Document:

Exhibit 10.20

    
      

    

    Exhibit
      10.20

     

    

    PURCHASE
      AND SALE & EXPLORATION AGREEMENT

    

    

    THIS
      AGREEMENT is
      made
      and entered into effective the 1st day of March,
      2004, by
      and
      between
      CENTURY RESOURCES, INC, a
      Delaware corporation, maintaining offices
      at 5851 San Felipe Suite 775, Houston,
      Texas 77057, herein referred to as “Century” and AQUATIC
      CELLULOSE INTERNATIONAL CORPORATION, a
      Nevada
      corporation, with offices at 2504-43rd
      Street
      Suite 5, Vernon, B.C. Canada, V1T 6L1, herein referred to as "Aquatic".

    

    WHEREAS,
      Century is the owner of certain producing and undeveloped Oil and Gas Leases,
      exploration prospects and 3-D seismic prospect leads, collectively referred
      to
      as the “Subject Properties”, which are more particularly described on Exhibits
“A” and “A-1” attached hereto, which are located in Matagorda, Wharton, Jackson,
      and McMullen Counties, Texas; and

    

    WHEREAS,
      Aquatics desires to obtain an option to participate with Century in drilling
      of
      certain prospects and to acquire certain portion of Century’s rights, titles and
      interest in and to said Oil and Gas Leases, subject to the terms, conditions,
      reservations and limitations provided hereafter, and to participate with Century
      in the acquisition and development of certain lands leased or to be leased
      by
      Century. Century and Aquatics have agreed to certain preferential rights and
      options in connection with the development of the Oil and Gas Leases as
      hereinafter provided,

    

    NOW,
      THEREFORE, for and in consideration of the premises and of the mutual covenants
      and Agreements herein contained, during the initial term of this Agreement
      and
      during any renewal or extension of the term of this Agreement, it is hereby
      agreed by and between the parties hereto as follows:

    

    I.
      The Hamill Lease.
      Subject
      to and in accordance with the terms and conditions of this Agreement, Century
      agrees to sell, convey, assign, transfer and deliver to Aquatic and Aquatic
      agrees to purchase from Century as of the Effective Date of March 1, 2004,
      twenty percent (20%) of Century’s right, title and interest, in and to the
      following (the "Hamill Lease"):

    

    
      	 	
              A.

            	
              Within
                fifteen (15) days after the receipt from Aquatic of the timely cash
                payment provided for below, Century shall execute and deliver to
                Aquatic
                an assignment for its twenty percent (20%) ownership percentage,
                in and to
                the Hamill Oil and Gas Lease including
                any
                and all other interests currently owned or to be obtained by Century
                as of
                the Effective Date, including all payments, ownership and accrued
                revenue
                due from any source relating to said Oil and Gas
                Lease.

            

    

    
      
        
        

      

      
         
          

        
          

        

      

      
        
        

      

    

    

    B.
      Said
      assignment shall be effective as of March 1, 2004, and shall be subject to
      the
      following terms, conditions, reservations and limitations:

    
      	 	
              1.

            	
              The
                above mentioned assignment shall be made without warranty of any
                kind,
                express or implied, except that Century shall warrant title to the
                oil and
                gas leases by, through and under itself, but not
                otherwise.

            

    

    
      	 	
              2.

            	
              Said
                assignment shall be made subject to the terms, covenants and conditions
                of
                the following:

            

    

    
      	 	
              a.

            	
              The
                oil and gas leases; and

            

    

    
      	 	
              b.

            	
              This
                Agreement; and

            

    

    
      	 	
              c.

            	
              That
                certain unrecorded Operating Agreement, to be executed by and between
                the
                parties, (copy attached hereto as Exhibit “B”), when this Agreement is
                executed.

            

    

    
      	 	
              d.

            	
              The
                interest assigned shall be a 20% working interest and 16% net revenue
                interest; subject to its proportionate share of all royalties, overriding
                royalties, production payments and other leasehold burdens created,
                reserved, excepted or assigned in any of the instruments referred
                to in
                paragraph 2 hereinabove.

            

    

    

    
      	 	
              C.

            	
              Cash
                Payment .
                As partial consideration hereunder, Aquatic shall pay unto Century
                the
                total amount of $580,000.00.
                Allocated to the various interests to be acquired being 50% to the
                Hamill
                lease acquisition and 50% for the option rights under Section II
                below.

            

    

     

    
      	 	
              D.

            	
              Payment
                of Cash Consideration.
                Payable by Aquatic to Century as
                follows:

            

    

    

    
      	 	
              a.

            	
              Eighty
                Thousand Dollars ($80,000.00)
                in the form of a wire transfer. Receipt of this deposit is acknowledged
                by
                Century.

            

    

    
      	 	
              b.

            	
              The
                balance of the purchase price of $500,000.00
                payable from Aquatic to Century in the form of a bank cashier’s check or
                wire transfer upon presentation of an Invoice by Century. Payment
                due and
                payable per paragraph E. below.

            

    

    .
      

    E.
      Closing.
      The
      sale and purchase of the Property pursuant to this Agreement (the "Closing")
      shall be consummated and take place at the offices of Century Resources, Inc.,
      after March
      15, 2004 but on or before March 19, 2004,
      or at
      such place and time as may be mutually agreed upon in writing by the Parties
      (the "Closing Date").

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    (a) Aquatic
      shall deliver to Century at or before the Closing the remaining amount of the
      Purchase Price in certified funds or by wire transfer pursuant to Century’s
      written instructions in accordance with
      paragraphs C. D. and E. ;
      and
      such other instruments or documents as Buyer may reasonably request of Seller
      to
      consummate the transaction contemplated herein.

    

    (b) Seller
      shall deliver to Buyer at the Closing an original executed Assignment, in the
      form requested by Buyer and such other instruments or documents as Seller may
      reasonably request of Buyer to consummate the transaction contemplated
      herein.

    

    (c) Effective
      Date.
      The
      conveyance from Century shall be effective as of March 1,
      2004,
      at
      7:00 a.m. Central Standard Time (“Effective Date”). 

    

    F.
       Effect
      of Failure to Perform by Aquatic: 

    

    Should
      Aquatic fail to comply with the above specified commitment to make the required
      cash payment to Century within the time guidelines noted above, then Aquatic
      shall be deemed to be in default under this Agreement, and any of Aquatic’s
      rights (earned or to be earned) hereunder and under the Operating Agreement
      shall ipso facto terminate. Upon the occurrence of such non-performance, there
      shall be an automatic reversion to Century of any rights, titles and interests
      that were scheduled to be conveyed to Aquatic. In such event, the cash deposit
      of $80,000.00 paid by Aquatic pursuant to this Agreement shall be retained
      by
      Century, not as a penalty, but as the good-faith agreement of the parties hereto
      to liquidate their damages in the event Aquatic fails to perform pursuant to
      this Agreement.

    

    In
      addition, the Parties agree that if the transaction does not close in the
      allotted time frame noted in paragraph D.
      above,
      that the parties shall negotiate a mutually agreeable written extension to
      close
      not to exceed past March
      26, 2004.
      If
      closing occurs between March 20, 2004 and March 26, 2004, (not later than March
      26, 2004), the balance of the purchase price required under paragraph
D.
      section b. above,
      will increase by ten percent (10%), to $550,000.00.

    

    G. Operator.

    

    Century
      shall be designated as the Operator of the oil and gas properties subject to
      this agreement and any wells drilled pursuant to this Agreement and shall have
      full control over drilling and other operations at all times.

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    
      	 	
              H.

            	
              Operating
                Agreement:

            

    

    

    It
      is
      agreed that within five (5) days of the execution of this Agreement by the
      parties, each shall execute the Operating Agreement (copy attached hereto as
      Exhibit “B”), and the Operating Agreement shall become effect as of that date as
      to all operations and other activities conducted on the “Contract Area”
described therein. Notwithstanding anything to the contrary contained herein
      or
      in the Operating Agreement, in the event of conflict or inconsistency between
      the terms and provisions of this Agreement and those of the Operating Agreement,
      it is stipulated that the terms and provisions of this Agreement shall
      prevail.

    

    II.
      Option on New Projects and Exploration Drilling Participation.

    

    Subject
      to and in accordance with the terms, provisions and conditions set forth in
      this
      Agreement, Aquatic shall have an exclusive- non-transferable right, but not
      the
      obligation, to participate with Century, by acquiring up to fifty
      percent (50%)
      of the
      interest made available to Century, in any new producing property acquisitions,
      undeveloped oil and gas lease acquisition, participation in new drilling
      prospects ( exploration or development drilling) and other oil and gas
      acquisition, leasing or development activities undertaken by Century during
      the
      Term of this Agreement. Aquatic will have the option to participate on mutually
      agreeable terms, and will pay its pro-rata share of project expenses. If Aquatic
      elects, at it sole discretion, to participate in any of these future projects
      or
      prospects, Aquatic will reimburse Century for its pro-rata share of any third
      party expenses incurred by Century relating to the individual projects. Aquatic
      will make its election to participate, on a project-by-project basis as they
      are
      presented to Aquatic by Century. Aquatic will exercise this preferential right
      of participation within a period of 30
      days after
      receipt of notice and project summary information from Century as each
      individual project is presented, OR
      a
      shorter time period - if a time period less than 30 days has been imposed on
      Century to elect, by a third party.

    

    If
      Aquatic declines to participate or rejects any individual project or prospect,
      within the allotted time period to respond, then Century shall own the project
      or prospect free and clear of this Agreement, and Century shall have the right
      to market same to third parties without any further obligation to
      Aquatic.

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    
      
        A.    Project
          Areas.

      

    

    

    Areas
      included in this option for participation include but are not limited to the
      following:

    

    
      	 	
              a.

            	
              Wharton
                and Jackson Counties Texas,
                Viking Exploration 3D drilling program participation for drilling
                of new
                wells on acreage to be acquired by
                Century.

            

    

    
      	 	
              b.

            	
              Brookshire
                Dome- Waller County, Texas
                drilling of new wells on acreage Century currently owned or to be
                acquired
                by Century.

            

    

    
      	 	
              c.

            	
              Tenna
                Field, Wharton County, Texas,
                drilling of new wells on acreage currently owned or to be acquired
                by
                Century.

            

    

    
      	 	
              d.

            	
              San
                Miguel Creek Field , McMullen County, Texas,
                drilling of new wells on acreage currently owned or to be acquired
                by
                Century

            

    

    
      	 	
              e.

            	
              Future
                new production and property acquisitions.
                On terms outlined in this
                agreement.

            

    

    

    B.    Stock
      Consideration for this Option on New Projects and Exploration
      Drilling.

    

    As
      partial consideration hereunder, Aquatic shall deliver unto Century shares
      in
      Aquatic Cellulose International Corp.,, as detailed on Exhibit
      “C”attached
      hereto and made a part of this Agreement. At Century's request, Century’s share
      allocation may be issued to others and will be subject to the same terms,
      conditions and restrictions as Century’s shares.

    

    C.    General
      Provisions.

    

    1.    Right
      to Join in Sale of Interests to Third Parties. Aquatic
      and Century agree that if either party should offer any of their oil and gas
      interests hereunder for sale to any third parties (excluding the shares in
      II.
      B. above) , they will grant the other party the option of including their
      interests free of cost in such sales.

    

    2.    Preferential
      Right to Purchase . Subject
      to the terms of this Agreement, Aquatic and Century shall each have a recurring
      preferential right to purchase the other parties interest in proposed sale
      of
      any interest acquired under this Agreement. Before entering into a sales
      contract with a purchaser, Century or Aquatic will promptly give written notice
      of the proposed sale, describing all relevant details, including a draft of
      the
      proposed contract. Each party shall have fifteen (15) days after receipt of
      the
      notice within which to elect to contract to purchase or designate an alternate
      purchaser, on the same terms contained in the notice, or on terms more
      favorable. If any party fails to notify the selling party of its election within
      the fifteen (15) day period, or elects not to purchase, the selling party may
      enter into the proposed contract on the same terms contained in the notice
      to
      the other party. If, for any reason, either party does not enter into the
      proposed contract on the terms contained in the notice and permitted by this
      Agreement, or if the proposed contract executed terminates, expires or is
      renegotiated, in whole or in part, the preferential right shall apply again
      and
      in accordance with this Agreement and the Operating Agreement. Aquatic’s
      continued compliance with all terms of this Agreement and the Operating
      Agreement is a condition to Aquatic preserving this preferential right to
      purchase Century’s interest offered to a third party.

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    

    3.    Term.
      The
      term
      of Section
      II Option on New Projects and Exploration Drilling Participation under this
      Agreement
      shall be for a period of one
      (1) year
      beginning March 1, 2004. Activation of this Option is dependent on Century
      receiving funds per the Closing outlined in Section
      I paragraph D of
      this
      Agreement. Aquatic will have the option to renew this Agreement for two (2)
      additional one-year period by notifying Century in writing, on or before the
      expiration of the first and second year option period. If Aquatic fails to
      give
      such notice, this Agreement will automatically terminate as to the preferential
      right of Aquatic to participate in any new projects developed by Century, after
      the end of the active one year option period, with no further obligations or
      liabilities on the part of either party, except for existing obligations under
      the Operating Agreement or for projects and properties jointly owned, or any
      work or acquisition in progress as of said termination date. After the closing
      outlined in Section I paragraph D., Aquatic at its sole discretion may at any
      time thereafter terminate this Agreement by delivering written notice to Century
      of Aquatic’s election to terminate this Agreement, whereupon this Agreement will
      terminate without further obligation or liabilities on the part of Century
      or
      Aquatic, except those obligations for any work in progress, and for those
      obligations set forth in the Operating Agreement.

    

    4.    No
      Partnership. This
      Agreement shall not be construed as creating a partnership between the parties
      hereto or rendering them liable as co-partners or as authorizing any of the
      parties to act as the agent, servant or employee of the other party hereto
      for
      any purpose whatsoever, except to he extent Century as Operator is authorized
      to
      do so under the terms of the Operating Agreement attached as Exhibit”B”. The
      parties liabilities shall be several, not joint or collective.

    

    5.    Time
      is of the essence of this Agreement.

     

    6.    Representations
      by Century.
      Century
      represents and warrants that the following statements are true and correct
      at
      the date hereof and at the Closing Date in all material respects, Century shall
      perform and comply in all material respects with all covenants and conditions
      herein required:

    

    a.    Organization
      and Authority.
      Century
      Resources, Inc. a Delaware corporation is duly organized, in good standing,
      and
      qualified to own mineral interests in the state where the Property is located
      and has the power and authority to carry on its business as presently conducted,
      to own and hold the Property, to sell the Property and to perform all
      obligations required by this Agreement.

    7.    Representations
      by Aquatic.
      Aquatic
      represents to Century that the following statements are true and correct and
      shall be true at and as of the Closing Date in all material respects, Buyer
      shall perform and comply in all material respects with all covenants and
      conditions herein required.

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    a.    Organization
      and Authority.
      Aquatic
      is a Nevada corporation, in good standing, and qualified to carry on its
      business in the state where located and has the power and authority to carry
      on
      its business as presently conducted, to own, purchase and hold the Property,
      and
      to perform all obligations required by this Agreement.

    

    b.    Aquatic’s
      Investigations.
      Subject
      to any required consent of third parties, Seller agrees to allow Buyer and
      its
      authorized representatives to conduct inspections or investigations on or with
      respect to the Property without limitation. Buyer agrees that it will hold
      in
      trust, keep confidential, and not disclose to any third party or make any use
      of
      any confidential information obtained from Seller except to the extent necessary
      to complete its investigations described herein unless the purchase and sale
      contemplated herein is accomplished and the Property is transferred to Buyer.
      Aquatic
      stipulates that it has knowledge and experience in financial and business
      matters that enable it to evaluate the merits and risks of the transactions
      contemplated by this Agreement and that the parties are not in a significantly
      disparate bargaining position.

    

    8.    Title.
       Seller
      warrants title to the interest being conveyed to Buyer against all persons
      lawfully claiming, or to claim, all or any portion of the ownership of Century
      Resources, Inc., or the oil and gas leases. Seller will convey to Buyer, to
      the
      full extent transferable, the benefit of and the right to enforce title
      warranties, which Seller is entitled to enforce.

    .
      

    9.    Notices.
      All
      notices and communications required or permitted under this Agreement shall
      be
      in writing, delivered to or sent by U.S. Mail or Express Delivery or Federal
      Express, postage prepaid, by prepaid telegram, or acknowledged facsimile,
      addressed as follows:

    

    Edward
      R.
      DeStefano

    Century
      Resources, Inc.

    5851
      San
      Felipe, Suite 775

    Houston,
      Texas 77057    713-266-4344   Fax
      713-266-4358

    

    Sheridan
      Westgarde

    Aquatics
      Cellulose International Corporation

    2504-
      43rd
      Street,
      Suite 5

    Vernon,
      B.C.

    Canada,
      V1T 6L1     250-558-4216   Fax
      250-558-3846

    

    10.    Parties
      in Interest.
      This
      Agreement shall inure to the benefit of and be binding upon Seller and Buyer
      and
      their respective heirs, successors and assigns. However, no assignment by any
      party shall relieve any party of any duties or obligations under this Agreement.
      Specifically, to the extent Aquatic assigns or transfers any or all of its
      interest in this Agreement, Aquatic shall remain liable for all obligations
      arising under this Agreement to the same extent that it was liable before said
      assignment or transfer. Aquatic may not assign it interest in this agreement
      to
      any party without the express written consent of Century, which consent may
      be
      withheld at Century’s sole discretion.

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    

    11.    Headings
      for Convenience.
      The
      paragraph headings used in this Agreement are inserted for convenience only
      and
      shall be disregarded in construing this Agreement.

    

    12.    Entire
      Agreement. This
      Agreement and all exhibits hereto, shall constitute the entire contract and
      agreement of Century and Aquatic and shall supersede, replace and override
      any
      and all prior discussions, correspondence, and agreements between them as to,
      and only as to, the contemplated operations, promises, and agreements as
      specifically provided for herein.. Century and Aquatic agree that as to the
      matters contemplated and provided for herein, there are no undertakings,
      obligations, promises, assurances, agreements or conditions, whether precedent
      or otherwise, except those specifically set forth in this Agreement and in
      the
      exhibits attached hereto. Other than as prescribed herein, no amendment,
      modification, termination or cancellation of this Agreement shall be effective
      unless in writing and signed by the Parties. 

    

    13.    Disputes
      and Applicable Laws.
      Should
      any party to this Agreement bring an action, including a lawsuit, against any
      other party to this Agreement (or any of its directors, officers, employees
      and
      agents) to enforce or interpret any term or condition of this Agreement, then
      the prevailing or substantially prevailing party in such action shall be
      entitled to recover an amount for reasonable attorneys fees in addition to
      any
      costs awarded by judgment. This Agreement shall be governed exclusively by,
      and
      construed according to, the laws of the State of Texas. The venue for any
      litigation or dispute shall be Harris County, Texas.

    

    14.     No
      Waiver.
      No
      waiver of any of the provisions of this Agreement shall be deemed or shall
      constitute a waiver of any other provisions, whether similar or not, nor shall
      a
      waiver constitute a continuing waiver or a precedent to make similar waivers
      in
      the future. No waiver shall be binding unless executed in writing by the party
      making the waiver.

    

    15.    Survivorship
      of Provisions.
      If, for
      any reason, any provision or part of this Agreement is determined to be invalid
      or contrary to, or in conflict with, any existing or future law or regulation
      as
      determined finally by a court or agency having competent jurisdiction, then
      the
      Parties agree that such provision or part thereof shall be amended and/or
      modified to the minimum extent necessary to make such provision or part thereof
      valid or enforceable, unless to do so would alter materially the rights, duties
      and/or obligations of the Parties hereto. Any such amendment or modification
      shall not impair the operation or affect the remaining provisions of this
      Agreement and such remaining provisions will continue to be given full force
      and
      effect and bind each party unless the necessary amendment or modification would
      alter materially the rights, duties and/or obligations of the Parties hereto
      in
      which case this Agreement shall terminate unless otherwise agreed by the Parties
      hereto.

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    16.    Further
      Assurances.
      After
      Closing, Seller and Buyer agree to take such further actions and to execute,
      acknowledge and deliver all such further documents that are necessary or useful
      in carrying out the purposes of this Agreement or of any document delivered
      pursuant hereto.

    

    17.    Third
      Party Beneficiaries.
      There
      are no third parties who are intended to be beneficiaries of this
      Agreement.

    

    18.     Confidentiality.
      Due to
      the confidentiality of certain aspects of Century’s business, and proprietary
      nature of certain non public information and data, which is acknowledged by
      all
      parties hereto, Aquatic and its agents will not disclose to any person, without
      the prior written consent of Century, any confidential information and any
      information about the proposed transaction, or the terms or conditions or any
      other facts relating thereto. except as required in connection with any
      financing, Aquatic shall keep confidential all information regarding this
      agreement, contracts, financial, geological, engineering and related
      information.

    

    

    IN
      WITNESS WHEREOF, THIS AGREEMENT SHALL BE EFFECTIVE AS OF March 1,
      2004.

    

    EXECUTED
      this __17th__ day of March, 2004.

    

    

    
      	
              CENTURY
                RESOURCES, INC 

            	
              Aquatics
                Cellulose International Corporation

            
	 	 
	 	 
	
              /s/
                Edward R. DeStefano

            	
              /s/
                Sheridan Westgarde

            
	
              Edward
                R. DeStefano, President

            	
              Sheridan
                Westgarde, CEO

            

    

    

    

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    EXHIBIT
      “A”

    

    Attached
      to and made a part of that certain Purchase and Sale & Exploration Agreement
      between Century Resources, Inc, and Aquatic Cellulose International Corporation
      effective March 1, 2004. 

    

    

    OIL,
      GAS AND MINERAL LEASE:

    

    
      	 	 
	
              DATE:

            	
              APRIL
                16, 1951

            
	
              LESSOR:

            	
              Hamill
                & Hamill, a partnership composed of Claud B. Hamill and P.R.
                Hamill,

            
	 	
              Trustees,
                and Dorthy Stoner Parker, and husband, Ed G. Parker

            
	
              LESSEE:

            	
              Frank
                Hawkins

            
	
              Land:

            	
              3,645.61
                Acres, more or less, William Baxter Survey, A-4

            
	
              Recorded:

            	
              Volume
                225, Page 290, DR

            
	
              Amended:

            	
              Volume
                543, Page 7

            
	
              (“Hamill
                Lease”)

            	 

    

    

    SUBSURFACE
      EASEMENTS
      ( Lot
      and block references are to the Sargent Beach Subdivision, William Baxter
      Survey, A-4, recorded at Volume 3, Page 5, Plat Records, Matagorda County,
      Texas):

    

    
      	
              1.

            	
              Date:

            	
              August
                17, 2001

            
	 	
              Grantor:

            	
              Michael
                W. Collier

            
	 	
              Grantee:

            	
              Calpine
                Natural Gas Company

            
	 	
              Land:

            	
              Lots
                14, 15,16,17,18,19,20,21,22,23,24,25,26,27,28, &29, Block
                1

            
	 	
              Recorded:

            	
              Volume
                629, Page 754, DR

            
	 	 	 
	
              2.

            	
              Date:

            	
              August
                14, 2001

            
	 	
              Grantor:

            	
              Michael
                Andrew Hankis and Amanda Grace Hankins

            
	 	
              Grantee:

            	
              Calpine
                Natural Gas Company

            
	 	
              Land:

            	
              Lots
                14, 15,16,17,18,19,20,21,22,23,24,25,26,27,28, &29, Block
                1

            
	 	
              Recorded:

            	
              Volume
                629, Page 756, DR

            
	 	 	 
	
              3.

            	
              Date:

            	
              May
                29, 2001

            
	 	
              Grantor:

            	
              Deborah
                Jean Perkins

            
	 	
              Grantee:

            	
              Calpine
                Natural Gas Company

            
	 	
              Land:

            	
              Lots
                33,34,35 & 36 Block 24

            
	 	
              Recorded:

            	
              Volume
                628, Page 417, DR

            

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

    
      	 	 	 
	
              4.

            	
              Date:

            	
              July
                16, 2001

            
	 	
              Grantor:

            	
              Mitchell
                Melnyczuk

            
	 	
              Grantee:

            	
              Calpine
                Natural Gas Company

            
	 	
              Land:

            	
              Lots
                2 & 3, Block 3

            
	 	
              Recorded:

            	
              Volume
                628, Page 439

            
	 	 	 
	
              5.

            	
              Date:

            	
              August
                8, 2001

            
	 	
              Grantor:

            	
              United
                States Department of the Army

            
	 	
              Grantee:

            	
              Calpine
                Natural Gas Company

            
	 	
              Land:

            	
              Portion
                of Tracts 503 and 504

            
	 	
              Recorded:

            	
              Unrecorded

            

    

    

    NORTEX
      FARMOUT and OPERATING AGREEMENT:

    

    Seismic
      Option Farmout Agreement dated March 19, 1998, between Nortex Corporation and
      Sheridan Energy, Inc., amended September 14, 1999, May 19, 2000, January 23,
      2001 and May 7, 2001, which may be subject to the operating agreement dated
      January 16, 1961, between J.S. Michael Company and Gulf Oil
      Corporation.

    

    WELLS:

    

    All
      producing, shut-in, inactive and salt water disposal wells on Hamill &
Hamill Lease to all depths.

    

    FACILITIES:

    

    All
      personal property, equipment, fixtures, facilities and materials associated
      with
      the wells listed above, including without limitation, pipelines, tanks,
      saltwater disposal, gathering systems and dehydrations systems.

    

    

    

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    EXHIBIT
      “A-1”

    

    

    Attached
      to and made a part of that certain Purchase and Sale Agreement between Century
      Resources, Inc, and Aquatic Cellulose International Corporation as ,dated March
      1, 2004. Leases owned by Century Resources, Inc., includes but is not limited
      to
      the following:

    

    
      	 	
              1.

            	
              Leases:
                Tenna Field, Wharton County,
                Texas:

            

    

    

    
      	
              LESSOR

            	
              LESSEE
                

            	
              DATED
                 

            	
               Vol.
                Page 

            	
              Recorded

            
	 	 	 	 	 
	
              Brothers
                Cattle Company, Inc.

            	
              J.Charles
                Hollimon, Inc.

            	
              05/01/90

            	
              830
                

            	
              430

            
	 	 	 	 	 
	
              Emil
                J. Hillje

            	
              E.W.
                Ogden

            	
              09/30/52
                

            	
              255

            	
              446

            
	 	 	 	 	 
	
              Kathryn
                Murray, Guardian Estate Of Jack B. Howard, Jr.

            	
              E.W.
                Ogden

            	
              09/04/53

            	
              263

            	
              213

            
	 	 	 	 	 
	
              Brothers
                Cattle Company, Inc. 

            	
              Hardwick
                Oil Co.

            	
              12/23/91
                

            	
              30

            	
              261

            
	 	 	 	 	 
	
              Brothers
                Cattle Company, Inc. 

            	
              Hardwick
                Oil Co.

            	
              06/17/92

            	
              24

            	
              17

            

    

    

    

    

    
      	 	
              2.

            	
              San
                Miguel Creek Field, McMullen County,
                TX:

            

    

    

    Lessor: 
      SALLY
      BURMEISTER

    Lessee: ATLANTIC
      REFINING COMPANY

    Date:
       SEPTEMBER
      6, 1940

    Recorded:
      Volume 27, Pages 632-635 of the Deed Records of McMullen, County, Texas,
      COVERING 200 ACRES, being the westernmost 200 acres of the Frank H. Burmeister
      Survey 14, A-1060, from the surface down to and including the stratigraphic
      equivalent of 6,100 feet beneath such land.

     

    Lessor: 
      Clifton
      Wheeler et ux

    Lessee: 
      V.T.
      Donnelly

    Date: June
      16,
      1951

    Recorded:
      Volume 28 ,Pages 480 of the Deed Records of McMullen, County, Texas, INSOFAR
      as
      Said Lease covers 40 acres more particularly described in that certain
      Assignment and Bill of Sale dated September 12, 2001 from Lakewood Operating
      ,
      LTD. et al to Century Resources, Inc., recorded at Volume 411, Page 237,
      Official Records of McMullen County, Texas.

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    EXHIBIT
      “B”

    

    Copy
      of Operating Agreement

     

    Attached
      to and made a part of that certain Purchase and Sale Agreement between Century
      Resources, Inc, and Aquatic Cellulose International Corporation as ,dated March
      1, 2004. Leases owned by Century Resources, Inc., 

    

    

    

    

    

    

    

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    EXHIBIT
      ‘C’

    

    Attached
      to and made a part of that certain Purchase and Sale and Exploration AGREEMENT
      BY AND BETWEEN Century Resources, Inc. and AQUATIC CELLULOSE INTERNATIONAL
      CORP., dated January 15, 2004. 

    

    The
      following share structure will be completed upon the approval of shareholders
      in
      the forthcoming proxy vote and the subsequent corporate recapitalization.
      Aquatic board of directors maintains the right to issue additional shares for
      acquisition and expansion, which will affect original shareholders percentage
      of
      ownership. Aquatic agrees that the initial 15% ownership stake by Edward R.
      DeStefano will be issued upon the completion of the Company share
      recapitalization; however Aquatic maintains the right to change other ownership
      percentages as Aquatic sees fit.

    

    Share
      Structure of Aquatic Cellulose International Corp

     

    
      	Issued &
              Outstanding	23.002
              million 
	
              Corp.
                shareholders & Professional Services

            	
              2.5
                million / (6.11%)

            
	
              Officers
                & Directors 

            	
              10.408
                million / (45.25%)

            
	
              Debt
                service 

            	
              5.52
                million / (24.00%)

            
	
              Edward
                R. DeStefano 

            	
              3.45
                million / (15%)

            

    

    

    (Based
      on Issued &Outstanding shares of approx. 23.0 million, the number of which
      is subject to change)Exhibit 10.21

     

    
       

      
        
          

        

      

       

      Exhibit
        10.21

      
 

      A.A.P.L.
        FORM 610-1982

      MODEL
        FORM OPERATING AGREEMENT

       

       

       

       

       

       

       

       

       

      OPERATING
        AGREEMENT

      DATED

       

      MARCH
        1 2004

       

       

       

       

       

      9

       

      OPERATOR

       

      CENTURY
        RESOURCES INC.

       

       

      CONTRACT
        AREA SEE
        DESCRIPTION AND PLAT
        ON
        EXHIBIT "A-1" 

       

       

      COUNTY
        OR
        PARISH OF
        MATAGORDA STATE
        OF
  TEXAS

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

       

       

       

       

       

       

       

      COPYRIGHT
        1982 -
        ALL
        RIGHTS RESERVED AMERICAN
        ASSOCIATION OF PETROLEUM LANDMEN,
        4100 FOSSIL CREEK BLVD., FORT WORTH,
        TEXAS, 76137-2791, APPROVED FORM.
        A.A.P.L.
        NO. 610 -
        1982
        REVISED

       

       

       

       

       

       

       

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      

       A.A.P.L.
        FORM 610 -
        MODEL
        FORM OPERATING AGREEMENT - 1982

       

      TABLE
        OF CONTENTS

       

      
        
          	Article 	Title 	Page

        

      

       

      
        	
                I.
                  DEFINITIONS 

              	
                1

              
	
                II.
                  EXHIBITS 

              	
                1

              
	
                III.
                  INTERESTS
                  OF PARTIES 

              	
                2

              
	
                A.
                  OIL AND GAS INTERESTS 

              	
                2

              
	
                B.
                  INTERESTS OF PARTIES IN
                  COSTS AND PRODUCTION 

              	
                2

              
	
                C.
                  EXCESS ROYALTIES, OVERRIDING
                  ROYALTIES AND
                  OTHER PAYMENTS

              	
                2

              
	
                D.
                  SUBSEQUENTLY CREATED INTERESTS
                  

              	
                : 2

              
	
                IV.
                  TITLES 

              	
                2

              
	
                A.
                  TITLE EXAMINATION 

              	
                2-3

              
	
                B.
                  LOSS OF TITLE 

              	
                3

              
	
                1.
                  Failure of Title

              	
                3

              
	
                2.
                  Loss by Non-Payment or
                  Erroneous Payment of
                  Amount Due 

              	
                3

              
	
                3.
                  Other Losses 

              	
                3

              
	
                V.
                  OPERATOR

              	
                4

              
	
                A.
                  DESIGNATION AND RESPONSIBILITIES
                  OF
                  OPERATOR 

              	
                4

              
	
                B.
                  RESIGNATION OR REMOVAL OF
                  OPERATOR AND SELECTION OF
                  SUCCESSOR 

              	
                4

              
	
                1.
                  Resignation or Removal of
                  Operator 

              	
                4,

              
	
                2.
                  Selection of Successor Operator
                  

              	
                4

              
	
                C.
                  EMPLOYEES 

              	
                4

              
	
                D.
                  DRILLING CONTRACTS 

              	
                4

              
	
                VI.
                  DRILLING
                  AND DEVELOPMENT 

              	
                4

              
	
                A.
                  INITIAL WELL 

              	
                4-5

              
	
                B.
                  SUBSEQUENT OPERATIONS 

              	
                5

              
	
                1.
                  Proposed Operations 

              	
                5

              
	
                2.
                  Operations by Less than
                  All Parties

              	
                5-6-7

              
	
                3.
                  Stand-By Time 

              	
                7

              
	
                4.
                  Sidetracking 

              	
                7

              
	
                C.
                  TAKING PRODUCTION IN
                  KIND 

              	
                7

              
	
                D.
                  ACCESS TO CONTRACT AREA
                  AND INFORMATION 

              	
                8

              
	
                E.
                  ABANDONMENT OF WELLS
                  

              	
                8

              
	
                1.
                  Abandonment of Dry Holes..
                  ..*.** *....*

              	
                8

              
	
                2.
                  Abandonment of Wells that
                  have Produced 

              	
                8-9

              
	
                3.
                  Abandonment of Non-Consent Operations
                  

              	
                9

              
	
                VII.
                  EXPENDITURES
                  AND LIABILITY
                  OF PARTIES 

              	
                9

              
	
                A.
                  LIABILITY OF PARTIES 

              	
                9

              
	
                B.
                  LIENS AND PAYMENT DEFAULTS
                  

              	
                9

              
	
                C.
                  PAYMENTS AND ACCOUNTING 

              	
                9

              
	
                D.
                  LIMITATION OF EXPENDITURES 

              	
                9-10

              
	
                1.
                  Drill or Deepen 

              	
                9-10

              
	
                2.
                  Rework or Plug Back 

              	
                10

              
	
                3.
                  Other Operations 

              	
                10

              
	
                E.
                  RENTALS, SHUT-IN WELL
                  PAYMENTS AND MINIMUM
                  ROYALTIES 

              	
                10

              
	
                F.
                  TAXES 

              	
                10

              
	
                G.
                  INSURANCE 

              	
                11

              
	
                VIII.
                  ACQUISITION,
                  MAINTENANCE OR
                  TRANSFER OF INTEREST 

              	
                11

              

      

       

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      
        
          	
                  A.
                    SURRENDER OF LEASES 

                	
                  11

                
	
                  B.
                    RENEWAL OR EXTENSION OF
                    LEASES 

                	
                  11

                
	
                  C.
                    ACREAGE OR CASH CONTRIBUTIONS
                    

                	
                  11-12

                
	
                  D.
                    MAINTENANCE OF UNIFORM INTEREST 

                	
                  12

                
	
                  E.
                    WAIVER OF RIGHTS TO
                    PARTITION 

                	
                  12

                
	
                  IX.
                    INTERNAL
                    REVENUE CODE
                    ELECTION 

                	
                  12

                
	
                  X.
                    CLAIMS
                    AND LAWSUITS 

                	
                  13

                
	
                  XI.
                    FORCE
                    MAJEURE 

                	
                  13

                
	
                  XII.
                    NOTICES 

                	
                  13

                
	
                  XIII.
                    TERM
                    OF AGREEMENT 

                	
                  13

                
	
                  XIV.
                    COMPLIANCE
                    WITH LAW

                	
                  14

                
	
                  A.
                    LAWS, REGULATIONS AND
                    ORDERS 

                	
                  14

                
	
                  B.
                    GOVERNING LAW

                	
                  14

                
	
                  C.
                    REGULATORY AGENCIES

                	
                  14

                
	
                  XV.
                    OTHER
                    PROVISIONS 

                	
                  14

                
	
                  XVI.
                    MISCELLANEOUS 

                	
                  15

                

        

         

      

       

       

       

       

       

       

       

      Table
        of
        Contents

       

      ...

      ...............

      .................

      .......
        ............

       

      

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      

       A.A.P.L.
        FORM 610 -
        MODEL
        FORM OPERATING AGREEMENT -
        1982

      
        	I	
                OPERATING
                  AGREEMENT

              

      

      2

      3 THIS
        AGREEMENT, entered into by and between CENTURY
        RESOURCES
        INC.
        4

      hereinafter
        designated and

      5
        referred
        to as "Operator", and the signatory party or parties other than Operator,
        sometimes hereinafter referred to individually herein 6
        as
        "Non-Operator", and collectively as "Non-Operators".

      7

      
        	8	
                WITNESSETH:

              

      

      9

      10
        WHEREAS,
        the parties to this agreement are owners of oil and gas leases and/or oil
        and
        gas interests in the land identified in 11
        Exhibit
        "A",
        and
        the
        parties hereto have reached an agreement to explore and develop these leases
        and/or oil and gas interests for the 12
        production of oil and gas to the extent and as hereinafter
        provided,

      13

      14 NOW,
        THEREFORE, it is agreed as follows:

      15

      
        	16	
                ARTICLE
                  I.

              

      

      
        	17	
                DEFINITIONS

              

      

      18

      19 As
        used
        in this agreement, the following words and terms shall have the meanings
        here
        ascribed to them:

      20    A.
        The
        term "oil and gas" shall mean oil, gas, casinghead gas, gas condensate, and
        all
        other liquid or gaseous hydrocarbons 21 and other marketable substances produced
        therewith, unless an intent to limit the inclusiveness of this term is
        specifically stated.

      22    B.
        The
        terms "oil and gas lease", "lease" and "leasehold" shall mean the oil and
        gas
        leases covering tracts of land 23
        lying
        within the Contract Area which are owned by the parties to this
        agreement.

      24    C.
        The
        term "oil
        and
        gas
        interests" shall mean unleased fee and mineral interests in tracts of land
        lying
        within the 25 Contract Area which are owned by parties to this
        agreement.

      26    D.
        The
        term "Contract Area" shall mean all of the lands, oil and gas leasehold
        interests and oil and gas interests intended to be 27
        developed and operated for oil and gas purposes under this agreement. Such
        lands, oil and gas leasehold interests and oil and gas
        interests

      28
        are
        described in Exhibit "A".

      29    E.
        The
        term "drilling unit" shall mean the area fixed for the drilling of one well
        by
        order or rule of any state or 30
        federal body having authority. If a drilling unit is not fixed by any such
        rule
        or order, a drilling unit shall be the drilling unit as establish- ed
        by the
        pattern of drilling in the Contract Area or as fixed by express agreement
        of the
        Drilling Parties.

      32    F.
        The
        term "drillsite" shall mean the oil and gas lease or interest on which a
        proposed well is to be located:

      33    G.
        The
        terms "Drilling Party' and "Consenting Party"
        shall
        mean a party who agrees to join in and pay its share of the cost of 34
        any
        operation conducted under the provisions of this agreement.

       

      35    H.
        The
        terms "Non-Drilling Party" "Non-Consenting
        Party" shall mean a party who elects not to participate Party'"
        36
        in a
        proposed operation.

      37

      38 Unless
        the context otherwise clearly indicates, words used in the singular include
        the
        plural, the plural includes the 39
        singular, and the neuter gender includes the masculine and the
        feminine.

      40

      
        	41	
                ARTICLE
                  H.

              

      

       

      
        	42	
                EXHIBITS

              

      

      43

      44    The
        following exhibits, as indicated below and attached hereto, are incorporated
        in
        and made a part hereof: 45
        El
        A.
        Exhibit "A",
        shall include the following information:

      46        (1)
        Identification of lands subject to this agreement,

      47        (2)
        Restrictions, if any, as to depths, formations, or substances,

      48        (3)
        Percentages or fractional interests of parties to this agreement,

      49        (4)
        Oil
        and gas leases and/or oil and gas interests subject to this
        agreement,

      50        (5)
        Addresses of
        parties for notice purposes.

      51    B.
        Exhibit "B",
        Form
        of
        Lease.

      52
        ®C.
        Exhibit "C",
        Accounting
        Procedure.

      53
        list
        D.
        Exhibit "D",
        Insurance.

      54
        ®E.
        Exhibit "E",
        Gas
        Balancing Agreement.

      55    F.
        Exhibit "17",
        Non-Discrimination
        and Certification of Non-Segregated Facilities.

      56    G.
        Exhibit "G",
        Tax
        Partnership.

      57    If
        any
        provision of any exhibit, except Exhibits "E" and "G",
        is
        inconsistent with any provision contained in the body 58
        of
        this agreement, the provisions in the body of this agreement shall
        prevail.

      59

      60

      61
®    A-1
        Description &Plat
        of Contract
        Area

      62

      63

      64
        10 EXHIBIT
        "A-2"
        Copy
        of Purchase and Sale and Exploration Agreement dated March 17,
        2004
        65

      66

      67

      68

      69

      70

      -1-

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      A.A.P.L.
        FORM 610 -
        MODEL
        FORM OPERATING AGREEMENT -
        1982

      
 

      I
        2 3

      4
        A. Oil
        and Gas Interests:

      5
        6 7 8

       

      ARTICLE
        RI.

       

      INTERESTS
        OF PARTIES

      if
        any party owns an oil and gas interest in the Contract Area, that interest
        shall
        be treated for all purposes of this agreement and
        during the term hereof as if it were covered by the form of oil and gas lease
        attached hereto as Exhibit `B",
        and
        the owner thereof shall
        be deemed to own both the royalty interest reserved in such lease and the
        interest of the lessee thereunder.

       

      9

      10
        B.    Interests
        of Parties in Costs and Production:

      11

      12    Unless
        changed by other provisions, all costs and liabilities incurred in operations
        under this agreement shall be
        borne and

      13
        paid, and all equipment and materials acquired in operations on the Contract
        Area shall be
        owned,
        by the parties as their interests are set 14
        forth in Exhibit "A".
        In
        the same manner, the parties shall also own all production of oil
        and
        gas from the Contract Area subject to the 15
        Payment of

      16

      17
        Regardless
        of which party has contributed the lease(s) and/or oil and gas interest(s)
        hereto on which royalty is due and 18 payable, each party entitled to receive
        a
        share of production of oil and gas from the Contract Area shall bear and
        shall
        pay or deliver, or 19
        cause to be paid or delivered, to the extent of its interest in such production,
        the burdens royalty-amount stipulated hereinabove and shall hold

       

      20
        the other parties free from any liability therefor. No party shall ever be
        responsible, however, on a price basis higher than the price received
21
        by such party, to any other party's lessor or. royalty owner, and if any
        such
        other party's lessor or royalty owner should demand and 22
        receive settlement on a higher price basis, the party contributing the affected
        lease shall bear the additional royalty burden attributable to 23 such higher
        price.

      24

      25    Nothing
        contained in this Article III.B. shall be deemed an assignment or
        cross-assignment of interests covered hereby. 26

      27
        C. Excess
        Royalties, Overriding Royalties and Other Payments:

      28

      29
        Unless
        changed by other provisions, if the interest of any party in any lease covered
        hereby is subject to any royalty, 30
        overriding royalty, production payment or other burden on production in excess
        of the amount stipulated in Article III.B., such party so 31
        burdened shall assume and alone bear all such excess obligations and shall
        indemnify and hold the other parties hereto harmless from any 32
        and all claims and demands for payment asserted by owners of such excess
        burden.

      33

      34
        D. Subsequently
        Created Interests:

      35

      36
        If any party should hereafter create an overriding royalty, production payment
        or other burden payable out of production 37
        attributable to its working interest hereunder, or if such a burden existed
        prior to this agreement and is not set forth in Exhibit "A",
        or
        38
        was not disclosed in writing to all other parties prior to the execution
        of this
        agreement by all parties, or is not a jointly acknowledged and 39
        accepted obligation of all parties (any such interest being hereinafter referred
        to as "subsequently created interest" irrespective of the 40
        timing of its creation and the party out of whose working interest the
        subsequently created interest is 41
        to as "burdened party"), and:

      42
        43
        44
        45
        46
        47
        48
        49
        50
        51
        52
        53
        54
        55

      56
        A 57

      58
        59
        60
        61
        62
        63
        64
        65
        66
        67

      68
        e

      69
        70

       

       

      1.

       

      derived
        being hereinafter referred

       

       

      If
        the burdened party is required under this agreement to assign or relinquish
        to
        any other party, or parties, all or a portion of
        its working interest and/or the production attributable thereto, said other
        party; or parties, shall receive said assignment and/or production
        free and clear of said subsequently created interest and the burdened party
        shall indemnify and save said other party, or
        parties, harmless from any and all claims and demands for payment asserted
        by
        owners of the subsequently created interest; and,

       

      2.
        If
        the burdened party fails to pay, when due, its share of expenses chargeable
        hereunder, all provisions of Article VILE. shall be enforceable
        against the subsequently created interest in the same manner as they are
        enforceable against the working interest of the
        burdened party.

       

      ARTICLE
        IV.

       

      TITLES

       

      Title
        Examination:

       

      Title
        examination shall be made on the drillsite of any proposed well prior to
        commencement of drilling operations or, if the
        Drilling Parties so request, title examination shall be made on the leases
        and/or oil and gas interests included, or planned to be includ-ed,
        in the drilling unit around such well. The opinion will include the ownership
        of
        the working interest, minerals, royalty, overriding royalty
        and production payments under the applicable leases. At the time a well is
        proposed, each party contributing leases and/or oil and gas
        interests to the drillsite, or to be included in such drilling unit, shall.
        furnish to Operator all abstracts (including federal lease status reports),
        title opinions, title papers and curative material in its possession free
        of
        charge. All such information not in the possession of or made
        available to Operator by the parties, but necessary for the examination of
        the
        title, shall be obtained by Operator. Operator shall cause
        title to be examined by attorneys on its staff or by outside attorneys. Copies
        of all title opinions shall be furnished to each party hereto.
        The cost incurred by Operator in this title program shall be dome as
        follows:

       

       0
        Lion No. 1: Costs
        incurred by Operator in procuring abstracts and title
        examination, supplemental

       

      

       

      *all
        royalties, overriding royalties, production payments and other burdens on
        production of record as of the date hereof. -2-

      

      

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      A.A.P.L.
        FORM 610 -
        MODEL
        FORM OPERATING AGREEMENT -
        1982

       

      ARTICLE
        IV

      continued

       

      1
        El Option
        No.
        2: Costs
        incurred
        by
        Operator
        in procuring
        abstracts
        and
        fees
        paid
        outside
        attorneys for
        title
        examination
        2
        (including
        preliminary, supplemental, shut-in gas royalty opinions and division order
        title
        opinions) shall be borne by the Drilling Parties 3
        in the proportion that the interest of each Drilling Party bears to the total
        interest of all Drilling Parties as such interests appear in Ex-

      4
        hibit "A".

      5
        functions.

      6

      7    Each
        party shall be responsible for securing curative matter and pooling amendments
        or agreements required in connection 8 with leases or oil and gas interests
        contributed by such party. Operator shall be responsible for the preparation
        and
        recording of pooling 9 designations or declarations as well
        as the conduct of hearings before governmental agencies for the securing
        of
        spacing or pooling orders. 10
        This shall not prevent any party from appearing on its own behalf at any
        such
        hearing.

      11

      12
        No
        well shall be drilled on the Contract Area until after (1) the title to the
        drillsite or drilling unit has been examined as above 13
        provided, and (2) the title has been approved by the examining attorney or
        title
        has been accepted by all of the parties who are to participate
        in the drilling of the well.

      15

      16
        B.
        Loss
        of Title:

      17

      18
        1.
        Failure
        of Title: Should
        any oil and gas interest or lease, or interest therein, be lost through failure
        of title, which
        loss results in
        a 19
        reduction
        of interest from that
        shown on
        Exhibit "A",
        the party
        contributing the affected
        lease  or
        interest shall
        have ninety (90) day;, 20

      21
        tion
        will not be subject to Article VIII.B., and failing to do so,
        this agreement nevertheless, shall continue in force as to all remaining
        oil
22
        and gas leases and interests: and,

      23

      24
        25
        26
        27
        28 29
        30
        31
        32

      33
        well,

      34    (d) Should
        any person not
        a party
        to this
        agreement, who
        is determined to be
        the  owner of
        any interest in
        the title which has 35

      36
        37
        38 39
        40
        41
        42
        43
        44
        45
        46
        47
        48 49
        50
        51 52
        53
        54
        55
        56
        57
        58
        59
        60
        61
        62
        63
        64

      65

      66

      67

      68

      69

      70

      

      

      

            (b) There
        shall be no retroactive adjustment of expenses incurred or
        revenues received from the
        operation
        of the
        interest which has

       

      curred,  so that
        the interest of the party whose lease or interest
        is affected by the title failure will thereafter be reduced in the
        Contract Area
        by the amount of
        the interest lost;

      (c)
        If
        the proportionate interest of the other parties hereto in any producing
        well
        theretofore drilled
        on the
        Contract Area is increased by reason of
        the title failure, the

      

       

       

      

       

      2.

       

       

      Loss
        b

       

       

      Non
        Pa

       

       

      ent
        or Erroneous
        Pa

       

       

      nt
        of Amount Duo- If,
        through mistake or oversight,
        any rental, shut in well

       

       :.

       

       

       (b) Proceeds, Ices
        operating expenses, thereafter accrued attributable to the
        lost interest on
        an acreage
        basis,
        of that portion
        of

      

        (a)
        Any monies, up to the amount of unrecovered costs, that
        may be paid by any party who is,  or
        becomes,
          the  owner of
        the interest

       

       

      3.
        Other
        Losses: All
        losses incurred, other
        than those sot forth in Articles IV.D.1. and IV.D..2.
        above,
        shall be joint losses and
        shall be home by all parties in
        proportion to their interests. There shall be no readjustment of interests
        in
        the remaining portion of the
        Contract Area.

       

      

       

      -3-

       

      

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      

       A.A.P.L.
        FORM 610 -
        MODEL
        FORM OPERATING AGREEMENT -
        1982

       

      I
        ARTICLE V. 2 OPERATOR
        3

      4
        A. Designation
        and Responsibilities of Operator:

      5    CENTURY
        RESOURCES INC.

      6
        shall
        be the 7
        Operator of the Contract Area, and shall conduct and direct and have full
        control of all operations on the Contract Area as permitted and 8
        required by, and within the limits of this agreement. It shall conduct all
        such
        operations in a good and workmanlike manner, but it shall 9
        have no liability as Operator to the other parties for losses sustained or
        liabilities incurred, except such as may result from gross 10
        negligence or willful misconduct.

      11

      12
        B. Resignation
        or Removal of Operator and Selection of Successor:

      

      

      13                                 *
        properly, as a reasonably prudent Operator,

      14
        1.
        Resignation
        or Removal of Operator: Operator
        may resign at any time by giving written notice thereof to Non-Operators.
        15
        If Operator terminates its legal existence, no longer owns an interest hereunder
        in the Contract Area, or is no longer capable of serving as 16
        Operator, Operator shall be deemed to have resigned without any action by
        Non-Operators, except the selection of a successor. Operator 17
        may be removed if
        it
        fails or refuses to carry out its duties thereunder !p,
        after
        0 days written notice
        aid failure to cure any default under this

      agreement
        or becomes insolvent, an u t or is ace
        in receivership ,
        Sue
        resignation or remove shall not become of effective until 7: 18
        o clock A.M.on the

      19
        first day of the calendar month following the expiration of ninety (90) days
        after the giving of notice of resignation by Operator or action 20
        by the Non-Operators to remove Operator, unless a successor Operator has
        been
        selected and assumes the duties of Operator at an earlier 21
        date. Operator, after effective date of resignation or removal, shall be
        bound
        by the terms hereof as a Non-Operator. A change of a corportal
        name or structure of Operator or transfer of Operator's interest to any single
        subsidiary, parent or successor corporation shall not 23
        be the basis for removal of Operator, nor
        deemed a resignation,

      

      

      24                                     *the
        owners of

      25 2.
        Selection
        of Successor Operator: Upon
        the resignation or removal of Operator, a successor Operator shall be selected
        by

       

      26
        the parties. The successor Operator shall be selected from the parties owning
        an
        interest in the Contract Area at the time such successor *

      27
        Operator is selected. The successor Operator shall be selected by the
        affirmative vote of a
        majority interest 28
        based on ownership as shown on Exhibit "A";

      29
        r.,^^-^a *^sic the
        successor Operator shall be selected by the affirmative vote of a
        majority interest based 30
        on ownership as shown on Exhibit "A"

      

      

      31

      32
        C. Employees:

      

      

      33

      34    The
        number of employees used by Operator in conducting, operations thereunder,
        their
        selection, and the hours of labor and the 35
        compensation for services performed shall be determined by Operator, and
        all
        such employees shall be the employees of Operator. 36

      37
        D. Drilling
        Contracts:

      

      

      38

      39
        All
        wells drilled on the Contract Area shall be drilled on a competitive contract
        basis at the usual rates prevailing in the area. If it so 40
        desires, Operator may employ its own tools and equipment in the drilling
        of
        wells, but its charges therefor shall not exceed the prevailing 41
        rates in the area and the rate of such charges shall' be agreed upon
by
        the
        parties in writing before drilling operations are commenced, and 42 such
        work
        shall be performed by Operator under the same terms and conditions as are
        customary and usual in the area in contracts of independent
        contractors who are doing work of a similar nature.

      

      

      44

       

      45
        46
        47
        48
        49
        50

      51
        A. Initial
        Well: 52

      53 On
        or before the day
        of (year)
        _, Operator
        shall commence the drilling of a well for

      54
        oil and gas as provided in and pursuant to the terms of the Participation
        Agreement between the parties of the same date. .
        55

      56

      57

      58

      59
        and shall thereafter continue the drilling of the well with due diligence
        to

      60

      61

      62

      63

      64

      65

      66 Operator
        shall make reasonable tests of all formations encountered during drilling
        which
        give indication of containing oil and 67
        gas in quantities sufficient to test, unless this agreement shall be limited
        in
        its application to a specific formation or formations, in which 68
        event Operator shall be required to test only the formation or formations
        to
        which this agreement may apply. 69

      

      

      70

       

      ARTICLE
        VI.

       

      DRILLING
        AND DEVELOPMENT

       

      

       

      -4-

       

      

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      A.A.P.L.
        FORM 610 -
        MODEL
        FORM OPERATING AGREEMENT -
        1982
        ARTICLE
        VI

       

      continued

       

      1    If,
        in
        Operator's
        judgment, the well will not produce oil or gas in paying quantities, and
        it
        wishes to plug and abandon the 2
        well as a dry hole, the provisions of Article VI.E.1. shall thereafter
        apply.

      3

      4

      5

      6
        B. Subsequent
        Operations:                             *recomplete,

      7

      8
        1.
        Proposed
        Operations: Should
        any party hereto desire to drill any well on the Contract Area other than
        the
        well provided 9
        for in Article VITA., or to rework, deepen or plug back a dry hole drilled
        at
        the joint expense of all parties or a well jointly owned by all 10
        the parties and not then producing in paying quantities, the party desiring
        to
        drill, rework, deepen or plug back such a well shall give the 11
        other
        parties written notice of the proposed operation, specifying the work to
        be
        performed, the location, proposed depth, objective formatin
        and the estimated cost of the operation. The parties receiving such a notice
        shall have thirty (30) days after receipt of the notice 13 within which to
        notify the party wishing to do the work whether they elect to participate
        in the
        cost of the proposed operation. If a drillinn
        rig is on location, notice of a proposal to rework, plug back or drill deeper
        may be given by telephone and the response period shall be 15 limited to
        forty-eight (48) hours, exclusive of Saturday, Sunday, and legal holidays.
        Failure of a
        party
        receiving such notice to reply within 16
        the period above fixed shall constitute an election by that party not to
        participate in the cost of the proposed operation. Any notice or 17
        response given by telephone shall be promptly confirmed in writing.

      18

      19
        20
        21
        22
        23
        24
        25 26
        27
        28 29
        30
        31
        32
        33
        34
        35
        36
        37
        38
        39
        40
        41
        42
        43
        44
        45
        46
        47
        48
        49
        50
        51
        52
        53
        54
        55
        56

      57

      58

      59

      60

      61

      62

      63

      64

      65

      66

      67

      68

      69

      70

       

      If
        all parties elect to participate in such a proposed operation, Operator shall,
        within ninety (90) days after expiration of the notice period of thirty (30)
        days (or as promptly as possible after the expiration of the forty-eight
        (48)
        hour period when a drilling rig is on loca-tion,
        as the case may be), actually commence the proposed operation and complete
        it
        with due diligence at the risk and expense of all par-ties
        hereto; provided, however, said commencement date may be extended upon written
        notice of same by Operator to the other parties, for
        a period of up to thirty (30) additional days if, in the sole opinion of
        Operator, such additional time is reasonably necessary to obtain permits
        from governmental authorities, surface rights (including rights-of-way) or
        appropriate drilling equipment, or to complete title ex-amination
        or curative matter required for title approval or acceptance. Notwithstanding
        the force major provisions of Article XI, if the actual
        operation has not been commenced within the time provided (including any
        extension thereof as specifically permitted herein) and if
        any party hereto still desires to conduct said operation, written notice
        proposing same must be resubmitted to the other parties in accor-dance
        with the provisions hereof as if no prior proposal had been made.

       

       

      2.
        Operations
        by Less than All Parties: If
        any party receiving such notice as provided in Article VI.B.1. or VII.D.I.
        (Option No.
        2) elects not to participate in the proposed operation, then, in order to
        be
        entitled to the benefits of this Article, the party or parties giving
        the notice and such other parties as shall elect to participate in. the
        operation shall, within ninety (90) days after the expiration of the notice
        period of thirty (30) days (or as promptly as possible after the expiration
        of
        the forty-eight (48) hour period when a drilling rig is on
        location, as the case may be) actually commence the proposed, operation and
        complete it with due diligence. Operator shall perform all work
        for the account of the Consenting Parties; provided, however, if no drilling
        rig
        or other equipment is on location, and if Operator is a
        Non-Consenting Party, the Consenting Parties shall either: (a) request Operator
        to perform the work required by such proposed opera-tion for the account
        of the
        Consenting Parties, or (b) designate one (1) of the Consenting Parties as
        Operator to perform such work. Con-senting Parties, when conducting operations
        on the Contract Area pursuant to this Article VI.B.2., shall comply with
        all
        terms and con-ditions
        of this agreement.

       

      If
        less than all parties approve any proposed operation, the proposing party,
        immediately after the expiration of the applicable notice
        period, shall advise the Consenting Parties of the total interest of the
        parties
        approving such operation and its recommendation as to
        whether the Consenting Parties should proceed with the operation as proposed.
        Each Consenting Party, within forty-eight (48) hours (exclusive
        of Saturday, Sunday and legal holidays) after receipt of such notice, shall
        advise the proposing party of its desire to (a) limit par-ticipation
        to such party's interest as shown on Exhibit "A" or (b) carry its proportionate
        part of Non-Consenting Parties' interests, and failure
        to advise the proposing party shall be deemed an election under (a).
        In
        the event a drilling rig is on location, the time permitted for such
        a
        response
        shall not exceed a total of forty-eight (48) hours (inclusive of
        Saturday, Sunday and legal holidays). The proposing party, at
        its election, may withdraw such proposal if there is insufficient participation
        and shall promptly notify all parties of such decision.

       

       

      The
        entire cost and risk of conducting such operations shall be borne by the
        Consenting Parties in the proportions they have elected
        to bear same under the terms of the preceding paragraph. Consenting Parties
        shall keep the leasehold estates involved in such operations
        free and clear of all liens and encumbrances of every kind created by or
        arising
        from the operations of the Consenting Parties. If such an operation results
        in a
        dry hole, the Consenting Parties
        shall plug and abandon the well and restore the surface location at their
        sole
        cost, risk and expense. If any well drilled, reworked, deepened or plunged
        back
        under the provisions of this Article results in a pro-ducer
        of oil and/or gas in
        paying
        quantities, the Consenting Parties shall complete and equip the well to produce
        at their sole cost and risk,

       

      **recompleted,

       

      -5-

       

      

       9

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      10

       

      A.A.P.L.
        FORM 610 MODEL FORM OPERATING AGREEMENT -
        1982

      ARTICLE
        VI

      continued

      

      /
        at the
        option of the consenting parties *recompleting,

      and
        the well shall then/ be turned over to Operator and shall be operated by
        it at
        the expense and for the account of the Consenting Par-

      ties.
        Upon commencement of operations for the drilling, reworking, deepening or
        plugging back of any such well by Consenting Parties in
        accordance with the provisions of this Article, each Non-Consenting Party
        shall
        be deemed to have relinquished to Consenting Parties, and
        the Consenting Parties shall own and be entitled to receive, in proportion
        to
        their respective interests, all of such Non-Consenting Party's
        interest in the well and share of
        production
        therefrom until the proceeds of
        the
        sale of such share, calculated at the well, or market value thereof if such
        share is not sold, (after deducting production taxes, excise taxes, royalty,
        overriding royalty and other in-terests
        not excepted by Article ID. payable out of or measured by the production
        from
        such well accruing with respect to such interest

      until
        it reverts) shall equal the total of the following:

       

      (a)
        100% of each such Non-Consenting Party's share of the cost of any newly acquired
        surface equipment beyond the welled connections
        (including, but not limited to, stock tanks, separators, theaters, pumping
        equipment and piping), plus 100% of each such Non-Consenting Party's share
        of
        the cost of operation of the well commencing with first production and
        continuing until each such Non-Consenting
        Party's relinquished interest shall revert to it under other provisions of
        this
        Article, it being agreed that each Non-Consenting
        Party's share of such costs and equipment will be that interest which would
        have
        been chargeable to such Non-Consenting Party
        had it participated in the well from the beginning of the operations;
        and

       

      19

      20

      21     b)500
        % of that portion of the costs and expenses of drilling, reworking, deepening,
        plugging back, testing and completing,

      22
        after deducting any cash contributions received under Article VIII.C.,
        and 500 %
        of that portion of the cost of newly acquired equip-

      23
        meet in the well (to and including the welled connections), which would have
        been chargeable to such Non-Consenting Party if it had

      24
        participated therein.

      25

       

      36

       

      50

      51     *recompleting

      52
        53
        54
        55 56
        57
        58
        59
        60
        61
        62
        63
        64
        65

      An
        election not to participate in the drilling or the deepening of a well shall
        be
        deemed an election not to participate in any re-working or plugging back
        operation proposed in such a well, or portion thereof, to which the initial
        Non-Consent election applied that is conducted at any time prior to full
        recovery by the Consenting Parties of the Non-Consenting Party's recoupment
        account. Any such reworking or plugging back operation conducted during the
        recoupment period shall be deemed part of the cost of operation of said well
        and
        there shall be added to the sums to be recouped by the Consenting Parties
        one
        hundred percent (100%) of that portion of the costs of the reworking or plugging
        back operation which would have been chargeable to such Non-Consenting Party
        had
        it participated therein. If such a reworking or plugging back operation is
        proposed during such recoupment period, the provisions of this Article VB..
        shall be ap-plicable
        as between said Consenting Parties in said well.

       

      During
        the period of time Consenting Parties are entitled to receive Non-Consenting
        Party's share of production, or the proceeds
        therefrom, Consenting Parties shall be responsible for the payment of all
        production, severance, excise, gathering and other taxes,
        and all royalty, overriding royalty and other burdens applicable to
        Non-Consenting Party's share of production not excepted by Ar-ticle
        ID.

       

      *

      In
        the case of any reworking, plugging back or deeper drilling operation, the
        Consenting Parties shall be permitted to use, free of
        cost, all casing, tubing and other equipment in
        the well, but the ownership of all such equipment shall remain unchanged;
        and
        upon abandonment
        of a well after such reworking, plugging back oh deeper drilling, the Consenting
        Parties shall account for all such equip-ment
        to the owners thereof, with each party receiving its proportionate part in
        kind
        or in value, less cost of salvage.

       

      Within
        sixty (60) days after the completion of any operation under this Article,
        the
        party conducting the operations for the Consenting
        Parties shall furnish each Non-Consenting Party with an inventory of the
        equipment in and connected to the well, and an itemized
        statement of the cost of drilling, deepening, plugging back, testing,
        completing, and equipping the well for production; or, at its option,
        the operating party, in lieu of an itemized statement of such costs of
        operation, may submit a detailed statement of monthly bill-ings.
        Each month thereafter, during the time the Consenting Parties are being
        reimbursed as provided above, the party conducting the operations for the
        Consenting Parties shall furnish the Non-Consenting Parties with an itemized
        statement of all
        costs
        and liabilities in-curred
        in the operation of the well, together with a statement of the quantity of
        oil
        and gas produced from it and the amount of proceeds realized
        from the sale of the well's working interest production during the preceding
        month. In determining the quantity of oil and gas produced
        during any month, Consenting Parties shall use industry accepted methods
        such
        as, but not limited to, metering or periodic well
        tests. Any amount realized from the sale or other disposition of equipment
        newly
        acquired in connection with any such operation which
        would have been owned by a Non-Consenting Party had it participated therein
        shall be credited against the total unreturned costs of
        the work done and of the equipment purchased in determining when the interest
        of
        such Non-Consenting Party shall revert to it as above
        provided; and if there is a credit balance, it shall be paid to such
        Non-Consenting Party.

      66
        67
        68
        69
        70

       

      

      -6-

       

      

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      
        

         A.A.P.L.
          FORM 610 -
          MODEL
          FORM OPERATING AGREEMENT -
          1982

      

       

      ARTICLE
        VI

      continued

       

      If
        and
        when the Consenting Parties recover from a Non-Consenting Party's relinquished
        interest the amounts provided for above,

      •the
        relinquished interests of such Non-Consenting Party shall automatically revert
        to it, and, from and after such reversion, such Non-Consenting Party shall
        own
        the same interest in such well, the material and equipment in or pertaining
        thereto, and the production therefrom as such Non-Consenting Party would
        have
        been entitled to had it participated in the drilling, reworking, deepening
        or
        plugging back of said well. Thereafter, such Non-Consenting Party shall be
        charged with and shall pay its proportionate part of the further costs of
        the
        operation of said well in accordance with the terms of this agreement and
        the
        Accounting Procedure attached hereto.

       

      Notwithstanding
        the provisions of this Article VI.B.2., it is agreed that without the mutual
        consent of all parties, no wells shall be completed in or produced from a
        source
        of supply from which a well located elsewhere on the Contract Area is
        producing,\ 011^  capable of
        producing:

       

      *recompleting

       

      The
        provisions of this Article shall have no application whatsoever to the drilling
        of the initial well described in Article VITA. except (a) as to Article VII.D.1T
        (Option No. 2), if selected, or (b) as to the reworking, deepening and plugging
        back of such initial, well after if has been drilled to the depth specified
        in
        Article VITA. if it shall thereafter prove to be a dry hole or, if initially
        completed for pro-duction, ceases to produce in paying quantities.

       

      3.
        Stand-By Time: When a well which has been drilled or deepened has
        reached its authorized depth and all tests have been completed, and the results
        thereof furnished to the parties, stand-by costs- incurred pending response
        to a
        party's notice proposing a reworking, deepening, plugging back or completing
        operation in such a well shall be charged and borne as part of the drilling
        or
        deepen-ing operation just completed. Stand-by costs subsequent to all parties
        responding, or expiration of the response time permitted, whichever first
        occurs, and prior to agreement as to the participating interests of all
        Consenting Parties pursuant to the terms of the second gram-matical paragraph
        of
        Article VI.BT2T, shall be charged to and borne as part of the proposed
        operation, but if the proposal is subsequently withdrawn because of insufficient
        participation, such stand-by costs shall be allocated between the Consenting
        Parties in the proportion each Consenting Party's interest as shown on Exhibit
        "A" bears to the total interest as shown on Exhibit "A" of all Consenting
        Par-ties.

       

      4T
        Sidetracking: Except as hereinafter provided, those provisions of this
        agreement applicable to a "deepening" operation shall also be applicable
        to any
        proposal to directionally control and intentionally deviate a well from vertical
        so as to change the bottom hole location (herein call "sidetracking"), unless
        done to straighten the hole or to drill around junk in the hole or because
        of
        other mechanical difficulties. Any party having the right to participate
        in a
        proposed sidetracking operation that does not own an interest in
        the

      • affected
        well bore at the time of the notice shall, upon electing to participate,
        tender
        to the well bore owners its proportionate share (equal

      • to
        its interest in the sidetracking operation) of the value of that portion
        of the
        existing well bore to be utilized as follows:

      42
        43
        44

      45 (a)
        If the proposal is for sidetracking an existing dry hole, reimbursement shall
        be
        on the basis of the actual costs incurred in 46 the initial drilling of the
        well
        down to the depth at which the sidetracking operation is initiated.

      47
        48
        49

      50
        (b) If
        the proposal is for sidetracking a well which has previously produced,
        reimbursement shall be on the basis of the well's 51 salvable materials and
        equipment down to the depth at which the sidetracking operation is initiated,
        determined in accordance with the 52 provisions of Exhibit "C", less the
        estimated cost of salvaging and the estimated cost of plugging and
        abandoning.

       

      In
        the
        event. that notice for a sidetracking operation is given while the drilling
        rig
        to be utilized is on location, the response period shall be limited to
        forty-eight (48) hours, exclusive of Saturday, Sunday and legal holidays;
        provided, however, any party may request and receive up to eight (8) additional
        days after expiration of the forty-eight (48) hours within which to respond
        by
        paying for all stand-by time incurred during such extended response period.
        If
        more than one party elects to take such additional time to respond to the
        notice, stand by costs shall be allocated between the parties taking additional
        time to respond on a day-to-day basis in the proportion each electing
        par-

      C.
        TAKING
        PRODUCTION IN KIND:

       

      /
        have
        t
        4
        right
        to

      Each
        party
        shall take in kind or separately dispose of its proportionate share of all
        oil
        and gas produced from the Contract Area, exclusive of production which may
        be
        used in development and producing operations and in preparing the treating
        oil
        and gas for marketing purposes and production unavoidably lost. Any extra
        expenditure incurred in the taking in kind or separate disposition by any
        party
        of its proportionate share of the production shall be home by such party.
        Any
        party taking its share of production in kind shall be

       

       

      63
        64
        65
        66
        67
        68
        69
        70

       

      ti's
        interest as shown on Exhibit "A" bears to the total interest as shown on
        Exhibit
        "A" of all the electing parties. stances the response period to a proposal
        for
        sidetracking shall be limited to thirty (30) days.

       

      In
        all
        other in-

       

      

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       A.A.P.L.
        FORM 610 -
        MODEL
        FORM OPERATING AGREEMENT -
        1982

       

      ARTICLE
        VI

      continued

       

      I
        required
        to pay for only its proportionate share of such part of Operator's surface
        facilities which it uses.

      2

      3     Each
        party shall execute such division orders and contracts as may be necessary
        for
        the sale of its interest in production from

      4
        the Contract Area, and, except as provided in Article VIIB., shall be entitled
        to receive payment directly from the purchaser thereof for

      5
        its share of all production.

      6
        7 8 9 10
        11
        12
        13

      *In
        the event any party shall fail to make the arrangements necessary to take
        in
        kind or separately dispose of its proportionate share of the
        oil produced from the Contract Area, Operator shall have the right, subject
        to
        the revocation at will by the party owning it, but not the obligation, to
        purchase such ell or sell it to others at any time and from time to time,
        for
        the account of the non-taking party at the best
        price obtainable in the area for such production. Any such purchase or sale
        by
        Operator shall be subject always too
        the right of the owner
        of the production to exercise et any time its right to take in kind, or
        separately dispose of, its share of all oil not previously delivered
        to a purchaser. Any purchase or sale by Operator of any other party's share
        of
        evil shall be only for such reasonable periods of time
        as are consistent with the minimum needs of the industry under the particular
        circumstances, but in no event for a period in excess

      14
        of one '1) year. 15

      16

      17
        18 19
        20
        21
        22
        23
        24
        25
        26
        27
        28
        29
        30

      31
        E.
        Abandonment
        of Wells:

      32

      33
        34
        35 36
        37
        38 39
        40
        41

      42
        2.
        Abandonment
        of Wells that have Produced: Except
        for any well in which a Non-Consent operation has been conducted 43
        thereunder for which the Consenting Parties have not been fully reimbursed
        as
        herein provided, any well which has been completed as a 44
        producer shall not be plugged -and
        abandoned without the consent of all parties. If all parties consent to such
        abandonment, the well shall 45
        be plugged end abandoned in accordance with applicable regulations and at
        the
        cost, risk end expense of all the parties hereto. If, within 46 thirty '30)
        days
        after receipt of notice of the proposed abandonment of any well, all parties
        do
        not agree to the abandonment of such well, 47
        those wishing to continue its operation from the interval's) of the formation's)
        then open to production shall tender to each of the other 48
        parties its proportionate share of the value of the well's salvable material
        and
        equipment, determined in
        accordance
        with the provisions of 49
        Exhibit "C",
        less
        the estimated cost of salvaging and the estimated cost of plugging and
        abandoning. Each abandoning party shall assign 50
        the non-abandoning parties, without warranty, express or implied, as to title
        or
        as to quantity, or fitness for use of the equipment and 51
        material,
        all of its interest in the well and related equipment, together with its
        interest in the leasehold estate as to, but only as to, the intravel
        or intervals of the formation or formations then open to production. If the
        interest of the abandoning party is or includes an oil and 53
        gas interest, such party shall execute and deliver to the non-abandoning
        party
        or parties an oil and gas lease, limited to the interval or intravels
        of the formation or formations then open to production, for a term of one
        (1)
        year
        and so long thereafter as oil and/or gas is produced
        from the interval or intervals of the formation or formations covered thereby,
        such lease to be on the form attached as Exhibit 56

      57
        ** Failure to respond to the notice of proposed abandonment shall be deemed
        a
        consent to the proposed abandonment. 58

      59

      60

      61

      62

      63

      64

      65

      66

      67

      68

      69

      70

       

      *
        production

       

      In
        the event one or more parties' separate disposition of its share of the gas
        causes split-stream deliveries to separate pipelines and/or deliveries
        which on a day-to-day basis for any reason are not exactly equal to a party's
        respective proportionate share of total gas sales to be
        allocated to it, the balancing or accounting between the respective accounts
        of
        the parties shall be in accordance with any gas balancing agreement
        between the parties hereto, whether such an agreement is attached as Exhibit
        "E",
        or is a separate agreement.

       

      D.

       

      Access
        to Contract Area and Information:

      

      Each
        party shall have access to the Contract Area at all reasonable times, at
        its
        sole cost and risk to inspect or observe operations, and
        shall have access at reasonable times to information pertaining to the
        development or operation thereof, including Operator's books and records
        relating thereto. Operator, upon request, shall furnish each of the other
        parties with copies of all forms or reports filed with governmental
        agencies, daily drilling reports, well logs, tank tables, daily gauge and
        run
        tickets and reports of stock on hand at the first of each
        month, and shall make available samples of any cores or cuttings taken from
        any
        well drilled on the Contract Area. The cost of gathering
        and furnishing information to Non-Operator, other then that specified above,
        shall be charged to the Non-Operator that re-quests the
        Information.

       

       

      1.
        Abandonment
        of Dry Holes: Except
        for any well drilled or deepened pursuant to Article VI.B.2., any well which
        has
        been drilled
        or deepened under the trams of this agreement and is proposed to be completed
        as
        a dry hole shall not be plugged and abandoned without
        the consent of all parties. Should Operator, after diligent effort, be unable
        to
        contact any party, or should any party fail to reply within
        forty-eight (48) hours '
        t inclusive

      f
        Saturday, Sunday and legal holidays) after receipt of notice of the proposal
        to
        plug and abandon such well, such party shell be deemed to have consented
        to the
        proposed abandonment. All such wells shall be plugged and abandoned in
        accordance with applicable regulations and et the cost, risk and expense
        of the
        parties who participated in
        the
        cost of drilling or deepening such
        well. Any patty who objects to plugging and abandoning such well shall have
        the
        right to take over the well and conduct further operations
        in search of oil and/or gas subject to the provisions of Article
        VI.B.**

       

       

      

      

       p

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      A.A.P.L.
        FORM 610 -
        MODEL
        FORM OPERATING AGREEMENT -
        1982

      ARTICLE
        VI

       

      continued

      I
        "B". The assignments or leases so limited shall encompass the "drilling unit"
        upon which the well is located. The payments by, and the 2 assignments or
        leases
        to, the assignees shall re in a ratio based upon the relationship of their
        respective percentage of participation in the 3 Contract Area to the aggregate
        of the percentages of participation in the Contract Area of
        all
        assignees. There shall re no readjustment of 4 interests in the remaining
        portion of the Contract Area.

      5
        6 7 8 9 10 11

       

      Thereafter,
        abandoning parties shall have no further responsibility, liability, or interest
        in the operation of or production from the well in the interval or intervals
        then open other than the royalties retained in any lease made under the terms
        of
        this Article. Upon re-quest, Operator shall continue to operate the assigned
        well for the account of the non-abandoning parties at the rates and charges
        con-templated by this agreement, plus any additional cost and charges which
        may
        arise as the result of the separate ownership of the assigned well. Upon
        proposed abandonment of the producing interval's) assigned or leased, the
        assignor or lessor shall then have the option to repurchase its prior interest
        in the well (using the same valuation formula) and participate in further
        operations therein subject to the pro-

       

      12
        visions hereof.

      13
        14 15 16 17 18 19 20 21 22 23 24 25

       

      3.
        Abandonment
        of Non-Consent Operations:
        The provisions of Article VI.E.1. or VI.E.2 above shall re applicable as
        between
        Consenting Parties in the event of the proposed abandonment of any well excepted
        from said Articles; provided, however, no well shall be permanently plugged
        and
        abandoned unless and until all parties having the right to conduct further
        operations therein have been notified of the proposed abandonment and afforded
        the opportunity to elect to take over the well in accordance with the provisions
        of this Article

       

      VISE.

       

      ARTICLE
        VII.

       

      EXPENDITURES
        AND LIABILITY OF PARTIES

      A.

       

      Liability
        of Parties:

       

      The
        liability of the parties shall re several, not joint or collective. Each
        party
        shall re responsible only for its obligations, and

      26
        shall re liable only for its proportionate share of the costs of developing
        and
        operating the Contract Area. Accordingly, the liens granted 27 among the
        parties
        in Article VB. are given to secure only the debts of each severally. It is
        not
        the intention of the parties to create, nor 28 shall this agreement re construed
        as creating, a mining or other partnership or association, or to render the
        parties liable as partners. 29

      30
        B. Liens and Payment Defaults:

      31

      32
        33 34 35 36 37 38 39 40 41 42 43 44 45 46 47

      48
        C. Payments and Accounting:

      49

      50
        51

      52
        tonight shares upon the expense basis provided in Exhibit "C". Operator shall
        keep an accurate record of the joint account thereunder, 53

      54
        55 56 57 58 59 60 61 62 63

       

      Each
        Non-Operator grants to Operator a lien upon its oil and gas rights in the
        Contract Area, and a security interest in its share of oil and/or gas when
        extracted and its interest in all equipment, to secure payment of its share
        of
        expense, together with interest thereon at the rate provided in Exhibit "C".
        To
        the extent that Operator has a security interest under the Uniform Commercial
        Code of the state, Operator shall be entitled to exercise the rights and
        remedies of a secured party under the Code. The bringing of a suit and the
        ob-taining of judgment by Operator for the secured indebtedness shall not
        be
        deemed an election of remedies or otherwise affect the lien rights or security
        interest as security for the payment thereof. In addition, upon default by
        any
        Non-Operator in the payment of its share of expense, Operator shall have
        the
        right, without prejudice to other rights or remedies, to collect from the
        purchaser the proceeds from the sale of such Non-Operator's share of oil
        and/or
        gas until the amount owed by such Non-Operator, plus interest, has been paid.
        Each purchaser shall be entitled to rely upon Operator's written statement
        concerning the amount of any default. Operator grants a like lien and security
        interest to the Non-Operators to secure payment of Operator's proportionate
        share of expense.

       

      If
        any party fails
        or
        is unable to pay its share of expense within 15 days after rendition of a
        statement therefor by Operator, the non-defaulting parties, including Operator,
        shall, upon request by Operator, pay the unpaid amount in the proportion
        that
        the interest of each such party rears to the interest of all such parties.
        Each
        party so paying its share of the unpaid amount shall, to obtain reimbursement
        thereof, re surrogated to the security rights described in the foregoing
        paragraph.

       

      and

       

      Except
        as herein otherwise specifically provided, Operator shall promptly pay and
        discharge expenses incurred in the development operation of the Contract
        Area
        pursuant to this agreement and shall charge each of the parties hereto with
        their respective proper-

      showing
        expenses incurred and charges and credits made and received.

       

      Operator,
        at its election, shall have the right from time to time to demand and receive
        from the other parties payment in advance of their respective shares of the
        estimated amount of the expense to re incurred in operations thereunder during
        the next succeeding month, which right may re exercised only by submission
        to
        each such party of an itemized statement of such estimated expense, together
        with an invoice for its share thereof. Each such statement and invoice for
        the
        payment in advance of estimated expense shall be submitted on or before the
        20th
        day of the next preceding month. Each party shall pay to Operator its
        proportionate share of such estimate within ten (10) days after such estimate
        and invoice is received. If any party fails to pay its share of said estimate
        within said time, the amount

       

      due
        shall rear interest as provided in Exhibit "C" until paid. Proper adjustment
        shall re made monthly between advances and actual ex-pense to the end that
        each
        party shall rear and pay its proportionate share of actual expenses incurred,
        and no more.

       

      64

      65
        D. Limitation of Expenditures:

       

      66

      67 1.
        Drill
        or Deepen:
        Without the consent of all parties, no well shall re drilled or deepened,
        except
        any well drilled or deepened

      68
        pursuant to the provisions of Article VI.B.2. of this agreement. Consent
        to the
        drilling or deepening shall include: 69

      70

      -9-

       

      

      
        
          
          

        

        
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         A.A.P.L.
          FORM 610 -
          MODEL
          FORM OPERATING AGREEMENT -
          1982

      ARTICLE
        VII

       

      continued

      1
        a

      2

      3
        4 5 6 7 8 9 10
        11
        12
        13
        14

      15
        2.
        Rework
        or Plug Back: Without
        the consent of all parties, no well shall be reworked or plugged back except
        a
        well reworked or 16
        plugged back pursuant to the provisions of Article VI.B.2. of this agreement.
        Consent to the reworking or plugging back of a well shall 17
        include all necessary expenditures in conducting such operations and completing
        and equipping of said well, including necessary tankage 18
        and/or surface facilities.

      19

      20
        21
        22
        23
        24
        25 26
        27
        28 29

      30
        E. Rentals,
        Shut-in Well Payments and Minimum Royalties:

      31

      32
        Rentals,
        shut-in well payments and minimum royalties which may be required under the
        terms of any lease shall be paid by the 33
        party or parties who subjected such lease to this agreement at its or their
        expense. In the event two or more parties own and have contributes interests
        in
        the same lease to this agreement, such parties may designate one of such
        parties
        to make said payments for and on 35
        behalf of all such parties. Any party may request, and shall be entitled
        to
        receive, proper evidence of all such payments.. In the event of 36
        failure to make proper payment of any rental, shut-in well payment or minimum
        royalty through mistake or oversight where such paymeet is required to continue
        the lease in force, any loss which results from such non-payment shall be
        home
        in accordance with the provisions
        of Article IV.B.2.

      39

      40
        Operator
        shall notify Non-Operator of the anticipated completion of a shut-in gas
        well,
        or the shutting in or return to production 41
        of a producing gas well, at least five '5) days 'excluding Saturday, Sunday
        and
        legal holidays), or at the earliest opportunity permitted by 42
        circumstances, prior to taking such action, but assumes no liability for
        failure
        to do so. In the event of failure by Operator to so notify 43
        Non-Operator, the loss of any lease contributed hereto by Non-Operator for
        failure to make timely payments of any shut-in well payment 44
        shall be borne jointly by the parties hereto under the provisions of Article
        IV.B.3.

      45

      46
        F. Taxes:

      47

      48
        Beginning
        with the first calendar year after the effective date hereof, Operator shall
        render for ad Valero taxation all property 49 subject to this agreement which
        by
        law should be rendered for such taxes, and it shall pay all such taxes assessed
        thereon before they 50 become delinquent. Prior to the rendition date, each
        Non-Operator shall. furnish Operator information as to burdens (to include,
        but
        not 51
        be limited to, royalties, overriding royalties and production payments) on
        leases and oil and gas interests contributed by such Non-Operator.
        If the assessed valuation of any leasehold estate is reduced by reason of
        its
        being subject to outstanding excess royalties, over-rising royalties. or
        production payments, the reduction in ad Valerie taxes resulting therefrom
        shall
        inure to the benefit of the owner or 54
        owners of such leasehold estate, and Operator shall adjust the charge to
        such
        owner or owners so as
        to reflect the benefit of such reduction.
        If the ad Valerie taxes are based in whole or in part upon separate valuations
        of each party's working interest, then notwithstanding 56 anything to the
        contrary herein, charges to the joint account shall be made and paid by the
        parties hereto in accordance with the tax 57
        Value generated by each party's working interest. Operator shall bill the
        other
        parties for their proportionate shares of all tax payments in

      58
        the manner provided in Exhibit "C".

      59 -

      60
        If
        Operator considers any tax assessment improper, Operator may, at its discretion,
        protest within the time and manner 61 prescribed by law, and prosecute the
        protest to a final determination, unless all parties agree to abandon the
        protest prior to final seter-62
        urination. During the pendency of administrative or judicial proceedings,
        Operator may elect to pay, under protest, all such taxes and any 63
        interest and penalty. When any such protested assessment shall have been
        finally
        determined, Operator shall pay the tax for the joint account,.
        together with any interest and penalty accrued, and the total cost shall
        then be
        assessed against the parties, and be paid by them, as 65
        provided in Exhibit "C".

      66

      67 Each
        party shall pay or cause to be paid all production, severance, excise, gathering
        and other taxes imposed upon or with respect 68
        to the production or handling of such party's share of oil and/or gas produced
        under the terms of this agreement.

      

       

      ®Option
        No. 2: All
        necessary expenditures for the drilling or deepening and testing of the well.
        When such well has reached its authorized
        depth, and all tests have been completed, and the results thereof furnished
        to
        the parties, Operator shall give immediate notice

      

      to
        the Non-Operator who have the right to participate in the completion costs.
        The
        parties receiving such notice shall have forty-eight /
        Inclusive

      '48)
        hours (inclusive.' of Saturday, Sunday and legal holidays) in which to elect
        to
        participate in
        the
        setting of casing and the completion at-

      

      tempt.
        Such election, when made, shall include consent to all necessary expenditures
        for the completing and equipping of such well, in-cluding
        necessary tankage and/or surface facilities. Failure of any party receiving
        such
        notice to reply within the period above fixed shall constitute an election
        by
        that party not to participate in the cost of the completion attempt. If one
        or
        more, but less than all of the parties, elect
        to set pipe and to attempt a completion, the provisions of Article VI.B.2.
        hereof 'the phrase "reworking, deepening or plugging back"
        as contained in Article VI.B.2. shall be deemed to include "completing")
        shall
        apply to the operations thereafter conducted by less than
        all parties.

       

       

      3.
        Other
        Operations: Without
        the consent of all parties, Operator shall not undertake any single project
        reasonably estimated to
        require an expenditure in excess of Twenty
        Five Thousand and No/100 Dollars
        '$ 25,000.00 
        ) except
        in connection with a well, the drilling, reworking, deepening, completing,
        recompleting, or plugging back of. which has been previously
        authorized by or pursuant to this agreement; provided, however, that, in
        case of
        explosion, fire, flood or other sudden emergency,
        whether of the same or different nature, Operator may take such steps and
        incur
        such expenses as in its opinion are required to
        deal with the emergency to safeguard life and property but Operator, as promptly
        as possible, shall report the emergency to the other parties. If Operator
        prepares an authority for expenditure (AFT) for its own use, Operator shall
        furnish any Non-Operator ie. requesting

      an
        information copy thereof for any single project costing in excess of
Ten
        Thousand and No/100

      Dollars
        ($10,000.00 
        ) but
        less than the amount first set forth above in this paragraph.

       

      69
        70

      -10-

       

       

      
        
          
          

        

        
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       A.A.P.L.
        FORM 610 - MODEL
        FORM OPERATING AGREEMENT -
        1982

      
         

      

      ARTICLE
        VII

      continued

       

      I
        G. Insurance:

      2

      3
        At all times
        while
        operations
        are
        conducted
        thereunder,
        Operator
        shall
        comply
        with the workmen's compensation law of 4
        the state where the operations are being conducted; provided, however, that
        Operator may be a self-insurer for liability under said compensation laws
        in
        which event the only charge that shall be made to the joint account shall
        be as
        provided in Exhibit "C".
        Operator
        shall 6 also carry
        or
        provide insurance for the benefit of the joint account of the parties as
        outlined in Exhibit "D",
        attached to and made a part 7
        hereof. Operator shall require all contractors engaged in work on or for
        the
        Contract Area to comply
        with
        the workmen's compensation 8
        law of the state where the operations are being conducted and to maintain
        such
        ether insurance as Operator may require may be required in 9 Exhibit
        "D".

      10    In
        the event automobile public liability insurance is specified in said Exhibit
        "D",
        or
        subsequently receives the approval of the 11
        parties, no direct charge shall be made by Operator for premiums paid for
        such
        insurance for Operator's automotive equipment.

      12

      
        	13	
                ARTICLE
                  VIII.

              

      

      
        	14	
                ACQUISITION,
                  MAINTENANCE
                  OR TRANSFER OF INTEREST 15

              

      

      16
        A. Surrender
        of Leases:

      17

      18
        19
        20
        21
        22
        23
        24
        25
        26
        27
        28
        29
        30
        31
        32
        33
        34
        35

      36
        Any
        assignment, lease or surrender made under this provision shall not reduce
        or
        change the assignor's, lessor's or surrendering 37
        party's interest as it was immediately before the assignment, lease or surrender
        in the balance of the Contract Area; and the acreage 38
        assigned, leased or surrendered, and subsequent operations thereon, shall
        not
        thereafter be subject to the terms and provisions of this 39
        agreement.

      40

      41
        B. Renewal
        or Extension of Leases:

      42

      43
        44
        45
        46
        47
        48

      49    If
        some, but less than all, of the parties elect to participate in the purchase
        of
        a renewal lease, it shall be owned by the parties 50
        who elect to participate therein, in a ratio based upon the relationship
        of
        their respective percentage of participation in the Contract Area 51 to the
        aggregate of the percentages of participation in the Contract Area of all
        parties participating in the purchase of such renewal lease. 52
        Any
        renewal lease in which less than all parties elect to participate shall not
        be
        subject to this agreement. 53.

      54 Each
        party who participates in the purchase of a renewal lease shall be given
        an
        assignment of its proportionate interest therein 55 by the acquiring
        party,

      56

      57
        The
        provisions of this Article shall apply to renewal leases whether they are
        for
        the entire interest covered by the expiring lease 58
        or cover only a portion of its area, or an interest therein. Any renewal
        lease
        taken before the expiration of its predecessor lease, or taken or 59 contracted
        for within six (6) months after the expiration of the existing lease shall
        be
        subject to this provision; but any lease taken or con-tracked
        for more than six '6) months after the expiration of an existing lease shall
        not
        be deemed a renewal lease and shall not be subject to 61
        the provisions of this agreement.

      62

      63    The
        provisions in this Article shall also be applicable to extensions of oil
        and gas
        leases.

      64

      65
        C. Acreage
        or Cash Contributions:

      66

      67
        While
        this agreement is in force, if any party contracts for a contribution of
        cash
        towards the drilling of a well or -any other 68
        operation on the Contract Area, such contribution shall be paid to the party
        who
        conducted the drilling or other operation and shall be 69
        applied by it against the cost of such drilling or other operation. If the
        contribution be in the form of acreage, the party to whom the con-tribution
        is
        made shall promptly tender an assignment of the acreage, without warranty
        of
        title, to the Drilling Parties in the proportions

       

      The
        leases covered by this agreement, insofar as they embrace acreage in the
        Contract Area, shall not be surrendered in whole or
        in part unless all parties consent thereto.

      

      However,
        should any party desire to surrender its interest in any lease or in any
        portion
        thereof, and the other parties do not agree
        or consent thereto, the party desiring to surrender shall assign, without
        express or implied warranty of title, all. of its interest in such
        lease, or portion thereof, and any well, material and equipment which may
        be
        located thereon and any rights in production thereafter
        secured, to the parties not consenting to such surrender. If the interest
        of the
        assigning party is or includes an oil and gas in-terest,
        the assigning party shall execute and deliver to the party or parties not
        consenting to such surrender an oil and gas lease covering such
        oil and gas interest for a term of one '1) year and so long thereafter as
        oil
        and/or gas is produced from the land covered thereby, such lease
        to be on the form attached hereto as Exhibit "B".
        Upon
        such assignment or lease, the assigning party shall be relieved from all
        obligations
        thereafter accruing, but not therefore accrued, with respect to the interest
        assigned or leased and the operation of any well attributable
        thereto, and the assigning party shall have no further interest in the assigned
        or leased premises and its equipment and pro-duction
        other than the royalties retained in any lease made under the terms of this
        Article. The party assignee or lessee shall pay to the party
        assignor or lessor the reasonable salvage value of the lather's interest
        in any
        wells and equipment attributable to the assigned or leas-ed
        acreage. The value of all material shall be determined in accordance with
        the
        provisions of Exhibit "C",
        less
        the estimated cost of salvaging
        and the estimated cost of plugging and abandoning. If the assignment or lease
        is
        in
        favor of more than one party, the interest shall
        be shared by such parties in the proportions that the interest of each bears
        to
        the total interest of all such parties.

       

       

      If
        any party secures a renewal of any oil and gas lease subject to this agreement,
        all other parties shall be notified promptly, and shall
        have the right for a period of thirty '30) days following receipt of such
        notice
        in which to elect to participate in the ownership of the renewal
        lease, insofar as such lease affects lands within the Contract Area, by paying
        to the party who acquired it their several proper pro-portionate
        shares of the acquisition cost allocated to that part of such lease within
        the
        Contract Area, which shall be in proportion to the interests
        held at that time by the parties in the Contract Area.

       

      

      
        
          
          

        

        
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         A.A.P.L.
          FORM 610 - MODEL
          FORM OPERATING AGREEMENT -
          1982

      

      ARTICLE
        VIII .
        continued .

       

      1
        said. Drilling
        Parties shared the lost of drilling the well. Such acreage shall become
        a separate
        Contract Area and, to the extent possible, be 2
        governed by provisions identical to this agreement. Each party shall promptly
        notify all other parties of any acreage or cash contributions 3
        it may obtain an support of any well or any other operation on the Contract
        Area. The above provisions shall also be applicable to optonal
        rights to earn acreage outside the Contract Area which are in support of
        a well
        drilled inside the Contract Area. 5

      6    If
        any party contracts for any consideration relating to disposition of such
        party's share of substances produced thereunder, such 7
        consideration shall not be deemed a contribution as contemplated an this
        Article
        VIII.C.

      8

      9
        D. Maintenance
        of Uniform Interests:

      10

      11
        For
        the purpose of maintaining uniformity of ownership an the oil and gas leasehold
        interests covered by this agreement, no 12
        party shall sell, encumber, transfer or make other disposition of its interest
        an the leases embraced within the Contract Area and an wells, 13
        equipment and production unless such disposition lovers either:

      14

      1.
        the
        entire interest of the party an all leases and equipment and production;
        or

      16

      17    2.
        an
        equal undivided interest an all leases and equipment and production an the
        Contract Area. 18

      19    Every
        such sale, encumbrance, transfer or other disposition made by any party shall
        be
        made expressly subject to this agreement 20
        and shall be made without prejudice to the right of the other
        parties.

      21

      22
        If,
        at any tame the interest of any party as divided among and owned by four
        or more
        co-owners, Operator, at its discretion, may 23
        require such co-owners to appoint a single trustee or agent with full authority
        to receive notices, approve expenditures, receive billings for 24
        and approve and pay such party's share of the joint expenses, and to deal
        generally with, and with power to band, the co-owners of 'such 25
        party's interest within the scope of the operations embraced an this agreement;
        however, all such co-owners shall have the right to enter 26 into and execute
        all contracts or agreements for the disposition of their respective shares
        of
        the oil and gas produced from the Contract 27
        Area and they shall have the right to receive, separately, payment of the
        sale
        proceeds thereof.

      28

      29
        E. Waiver
        of Rights to Partition:

      30

      31    If
        permitted by the laws of the state or states in which the property covered
        hereby as located, each party hereto owning an

      32
        undivided interest an the Contract Area waives any and all rights at may
        have to
        partition and have set aside to at an severalty its undivided 33
        interest therein.

      34

      35
        F.     Preferential
        Right to Purchase:

      36
        37
        38
        39
        40
        41
        42
        43
        44
        45 46
        47
        48 49

      50
        This
        agreement as not intended to create, and shall not be construed to create,
        a
        relationship of partnership or an association 51
        for profit between or among the parties hereto. Notwithstanding any provision
        herein that the rights and liabilities thereunder are several 52
        and not joint or collective, or that this agreement and operations thereunder
        shall not constitute a partnership, if, for federal income tax 53 purposes,
        this
        agreement and the operations thereunder are regarded as a partnership, each
        party hereby affected elects to be excluded 54
        from the application of all of the provisions of Subchapter "K",
        Chapter
        1, Subtitle "A",
        of
        the Internal Revenue Code of 1986, as per-matted
        and authorized by Section 761 of the Code and the regulations promulgated
        thereunder. Operator as
        authorized
        and directed to ex-elute
        on behalf of each party hereby affected such evidence of this election as
        may be
        required by the Secretary of the Treasury. of the 57
        United States or the Federal Internal Revenue Servile, including specifically,
        but not by way of limitation, all
        of
        the returns, statements, 58
        and the data required by Federal Regulations i.761 Should there be any
        requirement that each party hereby affected gave further 59
        evidence of this election, each such party shall execute such documents and
        furnish such other evidence as may be required by the 60
        Federal Internal Revenue Servile or
        as
        may be necessary to evidence this election. No such party shall gave any
        notices
        or take any other 61
        action inconsistent with the election made hereby. If any present or future
        income tax laws of the state or states an which the Contract 62
        Area as located or any future income tax laws of the United States contain
        provisions similar to those an Subchapter "K",
        Chapter
        3, 63
        Subtitle "A", of
        the Internal Revenue Code of 1986, under which an election similar to that
        provided by Section 761 of the Code as per-matted,
        each party hereby affected shall make such election as may be permitted or
        required by such laws. In making the foregoing elec-tin,
        each such party states that the income derived by such party from operations
        thereunder can be adequately determined without the 66
        computation of partnership taxable income.

      67

      68

      69

      70

      

      

      15

       

       

      Should
        any party desire to sell
          all or  any part
        of its interests
          under
        this agreement,  or its
        rights and interests in
        the Contract

      

       

      ARTICLE
        IX.

       

      INTERNAL
        REVENUE CODE ELECTION

       

      

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          16

          
            

          

        

        
          
          

        

      

       A.A.P.L.
        FORM 610 - MODEL
        FORM OPERATING AGREEMENT -
        1982

       

      ARTICLE
        X.

      2 CLAIMS
        AND LAWSUITS

      3
        4 5 6 7
        8 9 10
        11
        12
        13

      14

       

      Operator
        may settle any single uninsured third party damage claim or suit arising
        from
        operations thereunder if the expenditure does
        not
        exceed Ten
        Thousand and No/1000  Dollars

      'S
        10,000.00 
        )
and
        if
        the payment is in complete settlement of such claim or suit. If the amount
        required for settlement ex-ceeds
        the
        above amount, the parties hereto shall assume and take over the further handling
        of the claim or suit, unless such authority is delegated
        to Operator. All costs and expenses of handling, settling; or otherwise
        discharging such claim or suit shall be at the joint ex-pense of the parties
        participating in the operation from which the claim or
        suit
        arises. If a claim is made against any party or if any party is sued
        on
        account of any matter arising from operations thereunder over which such
        individual has no control because of the rights given Operator
        by this agreement, such party shall immediately notify all other parties,
        and
        the claim or suit shall be treated as any other claim

      

      or
        suit
        involving operations thereunder. All claims or suits involving leasehold
        title
        to any interest subject to this agreement shall be treated
        as a claim or suit against all the parties hereto.

       

       

      ARTICLE
        XI.

      FORCE
        MAJOR

      

      If
        any
        party is -rendered unable, wholly or in part, by force major to carry out
        its
        obligations under this agreement, other than the obligation to make money
        payments, that party shall give to all other parties prompt written notice
        of
        the force major with reasonably
        full particulars concerning it; thereupon, the obligations of the party giving
        the notice, so far as they are affected by the force major,
        shall be suspending during, but no longer than, the continuance of the force
        majeure. The affected party shall use all reasonable diligence
        to remove the force majeure situation as quickly as practicable.

      

      The
        requirement that any force majeure shall be remedied with all reasonable
        dispatch shall not require the settlement of strikes, lockouts,
        or other labor difficulty by the party involved, contrary to its wishes;
        how all
        such difficulties shall be handled shall be entirely

      • within
        the discretion of the party concerned.

      

      The
        term
        "force majeure", as here employed, shall mean an act of God, strike, lockout,
        or
        other industrial disturbance, act of

      t•he
        public
        enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion,
        governmental action, governmental delay, restraint or
        inaction, unavailability of equipment, and any other cause, whether of the
        kind
        specifically enumerated above or otherwise, which is not
        reasonably within the control of the party claiming suspension.

      

      ARTICLE
        XII.

      NOTICES

      All
        notices authorized or required between the parties and required by any of
        the
        provisions of this agreement, unless otherwise specifically
        provided, shall be given in writing by mail or telegram, postage or charges
        prepaid, or by telex or telecopier and addressed to the
        parties to whom the notice is given at the addresses listed on Exhibit
"A".
        The
        originating notice given under any provision hereof

      shall
        be
        deemed given only when received by the party to whom such notice is directed,
        and the time for such party to give any notice in

      • response
        thereto shall run from the date the originating notice is received. The second
        or any responsive notice shall be deemed given

      • when
        deposited in the mail or with the telegraph company, with postage or charges
        prepaid, or sent by telex or telecopier. Each party shall
        have the right to change its address at any time, and from
        time
        to
        time, by giving written notice thereof to all other parties.

      43

      
        	44	
                ARTICLE
                  XIII.

              

      

      
        	45	
                TERM
                  OF AGREEMENT

              

      

      46

      47
        This
        agreement shall remain in full force and effect as to the oil and gas leases
        and/or oil
        and
        gas
        interests subject hereto for the 48
        period
        of time selected below; provided, however, no party hereto shall ever be
        construed as having any right, title or interest in or to any 49
        lease
        or oil and gas interest contributed by any other party beyond the term of
        this
        agreement.

      50                         /joint/
        owned

      51
        ®Option
        No. 1:
        So long
        as any of the oil ants gas leases subject to this agreement remain or are
        continued in force as to any part 52
        of the
        Contract Area, whether by production, extension, renewal, or
        otherwise.

      53

      54
        0
Option
        No. 2:
        In the
        event the well described in Article VI.A., or any subsequent well drilled
        under
        any provision of this 55 agreement, results in production of oil and/or gas
        in
        paying quantities, this agreement shall continue in force so long as any
        such
        well or 56
        wells
        produce, or are capable of production, and for an additional period
        of days
        from
        cessation of all production; provided, 57
        however, if, prior to the expiration of such additional period, one or more
        of
        the parties hereto are engaged in drilling, reworking, deepen-inn,
        plugging back, testing or attempting to complete a well or wells hereunder,
        this
        agreement shall continue in force until such opera-tions
        have been completed and if production results therefrom, this agreement shall
        continue in force as provided herein. In the event the 60
        well
        described in Article VITA., or any subsequent well drilled hereunder, results
        in
        a dry hole, and no other well is producing, or capable 61 of producing oil
        and/or gas from the Contract Area, this agreement shall terminate unless
        drilling, deepening, plugging back or rework-

      62
        .
        inn
        operations are commenced within days
        from
        the date of abandonment of said well. 63

      64 It
        is
        agreed, however, that the termination of this agreement shall not relieve
        any
        party hereto from any liability which has 65
        accrued or attached prior to the date of such termination.

      66
        67
        68
        69
        70

       

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      ~
        4-,44b

      

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      
         A.A.P.L.
          FORM 610 - MODEL
          FORM OPERATING AGREEMENT -
          1982

         

         

         

      

      
        	
                I

              	
                ARTICLE
                  XIV.

              

      

      
        	2	
                COMPLIANCE
                  WITH LAWS AND REGULATIONS 3

              

      

      4
        A.
Laws,
        Regulations and Orders:

      5

      6
        This
        agreement shall be subject to the conservation laws of the state in which
        the
        Contract Area is located, to the valid rules, 7
        regulations, and orders of any duly constituted regulatory body of said state;
        and to all other applicable federal, state, and local laws, or-finances,
        rules, regulations, and orders.

      9

      10
        B.
Governing
        Law:

      11

      12 This
        agreement and all matters pertaining hereto, including, but not limited to,
        matters of performance, non-performance, breach, 13
        remedies, procedures, rights, duties, and interpretation or construction,
        shall
        be governed and determined by the law of the state in which

      14
        the
        Contract Area is located. If-the-Contract Area
        is in two or more
        states, the
        law of the state
        of  15
        shall-
        govern.

      16

      17
        C.
        Regulatory Agencies:

      18

      19
        Nothing
        herein contained shall grant, or be construed to grant, Operator the right
        or
        authority to waive or release any rights, 20 privileges, or obligations which
        Non-Operators may have under federal or state laws or under rules, regulations
        or orders promulgated 21 under such laws in reference to oil, gas and mineral
        operations, including the location, operation, or production of wells, on
        tracts
        offset-ting
        or
        adjacent to the Contract Area.

      23

      24 With
        respect to operations hereunder, Non-Operators agree to release Operator
        from
        any and all losses, damages, injuries, claims 25 and causes of action arising
        out of, incident to or resulting directly or indirectly from Operator's
        interpretation or application of rules, 26
        rulings, regulations or orders of the Department of Energy or predecessor
        or
        successor agencies to the extent such interpretation or ap-placation was
        made in
        good faith. Each Non-Operator further agrees to reimburse Operator for any
        amounts applicable to such Non-Operator's share of production that Operator
        may
        be required to refund, rebate or pay as a result of such an incorrect
        interpretation or 29
        application, together with interest and penalties thereon owing by Operator
        as a
        result of such incorrect interpretation or application. 30

      31
        Non-Operators
        authorize Operator to prepare and submit such documents as may be required
        to be
        submitted to the purchaser 32 of any crude oil sold hereunder or to any other
        person or entity pursuant to the requirements of the "Crude Oil Windfall
        Profit
        Tax Act 33
        of
        1980", as same may be amended from time to time '"Act"),
        and
        any
        valid regulations or rules which may be issued by the Treasury 34
        Department from time to time pursuant to said Act. Each party hereto agrees
        to
        furnish any and all certifications or other information 35
        which
is
        required
        to be furnished by said Act in a timely manner and in sufficient detail to
        permit compliance with said Act.

      36
        37
        38
        39
        40

      41
        Article XV. to this agreement is attached hereto in the form of a typed
        addendum.

      42

      43

      44

      45

      46

      47

      48

      49

      50

      51

      52

      53

      54

      55

      56

      57

      58

      59

      60

      61

      62

      63

      64

      65

      66

      67

      68

      69

      70

      
 

      ARTICLE
        XV.

      OTHER
        PROVISIONS

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          18

          
            

          

        

        
          
          

        

      

       

       

       ARTICLE
        XV. OTHER
        PROVISIONS

       

      A.    CASING
        POINT ELECTION

       

      In
        spite
        of any provision to the contrary appearing herein, consent to the drilling
        of a
        well shall
        constitute consent to running and setting of protective strings of casing,
        but
        shall not
        be
        deemed consent
        to the setting of completion casing and a completion attempt. When
        a
        well has. been drilled upon
        the
        premises affected by this agreement pursuant to the provisions of
        this
        agreement, Operator shall
        give immediate notice to each of the participating parties when the
well
        has
        has been drilled to the depth
        mutually agreed upon and an electrical logging survey has been run and the
        well
        evaluated for
        the
setting
        of casing in an attempt to complete the same as a
        producer.
        The parties receiving such notice shall
        have 48 hours inclusive
        of
        Saturdays, Sundays and legal holidays in which to elect whether or not
they
        desire to set completion casing and to participate in the completion
attempt.
        Failure
        of a party receiving
        such notice to reply within the period above fixed shall constitute an election
        by
        that
        party not to participate
        in the cost of a completion attempt. If all
        of
        the parties elect to plug and abandon the well, operator
        shall do so at the expense of all the parties. If one or more, but less than
        all
of
        the
        parties elect to
        set
        pipe and to attempt a completion, the provisions of Article VI.B.2.
        hereof shall apply to the operations
        hereafter conducted by less than all of the parties.

       

      B.    CONFIDENTIALITY
        OF INFORMATION

       

      To
        the
        extent permitted by applicable laws and regulations,. shall
        keep confidential all data and
        information received from in connection with the leases and the area of mutual
        interest described
        in Section 6 and, except as provided in this Section 5, shall not
        disclose it to third parties .
        without
        prior written consent. . shall comply with all applicable disclosure, use
        and
        confidentiality agreements with third
        parties involving data and information.
        shall restrict dissemination
        of data and information to those of its investors, partners, employees,
        directors, agents, attorneys
        and consultants with a need to know. '
        shall
        notify persons to whom data and information is
        disseminated of the terms of this confidentiality provision and shall be
        liable
        for their actions in connection
        with use of the data and information. This confidentiality provision shall
        not
        apply
        to data and information
        which (I) is publicly available (other than by a breach of
        this
        agreement), or (ii) .
        has
        obtained independently of., , without obligation of confidentiality. This
        confidentiality provision shall terminate
        three years from the date of this agreement.

       

      C.    RESTRICTION
        ON PROPOSING SUBSEQUENT OPERATIONS

       

      Prior
        to
        thirty (30) days following the time that the Initial Well or any well under
        Article VI
        reaches its
        proposed target depth, no party shall be forced to make an election on any
        other
        proposal to drill a
        well
        on
        the Contract Area,

       

      D.    PRIORITY
        OF ELECTIONS

       

      Notwithstanding
        anything in this JOA to the contrary, the following provisions of this
paragraph
        shall
        take precedence over any other provisions which may be in conflict therewith.
        It
is
        agreed
        that when
        a
        well
        drilled under, the terms of this JOA or under the terms and conditions of
        the
        Participation Agreement
        to which this JOA is attached has been drilled to a
        total
        depth (the depth which is listed in the AFE
        or in
        the proposal or an alternative depth has been reached per agreement of the
        drilling parties)
        and
        has
        been logged, and the parties participation in the well cannot mutually agree
        upon the
        sequence and timing of further operations regarding said well, the following
        elections shall control
        in the order enumerated
        hereinafter.

       

      1.
        An
        election to attempt to complete the well in its present condition providing
        that
        an election
        to complete
        in a
        deeper
        objective shall take precedence over an election to complete a shallower
        objective
        if a conflict arises whereby only one of these options exists.

       

      2.
        An
        election to deepen said well 3.
        An
        election to side track the well 4.
        An
        election to abandon the well

       

      Notwithstanding
        anything provided in this paragraph, any Party desiring to
        perform additional logging, coring,
        or other testing (other than logging, coring, and testing that would
be
        performed by a prudent operator
        before attempting a completion) may do so at its sole cost, risk, and
        expense

       

      Page
        14a

       

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

         

        In
          such
          event, the Party or Parties undertaking such additional testing
          shall be responsible for any damage
          to
          the hole or reservoir resulting from such testing. The
          parties not participating in such additional
          testing shall not be entitled to the logs and other data resulting from
          such
          tests unless the Operator
          did not participate in such tests and such information is vital to
          the
          safety of any personnel and/or property on the wellsite, the integrity
          of the
          well, or if Operator needs to disclose
          such information

         

        to
          any
          governmental agency.

         

        E.    OBLIGATORY
          OPERATIONS

         

        Notwithstanding
          the other provisions hereof and particularly Article VI., if any
          proposed operation
          is an obligatory operation, a party not participating in such operation
          shall
          assign to the parties participating
          in the operation all of its interest in the leases or portions thereof,
          and
          to
          the formation and depths
          covered thereby which would be lost or not earned if such operation is
          not
          conducted. Such
          assignment
          shall be doe upon the commencement of operation for such well and shall
          be
          free
          and clear of
          any
          overriding royalties, production payments, mortgages, liens or other
          encumbrances placed
          there by
          or
          resulting from the non-consenting party's ownership and
          operations

         

        but
          otherwise
          without
          warranty of
          title, either express or implied. A
          well or
          other, operation commenced
          within six (6) months prior to the date the lease or leasee (or portions
          thereof) would
          expire in
          the
          absence of such operation and a well or other operation which must be
drilled
          or conducted to "earn"
          or
          maintain a lease
          or
          farmout rights shall constitute an "obligatory operations". The
          provisions of Article
          VI.B.
          shall, however, continue to apply to any
          remaining
          portion of the Contract Area which contributes
          to production from the non-consenting operations (i.e..
          within
          the same drilling, production or proration
          unit). The
          interest of the parties shall be adjusted on a surface acreage basis
(unless
          the appropriate
          regulatory body shall have apportioned production on a different basis)
          after
          recovery by the consenting
          parties of the percentile amount provided in Article VI. B. (2)
          (a)
          and (b) with respect to the non-consenting
          party's interest in the unit subject to this operating Agreement but
shall
          be
          subject to an Operating
          Agreement identical to this agreement changed only to reflect the names
          and
          interests of the consenting
          parties. Any
          notice or AFE given under
          this provision
          shall denote that it is an "Obligatory Operation" under
          the,' operating
          agreement.

         

        F.    SIDETRACKING
          OPERATIONS

         

        Notwithstanding
          any
          provision herein to the contrary, it is understood and agreed if Operator
          encounters
          impenetrable substances or other conditions in the hole which makes further
          drilling impractical
          or any condition for which Operator shall propose a
          sidetracking
          operation in
          order
          to reach the
          objective depth of the Initial Test Well as provided in
          Article
          VI.A., the parties. hereto shall have the right
          to
          make an election concerning participation in such sidetracking operation
          in
          accordance with the provisions
          of Article VI.B. of this Agreement.

         

        G.    COMPLIANCE
          WITH ENVIRONMENTAL LAWS AND REGULATIONS

         

        Operator
          agrees (i) to cause all its employees agents, contractors, and any other
          persons
          occupying or present on the Contract Area to comply with all applicable
          laws and
          regulations, (ii)
          not
          to allow,
          and to cause its employees, agents, contractors and any other person occupying
          or present on
          the
Contract
          Area not to allow the release of any contaminant, pollutant or any material
          or
          substance deemed
          to
          be hazardous or otherwise subject to regulation under the laws, rules or
          regulations of
          any
governmental
          authority dealing with protection of the environment, on, onto, or from
          the
          Contract Area that
          could result in a violation of any laws or regulations in the creation
          of
          liability or
          obligations,
          including without
          limitation, notification, deed recordation, or remediation under any applicable
          law
          or
          regulation. Failure
          to comply with this provision shall be presumed to constitute gross negligence
          for purposes
          of this
          Agreement.

         

        H.    CONFLICTS

         

        This
          Operating Agreement is entered Into pursuant to the provisions of that
          certain
Participation
          Agreement
          between. CENTURY
          RESOURCES
          INC.
          and
          AQUATIC
          CELLULOSE INC.

        In
          the event of any conflict between such Participation
          Agreement and
          this Operating Agreement, the
          provisions of the herein referenced Participation Agreement shall
          govern.

         

        HEADINGS

         

        The
          heading of the several articles and sections of this Agreement are for
          convenience only, and shall not control or affect the meaning or construction
          of
          the terms and provisions hereof

         

        Page
          14b

         

         

        
          
            
            

          

          
            20

            
              

            

          

          
            
            

          

        

         

        J.    MUTUALITY

         

        The
          parties hereto acknowledge and declare that this Agreement is the result
          of
          extensive negotiations
          between themselves. Accordingly,
          an the event of any ambiguity an this Agreement, there shall
          be
          no presumption that this instrument was prepared solely by either party
          hereto.

         

        K.    COMPLETION
          ELECTIONS

         

        Notwithstanding
          any language herein to the contrary, Article VI.B.2 shall apply
          separately
          to each separate completion or recompletion attempt undertaken hereunder
          by the
          parties who
          participated an the drilling of the well. An election to become a non-consenting
          party as to one completion or
          recompletion
          attempt shall not prevent a party from becoming a consenting party an subsequent
          completion
          or recompletion attempts regardless of whether the consenting parties as
          to
earlier
          completions
          of recompletions have recouped their costs under Article VI.B.2., except
          as
provided
          for exploratory
          wells under the Participation Agreement, Any
          recoupment of costs by a
          consenting party shall be made solely from the production attributable
          to the
          zone or interval
          an which the
          completion or recompletion attempt as made. Election
          to participate an a subsequent completion or recompletion attempt by a
          party who
          participated an the drilling of a well but not a previous completion
          or recompletion
          attempt shall require such party to pay. its proportionate share of the
          cost of
          salvable materials
          and equipment installed in the well pursuant to the previous completion
          or
          recompletion attempt,
          however, insofar and only insofar as such materials and equipment benefit
          the
          zone or
          interval an which such party participates.

         

        L.    EFFECT
          OF BANKRUPTCY

         

        If
          Operator becomes insolvent,, bankrupt, as placed an receivership, including,
          without limitation,
          being
          subject to. Chapter 11 proceedings, at shall be deemed to have resigned
          without
          any further action
          by
          the
          Non-Operators, except the selection of a
          successor
          operator which shall be made within ten (10) days
          of
          the Operator becoming so affected. If a petition for relief under Federal
          bankruptcy laws is
          filed
by
          or
          against operator, and the removal of Operator as prevented by the Federal
          bankruptcy court, all
          non-operators
          and Operator shall comprise an interim operating committee to serve until
          Operator
          has .elected
          to reject or assume this JOA pursuant to the Bankruptcy Code, and an election
          to
reject
          this JOA by
          Operator as. debtor an possession, or by a trustee an bankruptcy, shall
          also be
          deemed a
          resignation by
          Operator without any further action by Non-operators, except the selection
          of a
          successor Operator.
          During
          the period of tame the operating committee controls operations, all actions
          shall require
          the approval
          of two (2) or more Parties owning a majority interest based on ownership
          as
described
          in Exhibit
          "A" hereto. In the event there are only two (2) Parties to this JOA, a
          third
          party, acceptable
          to the non-operator,
          Operator, and the Federal bankruptcy court, shall serve on the operating
          committee
          and all
          actions shall thence be approved by two (2) members of
          the
          committee regardless of ownership.

         

        646

         

        Page
          14c

      

      
         

         

        
          
            
            

          

          
            21

            
              

            

          

          
            
            

          

        

        
 M.
          COMPLETION
          ASSESSMENTS

         

        Upon
          drilling and logging of any wells, the Operator will request each Non
Operator
          to advance and contribute its pro-rata share of funds for completion
costs
          for
          any subsequent well drilled under this agreement. The
          failure of Non Operator
          to contribute his pro-rata share of completion costs within then (10) days
          of
          notice
          by fax or overnight delivery (or within 48 hours if the rig is on location,
          including weekends and major holidays) shall be deemed a negative response
          and
an
          election by that party not to participate in the completion of the well.
          The
          provisions
          of Article VI B. Subsequent Operations 2., shall prevail as to non-consenting
          parties.

         

        N.
          SUCCESSORS
          ASSIGNS

         

        The
          terms, covenants and conditions of this Operating Agreement shall be binding
          upon and shall inure to the benefit of the parties hereto and to their
          respective
          heirs, devisees, legal representatives, successors and assigns, and such
          terms,
          covenants and conditions shall be deemed as covenants running with the
          lands
          and
          leases covered hereby and with each transfer or assignment of said lands
          or
          leases, Each signatory party shall have the right to assign all or any
          portion
          of it rights, titles and interests hereunder; provided however, that any
          such
assignment
          shall be null and void unless it specifically provides that it is made
          subject
          to the terms provisions of this Operating Agreement and reference must
          be
made
          hereto for all purposes.

         

        O.
          SPECIAL
          ASSESSMENTS

         

        Special
          assessments may be required if further enhancement of production becomes
          necessary after the date of first production on the initial or subsequent
          wells.
If
          any
          re-completion of the original zone or completion of any zones in addition
          to the
first
          completion is proposed, a special assessment will be requested upon presentation
          and
          approval of an AFE by a majority percentage of the working interest owners.
          The
          failure of a non-operator to contribute their pro-rata share of the special
          assessment
          within ten (10) days from notification shall be deemed to be a negative
          response
          and an election by that party not to participate in the recompletion of
          the
initial
          or subsequent wells. The provisions of Article VI B. Subsequent Operations
          2.,
          shall
          prevail as to non- consenting parties.

         

         

        
          
            
            

          

          
            22

            
              

            

          

          
            
            

          

        

         

         P.
          DEFAULTS
          AND REMEDIES.

         

        If
          any
          party fails to discharge any financial obligation under this agreement,
          including without limitation the failure to make any advance under the
          proceeding provisions, within the period required for such payment hereunder,
          then in addition to the remedies provided
          elsewhere in this agreement, the remedies specified below shall be
          applicable.

         

        1.
          Suspension
          of Rights: Any
          party
          may deliver to the party in default a Notice of Default, which shall specify
          the
          default, pecify
          the action to be taken to cure the default, and specify that failure to
          take
          such action will result in the exercise of one it
          more
          of
          the remedies provided in this Article. If the default is not cured within
          thirty
          (30) days of the delivery of such Notice
          of
          Default, all of the rights of the defaulting party granted by this agreement
          may
          upon notice be suspended until the default is cured, without prejudice
          to the
          right of the non-defaulting party or parties to continue to enforce the
          obligations of :he
          defaulting party previously accrued or thereafter accruing under this agreement.
          If Operator is the party in default, the on-Operators
          shall have in addition the right, by vote of Non-Operators owning a majority
          in
          interest in the Contract Area after
          excluding the voting interest of Operator, to appoint a new Operator effective
          immediately. The rights of a defaulting party that may be suspended hereunder
          at
          the election of the non-defaulting parties shall include, without limitation,
          the right to
          receive information as to any operation conducted hereunder during the
          period of
          such default, the right to elect to participate
          in an operation proposed under Article VI.: of
          this
          agreement, the right to participate in an operation being conducted
          under this agreement even if the party has previously elected to participate
          in
          such operation, and the right to receive
          proceeds of production from any well subject to this agreement.

        2.
          Suit
          for Damages: Non-defaulting
          parties or Operator for the benefit of non-defaulting parties may sue (at
          joint
account
          expense) to collect the amounts in default, plus interest accruing on the
          amounts recovered from the date of default until
          the
          date of collection at the rate specified in Exhibit "C" attached hereto.
          Nothing
          herein shall prevent any party from suing
          any
          defaulting party to collect consequential damages accruing to such party
          as a
          result of the default.

        3.
          Deemed
          Non-Consent: The
          non-defaulting party may deliver a written Notice of Non-Consent Election
          to the
defaulting
          party at any time after the expiration of the thirty-day cure period following
          delivery of the Notice of Default, in which event if the billing is for
          the
          drilling of a new well or the Plugging Back, Sidetracking, Reworking or
          Deepening of a well
          which is to be or has been plugged as a dry hole, or for the Completion
          or
          Recompletion of any well, the defaulting party
          will be conclusively deemed to have elected not to participate in the operation
          and to be a Non-Consenting Party with respect
          thereto under Article VI: as
          the
          case may be, to the extent of the costs unpaid by such party, notwithstanding
          any election to participate theretofore made. If election is made to proceed
          under this provision, then the non-defaulting
          parties may not elect to sue for the unpaid amount pursuant to Article
          VII.D.2.

        Until
          the
          delivery of such Notice of Non-Consent Election to the defaulting party,
          such
          party shall have the right to cure its
          default by paying its unpaid share of costs plus interest at the rate set
          forth
          in Exhibit "C,"
          provided, however, such payment
          shall not prejudice the rights of the non-defaulting parties to pursue
          remedies
          for damages incurred by the non-defaulting
          parties as a result of the default. Any interest relinquished pursuant
          to this
          Article VlI.D.3. shall be offered to the non-defaulting parties in proportion
          to
          their interests, and the non-defaulting parties electing to participate
          in the
          ownership of
          such
          interest shall be required to contribute their shares of the defaulted
          amount
          upon their election to participate therein.

         

        4.
          Advance
          Payment: If
          a
          default is not cured within thirty (30) days of the delivery of a Notice
          of
          Default, Operator, or Non-Operators
          if Operator is the defaulting party, may thereafter require advance payment
          from
          the defaulting party
          of
          such defaulting party's anticipated share of any item of expense for which
          Operator, or Non-Operators, as the case may be,
          would
          be entitled to reimbursement under any provision of this agreement, whether
          or
          not such expense was the subject of the
          previous default. Such right includes, but is not limited to, the right
          to
          require advance payment for the estimated costs of drilling
          a well or Completion of a well as to which an election to participate in
          drilling or Completion has been made. If the defaulting party fails to
          pay the
          required advance payment, the non-defaulting parties may pursue any of
          the
          remedies provide

         

        in
          this
          Article valid. or any other default remedy provided elsewhere in this agreement.
          Any excess of funds advanced remaining when
          the
          operation is completed and all costs have been paid shall be promptly returned
          to the advancing party.

         

        5.
          Costs
          and Attorneys' Fees.
          In the
          event any party is required to bring legal proceedings to enforce any
          financia

        obligation
          of a party hereunder, the prevailing party in such action shall be
          entitled
          to recover all court costs, costs o

        collection,
          and a reasonable attorney's fee, which the lien provided for herein shall
          also
          secure.

         

         

        
          
            
            

          

          
            23

            
              

            

          

          
            
            

          

        

         A.A.P.L.
          FORM 610 -
          MODEL
          FORM OPERATING AGREEMENT -
          1982
ARTICLE
          XVI

         

        
          	2.	
                  MISCELLANEOUS

                

        

        3

        4     This
          agreement shall be binding upon and shall inure to the benefit of the parties
          hereto and to their respective heirs, devisees,

        5
          legal
          representatives, successors and assigns.

        6

        7     This
          instrument may be executed in any number of counterparts, each of which
          shall be
          considered an original for all purposes.

        8

        9     IN
          WITNESS
          WHEREOF, this agreement shall be effective as of 1st  day
          of MARCH
          _ ,
          (year)
          2004

        10

        11

         

        OPERATOR CENTURY
          RESOURCES, INC.

        BY:

        EDWARD
          R.
          DeSTEFANO PRESIDENT

        
           

           

          NON-OPERATORS

           

          AQUATIC
            CELLULOSE INTERNATIONAL CORP.

           

          
             

             

             

            
              
                
                

              

              
                24

                
                  

                

              

              
                
                

              

            

             

            EXHIBIT
              "A"

             

             

             

            ATTACHED
              TO THAT CERTAIN OPERATING AGREEMENT DATED MARCH
              1, 2004, BETWEEN CENTURY RESOURCES, INC., AS OPERATOR AND
              AQUATIC CELLULOSE INTERNATIONAL CORP. AS NON-OPERATOR.

             

            (1)
              Description of the wells and land subject to the
              agreement,

             

            Lands
              within the outline on Exhibit "A-1"

             

            (2)
              Restrictions, if any, as to depths, formations, or
              substances,

             

            NONE

             

            (3)
              Percentages or fractional interests of parties to this agreement,
Wells
              and operations above 7,000', before and after payout:

             

            Century
              Resources, Inc. 80.00
              % working interest Aquatic
              Cellulose International 20.00%
              working interest

             

            (4)
              Oil and GasLeases subject to the agreement,

             

            All
              of the same Oil and Gas Leases subject to the Purchase and Sale
&Exploration
              Agreement dated March 17, 2004.

             

            (5)
              Parties to the agreement with addresses and telephone numbers for notice
              purposes,

             

            Century
              Resources, Inc. 5851
              San Felipe Suite
              77

             

            Houston,
              Texas 77057 713-266-4344
              phone 713-266-4358
              fax

             

            Aquatic
              Cellulose International Corp

            2504
              43rd
              Street

            Suite
              5

            Vernon,
              B.C. Canada VIP,
              6L1

            250-558-4216
              phone 250-558-3846 fax

             

             

             

            
              
                
                

              

              
                25

                
                  

                

              

              
                
                

              

            

             

             

             EXHIBIT
              "A-1"

             

             

            ATTACHED
              TO THAT CERTAIN OPERATING AGREEMENT DATED MARCH
              1, 2004, BETWEEN CENTURY RESOURCES, INC., AS OPERATOR AND
              AQUATIC CELLULOSE INTERNATIONAL CORP. AS NON-OPERATOR.

             

            The
              area
              of mutual interest is comprised of the following lands located
              in Matagorda
              County, Texas and depicted on the plat attached:

             

            State
              Tracts 436-S, 437-S, 447-S, 448-S, 449-S, 450-S, 451-S, 452-S,
              462-S, 463-S,
              464-S
              and 466-S, Gulf of Mexico

             

            State
              Tracts 79 and 80, Matagorda Bay

             

            That
              portion of the Benjamin Wightman Survey, A-100, lying East of
              the
extension
              of the westerly boundary line of State Tract 80, Matagorda Bay

             

            R.
              Graves
              Survey, A-551

             

            The
              portion of the A. B. Woodward Survey, A-406, lying South of a line
              that
              begins at the midpoint of the southwesterly line of the M. Wightman
Survey,
              A-102,
              and
              runs parallel to the northwesterly line of the Wightman Survey
              to
              a point in
              the
              southwesterly line of the Woodward Survey

             

            The
              portion of the M. Wightman Survey, A-102, lying South of a line that
              begins at
              the
              midpoint of the southwesterly line of the Wightman Survey and
              runs
              parallel to
              its
              northwesterly line to a
              point
              in
              its
              northeasterly boundary

             

            The
              portion of the M. D. Pierce (or Peiree) Survey, A-70, lying South
              of
              the extension
              of the line crossing the M. Wightman Survey, A-102, that
              is
              described above

             

            The
              portion of the Wm. Baxter Survey, A-4, lying South of the extension
              of the line
              crossing the M. Wightman Survey, A-102, that is described above

             

            The
              portion of the Wm. Kierans Survey, A-437, lying South of the extension
              of the line
              crossing the M. Wightman Survey, A-102, that is described above

             

            John
              O'Brian Survey, A-443 Dennis
              Mead Survey, A-440 John
              Matthews Survey, A-356 Robt.
              Haley Survey, A-201 J.
              W.
              Rugeley Survey, A-542

             

             

             

            
              
                
                

              

              
                26

                
                  

                

              

              
                
                

              

            

             

             

            COPAS
              -
              1984
              -
              ONSHORE
              Recommended
              by the Council of
              Petroleum Accountants Societies

            
              
                
                  
                     

                    EXHIBIT
                      "
                      C "

                     

                    ATTACHED
                      TO THAT CERTAIN OPERATING AGREEMENT DATED MARCH
                      1, 2004, BETWEEN CENTURY RESOURCES, INC., AS OPERATOR AND AQUATIC
                      CELLULOSE
                      INTERNATIONAL CORP. AS NON-OPERATOR.

                     

                    ACCOUNTING
                      PROCEDURE

                    JOINT
                      OPERATION

                    I. GENERAL
                      PROVISIONS

                     

                     

                     

                    1.
                      Definitions

                    "Joint
                      Property" shall mean the real and personal property subject
                      to the agreement to
                      which this Accounting Procedure is attached. "Joint
                      Operations" shall mean all operations necessary or proper for
                      the development,
                      operation, protection and maintenance of the Joint
                      Property.

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

                    "Operator"
                      shall mean the party designated to conduct the Joint Operations.

                    "Non-Operators"
                      shall mean the Parties to this agreement other than the Operator.

                    "Parties"
                      shall mean Operator and Non-Operators.

                    "First
                      Level Supervisors" shall mean those employees whose primary
                      function in Joint
                      Operations is the direct supervision of other employees
                      and/or contract labor directly employed on the Joint Property
                      in a field
                      operating capacity.

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

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

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

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

                     

                    2.
                      Statement
                      and Billings

                     

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

                     

                    3.
                      Advances
                      and Payments by Non-Operators

                     

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

                     

                    B.
                      Each
                      Non-Operator shall pay its proportion of all
                      bills
                      within thirty (30) days after receipt. If payment is not made
                      within such
time,
                      the
                      unpaid balance shall bear interest monthly at theprime rate
                      in effect
                      at Chase
                      Bank, Houston, Texas on
                      the
                      first day of the moth in which delinquency occurs plus 1% or
                      the maximum
                      contract rate permitted by the applicable usury laws in the
state
                      in
                      which the Joint Property is located, whichever is the lesser,
                      plus attorney's
                      fees, court costs, and other costs in connection with
                      the
                      collection of unpaid amounts.

                     

                    4.
                      Adjustments

                     

                    Payment
                      of any such bills shall not prejudice the right of any Non-Operator
                      to protest
                      or question the correctness thereof; provided,
                      however, all bills and statements rendered to Non-Operators
                      by Operator during
                      any calendar year shall

                     

                    conclusively
                      be presumed to be true and correct after twenty-four (24) months
                      following the
                      end of any such calendar year,
                      unless within the said twenty-four (24) month period a Non-Operator
                      takes
                      written exception thereto and makes claim
                      on
                      Operator for adjustment. No adjustment favorable to Operator
                      shall be made
                      unless it is made within the same

                     

                    prescribed
                      period. The provisions of this paragraph shall not prevent
                      adjustments resulting
from
                      a
                      physical inventory of Controllable Material as provided for
in
                      Section
                      V.

                     

                     COPYRIGHT® 1985
                      by the Council of Petroleum Accountants Societies

                     

                     .
                      Audits

                     

                     

                    
                      
                        
                        

                      

                      
                        27

                        
                          

                        

                      

                      
                        
                        

                      

                    

                     

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

                    audit.

                     

                    B.
                      The
                      Operator shall reply in writing to an audit report within 180
                      days after receipt
                      of such report.
                      6.
                      Approval
                      By Non-Operators

                     

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

                     

                    II.
                      DIRECT CHARGES Operator
                      shall charge the Joint Account with the following items:

                     

                    1.
                      Ecological
                      and Environmental

                     

                    Costs
                      incurred for the benefit of the Joint Property as a result
                      of governmental
or
                      regulatory requirements to satisfy environmental considerations
                      applicable to the Joint Operations. Such
                      costs may include surveys of an ecological or archaeological
                      nature and
                      pollution
                      control procedures as required by applicable laws and regulations.

                     

                    2.
                      Rentals
                      and Royalties

                     

                    Lease
                      rentals and royalties paid by Operator for the Joint Operations.
3.
                      Labor

                     

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

                     

                    (2)
                      Salaries of First Level Supervisors in the field.

                     

                    (3)
                      Salaries and wages of Technical Employees or consultants directly
                      employed on the Joint' Property if such charges are excluded
                      from the overhead rates.

                     

                    (4)
                      Salaries and wages of Technical Employees or consultants either
                      temporarily or permanently assigned to and directly employed
                      in the operation of the Joint Property if such charges are
                      excluded from the
                      overhead rates.

                     

                    B.
                      Operator's cost of holiday, vacation, sickness and disability
                      benefits
and
                      other
                      customary allowances paid to employees whose salaries
                      and wages are chargeable to the Joint Account under Paragraph
                      3A of
                      this
                      Section II. Such costs under this Paragraph 3B may
                      be
                      charged on a "when and as paid basis" or by "percentage assessment"
on
                      the
                      amount of salaries and wages chargeable to the
                      Joint
                      Account under Paragraph 3A of this Section II. If
                      percentage assessment is used, the rate shall be based on the
Operator's
                      cost experience

                     

                    D.
                      Personal Expenses of those employees whose salaries and wages
                      are chargeable
to
                      the
                      Joint Account under Paragraph 3A of this Section
                      II.

                     

                    4.
                      Employee
                      Benefits

                     

                    C.
                      Expenditures or contributions made pursuant to assessments
                      imposed by governmental authority which are applicable Operator's
                      costs chargeable to the Joint Account under Paragraphs 3A and
                      3B of this
Section
                      II.

                     

                    to

                     

                    Operator's
                      current costs of established plans for employees' group life
                      insurance,
hospitalization,
                      pension, retirement, stock purchase, thrift,
                      bonus, and other benefit plans of a like nature, applicable
to
                      Operator's labor cost chargeable to the Joint Account under
Paragraphs
                      3A and 3B of this Section II shall be Operator's actual cost
                      not to exceed
                      the percent most recently recommended by the Council
                      of Petroleum Accountants Societies.

                     

                    5.
                      Material

                     

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

                     

                    6.
                      Transportation

                     

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

                     

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

                     

                     

                    2

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

                     

                     

                    
                      
                        
                        

                      

                      
                        28

                        
                          

                        

                      

                      
                        
                        

                      

                    

                     

                     

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

                     

                    7.
                      Services

                     

                    The
                      cost
                      of contract services, equipment and utilities provided by outside
                      sources, except services excluded by Paragraph 10
                      of
Section
                      II and Paragraph i, ii, and iii, of Section III. The
                      cost
                      of professional consultant services and contract services of
                      technical
personnel
                      directly engaged on the Joint Property if such charges are
                      excluded from the overhead rates. The cost of professional
consultant
                      services or contract services of technical personnel not directly
                      engaged in
                      connection with the operation of the Joint Property
                      shall not be charged to the Joint Account unless previously
                      agreed to by the
Parties.

                     

                    8.
                      Equipment
                      and Facilities
                      Furnished By
                      Operator

                     

                    A.
                      Operator shall charge the Joint Account for use of Operator
                      owned equipment
and
                      facilities at rates commensurate with costs of ownership
                      and operation. Such
                      rates shall include costs of maintenance, repairs, other
                      operating expense, insurance, taxes, depreciation,
                      and interest on
                      gross
                      investment less accumulated depreciation not to exceed twelve percent
                      (12%) per annum.
                      Such rates shall not exceed average commercial rates currently
                      prevailing
in
                      the
                      immediate area of the Joint Property.

                     

                    B.
                      In
                      lieu of charges in paragraph 8A above, Operator may elect to
                      use average
                      commercial rates
                      prevailing in the immediate area of the
                      Joint
                      Property loss
                      20%. For
                      automotive equipment, Operator may elect to use rates published
                      by the
                      Petroleum Motor Transport Association.

                     

                    9.
                      Damages
                      and Losses to Joint Property

                     

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

                     

                    received
                      by Operator.

                     

                    10.
                      Legal
                      Expense

                     

                    Expense
                      of handling, investigating and settling litigation or claims,
                      title
                      and regulatory work, discharging
                      of liens, payment of judgements
                      and amounts paid for settlement of claims incurred in or resulting
from
                      operations under the agreement or necessary to protect or recover
                      the Joint
                      Property, except that no charge for services of Operator's
legal
                      staff or fees or expense of outside attorneys shall
                      be
                      made unless previously agreed to by the Parties. All
                      other legal expense is
                      considered to be covered by
                      the
                      overhead

                     

                    11.
                      Taxes

                     

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

                     

                    12.
                      Insurance

                     

                    Net
                      premiums paid for insurance required to be carried for the
                      Joint Operations for
                      the protection of the Parties. In
                      the
                      event Joint Operations
                      are conducted in a state in which Operator may act as self-insurer
                      for Worker's
                      Compensation and/or Employers Liability under
                      the
                      respective state's laws, Operator may, at its election, include
                      the risk under its self-insurance program and in that event,
Operator
                      shall include a charge at Operator's cost not to exceed manual
                      rates.

                     

                    13.
                      Abandonment and Reclamation

                     

                    Costs
                      incurred for abandonment of the Joint Property, including costs
                      required by
                      governmental or
                      other
                      regulatory authority. 14.
                      Communications

                     

                    Cost
                      of
                      acquiring, leasing, installing, operating, repairing and maintaining
                      communication
                      systems, including radio and microwave facilities
                      directly serving the Joint Property. In
                      the
                      event communication facilities/systems serving the Joint Property
                      are Operator
owned,
                      charges to the Joint Account shall be made as provided in Paragraph
                      8
of
                      this
                      Section II.

                     

                    15.
                      Other
                      Expenditures

                     

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

                     

                    3

                     

                     1.

                     

                     

                    
                      
                        
                        

                      

                      
                        29

                        
                          

                        

                      

                      
                        
                        

                      

                    

                     

                     

                    III.
                      OVERHEAD

                     

                    Overhead
                      -
                      Drilling
                      and Producing Operations

                    i.
                      As
                      compensation for administrative, supervision, office services
                      and warehousing
                      costs, Operator shall charge drilling
                      and producing operations on either:

                     

                    (x
                      )Fixed
                      Rate Basis, Paragraph 1A, or (
                      )
Percentage
                      Basis, Paragraph 1B

                     

                    Unless
                      otherwise agreed to by the Parties, such charge shall be in
                      lieu of costs
and
                      expenses of all offices and salaries or wages plus
                      applicable burdens and expenses of all personnel, except those
                      directly
                      chargeable under
                      Paragraph 3A, Section II. The costs and
                      expense of services from outside sources in connection with
matters
                      of taxation, traffic, accounting
                      or
                      matters before or involving governmental agencies shall be
                      considered

                     

                    ii.
                      The
                      salaries, wages and Personal Expenses of Technical Employees
and/or
                      the cost of professional consultant services and contract
                      services of technical personnel directly employed on the Joint
                      Property:

                     

                    (
                      )
shall
                      be
                      covered by the overhead rates, or (X)
                      shall
                      not be covered by the overhead rates.

                     

                    iii.
                      The
                      salaries, wages and Personal Expenses of Technical Employees
                      and/or costs
of
                      professional consultant services and contract services
                      of technical personnel either temporarily or permanently assigned
                      to
and
                      directly employed in the operation of the Joint Property:

                     

                    (
                      )
shall
                      be
                      covered by the overhead rates, or (X)
                      shall
                      not be covered by the overhead rates.

                     

                    A.
                      Overhead - Fixed
                      Rate Basis

                     

                    (1)
                      Operator shall charge the Joint Account at the following rates
                      per well per
                      month: Drilling
                      Well Rate $
                      6,000.00

                     

                    Producing
                      Well Rate. $
                      700.00 (if
                      multiple oil well field, new equitable rate may need to be
                      negotiated)
(2)
                      Application of Overhead -
                      Fixed
                      Rate Basis shall be as follows:

                     

                    (a)
                      Drilling Well Rate

                     

                    

                     

                    (1)

                     

                     

                    
                      
                        
                        

                      

                      
                        30

                        
                          

                        

                      

                      
                        
                        

                      

                       

                       

                      Charges
                        for drilling wells shall begin on the date the well is spudded
and
                        terminate on the date the drilling rig, completion
                        rig, or other units used in
                        completion
                        of the well is released, whichever is later, except that
                        no charge shall
                        be
                        made during suspension of drilling or completion operations
                        for fifteen
(15)
                        or
                        more consecutive calendar days.

                       

                      (2)
                        Charges for wells undergoing any type of workover or recompletion
                        for a period
of
                        five
                        (5) consecutive work days or
                        more
                        shall be made at the drilling well rate. Such
                        charges shall' be applied for the period from date workover
                        operations, with rig
                        or other unites used in workover, commence through date of
                        rig
or
                        other
                        unit release, except that
                        no
                        charge shall be made during suspension of operations for
                        fifteen (15) or more
consecutive
                        calendar days.

                       

                      (b)
                        Producing Well Rates

                       

                      (1)
                        An
                        active well either produced or injected into for any portion
                        of the month shall
                        be considered as a one-well charge for the entire month.

                       

                      (2)
                        Each
                        active completion in a multi-completed well in which production
is
                        not
                        commingled down hole shall be considered
                        as a one-well charge providing each completion is
                        considered a separate well by the governing regulatory authority.

                       

                      (3)
                        An
                        inactive gas well shut in because of overproduction or failure
of
                        purchaser to take the production shall be considered
                        as a one-well charge providing the gas well is directly connected
                        to a permanent
                        sales outlet.

                       

                      (4)
                        A
                        one-well charge shall be made for the month in which plugging
                        and abandonment
operations
                        are completed on any
                        well.
                        This one-well charge shall be made whether or not the well
                        has
                        produced except when drilling well rate applies.

                       

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

                       

                      (5)

                       

                      (3)
                        The
well
                        rates
                        shall be adjusted as of the first day of April each year
                        following the
effective
                        date of the agreement to which this
                        Accounting Procedure is attached. The adjustment shall be
                        computed by
                        multiplying the rate currently in use by
                        the
percentage
                        increase or decrease in the average weekly earnings of Crude
                        Petroleum and
Gas
                        Production Workers for the last calendar
                        year compared to the calendar year preceding as
                        shown
                        by the index of average weekly earnings of Crude
                        Petroleum
                        and Gas Production Workers as published by the United States
                        Department
of
                        Labor,
                        Bureau of Labor Statistics, or
                        the
                        equivalent Canadian index as published by Statistics Canada,
as
                        applicable. The adjusted rates shall be the rates currently
                        in use, plus or minus the computed adjustment.

                       

                      4

                       

                       Overhead
                        -
                        Major
                        Construction

                       

                       

                      
                        
                          
                          

                        

                        
                          31

                          
                            

                          

                        

                        
                          
                          

                        

                         

                         

                        To
                          compensate Operator for overhead costs incurred in the
                          construction and
                          installation of
                          fixed
                          assets, the expansion of fixed assets, and any
                          other
                          project clearly discernible as a fixed asset required for
                          the development and
                          operation of the Joint Property, Operator shall either
negotiate
                          a rate prior to the beginning of construction, or shall
                          charge the Joint Account
for
                          overhead based on the following rates for any Major
                          Construction project in excess of $ 25,000.00

                         

                        

                          
                            	
                                    A.

                                  	
                                    5

                                  	
                                    %
                                      of total costs through $100,000, plus

                                  
	
                                    B.

                                  	
                                    3

                                  	
                                    %
                                      of total costs in excess of $ 100,000 but less
                                      than $1,000,000,
                                      plus

                                  
	
                                    C.

                                  	
                                    2

                                  	
                                    %
                                      of total costs in excess of
                                      $1,000,0000.

                                  

                          

                        

                         

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

                         

                        Catastrophe
                          Overhead

                         

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

                         

                        A. %
                          of
                          total costs through
                          $100,000, plu

                        B. %
                          of
                          total costs in
                          excess of
                          $100,000 but lc= than $1,000,000, plu

                        C. %
                          of total costs in
                          excess of
                          $1,000,0000.

                         

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

                         

                        Amendment
                          of Rates

                         

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

                         

                        IV.
                          PRICING
                          OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
                          DISPOSITIONS

                         

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

                         

                        .
                          Purchases

                         

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

                         

                        Transfers
                          and Dispositions

                         

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

                         

                        A.
                          New
                          Material (Condition A)

                         

                        (1)

                         

                        Tubular
                          Goods Other than Line Pipe

                         

                        (a)
                          Tubular goods, sized 28 inches OD and larger, except line
                          pipe, shall be priced
                          at Eastern mill
                          published
                          carload base prices
                          effective as of date of movement plus
                          transportation
                          cost using the 80,000 pound carload weight basis to the
                          railway
                          receiving point nearest the Joint Property for which published
                          rail rates
for
                          tubular goods exist. If the 80,000 pound
                          rail rate is not offered, the 70,000 pound or 90,000 pound
                          rail rate may be
                          used, Freight
                          charges for tubing will be calculated
                          from Lorain, Ohio, and casing from Youngstown, Ohio

                         

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

                         

                        (d)
                          Macaroni tubing (size less than 28 inch OD) shall be priced
                          at the lowest
                          published out-of-stock prices f.o.b. the supplier plus
                          transportation costs, using the Oil Field Haulers Association
                          interstate
truck
                          rate per weight of tubing transferred, to the
                          railway receiving point nearest the Joint Property.

                         

                        (b)

                         

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

                         

                         

                        
                          
                            
                            

                          

                          
                            32

                            
                              

                            

                          

                          
                            
                            

                          

                        

                         

                         

                         (2)
                          Line Pipe

                         

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

                         

                         

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

                         

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

                         

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

                         

                        (3)
                          Other
                          Material shall be priced at the current new price, in effect
                          at date of
                          movement, as listed by a reliable supply store nearest
                          the Joint Property, or
                          point of manufacture, plus transportation costs,
                          if
                          applicable, to the railway receiving point nearest the
                          Joint
                          Property.

                         

                        (4)
                          Unused new Material, except tubular goods, moved from the
                          Joint Property shall
                          be priced
                          at
                          the current new price, in effect on
                          date
                          of movement, as listed by a reliable supply store nearest
                          the Joint Property, or
                          point of manufacture, plus transportation costs, if applicable,
                          to the railway
                          receiving point nearest the
                          Joint
                          Property. Unused
                          new tubulars will be priced
                          as
                          provided above in Paragraph 2.A.(1)
                          and
                          (2).

                         

                        B.
                          Good
                          Used
                          Material (Condition B)

                         

                        Material
                          in sound and serviceable condition and suitable for reuse
                          without
                          reconditioning: (1)
                          Material moved to the Joint Property

                         

                        At
                          seventy-five percent (75%) of current new price, as determined
                          by Paragraph A.
(2)
                          Material used on and moved from the Joint Property

                         

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

                         

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

                         

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

                         

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

                         

                        (1)
                          Condition C

                         

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

                         

                        (2)
                          Condition D

                         

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

                         

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

                         

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

                         

                        (3)
                          Condition E

                         

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

                         

                        D.
                          Obsolete Material

                         

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

                         

                        E.
                          Pricing
                          Conditions

                         

                        
                          
                            
                            

                          

                          
                            33

                            
                              

                            

                          

                          
                            
                            

                          

                        

                         

                         

                        (1)
                          Loading or unloading costs may be charged to the Joint
                          Account at the rate of
                          twenty-five cents (25^) per hundred weight on all tubular
                          goods movements, in
                          lieu of actual loading or unloading costs sustained at
                          the stocking point. The
                          above rate shall
                          be
                          adjusted as
                          of
                          the
                          first day of April each year following January 1, 1985
                          by the same percentage
                          increase or decrease used
                          to
                          adjust overhead rates in Section III, Paragraph 1.A(3).
                          Each
                          year, the rate calculated shall be rounded to the nearest
                          cent and shall be the
                          rate in effect until the first day of April next year.
                          Such rate shall be
                          published each year by the Counci

                         

                        of
                          Petroleum Accountants Societies.

                         

                        (2)
                          Material involving erection costs shall be charged at applicable
                          percentage of
                          the current knocked-down price of new material.

                         

                        3.
                          Premium
                          Prices

                         

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

                         

                        4.
                          Warranty
                          of
                          Material Furnished By Operator

                         

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

                         

                        V. INVENTORIES

                         

                        The
                          Operator shall maintain detailed records of Controllable
                          Material. 1.
                          Periodic
                          Inventories,
                          Notice and Representation

                         

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

                         

                        2.
                          Reconciliation and Adjustment of Inventories

                         

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

                         

                        3.
                          Special
                          Inventories

                         

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

                         

                        4.
                          Expense of Conducting Inventories

                         

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

                         

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

                         

                         

                         

                        
                          
                            
                            

                          

                          
                            34

                            
                              

                            

                          

                          
                            
                            

                          

                        

                         

                         EXHIBIT
                          "D"

                         

                        OPERATOR,
                          during the term of this Agreement, shall carry Workmen's
Compensation
                          Insurance as contemplated by the laws of the state in
                          which
                          operations
                          will be conducted, and Employers' Liability Insurance with
                          limits of
                          $500,000 per employee, and $500,000 per accident for the
                          benefit and at the
expense
                          of the parties.

                         

                        OPERATOR
                          shall require contractors and subcontractors performing
                          work for the
joint
                          account to provide such insurance as deemed necessary by
                          OPERATOR in
relation
                          to the work to be performed by said contractors or subcontractors.

                         

                        Liability,
                          except that covered by the above specified insurances against
                          any of
                          the
                          parties hereto for damages to property of third persons
                          or injury to or
death
                          of
                          third persons arising out of the joint operations, including
                          expenses incurred
                          in defending claims or actions asserting liability of this
                          character,
shall
                          be
                          borne severally and not jointly by the parties hereto in
                          proportion to
                          their
                          respective undivided interests in the joint operation.
                          Any party hereto
                          individually may acquire such additional' insurance as
                          it desires to
protect
                          itself against any liability not covered by the above specified
insurances
                          at its own cost. All insurance purchased individually by
                          a party to
                          this
                          agreement shall. contain a waiver by the insurance company
                          of all rights
                          of
                          subrogation in favor of the parties to this agreement.

                         

                        No
                          other
                          insurances shall be carried by OPERATOR for the joint account
                          unless
mutually
                          agreed to by the parties hereto. All losses not covered
                          by the above
specified
                          insurances shall be borne by the parties in proportion
                          to their interest
                          in the venture at the time of any loss.

                         

                        Inasmuch
                          as OPERATOR has agreed with each party to this agreement
                          to acquire,
construct,
                          operate and maintain the joint account operations on a
                          cost basis without profit
                          to OPERATOR, each such party hereby releases from all claims
for
                          loss
                          by
                          or
                          damage to, such party arising out of, in connection with,
                          or as an
                          incident to, any act or omission, including negligence
                          (but excluding gross
negligence,
                          willful mis-conduct, or intentional breach of any provisions
                          of the
                          operating agreement) of OPERATOR or, to the extent of OPERATOR's
                          legal
liability,
                          its employees, agents or contractors, in acquiring, operating
                          or maintaining
                          the joint account; provided this release shall not apply
                          to OPERATOR's pro-rata
                          share of the cost and expenses as otherwise provided in
                          this
                          agreement. The obligations of each party under this agreement
                          are several
                          and not joint with any other party hereto.

                         

                        OPERATOR
                          shall promptly notify non-operators of any loss, damage
                          or claim not covered by
                          insurance carried by OPERATOR for the joint account.

                         

                         EXHIBIT
                          "E"

                         

                        
                          
                            
                            

                          

                          
                            35

                            
                              

                            

                          

                          
                            
                            

                          

                        

                        Attached
                          to and made a
                          part
                          of
                          that certain Operating Agreement GAS STORAGE AND BALANCING
                          AGREEMENT

                         

                        This
                          Gas
                          Storage and Balancing Agreement shall be considered a separate
                          and distinct
                          agreement for each
                          well
                          completion. The intent of this agreement in to permit the
                          parties as much
                          flexibility as possible in
                          meeting the demands of their respective purchasers, yet
                          enable each party to
                          receive its share, according
                          to its proportionate ownership interest, of all gas produced
                          from each
                          completion under the Operating
                          Agreement, or, if depletion or abandonment has occurred,
                          to receive an
                          appropriate cash settlement.

                         

                        From
                          and
                          after the date of initial gas delivery, when, for any reason,
                          a party cannot
                          take or deliver
                          its full share of the gas produced, any other party shall
                          have the right to take
                          or deliver to a
                          purchaser all or a part of the gas not taken by such party.

                         

                        II. A
                          party
                          who takes or delivers to its purchaser less than its full
                          share of the gas
                          produced shall be credited with gas in storage equal to
                          its full share of gas
                          produced, less its share of gas used in operations, vented
                          or lost, and less
                          that portion of gas, if any, such party took or delivered
                          to its purchaser.
                          The Operator shall maintain a gas production and balancing
                          account. It will
                          deliver to each
                          party a written report, by the last day of a month for
                          the immediately preceding
                          month on a monthly
                          basis showing the gas taken or delivered by each party,
                          each party's respective
ownership
                          interest in the total gas produced, the amount of overproduction
                          attributable to
                          each party,
                          the amount of gas credited to storage for each party, and
                          the corresponding
                          cumulative balancing position between the parties. The
                          Operator will furnish
                          each party monthly statements showing the total quantity
                          of gas produced, the
                          amount used in operations, vented or loss, the total
                          quantity of gas delivered to each purchaser by each party,
                          and the monthly and
                          cumulative gas
                          balancing position of each party.

                         

                        III.
                          Ill.
                          After
                          thirty (30) days prior notice between the parties, any
                          party shall have the
                          right to take
                          or
                          deliver to a purchaser its full share of the gas produced,
                          less its share of gas
                          used in operations,
                          ventedor lost. In addition, to permit the recovery of gas
                          in storage so that the
                          gas production
                          can be brought into balance as between the parties according
                          to each party's
proportionate
                          ownership interest, an underproduced party, that is, a
                          party credited with gas
                          in storage,
                          shall be entitled to take or deliver to its purchaser in
                          addition to its. share,
                          an amount of gas,
                          not
                          exceeding the amount of its gas in storage, up to fifty
                          percent (50%) of the
                          share of gas production
                          of each overproduced party, that is, a party which has
                          taken more than its share
                          of gas
                          produced. from the well. If more than one underproduced
                          party in entitled to
                          take gas from one
                          or
                          more overproduced parties, the underproduced parties shall
                          divide the production
                          they take,
                          according to their respective working ownership interests
                          in the applicable
                          well, so that the share
                          of
                          any overproduced party is not reduced by more than fifty
                          percent (50%). Gas
production
                          in excess of a party's working interest percentage taken
in
                          order
                          to
                          makeup prior underproduction
                          shall be credited first to the oldest underproduced volumes.
                          Nothing herein
shall
                          require the Operator to produce any well at a rate in excess
                          of the allowable,
                          if any, established
                          for that well, or at a rate in excess of that which the
                          Operator deems prudent.
                          An underproduced
                          party shall not be permitted to produce its gas in storage
                          in the months of
November,
                          December, January, July or August.

                         

                        IV.
                          If
                          at the
                          plugging and abandonment of a well as to which an imbalance
                          exists the
                          overproduced party(ies)
                          fail to furnish make-up gas from another mutually agreeable
                          source, they shall
                          promptly make monetary settlement of the imbalance by payment
                          to the Operator
                          for the account
                          of the party(ies) underproduced for the production, based
                          on the price per Mcf
                          the overproduced
                          partys(ies) actually received for the overproduced gas.
                          The price used for the
                          above calculation shall be the overproduced partys(ies)
                          bona fide collected gas
                          sales price(s) received
                          for the overproduction less royalties, severance, and other
                          production taxes
                          which have been
                          paid
                          with respect to such overproduction. If any portion of
                          the monies collected by
                          the overproduced
                          party(ies) are subject to refund upon order of any government
                          authority
,
                          the
                          overproduced
                          party(ies) shall withhold such amounts subject to refund
                          until prices are fully
approved
                          by such government authority ,
                          unless
                          the underproduced party(ies) furnish a corporate
                          undertaking agreeing to hold the overproduced party(ies)
                          harmless from financial
                          loss due
                          to
                          action by such government authority .
                          Each
                          of
                          the parties agree to maintain complete records
                          as to the volumes of gas it sold and the price received
                          so that the above
                          computations can
                          he
                          made. The Operator shall distribute the payments made to
                          it to the underproduced
party(ies)
                          entitled thereto in the proportion that each party's underproduction
                          bears to
                          the total

                         

                         underproduction.
                          It is understood, however, that the Operator is entitled
                          to and
                          shall
                          rely on the statements
                          made to it, and shall have no liability with respect to
                          the correctness
of
                          the
                          funds received
                          by it.

                         

                        V.
                          All
                          references to "gas" or "gas production" shall be understood
                          to mean gas sold
or
                          available to, be
                          sold
                          at the wellhead. All references to "price" shall mean the
                          price set forth
in
                          the
                          applicable gas
                          sales
                          contract, except as such may be limited by applicable regulations.
                          Royalties
                          and taxes
                          shall be paid by each party as such may be due on production
taken
                          by
                          such party; provided,
                          however, should the Operating Agreement require the Operator
                          to remit all
royalties
                          or taxes,
                          the Operator shall do so, each party being obligated to
                          advance or reimburse
Operator
                          the
                          amount of all royalties or
                          taxes
                          payable on production taken by such party. Operator
                          shall furnish to each Non-Operator for each production
                          month a statement showing
                          the royalties and taxes
                          paid, if any, by the Operator for the account of the Non-Operator.
Each
                          party shall be

                         

                        obligated
                          to pay its working interest share of
                          all
                          costs
                          and liabilities incurred under the Operating Agreement,
                          except as otherwise provided to the contrary in regard
                          to Non-Consent operations
in
                          the
                          Operating Agreement. Each party will be separately responsible
                          for all
                          overriding royalty and any
                          other
                          burdens for which that party is solely responsible. Nothing
                          herein shall be construed so
                          as to
                          deny to any party the right, from time to time, to produce
                          and take
                          or
                          deliver to its purchaser
                          the entire allowable gas production from one or more wells
                          for a period
not
                          to
                          exceed seventy-two
                          hours if necessary to meet the deliverability tests required
                          by its purchaser. All provisions
                          herein referring to a party's leasehold interest as the
                          basis of its
right
                          to
                          share in gas shall
                          be
                          subject to Non-Consent provisions of the Operating Agreement.

                         

                        VI. This
                          Agreement shall not apply to condensate and other liquid
                          hydrocarbons recovered
by
                          field
separation.
                          They shall be owned pursuant to terms of the Operating
                          Agreement according
to
                          each
                          party's respective ownership interest.

                         

                        VII. This
                          Agreement shall inure to the benefit of and be binding
                          upon the parties hereto,
                          their heirs,
                          successor,
                          legal representatives and assigns; provided, however, that
                          in the event an
overproduced
                          party assigns or conveys its interest in the Unit Area,
                          such overproduced
party
                          shall
                          not
                          be relieved of its obligations respecting cash settlement
                          and shall nevertheless
remain
                          liable
                          in
                          solido with its assignee for any cash settlement which
                          may be required under
                          this Agreement.
                          It is further provided that, in the event an overproduced
                          party assigns or
                          conveys its interest
                          in the Unit Area, such overproduced party shall at the
                          election of the
                          underproduced party
                          or
                          parties, either (1) make a cash settlement to the underproduced
                          party or parties
an
                          hereinabove
                          provided or (2) cause a letter of credit or other security
                          satisfactory to the
                          underproduced party or parties to be furnished guaranteeing
                          that the cash
                          settlement obligations which will arise upon depletion
                          shall be
                          satisfied.

                         

                        VIII. If
                          any
                          party enters into a gas purchase contract or other agreement
                          for the separate
                          sale or
                          other
                          disposition of gas attributable to its percentage ownership
in
                          any
                          well,
                          it
                          must
                          make the right
                          of
                          its purchaser or other recipient to receive gas under that
                          agreement subordinate
to
                          the
right
                          of
                          any underproduced party under this Agreement to take in
                          kind excess volumes of
                          ga

                         

                        pursuant
                          to Article III above.

                         

                        IX. Each
                          party indemnifies and agrees to hold harmless all other
                          parties hereto against
                          all liability
                          for
                          claims that may be asserted against them by third persons
                          arising out
                          of
                          the indemnifying party's
                          conduct with respect to its separate sale or other disposition
                          of
                          gas.

                         

                        This
                          Agreement shall remain in effect for so long as there remains
                          any well on the
                          operated properties
                          which have commercially producible gas, and for so long
                          beyond such time as is
                          reasonably necessary to permit the Operator to adjust all
                          accounts, to remit all
                          payments due
                          for
royalties
                          and taxes, and to provide all parties with the statements
required
                          hereunder for and through
                          the last production month of the well last producing.

                         

                        XI. If
                          any
                          provision of the Agreement conflicts with any provision
                          of the Operating
                          Agreement or of
                          any
                          other
                          Agreement between the parties hereto or their predecessors
                          regarding the
disposition
                          of production from the Operating properties, the provision
                          of this Agreement
                          shall prevail

                         

                        2

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