained herein whether oral or in writing made or dated
                  prior to the date hereof.

         16.2     No waiver by any Party of any breach of a provision of this
                  Agreement shall be binding unless made expressly in writing.
                  Further, any such waiver shall relate only to the breach to
                  which it expressly relates and shall not apply to any
                  subsequent or other breach.

                                       17
<PAGE>

         16.3     Under pain of nullity the provisions of this Agreement shall
                  only be varied by an agreement in writing executed by each of
                  the Parties and specifically referring to this Agreement.

         16.4     This Agreement shall inure to the benefit of and be binding
                  upon the respective successors and permitted assigns of the
                  Parties.

         16.5     This Agreement has been executed in three counterparts in
                  Polish and three counterparts in English. In the event of a
                  discrepancy between the Polish and English versions, the
                  Polish version shall prevail.

17.      Governing Law.

         17.1     This Agreement shall be interpreted in accordance with the
                  laws of Poland and in accordance with the Treaty between
                  Poland and the United States of America concerning Business
                  and Economic Relations dated March 21, 1990, and, as
                  applicable, principles of international law and decisions of
                  international tribunals, and international treaties to which
                  Poland is a party particularly the Convention on the
                  Regulation and Enforcement of Foreign Arbitral Awards dated
                  June 10, 1958.

18.      Dispute Resolution.

         18.1     Any dispute, controversy or claim arising out of, or relating
                  to this Agreement, or the breach, termination or invalidity
                  thereof including, without limitation, any dispute as to the
                  construction, enforceability or the carrying out of the terms
                  of this Agreement, which cannot be settled amicably before the
                  passing of sixty (60) days from the giving of notice of one
                  Party regarding such dispute, controversy or claim, may then
                  be referred by any Party to arbitration under the UNCITRAL
                  Arbitration rules as contemplated hereunder:

                  18.1.1   the appointing authority shall be the Arbitration
                           Institute of the Stockholm Chamber of Commerce, PO
                           Box 16050, S-10322, Stockholm, Sweden;
                  18.1.2   there shall be one arbitrator;
                  18.1.3   the arbitrator shall not be a national of Great
                           Britain, Poland or the United States of America;
                  18.1.4   the arbitrator shall be a prominent legal figure
                           expert in the laws of international investment;
                  18.1.5   the arbitrator shall call upon the services of an
                           expert if there appears to be a need to ascertain
                           good international petroleum industry practices;
                  18.1.6   the place of arbitration shall be Stockholm, Sweden;
                  18.1.7   the language to be used in the proceeding shall be
                           English, with translation into Polish;
                  18.1.8   the decision of the arbitrator shall be final and
                           binding and the Parties hereby agree to exclude any
                           right of application or appeal to any court in
                           connection with the award or its enforcement;

                                       18
<PAGE>

                  18.1.9   the decision shall be given in English and Polish and
                           shall include resolution regarding the cost of
                           arbitration; and
                  18.1.10  judgement upon the award may be entered in any court
                           having jurisdiction and application may be made to
                           such court for a judicial acceptance of the award and
                           an order of enforcement, as the case may be.

         18.2     In the event of the commencement of dispute settlement
                  procedures, the Parties shall continue their performance of
                  this Agreement unless it is impossible to do so for reason of
                  Force Majeure or unless the rights to be transferred hereunder
                  have been expropriated, nationalized or otherwise taken.

         18.3     To the extent consistent with and authorized under Polish Law,
                  each Party agrees and acknowledges that it is entering into
                  this Agreement as a "commercial act" and not in any capacity
                  as "sovereign" and hereby irrevocably waives any and all
                  claims to immunity including sovereign immunity or immunity of
                  jurisdiction with respect to any claims brought against it by
                  any Party under this Agreement and with respect to the dispute
                  resolution and arbitration proceedings and any proceedings to
                  enforce, recognize or execute any arbitral award rendered by a
                  tribunal constituted pursuant to this Agreement including,
                  without limitation, immunity from service of process, immunity
                  from jurisdiction of any court, and immunity of such of his
                  property as is of a commercial nature from execution.

IN WITNESS whereof each Party has caused its duly authorized representative to
sign this Agreement on the day and year first above written.

CALENERGY  POWER(POLSKA) Sp.zo.o

By:      /s/ Peter R.A. Youngs
-----------------------------------------------------
Title:   Attorney in Fact (under Power of Attorney)

Date:    January 9, 2003

FX ENERGY POLAND Spolka z ograniczona odpowiedzialnooecia

By:      David N. Pierce
-----------------------------------------------------
Title:   Member of the Management Board

Date:    January 9, 2003

                                       19
<PAGE>

                                   SCHEDULE 1
                       Form of Amendment of the Fences JOA

There shall be added at Section 1 of the Fences JOA the following definition:

"Best Efforts" means that the Party in question shall immediately carry out all
actions that could be expected of it in order to discharge the relevant
obligation placed upon it by this Agreement, which shall include lending all
assistance to the other Parties as could reasonably be expected.

Section 1.27 of the Fences JOA is hereby amended to read as follows:

"1.27    Party means any of the entities named in the first paragraph to this
         Agreement and CalEnergy Power (Polska) Sp. z o.o. and any respective
         permitted successors or assigns thereof, if any."

Section 3.2 of the Fences JOA is hereby amended to read as follows: "3.2
Interests in the Joint Venture Subject to Articles XI and XII, the interests of
the Parties shall be:

FX: 24.5%
POGC: 51%
CE Power: 24.5%"

Contract Area. The Contract Area as set forth in the Fences JOA is hereby
amended to read as follows:

The Contract Area consists of the area covered by Concession #29/2001/p and by
that certain Mining Usufruct dated September 28, 2001, covering prospecting for
and exploring deposits of oil and natural gas in the "Srem-Jarocin" area. The
following areas and wells shall not constitute part of the Contract Area:

         Concessions                                          Wells
         Name                      Number                     Solec 7
         Kaleje                    127/93                     Solec 8
         Jarocin                   128/93                     Kaleje 11
         Kleka                     129/93                     Kaleje 14
         Radlin                    172/94                     Kleka 11

THERE SHALL BE ADDED TO THE FENCES JOA THE FOLLOWING PROVISIONS:

17. GOVERNING LAW
         This Agreement shall be interpreted in accordance with the laws of
         Poland and in accordance with the Treaty between Poland and the United
         States of America concerning Business and Economic Relations dated
         March 21, 1990, and, as applicable, principles of international law and
         decisions of international tribunals, and international treaties to
         which Poland is a party particularly the Convention on the Regulation
         and Enforcement of Foreign Arbitral Awards dated June 10, 1958.

<PAGE>

18. DISPUTE RESOLUTION

         18.1     Any dispute, controversy or claim arising out of, or relating
                  to this Agreement identified by the Transferee for Phase 2
                  Drilling), or the breach termination or invalidity thereof
                  including, without limitation, any dispute as to the
                  construction, enforceability or the carrying out of the terms
                  of this Agreement, which cannot be settled amicably before the
                  passing of sixty (60) days from the giving of notice of one
                  Party regarding such dispute, controversy or claim, then any
                  Party may refer such dispute controversy or claim to
                  arbitration under the UNCITRAL Arbitration rules as completed
                  hereunder:

                  (i)      the appointing authority shall be the Arbitration
                           Institute of the Stockholm Chamber of Commerce, PO
                           Box 16050, S-10322, Stockholm, Sweden;

                  (ii)     there shall be one arbitrator;

                  (iii)    the arbitrator shall not be a national of Great
                           Britain, Poland or the United States of America;

                  (iv)     the arbitrator shall be a prominent legal figure
                           expert in the laws of international investment;

                  (v)      the arbitrator shall call upon the services of an
                           expert if there appears to be a need to ascertain
                           good international petroleum industry practices;

                  (vi)     the place of arbitration shall be Stockholm, Sweden;

                  (vii)    the language to be used in the proceeding shall be
                           English, with translation into Polish;

                  (viii)   the decision of the arbitrator shall be final and
                           binding and the Parties hereby agree to exclude any
                           right of application or appeal to any court in
                           connection with the award or its enforcement;

                  (ix)     the decision shall be given in English and Polish and
                           shall include resolution regarding the cost of
                           arbitration; and

                  (x)      judgement upon the award may be entered in any court
                           having jurisdiction and application may be made to
                           such court for a judicial acceptance of the award and
                           an order of enforcement, as the case may be.

         18.2     In the event of the commencement of dispute settlement
                  procedures, the Parties shall continue their performance of
                  this Agreement unless it is impossible to do so for reason of
                  Force Majeure or unless the Transferor's rights hereunder have
                  been expropriated, nationalised or otherwise taken.

         18.3     To the extent consistent with and authorised under Polish Law,
                  each Party agrees and acknowledges that it is entering into
                  this Agreement as a "commercial act" and not in any capacity
                  as "sovereign" and hereby irrevocably waives any and all
                  claims to immunity including sovereign immunity or immunity of

<PAGE>

                  jurisdiction with respect to any claims brought against it by
                  any Party under this Agreement and with respect to the dispute
                  resolution and arbitration proceedings and any proceedings to
                  enforce, recognise or execute any arbitral award rendered by a
                  tribunal constituted pursuant to this Agreement including,
                  without limitation, immunity from service of process, immunity
                  from jurisdiction of any court, and immunity of such of his
                  property as is of a commercial nature from execution.

19.      ADDITIONAL COVENANT

The Parties acknowledge that this Agreement, due to certain Polish legal
requirements does not fully reflect the standard international petroleum
industry practices (the "Practices"). As soon as the Parties become satisfied,
through consultation with the applicable Polish authorities or otherwise, that
acting fully in accordance with the Practices will not adversely affect their
legal or financial position, they shall negotiate amendments to the this
Agreement and use their Best Efforts in order to bring this Agreement in line
with the Practices.

20.      ADDITIONAL OBLIGATION

In the event of the termination of the Farmout Agreement Covering the Fences
Area in the Foresudetic Monocline between CalEnergy Power (Polska) Sp. z o.o.
and FX Energy Poland Sp. z o.o. dated 9th January 2003 (the "Farmout Agreement")
pursuant to Clauses 5.3, 6.3, 6.4 or 7.1 of the Farmout Agreement, the Parties
shall:

         A        amend this Agreement so that it no longer covers the land
                  comprising the Minimum Earned Acreage in respect of the First
                  Earning Well or the Minimum Earned Acreage in respect of the
                  Second Earning Well ( all of these terms being as defined in
                  the Farmout Agreement), as applicable;

         B        execute a new joint operating agreement ("JOA") to govern the
                  rights and obligations of the Parties in respect of operations
                  conducted on the Minimum Earned Acreage for each of the First
                  Earning Well and the Second Earning Well ( all of these terms
                  being as defined in the Farmout Agreement), as applicable,
                  which JOA shall contain the same terms and conditions as this
                  Agreement except, for the purposes of identification only,
                  with such alterations as are necessary to reflect the identity
                  of the parties and their respective working interests and the
                  area to be covered by the JOA.

<PAGE>

                                   SCHEDULE 2

                 Form of the Mining Usufruct Transfer Agreement

         THIS AGREEMENT is made the __ day of January, 2003

         BETWEEN:

1.       FX ENERGY POLAND Sp. z o.o. with its registered seat in Warsaw, at al.
         Jana Pawla II 29, 00-867 Warsaw, entered into the National Court
         Register maintained by the District Court for the city of Warsaw under
         the KRS No. 0000052459 ("FX"),

and

2.       CALENERGY POWER (POLSKA) Sp. z o.o. with its registered seat in Warsaw,
         at Niedzwiedzia 8C, 02-737, Warsaw, entered into the National Court
         Register maintained by the District Court for the city of Warsaw under
         the RHB No. 52059 ("CE Power"),

jointly called the "Parties" and each of them individually a "Party".

                                    Article 1
                                     Purpose

The Parties enter into this Agreement pursuant to Clause 3.3 of the Farmout
Agreement between them of even date herewith.

                                    Article 2
                       FX title to Fences Mining Usufruct

FX represents that it holds 49% interest in the mining usufruct for exploration
of oil and natural gas (the "Fences Mining Usufruct") in the "Srem-Jarocin" area
(also called the "Fences Area") established pursuant to the Agreement on
Establishment of the Mining Usufruct dated September 28, 2001 and the Concession
#29/2001/p. The interest in the Fences Mining Usufruct being transferred hereby
is free of any encumbrances or third party claims.

                                    Article 3
               Transfer of interest in the Fences Mining Usufruct

         3.1      FX hereby transfers to CE Power and CE Power receives, a 24.5%
                  interest in the Fences Mining Usufruct, subject to Clause 3.2
                  below and subject to the condition precedent of obtaining a
                  consent from the State Treasury for the transfer, as required
                  under the relevant mining usufruct agreement. As soon as the
                  consent is obtained, FX shall notify that to CE Power in
                  writing.

         3.2      No interest in the Fences Mining Usufruct is transferred
                  hereby with respect to:

                  a)       the areas covered by the following exploitation
                           concessions held by POGC: Kaleje (no. 127/93);
                           Jarocin (no.128/93); Kleka (no. 129/93); Radlin (no.
                           172/94); and
<PAGE>

                  b)       the following wells: Solec 7; Solec 8; Kaleje 11;
                           Kaleje 14; Kleka 11.

                                    Article 4
                       Transfer of geological information

         4.1      FX, as the owner of a 49% interest in the geological
                  documentation regarding the Fences Area acquired before
                  January 1, 2002, hereby transfers to CE Power and CE Power
                  receives a 24.5% interest in ownership of all of that
                  documentation, subject to the condition precedent of obtaining
                  a consent from the Minister of Environment, as required
                  pursuant to the Geological and Mining law. As soon as the
                  consent is obtained, FX shall notify that to CE Power in
                  writing.

         4.2      FX, as the holder of a 49% interest in the exclusive right to
                  commercially use the geological documentation regarding the
                  Fences Area acquired on and after January 1, 2002, hereby
                  grants to CE Power and CE Power receives a 24.5% interest in
                  the above right.

                                    Article 5
                                      Costs

FX and CE Power shall share equally all administrative cost and taxes due in
connection with this Agreement.

                                    Article 6
                                  Miscellaneous

         6.1      Any disputes related to this Agreement shall be settled by
                  theArbitration Court at the Polish Chamber of Commerce in
                  Warsaw in accordance with its rules.

         6.2      This Agreement shall be interpreted in accordance with the
                  laws of Poland and in accordance with the Treaty between
                  Poland and the United States of America concerning Business
                  and Economic Relations dated March 21, 1990, and, as
                  applicable, principles of international law and decisions of
                  international tribunals, and international treaties to which
                  Poland is a party.

         6.3      This Agreement has been executed in Polish and English. In
                  case of any dispute, the Polish version shall prevail.

         6.4      Under pain of nullity any amendments to this Agreement must be
                  in writing.

CALENERGY POWER (POLSKA) SP. Z O.O.

____________________

FX ENERGY POLAND SP. Z O.O.

___________________

<PAGE>

                                   SCHEDULE 3

                                    NOT USED

<PAGE>

                                   SCHEDULE 4

RRPV Consent to Transfer Interests and Release of Encumbrances the "Consent")

ROLLS-ROYCE POWER VENTURES LIMITED, with its registered seat in London, 150
Victoria Street, SW1E 5 LB, ("RRPV"), represented by ___________ in his capacity
as __________________________;

hereby consents to and agrees with

FX ENERGY POLAND Sp. z o.o. with its registered seat in Warsaw, at Al. Jana
Paw(3)a II 29, 00-867 Warsaw, entered into the National Court Register under the
KRS No. 0000052459 ("FX"), represented by David N. Pierce in his capacity as
Managing Director;

AS FOLLOWS:

         A)       WHEREAS, on March, 9, 2001, FX, as a pledgor, and RRPV, as a
                  pledgee, entered into the Agreement for Registered Pledge of
                  Receivables No. 1, the Agreement for Registered Pledge of
                  Receivables No. 3 and the Agreement for Registered Pledge of
                  Receivables No. 4 (hereinafter jointly referred to as the
                  "Pledge Agreements") . The pledges created subsequently under
                  the Pledge Agreements were registered in the Register of
                  Pledges by the District Court for the City of Warsaw, XVIII
                  Economic Division - Pledge Register on 13.08.2001, 11.04.2002,
                  22.05.2002, 5.06.2002 and 14.08.2002 under the Register
                  numbers 848722, 900604, 908946, 911907, 911909 and 928609;

         B)       WHEREAS, pursuant to the Pledge Agreements, FX pledged in
                  favour of RRPV the rights and receivables arising out of the
                  certain agreements entered into with Polskie Gornictwo Naftowe
                  i Gazownictwo S.A. with its registered seat in Warsaw, at
                  Krucza 6/14, 00-537 Warsaw, entered into the Polish Court
                  Register maintained by the District Court in Warsaw under the
                  KRS No. 59492 (hereinafter referred to as "POGC"), i.e. the
                  Natural Gas Sale and Purchase Agreement, Fences Area Fields,
                  Republic of Poland dated December 18, 2000, the Joint
                  Operating Agreement Covering Areas in the Foresudetic
                  Monocline dated May 12, 2000, and the Agreement on
                  Co-operation in Exploration of Hydrocarbons on Foresudetic
                  Monocline dated April 11, 2000, respectively (hereinafter
                  jointly referred to as the "Relevant Agreements").

         C)       WHEREAS, pursuant to the Article III clause 4 of each of the
                  Pledge Agreements FX may not, without a prior written consent
                  of the RRPV, amend either of the Relevant Agreements or
                  voluntarily sell, transfer or otherwise dispose of all or any
                  portion of its interest in rights and receivables arising out
                  of the Relevant Agreements.

         D)       WHEREAS, FX desires to transfer one-half of its working
                  interest in the Relevant Agreements to CalEnergy Power
                  (Polska) Sp. z o.o. with its seat in Warsaw, at Niedzwiedzia
                  8C, 02-737, Warsaw, entered into the Polish Court Register
                  maintained by the District Court in Warsaw under the RHB No.
                  52059 (hereinafter referred to as "CE Power"), free from any
                  liens and encumbrances including registered pledges.

         E)       WHEREAS, the transaction with CE Power shall involve
                  transferring 50% of all current rights and receivables of FX
                  under the Relevant Agreements, whether present or future,
                  actual or contingent (the "Transferred Interest") and amending
                  the Relevant Agreements as appropriate.

         E)       WHEREAS, RRPV is prepared to release the Transferred Interest
                  from any its liens, rights or claims.

<PAGE>

THEREFORE:

1.       RRPV hereby agrees that the registered pledges established pursuant to
         the Pledge Agreements shall be fully released in so far as they attach
         to the Transferred Interest or any part thereof, upon or immediately
         prior to their transfer to CE Power, and agrees that thereafter the
         pledges shall attach solely to the rights and receivables of FX.

2.       RRPV hereby agrees for each of the Relevant Agreements to be amended by
         the parties thereto so as to document the acquisition of the
         Transferred Interest by CE Power and to introduce any other changes [
         can these be specified? ] aimed at clarification or improvement of the
         position of FX and CE Power thereunder, provided that such amendments
         shall not diminish the rights of FX thereunder in any material way
         (other than as results directly from the disposal of the Transferred
         Interest).

3.       RRPV confirms that the Transferred Interest shall be free from any
         other encumbrances, claims, rights or restrictions of RRPV, as of its
         transfer to CE Power.

4.       RRPV confirms that it shall not raise against CE Power any claims it
         may have in connection with any breach by FX of any of the Pledge
         Agreements or any other agreements or instruments.

5.       RRPV and FX agree to promptly execute, at the request of either of
         them, all agreements or instruments required under Polish law to fully
         achieve the release of pledges as provided above. In particular, RRPV
         undertakes to file a motion to the appropriate Register of Pledges in
         order to cancel any registered pledges granted in connection with the
         Transferred Interests immediately after the execution of this Consent.
         These agreements and instruments shall ensure that RRPV current rights
         under the Pledge Agreements shall not be adversely affected in any
         material way, except as results directly from the disposal of the
         Transferred Interest or as may temporarily be required to fulfil the
         purpose of this Consent.

6.       This Consent shall be governed and construed in accordance with Polish
         law.

7.       This Consent has been executed in Polish and English language versions.
         In the event of conflict between the two language versions the Polish
         language version shall prevail.

Executed this __ day of January, 2003

ROLLS ROYCE POWER VENTURES LIMITED:

______________________

FX ENERGY POLAND SP. Z O.O.:

______________________

<PAGE>

                                   SCHEDULE 5

                          GAS SALES AGREEMENT AMENDMENT

Dated ________, between

1)       Polskie Gornictwo Naftowe i Gazownictwo S.A., with its seat in Warsaw,
         at Krucza 6/14;

and

2)       FX Energy Poland Sp. z o.o. with its seat in Warsaw at Al. Jana Paw(3)a
         II 29

hereinafter called the "Parties", and each of them a "Party"

                                    Article 1

In connection with the execution on January 8, 2003, of the Settlement Agreement
Regarding the Fences Area, the Parties agree to amend the Natural Gas Sale and
Purchase Agreement, Fences Area Fields, Republic of Poland of December 18, 2000
(the "Agreement"), as follows:

In Article 11 sec. 6, the first sentence shall read as follows:

         ,,The Agreement becomes effective upon its execution and shall continue
in effect until December 31, 2008"

                                    Article 2

All other provisions of the Agreement shall remain unchanged.

FX Energy Poland Sp. z o.o.

________________________

Polskie Gornictwo Naftowe i Gazownictwo S.A.

__________________________

<PAGE>

                                   SCHEDULE 6

                                 FX'S WARRANTIES

1.       FX is duly incorporated with limited liability and validly exists under
         the laws of Poland.

2.       The documents which contain or establish FX's constitution incorporate
         provisions which authorise, and all necessary corporate actions have
         been taken to authorise, FX to sign and deliver, and perform the
         transactions contemplated by, this Agreement.

3.       Neither the signing and delivery of this Agreement nor the performance
         of any of the transactions contemplated by this Agreement, will:

         (i)      contravene or constitute a default under any provision
                  contained in any agreement, instrument, law, judgment, order,
                  licence, permit or consent by which FX or any of its assets is
                  bound or affected: or

         (ii)     cause any limitation on FX or the powers of its directors,
                  whether imposed by or contained in any document which contains
                  or establishes its constitution or in any law, order,
                  judgment, agreement, instrument or otherwise, to be exceeded.

4.       No order has been made or petition presented or resolution passed for
         the winding-up of FX or for the appointment of a compulsory manager in
         respect of FX or any substantial part of its assets.

5.       No litigation, arbitration or administrative proceeding or claim which
         might, by itself or together with any other such proceedings or claims,
         have a material adverse effect on its business, assets or condition or
         which might adversely affect its ability to observe or perform its
         obligations under this Agreement and the agreements contemplated
         hereby, is presently in progress or pending or, to the best of the
         knowledge, information and belief of FX, threatened against FX.

6.       FX is the legal owner, free from all Encumbrances of the 24.5% working
         interest in the Fences JOA to be transferred to CE Power in accordance
         with this Agreement and is entitled to transfer that 24.5% working
         interest with full title guarantee to CE Power.

7.       To the best of FX's knowledge, information and belief (after making
         reasonable enquiries, including making enquiries of POGC where
         necessary):

         (a)      POGC as Operator is not in breach of any obligations under the
                  Fences Mining Usufruct or the Fences Concession that would
                  justify the Minister of Environment to revoke either the
                  Fences Mining Usufruct or the Fences Concession;

         (b)      POGC as Operator is not in any dispute with any person in
                  relation to the Fences JOA or any operations on the Fences
                  Mining Usufruct or the Fences Concession;

<PAGE>

         (c)      There are no outstanding work obligations or commitments to be
                  performed by FX under the Fences JOA;

         (d)      FX is not in breach of any term of the Fences JOA; and

         (e)      The copies of the Fences JOA, Fences Mining Usufruct and
                  Fences Concession provided to CE Power by FX are true and
                  accurate copies of those documents.

8.       Neither FX or any of its Affiliates, nor any of their respective
         officers, directors, employees or agents has in the past engaged in,
         and shall not in the future engage in, any conduct in violation of
         Polish law or US law, including the Foreign Corrupt Practices Act.

<PAGE>

                                   SCHEDULE 7

                           CE GAS/CE POWER WARRANTIES

1.       CE Power is duly incorporated and validly exists under the laws of
         Poland.

2.       The documents which contain or establish CE Power's constitution
         incorporate provisions which authorise and all necessary corporate
         actions have been taken to authorise CE Power to sign and deliver, and
         perform the transaction contemplated by, this Agreement.

3.       Neither the signing and delivery of this Agreement nor the performance
         of any of the transactions contemplated by this Agreement, will:

         (i)      contravene or constitute a default under any provision
                  contained in any agreement, instrument, law, judgment, order,
                  licence, permit or consent by which CE Power or any of its
                  assets is bound or affected; or

         (ii)     cause any limitation on CE Power or the powers of its
                  directors, whether imposed by or contained in any document
                  which contains or establishes its constitution or in any law,
                  order, judgment, agreement, instrument or otherwise, to be
                  exceeded.

4.       No litigation arbitration or administrative proceeding or claim which
         might by itself or together with any other such proceedings or claims
         have a material adverse effect on its business, assets or condition or
         which might adversely affect its ability to observe or perform its
         obligations under this Agreement and the agreements contemplated
         hereby, is presently in progress or pending or, to the best of the
         knowledge, information and belief of CE Power, threatened against CE
         Power.

5.       No order has been made or petition presented or resolution passed for
         the winding-up of the CE Power or for the appointment of a compulsory
         manager in respect of the CE Power or any substantial part of its
         assets.

6.       Neither CE Power or any of its Affiliates, nor any of their respective
         officers, directors, employees or agents has in the past engaged in,
         and shall not in the future engage in, any conduct in violation of
         Polish law or US law, including the Foreign Corrupt Practices Act.

<PAGE>

                                   EXHIBIT ONE

                             FENCES MINING USUFRUCT

<PAGE>

                                   EXHIBIT TWO

                                FENCES CONCESSION

<PAGE>

                                  EXHIBIT THREE

                          FENCES COOPERATION AGREEMENT

<PAGE>

                                  EXHIBIT FOUR

                                   FENCES JOA

<PAGE>

                                  EXHIBIT FIVE

                           FENCES SETTLEMENT AGREEMENT

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